Incone inequality myth.The Rich Are Getting Richer Faster than the Poor

[ludin]

No, that is not true, as can easily be shown. Look: suppose there were, in the economy, no more than 300 million dollars, and there was a hard limit placed on the number of dollars at that mark. We would each have one dollar--or at least, there would be one dollar for each citizen of the U.S. In that case, with dollars being the only medium of trade, we would first recognize that there aren't nearly enough dollars to facillitate trade, and second, of course dollars would be exquisitely valuable. As more dollars were printed (we assume the people in this hypothetical scenario wise up and realized they need more dollars), each dollar would lose value. If, say, we doubled the number of dollars in circulation, each dollar would be worth approximately half what they had been worth. Doubling the dollars in circulation again wouldn't quite halve their value, and so on. The same principle holds in the actual world, in any situation. It doesn't really matter how many dollars are needed to facilitate trade. The laws of supply and demand are pretty firm here--the more dollars there are, the less they are worth.

Yep now that same economy needs 330m dollars. So you can easily add 25-30m dollars and nothing will happen to the value because it is required.
They don't lose value as long a they are in demand and the system needs them. The only time the currency really losses value is if you have
way more dollars than what is needed or people want.

I get a paycheck in dollars in spite of the fact that someone else got paid in dollars the day before I got paid? I'm afraid that comment doesn't make much sense.

Actually it does. If as you say that only 1% own 90% of everything else then you getting your pay check at the end of the week would be very difficult.
you would require major redistribution to ensure that enough money circulated back through the system.

Sure. But it does run that way with respect to the materials people need to survive. If you print more dollars, it will take more of them to purchase food, houses, etc. Concomitantly, if demand for those things comes close to matching supply, the price will be bid upward, and people with few dollars will be priced out. That dollars are not finite is therefore a red herring--what matters is that the things we need to survive are finite, at any one time or over any given interval.

How do you think median income went from 5k to 56k without the ability to add more money to the system?
No it isn't a red herring.

as long as there are not more dollars than people want you are fine.
that is why the federal reserve exists.

 

[JohnfrmClevelan]

When you control your own money supply and can add to the pot when it is required then income inequality doesn't matter.
income inequality only matters in a system where you cannot add anymore money to the pool.

in that case you do need massive amounts of redistribution.

Please - quit pushing that argument. You don't know what you are talking about.

 

[JohnfrmClevelan]

that is the job off the federal reserve to ensure that there are enough dollars plus little extra.
that is why you still get your pay check at the end of the week when someone else earned 1m dollars the day before.

Flat-out wrong. And you are building your bigger argument on this faulty foundation.

 

[Myview]

https://fee.org/articles/5-myths-about-income-inequality-debunked/

This isn't so much an outright fallacy as it has to do with incomplete knowledge and misunderstanding of statistics. The argument falls apart when you consider two things: income mobility and the fact that all households saw increases over time.

The data comes from the Panel Study of Income Dynamics at the University of Michigan. This longitudinal study started in 1968 and has been ongoing ever since.
The reason this data is important is that it follows people over time instead of statistical bins. This is maybe, at first, a subtle point, but it is crucial. Many arguments involving inequality follow statistical bins over time instead of people over time who move through the bins. I might not be as concerned about the bin of the bottom 20 percent between 1970 and 2018 if the people who made up the bottom quintile in 1970 have moved into other higher bins by 2018.

FEE is a Libertarian think tank...Libertarians are famously blasé about income inequality. Income inequality has existed since Kings and feudal barons controlled most of the wealth. Jump to 2018 and you should be able to see that nothing has changed. Our kings and feudal barons just don't have royal titles any more. Give the rich massive tax cuts both individually and corporately, sharply reduce or do away with Medicare, Medicaid, Pell Grants, Social Security,
SNAP, WIC, HUD, and all other social safety net programs that help the masses. Sharply reduce access to health care, education, higher education, and all things government supplied that make coping with life easier for the masses.
You then have a recipe for income inequality run amuck. A perfect storm for massive resentment and social unrest. Our masses enjoy a standard of living much better than the serfs of old but we still live and work beyond the palace walls. Someone must pay for us to live in a society that has social order and at least some semblance of balance.

 

[ludin]

Flat-out wrong. And you are building your bigger argument on this faulty foundation.

You are telling us that the federal reserve is wrong? You do realize that they are the ones that say they control the money supply right?
So now you have to disprove that the federal reserve is wrong since they are the ones that say it.
I will be waiting on your evidence not that you ever post any.

 

[JohnfrmClevelan]

You are telling us that the federal reserve is wrong? You do realize that they are the ones that say they control the money supply right?
So now you have to disprove that the federal reserve is wrong since they are the ones that say it.
I will be waiting on your evidence not that you ever post any.

I'm telling you that you have the source of money wrong. You never did fully understand the process, although you are making progress. But you never listen to me when I try to help.

The fed can't do anything to add assets to the private sector. They can only exchange one asset (reserves) for another (debt, normally Treasury debt). When the Fed added tons to the MB money supply, they also took away the same amount in bonds and securities. People and banks were more liquid, but they were not richer, and it had precious little effect on spending. Only deficit spending (by the government, not by the Fed) adds anything to the economy.

The money that matters is M1, because that is what we transact with. And spending/investment goes up when borrowing goes up. People/companies borrow in order to spend and invest. Buying and selling Treasury debt is just moving saved dollars around; it doesn't affect spending or investment.

 

[ashurbanipal]

Yep now that same economy needs 330m dollars. So you can easily add 25-30m dollars and nothing will happen to the value because it is required.

No, each will become worth less than before. Substantially less, in fact. The loss of value per dollar slows down on the other end of the spectrum, when there are already more dollars than are needed.

But let's try this a different way, because talk of dollars is only talk by proxy--my point is and has been that what is finite is wealth, the actual stuff that people need or want, the stuff they spend dollars on: food, building materials, medicine, toilet paper, acres, furniture, draft animals, fishing rods, works of art, electronics, medicine, automobiles, gasoline, coffee makers, etc. There's only so much of all of that stuff going around at any one time or in any given interval, and when a person is poor, it's not so much dollars that they lack as they lack food, shelter, transportation, medicine, and so on. Give a poor person some dollars, and they will exchange those dollars, usually immediately, for what they need to survive.

But since, as you say, there is a level somewhere that represents dollars needed to facilitate trade, there is a limit over that at which dollars lose value as more are printed. That means that, somewhere, there is a finite value that all dollars in circulation represent at any one time or over any given interval. There is still, therefore, a finite cap, even when it comes to dollars.

Actually it does. If as you say that only 1% own 90% of everything else then you getting your pay check at the end of the week would be very difficult.
you would require major redistribution to ensure that enough money circulated back through the system.

Two points:

1. I don't recall saying that 1% own 90% of everything. It's actually the top 20% that own 90% of everything. The top 1% owns about 40% of everything.

2. Even if the top 1% owned 90% of everything, that still wouldn't mean massive redistribution would be necessary for paychecks to exist and have some value, so long as there was enough left in that remaining 10% to go around.

So yeah...your remark still doesn't make any sense.

How do you think median income went from 5k to 56k without the ability to add more money to the system?

I'm assuming we'd need to go back to sometime in the early part of the 20th century for median income to be $5,000. The purchasing power of that $5,000 in terms of things like water, shelter, food, medicine, transportation, etc. is probably roughly equivalent to $56,000 today. (Actually, it probably represented a little more purchasing power, since real (i.e. inflation-adjusted) incomes in the lower 90% have been declining since the 1970s, but let's ignore that for a moment). Thus, a person today making $56k can purchase about as many oranges, as many loaves of bread, as many aspirin, or as many houses with their $56,000 as a person making $5k could with their $5,000 whenever it was that $5k was the median income.

Adding all those dollars hasn't been responsible for adding wealth--and that's implicit in your point about the fed adding only so many dollars as needed to facilitate trade. Dollars have to follow wealth added to the economy. And wealth has been added to the economy since the early 20th century, due to more productive capacity as a consequence, until recently, of increasing population. But there is still, at any one time or over any given interval, a finite amount of wealth.