Are Increasing Concentrations of Wealth a Good or Bad Thing?

[fnord123]

• Inheritance taxes should go up significantly above $10M
• Income taxes should go up above $2M a year
• Income taxes should go up a lot about $20M a year (e.g. 90%+)

fnord I understand your position, it is basically my father's view, but you should consider the effect on incentives if something like this were to pass.  If marginal tax rates where extremely high, say 90%, beyond $2M, why would anyone ever work beyond that point?  I really don't think we can assume that no one is worth that much money; that should be left up to the market place.  If it requires paying someone $2M or $20M to get them out of bed in the morning and be productive, so be it.

I would argue for maybe 40% incremental tax rate at $2m, going up 2% every $1M above that (so actually 76% at $20M).  For instance, the CEO of the company I work for, Paul Otellini, made $15M in 2009 (the latest year I could find).  Under my proposal, he would pay a blended tax rate of around 40% and top incremental rate around 66% for the last $2M of income.   To me Otellini is an example of someone who has created real wealth for everyone.

Most of the people who pull in many tens of millions/hundreds of millions (mostly Wall Street types, plus a few execs) that I've observed in general have actually destroyed more capital than they have produced.  If 90% incremental tax rates drives them to go away (Lloyd Blankfein moves to London) or quit (Angelo Mozilo retired early) I think we would be better off for it, despite the lost tax revenues.

At this point, people usually trot out Bill Gates, saying he has produced tremendous value, so deserves his billions.  To that point, I note that he actually gave most of his money away, so perhaps the billions was not what motivated him. Furthermore, making policy based on a few anecdotes is generally a bad idea, as one can find anecdotes that argue against every possible policy.

I don't know the exact figure, but close to 50% of the populace pays no income taxes.  I'm not sure how increasing that even further would lead to less inequality over the long run.  The best way to reduce income inequality is to improve the educational system, which IMHO would require government to exit the education business, at least as a direct provider, not more redistribution.  

That said, I do believe that taxes will have to be increased at some point (on everyone) in order for the US to avoid defaulting on its debt.  But as a means of reducing income inequality I don't think it is a long term solution.

A minimum level of taxes should be paid by everyone (yes, everyone - if you are on foodstamps and have no income, the first thing you should be forced to do is hand over 10% of them for taxes).  This is necessary so everyone feels the pain and realizes that benefits are not "free."  Education is also important.  However, I don't think these points necessarily contradict raising upper end tax rates.

[MediumTex]

At this point, people usually trot out Bill Gates, saying he has produced tremendous value, so deserves his billions.  To that point, I note that he actually gave most of his money away, so perhaps the billions was not what motivated him. Furthermore, making policy based on a few anecdotes is generally a bad idea, as one can find anecdotes that argue against every possible policy.

I think it's important to remember, too, that any increase in income taxes would have little to no effect on people like Bill Gates and Warren Buffett, since most of their increases in wealth would be subject to ultra-low capital gains rates anyway.

As I recall Warren Buffett's salary for running Berkshire Hathaway is $100,000 or so.  Steve Jobs makes $1 in salary I think.

This part of the story rarely gets told.

[moda0306]

I think it's worth noting that the bottom 40% may pay no federal income taxes, but payroll taxes, sales taxes, and property taxes tend to be much more regressive... even state income taxes are often quite flat.  It's our payroll taxes that have been providing their sources with surplusses up until recently, and the discressionary spending funds (military, interest, agencies, etc) that have been benefitting from the bond purchases done by the SS trust fund.

The payroll tax can be quite a huge burden.  It's effectively about 13% of your income from dollar 1 until you hit the FICA limits.  Yes, there is supposed to be a future benefit associated with those funds, but as we've discussed, they aren't looking too solvent in the long-run.

One final point... one thing the distribution of wealth argument misses is the "public wealth" of being guaranteed the safety nets of society, from being a baby (if you as a baby were set at the social-services doorstep, they would arrange for your care... that has a value to it... the baby has no private wealth, but I'd say his/her public wealth is significant) to unemployment insurance, to social security, use of national parks, medicare and medicaid.  If these were to be given a FMV for each citizens share of the benefits and applied to their wealth, I would think the picture would look quite different and it wouldn't appear so heavily weighted to the wealthy, even if heavily discounted for the fact that they're not private and therefore are not "wealth" in the technical sense.

[TBV]

Any discussion of taxes is preceded by a presumption re: the proper level of expenditures. Accepting the current unprecedented level of government largesse as a given and then scouting around for funds to meet it is not the only way to balance the books.  Returning to the sort of society outlined in the Constitution (sound currency, small government, etc.) would do just as nicely.

But to return to the original theme, our happiness is directly related to whether or not our needs and expectations are met.  That has little to do with the relative wealth or happiness of others, unless we find it necessary to deprive others of what they have to satisfy our own wants.  Law (and conventional morality) presumes that upholding each person's rights is better in the long run than looting and pillaging our way through life.  So I think we should think twice before deciding that those rights are variable, situational, or otherwise subject to veto by others.

[moda0306]

TBV,

Much of the largesse is simply transfer payments, and at that I don't think most people here are suggesting raising taxes is the only way to fix the defecit. 

To your point about tax cuts vs spending, stolen or not, a dollar in my hands vs a dollar in a welfare mom's hands is still a dollar in the economy and will either get saved or spent.  Since tax revenues depend on economic activity (most of them anyway), since we're currently under capacity, and since poor people are more likely to spend than the well-to-do, a dollar of spending tends to have more economic impact than a dollar of a tax cut.  Why?  The "investor" class already has capacity in their factory.  They're not going to use the dollar to add an additional factory.  Meanwhile, a dollar of spending will serve to immediately start to use that capacity since that person is likely to spend it.

That's the canned argument anyways.  Again, I'm not saying this is morally right, just that it will lead to higher tax revenues.

[TBV]

TBV,

Much of the largesse is simply transfer payments, and at that I don't think most people here are suggesting raising taxes is the only way to fix the defecit. 

To your point about tax cuts vs spending, stolen or not, a dollar in my hands vs a dollar in a welfare mom's hands is still a dollar in the economy and will either get saved or spent.  Since tax revenues depend on economic activity (most of them anyway), since we're currently under capacity, and since poor people are more likely to spend than the well-to-do, a dollar of spending tends to have more economic impact than a dollar of a tax cut.  Why?  The "investor" class already has capacity in their factory.  They're not going to use the dollar to add an additional factory.  Meanwhile, a dollar of spending will serve to immediately start to use that capacity since that person is likely to spend it.

That's the canned argument anyways.  Again, I'm not saying this is morally right, just that it will lead to higher tax revenues.

Providing a cash-strapped would-be customer with easy money is sure to increase economic activity, but it's not a very rational way to allocate resources.  I'm reminded that in communist Eastern Europe bread subsidies were so generous that farmers fed bread to their pigs.

What's more, the more we base demand on poor choices made by non-savers using other people's money, the more we create bubbles that do no one any good.

[moda0306]

I completely see your points TBV.  Well played, sir.

[TBV]

Thanks for the kind words, Moda0306.

I think we'd all see the issue of wealth, taxes and spending differently if we lived in a society where everyone participated as citizens in supporting (as in paying for) all things public.  Want more of something?  Fine, get our your checkbook.  No free lunch.  No vote-buying with taxpayers' money, etc, etc.  The discipline (and humility) required for government to go hat-in-hand to the taxpayers or to the bond markets in search of funding is very democratic and elemental.  It ensures that we get more of what we really want, and a whole lot less of what we really don't want.  Chronic deficit spending works in the opposite direction, IMHO.

One might presume that I don't like taxes much, but I would much prefer a universal flat tax for everyone, with no deductions for anything.  To my mind, it reinforces a sense of shared sacrifice and community that seems lacking these days.

[Pkg Man]

But let's be careful to not fall into the trap of thinking that we can increase tax receipts by lowering tax rates (as moda says, known as the Laffer Curve and named after Arthur Laffer, a man I've met and admire).

The Laffer curve exists, but the shape of it what matters. It could be that the curve is heavily skewed to the right, in which case raising tax rates would indeed raise tax receipts.  So mentioned the Laffer curve actually doesn't inform this argument at all.

It's interesting you found him admirable - in the only appearance I've seen of Laffer, he was completely wrong about everything he said. Peter Schiff nails what is going to happen, and Laffer says "I've never heard so many mistakes in my life," "he doesn't know the numbers," etc.  Also, at least to me, Laffer comes off as a pompous jerk" and not someone to admire.

Link: http://www.youtube.com/watch?v=IU6PamCQ6zw

fnord123,

I was responding to TBV's comment that raising taxes is not the same thing as raising revenue -- which is true -- and the comments I oftentimes here from parts of the Republican party, where the answer to any economic problem is to cut taxes.  So I believe my comment on the Laffer curve is clearly relevant.  I am not sure you read my post in full, so I've posted the relevant paragraph below in its entirety:

But let's be careful to not fall into the trap of thinking that we can increase tax receipts by lowering tax rates (as moda says, known as the Laffer Curve and named after Arthur Laffer, a man I've met and admire).  I wish it was true that I could have more take home pay and at the same time the government could have increased revenue, but I am afraid it is not.  I am certain that there are times when this would in fact be the case, as it probably was before Reagan cut marginal rates, but I don't think that it applies with the rates that exist today (emphasis added). 

Most economists probably do come across as "pompous jerks", as do many who hold strong views.  I found Laffer to be quite personable when I had the opportunity to meet him.  He is clearly intelligent and almost everything I have read by him seems very well reasoned.  It is those traits that I admire.  But I don't agree with everything he, or anyone else, says.  And I really don't care whether his short-term forecasts are accurate or not.  He is still someone who, IMHO, is worth listening to.

[moda0306]

TBV,

I rolled the point about the pigs around a little bit.  While I have some moral issues with redistributions of weath, I think there's a difference between redistributing based on a product and redistributing based on a person.

An exorbitant subsidy for ethanal, grains, corn, housing... what have you... will lead to some real distortions in the market place.  A check to a poor/middle class person, even if unfairly received, will maybe have a broad effect on the price of food, rent, gas, etc., but it will be broad enough to not cause huge distortions in the market the way directing it towards an individual product would.  So while the point of market distortions is well taken, I think the bread example is a stretch since there was an obvious bias towards the product being sold.

I guess this maybe belongs on another thread, but my big misgivings about somewhat lazzais fair economics are the following:

1) Distribution of wealth seems to rise to the top in perfectly "free" markets (not that they don't in centrally controlled ones).  This seems to me to be unsustainable and unfair.  While somewhat subjective and not mathmatical, I still think it deserves some thought.  The implications of competition and entrepreneurialism not being sustained in a free market is somewhat of a contradiction of what was supposed to be so great about it in the first place.

2) I don't think the concept of private property always and completely represents reality.  The reasons for this are twofold: a) Externalities abound, which is basically the socialization of all the negative consequences of economic activity that slip through the cracks, and b) A lot of the resources we have as a society weren't invented in some entrepreneur's basement, but were already in the ground and conquered by wealthy men and claimed as their own.  I'm not saying land owners and oil companies are evil, but simply that many of these resources weren't obtained and/or distributed based on merit, but on muscle.  A few questions arise from these implications: Is all the oil in the ground our generations for the taking?  Do we owe ANYTHING to future generations?  If so, how do we put economic walls up from completely sapping our planet of resources for our own use?  If they were there to begin with, and captured by the powerful through war and coercion, then what are the private property implications of all that?

[TBV]

Society has an obligation to delineate the lawful from the unlawful, and to enforce the law.  However, to covet the goods of a successful law-abiding person, just because he or she is marginally more successful than some arbitrary bench-mark, is such a destructive tendency that it's even listed among the Ten Commandments.  My point being that uncertainty regarding property rights is the hallmark of most economically under-performing societies.  As for crony capitalism, show me a crony-capitalist and I'll show you a beneficiary of government mis-allocation of resources.

By way of real-life examples, look to Poland and Latvia for examples of countries that have freely chosen to withstand substantial economic pain to free up their economies.  They didn't do that to make a few people rich, but rather to make most people richer.

Lest their be any doubt as to the meaning of my bread-for-pigs example, I offered it to show how a scarce and valuable resource was wasted.  The initial attempt to maximize value for needy humans resulted in precisely the opposite result.

[Pkg Man]

Two other factors I believe that have contributed to income inequality are increased illegal immigration and "free trade" agreements. While adding to total GDP and societal wealth as a whole, those at the bottom of the ladder are more likely to be harmed, while those in the middle and above will generally benefit from both.

[moda0306]

TBV,

The bible also talks about giving to the poor and rich men not being able to make it into heaven.  I highly doubt Jesus was a lazzais fair capitalist.

Being concerned about distribution of wealth is a lot more nuanced than simply coveting what your neighbor has.

Pkg Man,

I totally agree.  The ability for the owners of industry to move money around the world to the lowest common denominator with the fewest unions and environmental regulations, while the middle class has to pick a career and can't play the market like that, has done huge damage to the middle class.  This is why I think it's important that China and India have a union movement.  It would broaden the base-line income above which entrepreneurs and middle class Americans could build off of.

[fnord123]

The ability for the owners of industry to move money around the world to the lowest common denominator with the fewest unions and environmental regulations, while the middle class has to pick a career and can't play the market like that, has done huge damage to the middle class.  This is why I think it's important that China and India have a union movement.  It would broaden the base-line income above which entrepreneurs and middle class Americans could build off of.

This is something that really doesn't get said often enough.  Free trade, when it is between to equal entities, is a good thing that enriches both.  However, the theory of free trade breaks down at least when you get to the commons (e.g. the environment).  For instance, the USA wants to reduce polution, so we have regulations that make power generation plants much more expensive to build.  By doing this, energy is more expensive, money is spent on things like the EPA, lawyers, higher taxes, etc.  The net result is producing anything in the USA is more expensive.  However, thanks to free trade, we can buy things from Mexico, or China, that were manufactured in  factories that are much more polluting and much less efficient, and add further pollution due to transportation. 

This regulatory arbitrage is the ugly side of free trade, and not only applies to pollution, but to worker safety, minimum wages, and a variety of other issues.  Why is it bad for people to be maimed in factories in the USA, but OK in China?  Why do we require workers have a wage that supports a certain standard of living in the USA, but in China slave-labor like conditions are ok?  What about child labor?  The list goes on... and politicians on both sides of the aisle are unwilling to address the issue.

[TBV]

Moda0306: All too often, the only argument offered to support taking larger portions of certain people's income is that they have too much and don't deserve to keep it.  Are we so offended by the fact that some people earn more than others that we wish to outlaw the practice?  If so, my prior post suggests that we enforce the law (once we've defined it to our satisfaction.) However, if we allow income disparity as a common by-product of free markets, then why the need to act as though behavior that we allow is somehow unacceptable?

Let's be clear: the richest people pay much more tax than anyone else in this country.  That would still be true if tax rates were the same for everyone.  When discussing tax policy, it's always appropriate to discuss how much spending is needed and which tax rates will ensure that we raise enough to cover expenditures.  What isn't appropriate IMHO is the added dollop of social envy that politicians introduce to mobilize support for higher taxes.  Government has an obligation to manage its finances responsibly.  Beyond that, it has no obligation to determine whether we get to keep what we have earned.

BTW:  In old Jerusalem, as they reached the city gates, the main roads became substantially narrower at a point called the "eye of the needle."  It helped defend the city in case of attack by forcing the incoming traffic to merge into a confined spot, allowing defenders to more easily defeat invaders. In normal times, camel traffic often became congested at such points, thus the saying that "for a rich man to enter heaven is like a camel passing through the eye of a needle."  A feat requiring some effort perhaps, but not impossible.

fnord123: It isn't free trade when governments manipulate interest rates, export inflation, or set regulatory barriers that reward certain businesses at the expense of others.  (And that's just the part that WE are guilty of.)  China uses similar techniques to game the system.  One can only wonder what true free trade would look like these days, but it certainly does not (and never did) require that participating countries be equal.  Otherwise, how could mighty-mites like Switzerland, Singapore, or the Netherlands rise to such prominence?

One last word: while it was fashionable several decades ago to refer to "slave wages" paid to Asian workers (be they Japanese, Korean or Chinese) it's hardly useful to persist in seeing things that way today.  China, Taiwan, Japan, and Korea didn't get where they are today by stealing our wealth or enslaving their citizenry. They did it by making products that we prefer to buy, because their price/quality characteristics compare favorably to domestically produced products. One might regret the loss of job security in the US, perhaps as much as Chinese regret the loss of the job security that they used to enjoy in state-owned factories.  But they learned to adjust to the dictates of the marketplace.  So should we.

[fnord123]

One last word: while it was fashionable several decades ago to refer to "slave wages" paid to Asian workers (be they Japanese, Korean or Chinese) it's hardly useful to persist in seeing things that way today.  China, Taiwan, Japan, and Korea didn't get where they are today by stealing our wealth or enslaving their citizenry. They did it by making products that we prefer to buy, because their price/quality characteristics compare favorably to domestically produced products. One might regret the loss of job security in the US, perhaps as much as Chinese regret the loss of the job security that they used to enjoy in state-owned factories.  But they learned to adjust to the dictates of the marketplace.  So should we.

Chinese child labor: http://www.telegraph.co.uk/technology/a ... abour.html
Chinese slave labor: http://www.theepochtimes.com/n2/content/view/38085/
Chinese worker conditions far worse than US: http://www.telegraph.co.uk/technology/m ... China.html

Furthermore, China has much more lax environmental rules than the USA.  This means factories can pollute much more, making them much cheaper to operate.

In Beijing you often cannot see the top of skyscrapers, not due to fog, but due to the density of pollution in the air.

I've been to Japan and Korea, lumping them in with China is not valid at all.  Companies that offshore manufacturing to China are performing labor and environmental arbitrage that gives a massive price benefit. 

The people of the USA believe in a certain level of environmental quality and in certain labor practices.  China has a completely different approach to both. Either we should adjust ours down, or force theirs up (e.g. tariff their imports to the level where it equalizes, removing their incentive not to do so).  Doing nothing means the USA will eventually lose pretty much all manufacturing.

[MediumTex]

Anyone want to comment on Russia and how a few people seem to have become fabulously wealthy while the rest of the country seems to be as bad (or worse) off than they were under communism?

Would we anticipate that the wealth held by the oligarchs in Russia will sooner or later translate into improving living conditions for all Russians?  If so, when?

In general, and I am just offering this idea as something to discuss and consider, how does the rapid shift toward capitalism one sees in emerging markets where the old dictators become the new owners of the previously state controlled enterprises actually help the people in those countries?  How does this arrangement differ from the old feudal societies where a small class owned everything and the rest just worked for a living wage (or less)?

When wealth concentrations reach a certain point, I struggle to see the mechanism for the rest of society to benefit from the economic growth that facilitated the accumulations of wealth in the first place.

I intuitively sense that there is an ideal distribution of wealth across a populations's society that seems to result in the most political, economic, social and cultural stability.  The U.S. seemed to have such a state in the decades following World War 2, and as statistics and observation suggests, has been losing it since the early 1970s.

I don't know what the solution to this problem is, but it seems that enormous amounts of wealth concentrated in the hands of a few over time tends to lead to predictable destabilizing effects on the whole society.

The very existence of a middle class suggests that this wealth concentration problem is being addressed in the way a society has chosen to organize itself (since the existence of a middle class suggests that the wealth of the society is being enjoyed by more than an elite few).  Show me a society with a declining middle class and I will show you a society that is normally on the verge of many more problems.

I'm not trying to back into a rationale for an overtly redistributional tax policy or anything like that.  I'm just looking at this problem and wondering how to keep it from ruining a society.

[moda0306]

TBV,

So it was "fashionable" to talk about hundreds of millions of people barely making enough to feed themselves every day while their bosses became wealthy?

Fashion had nothing to do with it, and you're beginning to come of a bit condescending.

MT,

Phenominal post... Couldn't agree with your point/tone more.

[moda0306]

Regarding Russia, I don't think it's any surprise that a communist government's transition to captialism would be an exercise in corruption.  I don't know much about it, and I'm not saying they should have stayed that way by any means, but I imagine any such transition would wreak of crony capitalism.

[fnord123]

Regarding Russia, I don't think it's any surprise that a communist government's transition to captialism would be an exercise in corruption.  I don't know much about it, and I'm not saying they should have stayed that way by any means, but I imagine any such transition would wreak of crony capitalism.

The thing that scares me is that the USA is getting more corrupt, at least according to some measures (e.g. see here: http://www.businessweek.com/news/2010-1 ... wanes.html)

I think there is anecdotal evidence for this - in the S&L scandal a bunch of bankers went to jail.  In the current scandal very few people have prosecuted criminally.  The SEC was widely feared in the 1970s - nowadays it is a joke.

I worry that the concentration of wealth is not only correlated with this, but causative as well. "We cannot let these ultrahuge companies fail, even though they have participated in (money laundering for terrorists | drug lords, tax evasion, etc.)"  Why isn't Dick Fuld in jail for SarbOx violations?  Why did Angelo Mozilo walk with fines much less than the ill gotten gains he received?  Once a company or person reaches a certain level of richness, it seems like it is almost impossible for them to do hard time.  I guess the only exception would be Bernie Madoff - too small a fish I guess.

[TBV]

What's been fashionable is the belief that America's loss of competitive advantage can only be explained by our adversaries' resort to abhorrent methods of labor abuse.  This misdirection conceals all the other possible factors: an increasingly skilled labor force, a less litigious society, a stronger commitment to long-term investment, a higher rate of savings, etc., etc.  And anyone who doesn't remember that the old slave wage argument was used against Korea, Taiwan, and Japan has a very short memory.  And lest we forget....the atrocious labor conditions at sweatshops in the US Marianas Islands, the fact that half of our agricultural workers are illegal aliens working under conditions most Americans won't accept, the abuse of Thai garment factory workers in LA, the enforced servitude by criminal gangs of Chinese immigrants in New York, the ever-present crowd of day laborers loitering outside every Home Depot looking for work at any price with no labor protections whatsoever.  I don't think I need go on.  There is no shortage of horror stories to be found in any country.  And on balance, labor laws are more stringent in the US than in many other countries.  However, there's more to it than that.

Having traveled extensively in the Far East, I can tell you that there are companies that fail to pay promised wages, that expect workers to work longer hours than we are used to, or who pollute the environment.  However, to suggest that this is the norm is ridiculous. Americans need to realize that countries like China are adapting to changing world conditions far faster than we are.  They, and Korea, Taiwan and elsewhere are simply more nimble when it comes to implementing new industrial technologies, renovating urban landscapes, implementing integrated transportation systems, and a whole host of other things.  While we accepted the decades-long collapse of once-formidable cities like Cleveland, Detroit, and St. Louis, countries in Northeast Asia created economic hubs where none existed before (like Hsinchu in Taiwan, Shenzhen in China, or Pohang in Korea) or presided over the rebirth of cities whose fortunes had faded (like Shanghai, Dalian, Chonqing, or Xian in China.)  In so doing, the result is not a mass of impoverished coolies driven to despair by a few tycoons.  It's an assortment of countries that can boast the world's most wired country (Korea),  the country with the most cell-phones and most modern trains (China), and the world's leader in the deployment of wind power (China again.)

The truth is that the picture in Asia is non-monochromatic and old slogans will not work.  Remember that when Jazz was king, Broadway rhythm ruled, and Ford cars were the envy of the world, one third of America was scraping by down south under 19th century conditions.  That didn't mean that America wasn't the richest country on earth, or that it wasn't among the best places to live.  It did mean that we shouldn't assign a single adjective or score to entities as big as entire countries.  That doesn't work.

[Pkg Man]

Pkg Man,

I totally agree.  The ability for the owners of industry to move money around the world to the lowest common denominator with the fewest unions and environmental regulations, while the middle class has to pick a career and can't play the market like that, has done huge damage to the middle class.  This is why I think it's important that China and India have a union movement.  It would broaden the base-line income above which entrepreneurs and middle class Americans could build off of.

Good luck with that.  I know a lot of folks would also like to see US-style child labor laws and environmental standards.  But those things are luxuries that a poor developing nation can't afford (and in GDP per capita, China is still poor).  Surely we don't need China and India to behave in a certain way in order for us to be prosperous as a nation.

There are lots of things that tend to drive higher concentrations of wealth.  I mentioned the first two earlier.

• More free trade agreements (hurts those in competition with the imported goods, but at least offers the benefit of lower prices to all).
• Illegal immigration (you don't hear much about that one -- couldn't have anything to do with courting immigrant votes, could it?).
• Excessive regulation (ever wonder why a car costs far more today than it did 30 years ago?  Who do you think pays for all those government mandated safety improvements?).
• A poor K-12 educational system (I guess the Fed's aren't spending enough on it).
• Substitution of capital for labor (cost of labor driven higher than the free-market rate by government labor laws and unions - which benefits those who have jobs, but does nothing for those who didn't get a job due to being priced out of the market).
• High rate of unwed births (another one that you're not likely to hear talked about as it is so politically incorrect to say that a child needs a father, but this is probably the item most responsible for increasing wealth inequality).

If the citizenry are not adequately educated or trained to enter a high-skill occupation, have few blue-collar options available to them, face competition for their low-skill labor from illegals, and make some really poor decisions along the way, they will almost certainly fall behind the average.

Here's something else to keep in mind.  Wealth is a stock, while income is a flow.  We could confiscate ALL the wealth from the top 50%, redistribute it all to be bottom 50%, change nothing else, and within 50 years I believe that the distribution of wealth would return to where it was before.  Taking from the rich to give to the poor is not a long-term solution to the problem of wealth inequality.  It is a problem that needs to be addressed, I just think that most of the solutions that rely on more government as the answer are likely to make the problem worse.

[LifestyleFreedom]

Wealth Buys Freedom (http://books.google.com/books?id=v4NZMN ... &q&f=false) has some interesting statistics.  See Quick wealth facts that are on page 16 of the book.

• One interesting statistic is: 95% of households never achieve financial independence.
• Another interesting statistic is: 66% of millionaires own their own businesses.

I see this wealth disparity in society as a trait of human nature.  Business ownership is a skill most people don't have (which is OK because owning a business is not the only way to build wealth).

The Top 10 Distinctions Between Millionaires and the Middle Class (http://books.google.com/books?id=_Mkhot ... &q&f=false) is a good book about the behavioral traits that are necessary to build wealth successfully.  Anyone can learn and practice these traits if they want to, but most people choose not to do so.

The main threat to the system that I see from the increasing concentrations of wealth is the politics of envy.  When enough people believe the government should play Robin Hood and soak the rich to subsidize the poor, I see a great danger of the system collapsing.  Everyone will be pulled down to the level of mediocrity and society will suffer.  But the majority of the population will see this as being fair.

It all boils down to the crab mentality (http://en.wikipedia.org/wiki/Crab_mentality) of human nature (i.e., "if I can't have it, then you can't have it either").

[fnord123]

I'd be curious how the "pure competition is good/America is over-regulated/government is too big unless we go back to pre-New Deal society/no confiscation/crab mentality" folks would explain that by almost every measure (GNI/GDP per capita, health statistics, education, corruption, inequality) that the USA has been falling over the least couple decades, with the countries passing us almost all having greater degrees of government economic involvement/regulation/taxation.

[TBV]

I'd be curious how the "pure competition is good/America is over-regulated/government is too big unless we go back to pre-New Deal society/no confiscation/crab mentality" folks would explain that by almost every measure (GNI/GDP per capita, health statistics, education, corruption, inequality) that the USA has been falling over the least couple decades, with the countries passing us almost all having greater degrees of government economic involvement/regulation/taxation.

These days, economic progress is greatly influenced by foreign investment.  In that regard, some countries offer better investing environments than others.  North Korea is a fine example of the results one can achieve by having a high degree of government regulation.  Unfortunately, the results are not what anyone would want. Just across the border, where there is far less regulation/taxation, South Korea is an economic powerhouse.  Hong Kong and Singapore are other examples of robust progress achieved in a low-tax environment.  A few years ago, one could argue that Western Europe was an example of high growth AND high levels of government regulation.  Now that is less credible, both because growth is now lacking and enthusiasm for regulation has waned.