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Post No.: 0604inequality


Fluffystealthkitten says:


In surveys repeated in the US and UK, ~9/10 of us accept some wealth inequality in order to incentivise work – but not this existing gross level and rate of ever-widening inequality. Many surveys have consistently shown that the vast majority want a world where there’s a little bit of inequality, they believe that the current world is one where there’s a lot of inequality, but are surprised when they realise that the actual current world is one where there’s such extreme levels of inequality.


Most people are shocked to learn that the richest 10% of the global population own ~90% of all wealth (which means that the poorest 90% share only ~10% between them); of which the very richest 1% own ~50% of all wealth. The gap between the rich and poor is generally still expanding in both relative and absolute terms too.


Between different countries, levels of inequality differ greatly, and the direction and rate of change in inequality also differs, with some countries becoming more unequal and some becoming less unequal as the poorest are being lifted from extreme poverty. Regardless, most people think that the current system is badly skewed – yet the actual amount of skew is even worse than they had imagined!


Different calculations come up with slightly different figures when it comes to how much the richest x% of people own y% of total wealth – but all official figures from credible sources show high levels of inequality. Up-to-date and reliable estimates can be found via inequality.org. According to Forbes, in 2017, just the richest 3 individuals in the US owned more than the poorest half of the total US population! And depending on the study and year between 2015-2018, just 8, 26 or 62 people owned more than the poorest half of the global population! Regarding income, the top 1% took ~25% of all income, which was 3x more than 30 years ago. The poorest 50% own only ~0.5% of all stocks, bonds and mutual bonds, whilst the richest 1% own ~50%.


Gross levels of inequality and societal segregation between the rich and poor means that these different groups interact even less with each other, leading to different perceptions of reality – with the rich holding even greater misperceptions regarding the poor (e.g. that they’re stupid and lazy and deserve to be poor) and the poor holding even greater misperceptions regarding the rich (e.g. that they work harder and reliably trickle-down benefits for us all via jobs and taxes, and the inequality gap is large but isn’t that large).


The rich proportionally take more out than they give to society, due to exploiting economic rents, monopolistic power (see Post No.: 0592), their political influence and the Matthew effect – hence the ever-widening gulf in wealth inequality between the rich and the rest. So the middle-classes who feel squeezed shouldn’t direct their grievances at the poor. The rich hog virtually everything, so they’re the ones to ask to solve major national or global problems.


If you’re in the richest 10% bracket with a lot of capital, assets or soon-to-be-inherited assets then you might say, “Life’s unfair, so what?” But if you’re in the other 90% then you should rationally seek change – and in a democracy, the 90% should obviously defeat the 10%. We’ve got to therefore wonder how the richest continue to get their own way? Not all rich people are ignorant or believe that the system is fair but, in general terms, perhaps the propaganda coming from the rich is too pervading? Is it that even in democracies the real power isn’t with the people but with the existing economic elite? Poverty across the world is falling, which is great; yet the gulf between richest and poorest is broadening, which is problematic when it comes to power because power is always relative.


Immense inequality undermines democracy by causing disillusionment (the system favours the wealthy), distrust (the media is controlled by the wealthy), disenfranchisement (deciding not to vote because it feels pointless) and disempowerment (it’s more like ‘one dollar, one vote’ rather than ‘one person, one vote’).


The richest 20% don’t have merely two hundred times more than the poorest 20% (which is what most people on average thought the current situation is) but something like tens of thousands times more. Yet most people believe that being able to earn twenty times more than the poorest workers is enough to incentivise them to work, take risks and create anything.


~9/10 people, from across the political spectrum, want a less skewed system – not perfectly uniform equality but far more equality than what we’ve got right now. We don’t have to go anywhere near close to Trotskyism to create a more equal country. Indeed, if you want to live ‘the American Dream’ (or the ideal by which equality of opportunity is available to all) then move to somewhere like Denmark, where social mobility is much higher! Denmark has a relatively large welfare state but it wouldn’t call itself socialist but a ‘social democracy’.


The ‘Gini coefficient’ is a measure of statistical dispersion intended to represent the income or wealth inequality within a group. It is high when inequality is high. (This kind of distribution is true with harmful environmental impacts too because wealth is correlated with environmental impact – a small proportion of countries, companies or individuals (the richest ones) unequally contribute a large proportion of the total global carbon emissions.) Many economists blame neo-liberal laissez-faire economic policies more than automation and job losses for all this rising inequality because it only really accelerated since the 1980s.


Now there’ll always be ‘a richest 1%’ and ‘a poorest 1%’ – the issue is the level of disparity between those groups. And I suppose the richest 1% can be subdivided into the 0.1% and 0.9% and there’s a great disparity between these two subgroups too. But really, if you’re amongst the richest 1%, you’ve nothing to grumble about. In fact, those who only look at and envy those who have more than them rather than consider those who have less, are never happy with what they’ve got despite how much they’ve got. Many rich people consequently don’t actually consider themselves rich.


…According to the Economic Policy Institute, CEO-to-average-worker compensation (after options are realised) was 320:1 in 2019, when it used to be 20:1 in 1965, in the USA. Do you think CEOs deserve >300x what an average employee in the same firm earns? Do they work anywhere near 300x as hard or long, or have 300x the talent? Are you, as (likely) a relatively low-level (well actually average) employee, worth only that little in comparison? CEOs can also perform abysmally for their companies yet still get paid obscene amounts! Could you get away with that? So how can they justify that it’s for ‘attracting/keeping the best talent’? It’s also not about incentives if people are paid highly regardless of their results. (This criticism is levelled at professional football players too – they get the lucrative deal having not yet (or ever) won anything and, although bonuses exist, their pay isn’t always intimately related to their performance i.e. they typically get paid highly whatever happens.)


This level of inequality and lack of social mobility is actually demotivating for most people. But yeah, a CEO can blame his (it’s typically a male) employees for being poor because he is 320x more hard-working, smarter and creative than they are – the system works(!)


Even before COVID-19, executive pay was astronomical and rising yet average worker pay was stagnating or even decreasing in real-term purchasing power due to inflation. This is why everyone who works for a big company should try negotiating with their bosses for a higher pay for themselves. Executives may complain that employees will need to improve productivity before they can be paid more – but according to microeconomics, it’s equally as viable to argue that productivity will improve if workers get paid more. Plus, according to macroeconomics, it’s fair to argue that if workers get paid more then they could afford to spend more to boost the economy as a whole. And when we see executive pay rising whilst average worker pay is stagnating, we know that these companies can afford it!


‘Fat Cat Wednesday’ is when, in the UK, top executives earn (or ‘earn’) more in ~2.5 days than the average worker will in a year. (Some of these executives probably haven’t yet restarted work after their festive holidays either(!)) But this is a news story that comes during the first week of January and the holiday hangovers thus it’s easily quickly forgotten about. (I dislike fat cats – meow!)


Many company executives think that raising the minimum wages/salaries of their workers will make those workers lazy – which means that CEOs must be the laziest workers of them all because they love having their own remunerations raised(!) When staff are paid well enough, they stress less about other concerns, such as having enough food to eat, whether they can fix the car they need to get to work in and other basic money concerns, so that they can concentrate on the quality of their work. Most people will not waste it either – they’ll invest some money in their pensions.


If a company is doing well, it is hardly only down to the CEO but generally down to every worker within that firm – so whenever a CEO is grossly rewarded because the firm has done particularly well, then why isn’t every single employee also equally proportionally rewarded, instead of this expanding inequality between CEO and average-worker compensation? In other words, ‘deservedness’ is a bull**** reason for justifying their level of pay – they do it only because they can i.e. because their employees aren’t collectively revolting against this inequality.


Stock options as part of compensation packages are supposed to link company performance with executive pay – but maximising a company’s share price on a given date isn’t the same thing as running a company well. Various accounting tricks can achieve this (such as what happened with Enron). The board of directors are supposed to negotiate executive pay on behalf of all shareholders but CEOs can influence who the directors are and how much they’re in turn paid i.e. there’s a lot of ‘you scratch my back, I’ll scratch yours’ behaviour. The link between executive pay and executive performance is thus questionable.


It’s incentivising enough to earn maybe 100x more than the average person. We don’t need super-rich billionaires to create jobs per se – we need companies both big and small. Or if one argues that we need them to create jobs then ultra-rich government cabinet ministers are needed to create jobs too, for the public sector is a huge employer! Many super-rich employers offshore their money and dodge taxes, move their business operations abroad for cheaper labour, and invest in properties that sit empty most of the time anyway, which doesn’t do much for a nation’s people.


In lab experiments, if two groups are arbitrarily given a different share of something – like a cake – the group that receives the larger share can start to rationalise that they deserve more than the other group. So some rich people can admit to being lucky yet will still try to justify that they deserve what they have and get, and don’t feel it’s right to have a larger portion (no one’s ever asking for all) of their wealth taxed to redistribute to those less fortunate.


Entrepreneurs like Bill Gates and Steve Jobs were born at the right time and in the right country to study during the more equal 1960-1970s and to catch the growing technology of computing – they wouldn’t have acquired their level of success had they been born in, perhaps, Syria in 2010. So luck is an undeniable factor. Some billionaires are trying to use their wealth to philanthropically solve major global problems though, but not enough of them. Some create the problems!




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