File: c:/Users/Dennis/Desktop/Tragedy/P3Bproblem.html
Date: Wed Aug 20 09:46:12 2014
      Wed Aug 08 16:55:50 2018
      Fri Aug 02 21:38:31 2019
(C) OntoOO/ Dennis de Champeaux

Income Distribution Deterioration

The nearest thing to eternal life we will ever see on this earth is a government program.
(Anonymous)

We characterized the P3B problem earlier with: "... putting children in the world that cannot be sustained without support from the society." This is obviously a touchy topic and we request upfront open mindedness. We need to reiterate that we are not in the business of blaming and we remind the title: "Best Intentions of the 20th century". This problem has deep roots.

A 2009 November news snippet claims that the stigma of food-stamps has faded while: "The food (program) ... helps feed one in eight Americans and one in four children." [NYT] Why did the parents put these children in the world is an impossible question to articulate these days, but requires careful pondering anyway.

Charity was traditionally - and to this day as well - helping those that have fallen on hard times. Most societies have taken the lead by passing laws so that taxes can be channeled to support those in need. These solutions work satisfactory when we ignore the long term side effects. However, we need to have a closer look at its impact on the P3B problem. Those who produce children, which need assistance for their survival, are statistically the least successful to function in the modern society. Due to statistic heritability of physical and cognitive traits their children will statistically also belong to the least successful [Pinker]. If this group procreates faster and relatively more (dysgenic fertility), the society contains a negative feedback loop.

Why bother? Who cares? Society takes care of these children anyway, right? Well, those who put children in the world who need assistance is not limited to, say, teenagers, unwed mothers, recent immigrants, or any other favored minority. By now, after several generations have been going through the feedback loop, it is a great majority of the population in the welfare states. That is hard to believe for sure.

The following US statistics support our claim:
- 95% of those paying federal income tax pay only 39% (2007) of what is collected and hence a large majority has subsidized social services for, among others, healthcare and public education
- The average family received in 2006 $3,000 more in services than it paid in taxes [AARP]

A Dutch report [CPB] devoted to the graying of the society mentions in passing:

In fact, this study finds that future generations will still experience a positive net benefit from the government; they receive more in the form of expenditures (education, pensions, etc.) than they contribute through taxes and social security contributions. In the baseline projection for sustainable policies, future generations can expect a positive net benefit of about 7% of their lifetime wealth. For the generation born in 2006, this amounts to some 56,000 euro in present-value terms per person, corresponding to a yearly 'benefit' of roughly 1800 euro.

In short: the institutionalized compassion of helping those in need, without strings attached, has fueled a negative feedback loop, which has increased the need for assistance to the point where a great majority is not economic self sufficient any longer.

The negative feedback loop we have described is not the full story of why majorities now need extensive system assistance. We remind that a century long public education had the side effect of stratifying the society along the cognitive skills dimension. Due to the fact that cognitive skills inherit it had a negative effect on the US dictum that one could rise to the top with hard work: social mobility has decreased. We mentioned earlier that immigration from countries with lower cognitive skills, which helps employers recruiting low wage workers, has a negative effect on a nation's cognitive gene pool (and increases the majority that receives more 'free' social services than they pay in taxes).

We have now identified three mechanisms that are causing the often repeated assertion that the rich are getting richer and the poor are getting poorer. Developments in recent decades have been causing more trouble.

Information Technology, the next round of the Industrial Revolution, has streamlined processes in the society and has removed 'frictions' and inefficiencies. Unlike previous innovations triggered by the Industrial Revolution, the population has not been able to keep up with the turmoils and churns in the economy due to the automation of activities traditionally handled by the middle class.

Inability to up-school replaced workers and also a next generation causes many to abandon finding work at all, leading to the record low of 63% (2014) of the workforce participation ratio. Of those earning wages 4.3% (2013) get the federal minimum wage or below.

The 1994 NAFTA agreement between Canada, Mexico and the US removed tariff barriers. The pros and especially the cons in this context are captured by [NAFTA]:

The U.S. Chamber of Commerce credits NAFTA with increasing US trade in goods and services with Canada and Mexico from $337 billion in 1993 to $1.2 trillion in 2011, while the AFL-CIO blames the agreement for sending 700,000 American manufacturing jobs to Mexico over that time.

Globalization leads to more turmoil in local labor markets. Multinationals expand outside their home-turf for not only manufacturing but also for exploiting market opportunities elsewhere. Fiscal burdens in welfare states is another reason why companies shift operations elsewhere. The side-effect of globalization is that growth of 'good' jobs in welfare nations stagnates or even turns negative.

The share of labor of US GDP was between 1950-2000 declining only slightly and hovered around 63%. A sharp decline happened since then and in 2010 the share had dropped to 56%, while remaining at that level (2019). The Fortune article reporting these figures suggests: "A major societal realignment is in its early stages." Artificial Intelligence (AI) is a candidate for the next phase of the Industrial Revolution that will destroy jobs further up the food-chain. A consolation is that AI has been stagnating already for decades and a breakthrough appears not on the horizon.

Economic developments outside traditional welfare nations increases the demand for the Planet's basic resources, like energy. This has caused in the previous decades substantial price increases that yield ultimately inflation in welfare states. Price inflation has been recently incompletely compensated for those in the bottom income segment of these societies, among others, due to the massive deficits of their governments.

Welfare state responses

Unfortunately, all attempts to decrease the top-bottom income ratio have failed and the ratio keeps increasing, from [Wolff]:

Similarly the top-bottom wealth ratio keeps increasing:

The discourse on these trends is troublesome. It is unpopular to discuss the numerous mechanisms we have identified above. Instead, arguments are advanced that the rich have somehow manipulated the system to their advantage and do not pay their 'fair' share. Problematic in these discussions is equating the rich (those with high net-worth; # billionaires in the US 492 (2014)) with the affluent (those with - temporarily - high incomes; the top 10% gets 44.5% of the national income (2014)).

Addressing the poor-rich ratio and low income - high income ratio requires different approaches. The poor-rich ratio is tackled by high estate taxes and by the billionaires themselves donating their wealth to trusts with charters to solve problems for which governments lack resources. The low income - high income ratio is traditionally addressed by using tax revenues to increase non-market incomes by providing 'free' social services. Here an example from 2007 that shows a skewed income distribution and a skewed taxation distribution:

The who-pays-what Federal income tax table for 2007.
[Copyright Kiplinger Washington Editors, Inc]

Concerns

Decreasing the reliance on fossil fuel is necessary to battle pollution/ climate change. Numerous governments, however, depend heavily on taxes on fossil fuels, which hampers kicking the fossil fuel 'addiction'.

Questionable is also whether providing foodstamps, free healthcare, rent subsidies, etc., which certainly helps survival of the recipients, affects their self-esteem and/or their acceptance of their position in the income distribution. Just consider that one tells the recipients that they should be happy given the perspective provided by the foreigner Vuil Uil in [VuilUil]:

I frequently visit the US and am astonished at the doom and gloom junk many people believe. The place is affluent, well ordered and as always impressive. People are healthier than I have ever been. And yet when you speak to Americans it is as if the US is experiencing the great depression all over again.

And the hatred for anyone who has any money (even if they worked for it) is astonishing. The 1% meme is everywhere thanks, I suspect, to the Dems demagoguery that keeps the voters in thrall. And the foolish Republicans seem unable to articulate any counter argument.

Consider the following:
You need an annual income of $34,000 a year to be in the richest 1% of the world, according to World Bank economist Branko Milanovic's 2010 book "The Haves and the Have-Nots".
To be in the top half of the globe you need to earn just $1,225 a year. For the top 20%, it's $5,000 per year.
Enter the top 10% with $12,000 a year. To be included in the top 0.1% requires an annual income of $70,000.

America's poorest are some of the world's richest.

Nowhere else is the world do the poor have flat screen TVs, cellphones and some even cars. As an Angolan politician once said to me: if I die and return, I'd be happy to return as a poor American.

Fixes?

We certainly also avoid answering the question stated above. Passioned responses by opposing political parties both ignore - we believe - more important challenges that humanity is facing.

Although we could, there is no need, beyond a snippet, to bring up materialism, the current lodestar for humanity. Aleksandr Solzhenitsyn when being exiled to the US criticized it with [Solzhenitsyn]:

Delivering the commencement address at Harvard University in 1978, he called the United States spiritually weak and mired in vulgar materialism.

An appendix provides comments about an article regarding the US income distribution trend of the top 10% in the 20th century.

History

China, North-Korea and the welfare states still run different experiments by supplementing market incomes with transfers funded by (income) taxes and with property and dead-taxes to chop-down wealth. Durant notes that these experiments often ended due to, among others, corrupt and/or extortive bureaucracies.

Other income and wealth equalizers are described in [Scheidel]. He claims that violence and catastrophes are the only forces that can seriously decrease economic inequality. He lists as the main examples: catastrophic plagues, mass-mobilization warfare justifying heavy taxations, transformative revolutions, and state collapses; numerous examples are provided. Not everyone agrees that Scheidel's forces are the only way to obtain income & wealth redistributions. Durant mentioned already that power and property was transferred in the 19th century UK without relying on the guillotine as done in the French Revolution. Reviewers of the Scheidel-text have mentioned similar exceptions.

Still, we consider Scheidel's forces pertinent and we will revisit them in our Finale chapter.

References

[CPB] Ageing and the Sustainability of Dutch Public Finances, 2006 March, http://www.cpb.nl/nl/pub/cpbreeksen/bijzonder/61/bijz61.pdf

[Durant] Durant, W. & A. Durant, "The Lessons of History", Simon & Schuster Paperbacks, 1968.

[NAFTA] http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement

[Noah] Noah, T., The Great Divergence, Slate, 2010 Sept 3, http://www.slate.com/articles/news_and_politics/the_great_divergence/features/ 2010/the_united_states_of_inequality/introducing_the_great_divergence.html

[NYT] http://www.nytimes.com/2009/11/29/us/29foodstamps.html

[Pinker] Pinker S., The Blank Slate, The Modern Denial of Human Nature, Penguin Books, 2002.

[Scheidel] Scheidel, W., "The Great Leveler", Violence and the History of Inequality from the Stone Age to the Twenty-First Century, Princeton University Press, 2017.

[Solzhenitsyn] http://en.wikipedia.org/wiki/Aleksandr_Solzhenitsyn

[VuilUil] http://blogs.marketwatch.com/need-to-know/2014/08/18/ generation-of-spoiled-idiots-dont-know-how-good-they-got-it/

[Wolff] Wolff, E.N., Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze, Working Paper no 502, The Levy Economics Institute of Bard College, 2007 June.

Appendix Income divergence

The author, Timothy Noah, meanders through a sequence of conjectures trying to explain why the top 10% has increased its share of the US national income since 1977. In turn, he looks at a wide range of candidate explanations. We list his items and summarize his conclusions.

Race Blacks have basically been holding their share.
Gender Woman's lot has been improved: "... the male-female wage gap has shrunk by nearly half."
Breakdown of the nuclear family This item has "virtually none" contribution to the divergence.
Immigration Noah hedges his opinion on this hot potato with "... Is it the most important contributor? No.". A summary gives, however: "Immigration is responsible for 5 percent" (of the Great Divergence), without a justification of the 5%.
Technology boom Noah claims that the computer revolution resembles previous technology advances in which displaced workers found new jobs higher up.
Federal government policy Noah devotes many paragraphs to taxation shifts, which has nothing to do with income share changes. Increased lobbying activities is brought up as well. Still impact on the Divergence is not articulated.
Decline of labor unions This item also does not yield a contribution to the Divergence, to the extend we understand the endless, elaborate detours.
International trade China does replace low level labor in the US in the first decade of the 21st century but Noah appears to doubt it to be significant for the topic of the since 1977 developing Divergence.
The ultra wealthy The item is whether the ultra wealthy (top 0.1%) are to be blamed for the Great Divergence. Noah appears to deny this with: "Having a job - the right job, anyway - became the way to get posh. That's encouraging in one sense: To roll in the dough you now have to work for a living."
The decline of K-12 education Noah admits that education plays somehow a role as seen in the following quotes: "At a time when the workforce needed to be smarter, Americans got dumber. Or rather: Americans got smarter at a much slower rate than they did during previous periods of technological change ...". Hence the few with the right skills "... bid up their salaries. It was terrible news for everyone else." And Noah adds "... it represents a failure by elementary and secondary schools to provide education relevant to the economy's growing demands ..."

Noah claims the main culprits to be:
- "Wall Street and corporate boards' pampering of the Stinking Rich"
- "Various failures in our education system"

The first culprit has to do with a few thousand CEOs, CFOs, CIOs, etc., in the top 1% who takes 20% of all income, but does not apply to the next 19% who takes 34% of all income (2010 data).

The second culprit blames the education system but does not consider the inability to school displaced workers and a new generation at a higher level due to insufficient cognitive skills of the recipients.

Questionable is Noah's position that the technology boom did not play a role with his assertion:

If computers required ever-higher levels of education to manipulate ever-growing quantities of information in ever-more rococo ways, then we'd expect the very richest people to be the biggest nerds. They aren't.

The long article's last paragraph is:

What is the ideal distribution of income in society? I couldn't tell you, ... But I can tell you this: We have been headed in the wrong direction for far too long.

We miss in Noah's deliberation considerations about the bottom 270M people segment. His inattention masks, in our opinion, what is going on in the bottom 50% of the society, where, at last count, their households do not pay Federal income tax. Instead of asking the, valid, question why the top 10% saw its income share increase in 30 years from 34% to 48%, we can ponder the equally valid question why the share of the bottom 90% decreased from 66% to 52%. It is unclear, to us, why the latter question is not raised.

There are other factors that are ignored by Noah. The US population grew from 220M in 1977 to 308M in 2010. Why do we always assume that (quality) employment scales with population increases? The World's population grew from 4B in 1975 to close to 7B in 2010. The population outside the US claimed their share of the World's resources and that share increased in addition due to their me-too economic activities. Both of these developments put pressure on the resources available to the US population. Noah admits that schools failed to provide "... education relevant to the economy's growing demands ...". It is unfortunate indeed to have to ponder that the US's Great Divergence has its roots in the bottom part of the US society and in developments outside of the US.

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