Economics Questions

Re: Income disparities

Spideynw — Fri, 25 Apr 2008 22:00:35 GMT

Libertas est Veritas:
Increasing income inequality seems to be the main thrust against capitalism these days. I was wondering what kind of views Austrian economists usually have on this? And I don't mean under the current wealth redistribution schemes, but in a completely free market.

The freer the market, the greater the wealth for society overall. The simple reason being that all victimless crimes are a waste of resources.

Re: Income disparities

Deist — Fri, 25 Apr 2008 18:08:42 GMT

Fried Egg:
Actually, I doubt that that is true. People, rightly or wrongly, judge their standard of living according to social norms and as it improves for others around them, they feel poorer if they do not keep up (even if they are the same in absolute terms).

I am not saying that crime is always induced by low standard of living and I dont deny the insecurity from wealth inequality might inspire people to commit crimes but I don't think it is as simple as any statements we are making so far. Many social pathologies come into play when it comes to crime. We need to realize that the overwhelming amount of people who are poor (by wealthy country standards but also by third world standards) are not criminals.

As far as low standards of living effecting the crime rate it with out a doubt does. Many studies done on the rate of petty crime and corruption (even outside the government) in the cultures of poor countries validate this fact despite that these countries tend to have more general level of equal wealth distribution. That is why you see alot of these countries have tribes and clans that they deal with mostly since they do not trust many outside their social units. This has massive social costs just think of the economic analogy of if every family made most or all of their goods and did not trade or interact with others. Poorer countries pretty much have a much larger amount of amoral familialsm going on.The facts of their surrounding environment makes crime seem more justified in order to live and get by since their opportunities are so few and they have such scarce wealth. To them life is a zero sum game. Yet in the more unequal wealthy countries crime does happen (and always will) but it is far less pervasive.

You are right in that we need to spread the idea and message of how wealth inequality operates and why to make society in general more accepting of it since it is part of a system that aids all of us.

Re: Income disparities

maxpot46 — Fri, 25 Apr 2008 17:10:25 GMT

Fried Egg:
We might have to temper wealth inequality to some extent, not to make wealth distribution more fair, but to make it sufficiently palatable for the masses to accept.

Hmm... perhaps you should bring it up with the Central Planning Committee, once they're done divvying up the hot blondes.

Re: Income disparities

Fried Egg — Fri, 25 Apr 2008 12:09:37 GMT

I think it is important to note that wealth inequality is not what drives up crime rates and social unrest but low standards of living do.

Actually, I doubt that that is true. People, rightly or wrongly, judge their standard of living according to social norms and as it improves for others around them, they feel poorer if they do not keep up (even if they are the same in absolute terms).

An I think a point that many people are forgetting here is that it doesn't matter how much fairer and just the inequality of wealth might be in an unhampered market (compared to now), and I fully agree with them, it's that it will innevitably cause social unrest. Whether that's down to misguided ideas about social justice or just pure envy, it cannot be ignored.

We might have to temper wealth inequality to some extent, not to make wealth distribution more fair, but to make it sufficiently palatable for the masses to accept.

Re: Income disparities

liberty student — Fri, 25 Apr 2008 04:11:11 GMT

maxpot46:
In short, your scenario is not something that could ever manifest in real life. It's not a legitimate argument in support of wealth or income redistribution.

I wasn't trying to make an argument for something per se. Just a concern I had. I'm obsessive and focused enough to accumulate a lot of land if that was my objective. I'm quite sure I could defer buying other things, if that was my goal.

And needless to say, whoever controls the most of a finite resource, has a lot more power/potential. If someone or someones set their mind to owning massive chunks of property, maybe the only workable land, that could be a near impossible inequity to overcome.

I'm trying to embrace anarcho-capitalism, but have a lot of questions and hypothetical concerns I need to understand first.

Thanks a lot for your reply.

Re: Income disparities

Bostwick — Thu, 24 Apr 2008 21:31:55 GMT

Fried Egg:

Would any one truly dare to say that severe wealth inequality would not arise in an umhampered market?

More importantly, the type of activities that cause this wealth disparity would change.

Athletes that work for a living would continue to make lots of money, but Record Labels that produce nothing, and exist solely to distribute an artifically scarce good, would disappear.

Re: Income disparities

Ego — Thu, 24 Apr 2008 20:56:49 GMT

Not only that, but the more land he buys, the more valuable the remaining land becomes.

Re: Income disparities

maxpot46 — Thu, 24 Apr 2008 20:54:01 GMT

liberty student:
There is nothing to prevent someone from refusing to sell, and continuing to amass property, until property is not only scarce and very expensive, but it is simply unavailable.

There is something, actually. It's called the law of marginal utility, which states that multiple units of a good are less valuable (per unit) than a single unit. If one person began to amass land, each bit would become less and less valuable to him. Eventually, the value of land (to him) decreases to the point that he would value something else more, and thus purchase that something else instead. IOW, your fear depends on an inhuman actor, who doesn't experience marginal utility and thus continues to value land above all else.

Additionally, this scenario doesn't take account of Say's Law, which states that one can only buy things that he's earned the money for (that is, production must precede consumption). What is your hypothetical actor producing in such abundance that he can afford to purchase all this land?

In short, your scenario is not something that could ever manifest in real life. It's not a legitimate argument in support of wealth or income redistribution.

Re: Income disparities

liberty student — Thu, 24 Apr 2008 20:44:19 GMT

I guess I just have concerns about the concentration of property ownership becoming a series of large consolidations.

There is nothing to prevent someone from refusing to sell, and continuing to amass property, until property is not only scarce and very expensive, but it is simply unavailable.

I could see a form of pseduo-feudalism creeping up in that circumstance.

Re: Income disparities

Deist — Thu, 24 Apr 2008 20:22:03 GMT

Another thing about all land and resources being monopolized by the rich is that the market would never let that happen for a multitude of reasons. For instance how could someone buy all this land when there is this much competition for it. Also many people do buy land to develope it and then sell it to make a profit since the demand makes it so profitable to sell rather than simply hoard it for oneself.

As for the real culprit in land concentration, please check out Zoning laws. They are the most subtle and dangerous of market distortions and it creates lilly white upper income towns, drive up the cost of houses and land, and make job allocation difficult. They are also from local governments so I have little faith that decentralization of government reduces tryanny.

Re: Income disparities

Deist — Thu, 24 Apr 2008 20:07:16 GMT

I think it is important to note that wealth inequality is not what drives up crime rates and social unrest but low standards of living do. Even with countries with some of the highest levels of wealth inequality (the developed world) they do not have a high crime rate as long as they have good opportunities which is usually what the unequal market brings. Countries with high rates of crime tend to also depress economic development due to higher capital costs and little protection of property rights. Essentially crime perpetuates it's own existence if it is not stopped.

Another thing that is just related to this thread in general is that all the statistics dealing with the wealth gap leave out a few important details.

1) Life time income: people have fluctuating incomes and the poorest people are overwhelmingly those just getting started in the labor market. The average Wealth gap stat takes a one year snap shot and then says that this is the constant model and that everyone stays in their income level.

2) The income quintiles: at least in the United States they measure the wealth by household NOT population. That means two income families with kids are in the upper brackets whereas people like me are in the lower brackets even though I am perfectly all right and have little financial worries.

Here is a little link on the real population by quintile. Just so you know it is from a neoconservative website but the source is definitely the US governments own records despite the fact they do not loudly proclaim this population break down in official releases and only tout the one that makes the wealth gap look more dire: http://www.heritage.org/Research/Taxes/images/78673969.gif

Re: Income disparities

maxpot46 — Thu, 24 Apr 2008 19:43:15 GMT

liberty student:
at one point, I would think that X amount of wealth and property could be consolidated, squeezing people out.

By what right do those being "squeezed out" stay, if they own none of the wealth and property? Remember the fact that one person has a lot of wealth and property doesn't mean that no one else can gain wealth and property (even though property is finite, it can still change ownership through purchase, so anyone can buy land if they are industrious enough). The reason that person is wealthy is because he's produced so much of a desired good/service that other people give him lots of money in exchange. This person is a hero of our society, not a villain.

Re: Income disparities

maxpot46 — Thu, 24 Apr 2008 19:38:41 GMT

Fried Egg:
Would any one truly dare to say that severe wealth inequality would not arise in an umhampered market?

Of course it would (keeping in mind, of course, that wealth is how much people have). Ants have more wealth than grasshoppers, though not necessarily any more income. A productive family can have generations worth of savings (i.e. wealth) and less productive families can be relatively destitute. However, none of this is "unfair" because wealth is not zero-sum -- the productive family did nothing to harm the less productive family and can't be held responsible for their well-being. The lazy and unproductive are poor precisely because they are lazy and unproductive, not because the industrious and productive have taken anything away from them. It ain't Shaq's fault that the poor Robinson family is starving, but rather that of Mr. Robinson. Envy is not grounds for property siezures (which is where wealth redistribution has to start).

Re: Income disparities

maxpot46 — Thu, 24 Apr 2008 19:29:30 GMT

Fried Egg:
The problem of wealth inequality though is not economic, it is social. It increases crime rates and general social unrest. Severe inequality is likely to lead to much social friction which could serve to damage or weaken market institutions anyway. Therefore, it is worth considering the possibility that some tempering of wealth inequality might be necessary...

These social issues are not caused by income inequality per se, but rather by state policies that heavily victimize the poor and working class. What's needed is not to distribute wealth "better" but for the state to stop assaulting people's productivity.

It's also important to note that income and wealth are different things (and thus "income inequality" and "wealth inequality" are different things). Income is how much you make, wealth is how much you have. People seem to be using these terms interchangeably and it's making things confusing.

Re: Income disparities

liberty student — Thu, 24 Apr 2008 17:18:51 GMT

Could you explain "collectively avoid..."?

This is one area I do not have a good understanding of. Because at one point, I would think that X amount of wealth and property could be consolidated, squeezing people out.