Let the Good Times Roll! Or, Tonight We're Gonna Party Like It's 1929

[Vanguard]

Originally posted by Spiffor

There's the concept of "real" value and "nominal" value. It's basically the jargon when one refers to the actual stuff available, and on the other hand to the amount of money it costs.

When we are talking about GDP growth, we do so ajusted to the inflation. If the economy grows by 3%, it means the economy has actually produced 3% more stuff than in the previous year. Not that there are 3% more dollars around

"Purchasing power" is the same idea. When it increases, it means you can buy more stuff with your money. And the west has experienced a dramatic increase in purchasing power since the industrial revolution. Which is why many of us live without fear of hunger, and enjoy things such as heat, hygiene, healthcare (in civilized countries)... in comparison to 18th century peasants.

Sometimes, the purchasing power of the general population can increase despite a strong income gap, simply because the economy produces more stuff than the capitalists pilfer from the poor. And sometimes, an economy with little income gap gets everybody poorer, because there's no incentive to produce real value.

Now, I think we are at a point where income gap is way over the top, and that it becomes self-reproducing, with the increase of income from capital, and fall in income from labour. Which is why I oppose capitalism, and I spend hours every week to that effect.

However, to accuse income gap of being an inherent source of poverty is naive. The question is as much about the way you share the pie, as about the total size of the pie.

Saying that wealth inequality is the source of poverty is, as I have admitted, simplistic. I do not think however that the phrase 'naive' can appropriately be applied to me or my arguments.

But, simplistic or not, inequality of wealth is, at a macroeconomic level, the general source of poverty. When it comes right down to basics, wealth inequality is the definition of poverty.

Otherwise, why do we still have poor people? After all, there were poor people two hundred years ago, people who earned only just enough to feed themselves or their families.

And since that time our economy has experienced average real per-capita growth of (let's say) 2%. So the poorest people now should be (roughly) one thousand times richer than they were back then.

And yet there are still people who can't afford to buy enough food. Why? Those people should now have one thousand times as much money to buy food as poor people did two hundred years ago.

The reason is simple: the economy is not a pie. Increasing its size does not necessarily increase the size of your slice.

On the other hand, it is also true that increasing your share of the pie does not necessarily mean you getting wealthier. If the pie shrinks then you could end up with less.

But so what? This is also true when other people are increasing their share of the pie. In fact, it is even more true. So when you see rich people getting richer, unless you are damned sure that they are increasing the size of the pie dramatically, you are pretty much guaranteed to be getting poorer.

In the current US economy, the rich are getting richer very rapidly. But the economy (once you discount debt based increases) is not growing any faster than historical averages. Ipso facto, you are getting poorer.

[Odin]

Originally posted by Dis

Does it mean we are headed for a great depression?

No, fortunately, because regulations imposed by the New Deal have dampened the business cycle. We will probably have a nasty 70s-ish style recession, though.

[DanS]

Another thing to keep in mind when looking at these figures is that income tax returns selectively include some gains and exclude others. For instance, if you sell a stock, you might include some capital gains. But if you do a cash-out refinancing on your home, no gain will show up.

[Kuciwalker]

But, simplistic or not, inequality of wealth is, at a macroeconomic level, the general source of poverty. When it comes right down to basics, wealth inequality is the definition of poverty.

Otherwise, why do we still have poor people? After all, there were poor people two hundred years ago, people who earned only just enough to feed themselves or their families.

Because we redefine poverty every time we all get better off. Most people in poverty today live much better than regular people 100 years ago. Poverty exists because we always want to be able to call something poverty.

[Dauphin]

Poverty was originally defined as a basket of goods, which if you could not afford meant you were in poverty.

That definition, in the UK at least, was in the changed to a relative poverty definition in the 50s as hardly anyone was unable to afford the basic goods set out in the late 19th century.

I believe that today the basket of proportional goods includes, amongst other things, the ownership of a TV, mobile phone and Playstation or other games console. This is because they are owned by such a majority that to not have them puts you in a poor minority, even if you don't want them.

Similarly retired persons with wealth such as homes with no mortgage but moderate pension income are deemed as poorer than well paid persons with few assets (i.e 20 somethings) who rent.

[Vanguard]

Originally posted by Kuciwalker

But, simplistic or not, inequality of wealth is, at a macroeconomic level, the general source of poverty. When it comes right down to basics, wealth inequality is the definition of poverty.

Otherwise, why do we still have poor people? After all, there were poor people two hundred years ago, people who earned only just enough to feed themselves or their families.

Because we redefine poverty every time we all get better off. Most people in poverty today live much better than regular people 100 years ago. Poverty exists because we always want to be able to call something poverty.

Nonsense. Poverty is a real phenomenon. Just because the government occasionally changes its technical definition of what amount of income constitutes poverty, that does not mean that actual poverty somehow no longer exists. Are you saying that no one has trouble buying the necessities of living? That simply isn't true.

But why isn't it true? If increasing the "size of the pie" is the only thing that matters, then almost no one should have any trouble affording food. We've been increasing the size of the pie for two hundred years. Everyone on the planet should be able to eat pie day and night by this time.

And yet there are still a very large number of people who cannot afford anything more than the most basic of food and lodging. Why?

Let's consider your 18th century peasant: Suppose that peasant bought nothing but 2 and a half pounds of potatoes a day in 1776----- which is about the minimum caloric intake of one of the cheapest foods available.

In between then and now the size of the economic "pie" has increased by (let's say) one thousand times----- 2% annual real growth compounded.

Now, two and a half pounds of potatoes costs about 1 dollar at a cheap supermarket. So one dollar a day for 365 days is $365 dollars a year in food cost. But if the size of the economic pie has multiplied a thousand times, then the poorest person in America should now earn at least $365,000 a year. Or more accurately they should be able to purchase the equivalent of $365,000 worth of stuff.

Or to put it another way, the poorest person in America should be able to afford decent medical care, food, rent and education. Which is, oddly enough, exactly what poorer people can do in countries such as Norway and Sweden where wealth inequality is relatively low.

[LordShiva]

Yes, it's true that as many of today's 6+ billion people die regularly of starvation as they did 200 years ago, especially in the countries other than communist North Korea

[Ramo]

In between then and now the size of the economic "pie" has increased by (let's say) one thousand times----- 2% annual real growth compounded.

3% (or 100 times)

[Kuciwalker]

Originally posted by Vanguard
Nonsense. Poverty is a real phenomenon.

Then what the hell is it? The way we've defined poverty, as essentially the bottom X% of the population, it will always exist. However, given that defination "poverty" can't possibly be a bad thing in itself.

[Kuciwalker]

.

[Vanguard]

Originally posted by Kuciwalker


Then what the hell is it? The way we've defined poverty, as essentially the bottom X% of the population, it will always exist. However, given that defination "poverty" can't possibly be a bad thing in itself.

In an economy where income inequality is low, then the bottom X% will not be poor.

In an economy where income inequality is high, then the same bottom X% will (almost) always be poor.

The explanation for this is fairly simple:

Producing food requires resources.

Producing luxury goods also requires resources.

Rich people can bid more for resources than poor people can.



So.......

A month's worth of food requires 10 units of oil to "make" (ie, grow, package, transport). It also requires 10 units of labor.

An ivory back scratcher also requires 10 units of oil and 10 units of labor to make.

So in a high inequality economy, the price of a month's food will rise until it is equal to the price a rich person will pay for another ivory back scratcher. The more inequality there is in the economy, the higher this price becomes, until eventually the bottom X% can no longer afford food.

[Kuciwalker]

You've taken a loaded word, poverty, defined it to mean "inequal distribution of wealth," then used that as evidence that inequal distribution of wealth is bad. Your entire argument is circular.

[Rufus T. Firefly]

Originally posted by Kuciwalker


Then what the hell is it? The way we've defined poverty, as essentially the bottom X% of the population, it will always exist. However, given that defination "poverty" can't possibly be a bad thing in itself.

Actually, we don't define it as the bottom X% at all. We define it as the inability to afford a certain bundle of basic goods. That's why the percentage of people living below the poverty line can change.

That being said, you're right to note that an increase in wealth for the top stratum of society does not necessarily create more poverty, obviously.

[DAVOUT]

Let's consider your 18th century peasant: Suppose that peasant bought nothing but 2 and a half pounds of potatoes a day in 1776----- which is about the minimum caloric intake of one of the cheapest foods available.

In between then and now the size of the economic "pie" has increased by (let's say) one thousand times----- 2% annual real growth compounded.

Now, two and a half pounds of potatoes costs about 1 dollar at a cheap supermarket. So one dollar a day for 365 days is $365 dollars a year in food cost. But if the size of the economic pie has multiplied a thousand times, then the poorest person in America should now earn at least $365,000 a year. Or more accurately they should be able to purchase the equivalent of $365,000 worth of stuff.

Your computation must be slightly corrected (independently of the 1000 times increase of the economic pie that I do not discuss):
The population in 1776 was estimated to 2.5 millions. It has increased to 301 millions in 2006.
Therefore the individual share of the economic pie has increased 8.33 times and not 1000 times, which means that “the poorest person in America should now earn at least” $3,000 a year and not $365,000 worth of stuff. I suppose that there is no doubt that even the poorest American has a standard of living exceeding $3000.

[DAVOUT]

A month's worth of food requires 10 units of oil to "make" (ie, grow, package, transport). It also requires 10 units of labor.

An ivory back scratcher also requires 10 units of oil and 10 units of labor to make.

So in a high inequality economy, the price of a month's food will rise until it is equal to the price a rich person is will to pay for another ivory back scratcher. The more inequality there is in the economy, the higher this price becomes, until eventually the bottom X% can no longer afford food.

To be true, this would need that 1. Ivory is free without limitation and 2. Famines are not caused by climate.

As ivory is limited in quantity, its price is high compared to potatoes, and since its price is high only wealthy people can afford to by it. As wealthy people are limited in number, the price of ivory back scratcher will reflect that number.
The price of food is connected to the production available, and only to it, the variation of which being due to climate more than anything else.

All this makes your hypothesis bizarre.