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Welcome to Income Inequality Kos.

Join us Thursdays, at 9:00 p.m. eastern. We discuss income inequality, concentration of wealth, and related issues.

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Concentration of wealth in America reached a peak before the Great Depression. It was brought down, stayed steady for long decades, and then began a sharp rise in the early 80s. This is the central narrative about concentration of wealth, but how do we explain it?

These are some general explanations. They are more alternative and mutually supporting, than competing.

Kuznets Curve

The theoretical Kuznets curve:

Early in the development cycle, as societies get richer they get more unequal. Creation of wealth is dependent on physical capital.

Later in the development cycle, as societies get richer they get more equal. Creation of wealth is dependent on human capital.

The following graph is GDP (PPP) per capita versus GINI, both using the CIA values. A bigger version with country label popups is here. I haven't much checked my work.

The United States is towards the top end of income per capita. Its GINI is very high for a developed country.

Accepting, from the graph, at least the right hand end of the Kuznets curve, the United States is doing something very wrong about income inequality, having gone against the development trend of nations.

In this analysis, we might attend to education policy to put us in line with other nations.

External Factors Since the Late 70s

External societal factors in the late 1970s fueled concentration of wealth.

Government policy since the early 1980s failed to address this, and further fueled concentration of wealth. It has been a steady climb ever since.

In this analysis, we might make tax policy more progressive, and enact better financial regulation, to attend to the unaddressed 1970s drivers.

Flat Tax for the Wealthiest

United States tax policy is now progressive at lower levels, and very nearly flat at the highest levels.

Flat taxes fuel concentration of wealth. Under this analysis, we would sharply increase tax rates at the highest income levels.  

Financial Crash Cycle

Financial crashes temporarily wipe out the wealth of the rich. The lasting effect on concentration of wealth depends on government policy (Saez).

The growing concentration of wealth in America is partly fueled by policy supporting rebound of the very wealthy over rebound of everyone.

In this analysis, we would adjust tax and other policy, after crashes, to benefit everyone not the very wealthiest.

An Extreme Problem

Concentration of wealth in America is at levels last seen before the Great Depression. Our financial problems are extreme.

The only hope for improving present conditions, restoring employment, affording permanent relief to the people, and bringing the nation back to the proud position of domestic happiness and of financial, industrial, agricultural and commercial leadership in the world lies in a drastic change in economic governmental policies.

Democratic Party Platform of 1932

In this analysis, the only hope for improving present conditions, restoring employment, affording permanent relief to the people, and bringing the nation back to the proud position of domestic happiness and of financial, industrial, agricultural and commercial leadership in the world lies in a drastic change in economic governmental policies.

Positive Feedback Loop

Concentration of wealth is concentration of power. Concentrated money dominates U.S. politics. The very wealthiest have much more than their fair share of influence on elections and on policy. Government policy ends up benefiting the wealthiest, and fueling further concentration of wealth in a self supporting cycle.

In this analysis, we would fix the dominance of money on U.S. politics.

Originally posted to Garrett on Thu Oct 14, 2010 at 06:04 PM PDT.

Also republished by Income Inequality Kos.

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