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The rise of wealth inequality

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Bi0Hazard
By Bi0Hazard | Feb 13 2017 4:07 AM
t_rao: The view you have here is common among libertarian-capitalists. Basically, wealth and income inequality rising in capitalism is due to the state manipulating the markets which allows large businesses and corporations to benefit from the system at the expense of the rest. However, if we reduce this state manipulation of the markets, wealth inequality will stay constant or near-constant at natural market rate.
Now I will respond:
Firstly, the negative income tax in principle is not a bad idea. As Friedman puts it, the negative income tax would guarantee a universal basic income while still providing an incentive to work for the less well off.
This form of wealth redistribution is effective as long as there are no loopholes that get in the way (which can be common). A guaranteed minimum income becomes more relevant in the face of automation.
Back to income inequality. I think that much of the inequality today arises not from capitalism as a system but from Crony Capitalism where the government intervenes excessively to the benefit of the rich.
Crony capitalism is definitely alive in the political and economic institutions. With money, politics, and legal system allowing it, it becomes advantageous to bribe politicians to benefit them. Common examples of advantageous interventions are bailouts, trade deals, deregulation, etc.
Capitalism as a system (assuming you mean laissez faire) is political as well as economic. Capital and production is controlled by private owners for maximizing profit. The organizations in capitalism govern in this way.
When the government is not corrupt and not eroded by corporate lobbyists, it does not restrict free trade or favour the rich, as it currently tends to do through bailouts, etc. I support this system and believe that it will reduce inequality.
The problematic assumption you are making here is that if corporate lobbyists and political corruption in the state went away tomorrow, society would start to drift towards a more laissez faire market economy. If we are to assume people can still vote and control the state, then there is no saying that the citizens will start voting for a change to a specific system (considering the potentially unpredictable behavior of voters and the way the democracy works). As far as reducing inequality, that would depend on the most effective ways of doing so and what the citizens choose.
Why? Because then the poor and the middle class will be able to create businesses to compete with large corporations as well as regain control of the stock market without unfair competition.
A good question to ask in light of what you say here is, what is fair and unfair competition? How would the top wealthy capitalists make it harder to access the prerequisites to start a business? The capitalists do control the capital and can certainly deny it to others, it may even be advantageous. The state can grant a monopoly with permits and special regulations, or the first competitor can create a natural monopoly while abusing its powers (assuming regulations don't stop it from doing so). I see the most free market model as the social market economy, which is more free than laissez faire.
I think that the rich will naturally have a tendency to control a large portion of the wealth due to their business aptitude or their forefathers' business aptitude and this acceptable as long as income inequality reduces to what was shown in the initial video (see top of the thread) as the perceived distribution of wealth.
But the question is, how do we get income inequality to come down? The problem is one of a disproportional benefit of the top 1%.
It is not immoral for the rich to do so and I think most of us agree on the morality of a voluntary economy.
Many of us would, but capitalism isn't exactly an entirely voluntary system. For example, you cannot always opt out of low wage work, there is not always the opportunity out that you want. Capitalists can coerce with money and social barriers. The state can intervene to make it voluntary.
In this freer world with a more libertarian-leaning government, there would be no involuntary trade but rather, as has already been established, free trade between private entities to their mutual benefit (non-zero sum game).
Again, especially with labor and corporate hierarchy, capitalism isn't voluntary (you don't need guns for coercion).
I think that as long as we remove any governmental restraint on money (the Federal reserve manipulating the currency of the US is a good example) it is immoral to redistribute wealth any further.
With banks, there will inevitably be government restraints on money.
Most of the current inequality arises from either government meddling or immoral actions in the past (e.g. slavery, war).
You are right about that, but with government, private organizations are governments as well. The social interactions within the system give rise to inequality.
If we remove this sort of involuntary and unjust acquisition of wealth in our current society, inequality will slowly reduce until it reaches natural free market levels.
I would agree with that too, but probably not in the way you think about it. Part of combating involuntary interactions is by state intervention to help workers with pro-labor policies. Private organizations can accumulate wealth by profit motivated use of capital and human workers. We can combat this by redistributing wealth and passing pro-labor social market legislation to convert to a voluntary and free system or restructuring the entire economic system.
t_rao
By t_rao | Feb 14 2017 12:01 AM
Bi0Hazard: I'm starting to get convinced by this, but I still have a few doubts and am interested to see your responses to them.

A good question to ask in light of what you say here is, what is fair and unfair competition? How would the top wealthy capitalists make it harder to access the prerequisites to start a business? The capitalists do control the capital and can certainly deny it to others, it may even be advantageous. The state can grant a monopoly with permits and special regulations, or the first competitor can create a natural monopoly while abusing its powers (assuming regulations don't stop it from doing so). I see the most free market model as the social market economy, which is more free than laissez faire.

You give too much credit to these capitalists that can create monopolies in the free market I talk about. I'm not quite a libertarian capitalist, as I do draw the line at free education. If we allowed youth to attain equal education, the end result would be a nation of potential competitors for these wealthy capitalists. In fact, can you name any monopoly occurring through the free market other than the diamond market with the De Beers corporation? These monopolies are very very rare because companies must compete with many many competitors to keep customers. What would happen in the world referenced in my original post is that in order to stay in the 1%, the rich would have to continuously improve at what they do and outcompete all smaller competitors (unlikely!).

Even if the rich were resourceful enough to maintain the current wealth gap, the only way for this to occur is for their businesses to be offering quality services at low prices to the population. The result is that the whole society benefits from this, even if the rich benefit more than the rest of the population. Even if different parts of society benefit at different rates, I cannot see any other economic system that attains such beneficial results as capitalism.

Capitalism as a system (assuming you mean laissez faire) is political as well as economic. Capital and production is controlled by private owners for maximizing profit. The organizations in capitalism govern in this way.

Not in a libertarian government. Given that government has significantly reduced powers as well as no power to intervene in the market, no economic interests can have negative influence over the economy. When the government has less power, even the most corrupt, Crony capitalist-influenced governments cannot do nearly as much harm as they do now. You say that voters are unpredictable. This is very true, which is exactly why a government that does not have the power to meddle in the free market for any purpose, however noble, creates the risk for abuse of the system.

admin
By admin | Feb 14 2017 2:42 AM
t_rao: no economic interests can have negative influence over the economy
Woah woah woah woah... back up here. WHAT!?

If we take as a premise that some government economic interests have negative influence, and people should have autonomy over economic activity, it follows logically that people can have economic interests with negative influence. To contextualize this - if we accept that government investiture in the military-industrial complex has negative influence on the economy as a whole (which I do), shouldn't private investiture be judged against the same ethical standard?
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t_rao
By t_rao | Feb 15 2017 1:36 AM
I distinguish between private investment and government investment. If a private individual spends money in a particular way that doesn't infringe upon the consent of others, that is acceptable and should not be regulated against. If the government funds any special interests, this is principally wrong as the government's funds are taken from the taxpayers with the reasonable expectation that the money will go towards public good and not special interests. Back to my point, while the top corporations may be capable of having economic influence, as long as a government has less power they would be unable to influence special interests.

I think my point was not very clear and you misinterpret it in the sense that I am saying that the government cannot have a negative influence on the market if it does not get involved. It is time we stop supporting special interests of groups through government intervention and complain when the interests served are not ours. Private individuals are being held to a different standard in a sense because the money is theirs and not the people's.
t_rao
By t_rao | Feb 15 2017 1:37 AM
t_rao: admin:

Sorry forgot to tag you. :)
t_rao
By t_rao | Feb 15 2017 1:37 AM
admin:

As you can see I'm still learning to use the forums, reply is above.
t_rao
By t_rao | Feb 15 2017 1:38 AM
t_rao: OK I give up... this is actually pretty funny.
admin
By admin | Feb 15 2017 2:38 AM
t_rao: What you define as special interests, no doubt some fat cat government bureaucrat defines as public good. I'm concerned about how we devalue impacts in microeconomics, as opposed to profits. I strongly believe that corporations can do this. Illegal corporations right now sell drugs, private armies and human slaves. Governments aren't (generally) funding these corporations, people are. In fact governments are largely actively trying to stop them. In a similar way, corruption is a problem in both government and private enterprise. Nepotism is a problem. Fraud is a problem. The moment we hold up the private sector to a different standard, we run into these issues by concealing power dynamics. I don't pay my chess club with the reasonable expectation they'll use the money for drugs, I fund it so I have a fun environment for chess. Same story with the government.
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admin
By admin | Feb 15 2017 2:39 AM
t_rao: You can use the "reply to post" button under a post.

OR type the @ symbol immediately followed by my username, like this: @admin :)
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Bi0Hazard
By Bi0Hazard | Feb 20 2017 7:08 AM
t_rao: If we allowed youth to attain equal education, the end result would be a nation of potential competitors for these wealthy capitalists.
Even education isn't going to always stop poverty or give you the prerequisites to become a capitalist.
In fact, can you name any monopoly occurring through the free market other than the diamond market with the De Beers corporation?
Sure. Canadian National Railway (Privatized in 1995), Enterprise Products Partners, and Norfolk Southern Railway to name a few. However, it is important to know how natural monopolies can rise in capitalism. A natural monopoly thrives in industries with a high fixed cost and a low marginal cost (cost to serve one more customer). This creates an enormous barrier to entry that prevents much competition. Money/cost is a barrier in itself with capitalism.
These monopolies are very very rare because companies must compete with many many competitors to keep customers.
Unless you have a market advantage and the barriers prevent other competitors from rising. They need not be legal, they can arise economically.
What would happen in the world referenced in my original post is that in order to stay in the 1%, the rich would have to continuously improve at what they do and outcompete all smaller competitors (unlikely!).
The top 1% has an advantage with profit margins and capital. The ability to expand is much larger. If your point is that the only way to be in the 1% is to please all parties involved in their transactions, that is false. With the profit motive, it becomes advantageous to lower wages for profit, coerce workers with money, and control capital at the expense of others.
Even if the rich were resourceful enough to maintain the current wealth gap, the only way for this to occur is for their businesses to be offering quality services at low prices to the population.
There is also the other side of the coin, money in the hands of the consumers. Consumers cannot just pull money out of thin air, they get it either from their business profits or from working for a capitalist. They cannot maintain their wealth in the long term if they cannot retain profits, but wages are always lower than total circulated capital to sustain profit margins, so this means that wage money cannot maintain businesses in the long term. This largely explains why wealth collects at the top 1% in capitalism while wealth is lost in lower classes (higher economic inequality). Of course, there are other factors to take into account as well, such as automation, globalization, and control of capital with private ownership that lead to rising wealth inequality. Some of these can come through crony capitalism as well. So, low prices for goods do not matter in the long term.
The result is that the whole society benefits from this, even if the rich benefit more than the rest of the population.
In the short run, yes they can. Capitalism has resulted in rises of living standards, largely due to its institutional consistency with innovation and incentive with capital accumulation. However, the economic structure of private ownership makes it problematic in the long term since the capitalist is at the top of the hierarchical chain and making maximal profits from the work of the workers, which inevitably results in less wage good purchase than total circulated capital, so the total output cannot be purchased, which is bad for them (and of course workers) in the long term.
Not in a libertarian government. Given that government has significantly reduced powers as well as no power to intervene in the market, no economic interests can have negative influence over the economy.
My point is that private organizations in capitalism are political institutions as well as economic institutions. I do not mean state intervention in the market. Private organizations have a hierarchical structure in capitalism and can govern with control of capital and production. If the state cannot intervene, this allows allows for potential abuse by private organizations.
When the government has less power, even the most corrupt, Crony capitalist-influenced governments cannot do nearly as much harm as they do now. You say that voters are unpredictable. This is very true, which is exactly why a government that does not have the power to meddle in the free market for any purpose, however noble, creates the risk for abuse of the system.
What do you mean by "less power"? Limited by constitution or rule of law? My point here is that voters can vote to change laws, even to possibly give the state more economic control. For there to be less power, there would have to be a limiter in this case.
Bi0Hazard
By Bi0Hazard | Feb 20 2017 7:22 AM
admin: The moment we hold up the private sector to a different standard, we run into these issues by concealing power dynamics.
But everyone does. Many people will accept public schools and healthcare over privatized schools and healthcare as the predominant means of access to education and healthcare. However, when it comes to buying some goods, the same people accept private sellers. The criteria seems to be that everyone should be guaranteed life necessities or maybe they see private schooling and healthcare as inefficient for the overall population.
admin
By admin | Feb 20 2017 8:16 AM
Bi0Hazard: I think we actually agree on this. By standard I meant moral and legal standards - but one single set of consistent values may yield inconsistent outcomes as you identify in terms of who produces what.
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Bi0Hazard
By Bi0Hazard | Feb 20 2017 8:08 PM
admin: Do you mean that the private sector should not be held above the public sector (and vice-versa) morally and legally in all industries?
Either that or you are claiming that we shouldn't underestimate the power of a private organization as compared to legal authority.
admin
By admin | Feb 21 2017 12:31 AM
Bi0Hazard: Both but more the former. For example, I don't think it's right to say "it is moral for private factories to pollute rivers but not the government."
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t_rao
By t_rao | Feb 21 2017 2:44 AM
@BioHazard

@admin

Thanks for the responses. I am convinced by your refutation. Only one real question remains.

What alternative system of governance would you propose that solves the issues of income inequality while defending individual liberties? (keeping in mind my probable libertarian-capitalist response) :)
admin
By admin | Feb 21 2017 3:02 AM
t_rao: Democracy
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Bi0Hazard
By Bi0Hazard | Feb 21 2017 3:13 AM
t_rao: Good Question. I would say either a form of social democracy (social market economy and democratic legal system) and/or an economic democracy system as an alternative structure to private hierarchy and control.
t_rao
By t_rao | Feb 22 2017 1:06 AM
admin: Would you agree, however, that simply because people vote for something that doesn't make it moral? Can't capitalism and democracy exist simultaneously (as I think was clear by my previous posts)? Also, when the 51% can exercise near absolute power over the rest of the population, doesn't libertarianism act as a sort of guideline as to how much power the 51% should exert?

Of course, I support democracy; however, democracy as a system of government is not mutually exclusive to capitalism. Also, beyond the economic incentive argument for capitalism, how do you justify the majority of voters being able to spend the money of the hardworking 10% as they please? For example, Justin Trudeau won in Canada by making many expensive promises that would be paid exclusively by the upper class. The 1% obviously did not vote for him, but the rest of the population didn't care about the hard work of the upper classes. (Keep in mind that by upper classes I mean about the top 10%, which includes teachers, nurses, etc.)

Democracy is a system of deciding what should be done. What I was trying to ask is "What should be done?" e.g. Sweden-inspired socialism, etc.
admin
By admin | Feb 22 2017 3:19 AM
t_rao: You asked for a system of governance, not a system of morals. I think good governance accounts for the fact that there are no moral truths and people can rationally disagree on moral questions.

With respect to morals, you and I will not see eye to eye. I'm a liberal, you may not be, and that's alright. If people elect somebody else then I'd of course hope the liberal view prevails again but I'd still support the democratic process by which that other person has come to power.
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Bi0Hazard
By Bi0Hazard | Feb 22 2017 5:10 AM
t_rao: Also, when the 51% can exercise near absolute power over the rest of the population
Unless you have a constitution of some sort to be governed by. Democracy isn't necessarily an unlimited power by a pure majority vote on every law. Part of the concept of liberalism is protection of human rights and equality.
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