Is The Economic Crisis related to the disparity of income distribution

I'm also failing to see the relevance of the tax issue. Deepblue, you'll need to complete the circle for me. Okay, the wealthy paid for a disproportionate share of government. Let's pretend the wealthy paid for all the taxes and the poor paid nothing. What would that tell us about the impact of wealth disparity on the health of the economy?

 

Abolish the income tax.

 

Not sure what you mean by that, you implying tax cuts were the cause of this crisis?

 

First, I don't see a direct link between income gap and the current crisis.

Second, when pgabriel puts up a graph showing top income level being benefited in recent years (bush years), I see an obvious connection to the bush tax cuts. I am simply trying to paint a more complete picture.

 

It sounds like you assume pgabriel is running some kind of push-poll, eliciting opinions about America's growing income disparity's relationship to the ecomic crisis in some backdoor way of convincing people that the Bush tax cuts are bad. And, you've decided you will foil his attempt to persuade us by showing us how much of the government is paid for by the rich.

However, I don't think pgabriel had given a thought to the Bush tax cuts when he made this thread. Moreover, I don't think anyone could credibly argue that the growth in the wealth disparity is solely attributable to tax policy. So, it really isn't relevant.

Instead, I think he's taking two interesting facts about the economy of recent years -- that income disparity has been growing, and that we went into recession -- and asking if they could be related. To that, I think weslinder has the best response, that the disparity resulted from the bubble that popped and we can expect to see the disparity shrink in the near term. Maybe going forward, we could look at wealth disparity as a lead indicator of sorts.

 

Kind of off-topic here...

How much of the GDP growth from previous periods could be attributed to the housing bubble?

In other words, say subprime loans never really escalated, real estate prices never soared, and people didn't tap into the bubble-equity of their homes to drive consumer spending.

 

No, it was irresponsible spending, lending and consumption that got us AND the world where we are today. If you want to make more money, there is no place better then the USA to do it.

Here are some ideas to get your started:
1. Get some training on a new marketable skill
2. Come up with a business idea and pursue it
3. Live below your means and save some money for capital
4. Get a second job and bank the income
5. Pay cash for everything so you don't have revolving debt and fees dragging you down

 

Someone please post the video of Milton Friedman (remember when U of Chicago actually was known for their capitalist thinkers, not the current socialist alums??) pimp slapping Phil Donahue on this very subject.

 

[rquoter]And the big winners are the very, very rich. One ploy often used to play down growing inequality is to rely on rather coarse statistical breakdowns -- dividing the population into five ''quintiles,'' each containing 20 percent of families, or at most 10 ''deciles.'' Indeed, Greenspan's speech at Jackson Hole relied mainly on decile data. From there it's a short step to denying that we're really talking about the rich at all. For example, a conservative commentator might concede, grudgingly, that there has been some increase in the share of national income going to the top 10 percent of taxpayers, but then point out that anyone with an income over $81,000 is in that top 10 percent. So we're just talking about shifts within the middle class, right?

Wrong: the top 10 percent contains a lot of people whom we would still consider middle class, but they weren't the big winners. Most of the gains in the share of the top 10 percent of taxpayers over the past 30 years were actually gains to the top 1 percent, rather than the next 9 percent. In 1998 the top 1 percent started at $230,000. In turn, 60 percent of the gains of that top 1 percent went to the top 0.1 percent, those with incomes of more than $790,000. And almost half of those gains went to a mere 13,000 taxpayers, the top 0.01 percent, who had an income of at least $3.6 million and an average income of $17 million.

A stickler for detail might point out that the Piketty-Saez estimates end in 1998 and that the C.B.O. numbers end a year earlier. Have the trends shown in the data reversed? Almost surely not. In fact, all indications are that the explosion of incomes at the top continued through 2000. Since then the plunge in stock prices must have put some crimp in high incomes -- but census data show inequality continuing to increase in 2001, mainly because of the severe effects of the recession on the working poor and near poor. When the recession ends, we can be sure that we will find ourselves a society in which income inequality is even higher than it was in the late 90's.

So claims that we've entered a second Gilded Age aren't exaggerated. In America's middle-class era, the mansion-building, yacht-owning classes had pretty much disappeared. According to Piketty and Saez, in 1970 the top 0.01 percent of taxpayers had 0.7 percent of total income -- that is, they earned ''only'' 70 times as much as the average, not enough to buy or maintain a mega-residence. But in 1998 the top 0.01 percent received more than 3 percent of all income. That meant that the 13,000 richest families in America had almost as much income as the 20 million poorest households; those 13,000 families had incomes 300 times that of average families.[/rquoter]

a 2001 sunday magazine krugman article.

 

It's a problem in the whole world, which makes it no surprise that the financial crisis is a world financial crisis.

 

That's what people used to do. Instead, we have people nowadays that are dependent on some other guy to supply him a job. In having that job that some other guy created (or corporation) that sense of entitlement led people to live well beyond their means for years. People were pulling equity out of their homes, loading up credit cards, robbing their 401k and refinancing debt. That level of consumption couldn't be maintained.

I personally don't think it is an income disparity issue at all or a left v. right issue. It's bad money managment and consummerism by an entire generation of people who had things too good for their own good.

 

Well another problem is the fact that business continue to look at contiuning growth. When they don't have that growth they look for ways to created that growth income. This causes companies to cut jobs to regain the income growth. This created a econimic problem because when a increase of companies are laying people off to create growth uneployment numbers go up, less people have jobs and so less people spend. These business want to still keep they growth so what they do lay more people off. So the only thing that can fix this is to create jobs that get people to start spending therefore companies will gain increase growth so they can increase jobs.

 

Actually, if either my wife or I lost our job, we'd be making 50K a year. When we look at our budget, we could make it on that 50K and we have 2 small kids. The problem is that Americans are spoiled, spoiled, spoiled. We don't have any credit card debt, because we don't have any credit cards. Both of our cars are paid for (both 10yrs old), and the ONLY debt we have is a student loan that we're tripling up on to get it paid off. We simply just don't buy extra crap we don't need like WII's, Iphones, or spend a lot of money going out to eat or expensive clothes. We feel that is too irresponsible. Many People live on 50K fine and actually save money. I think the biggest problem in the country is the growing disparity of good choices. The previous generations paid more (as a percentage of their income) for Cars, houses, vacations, ect..than we do. The difference between them and us is that they didn't buy a new car every 3 years, they drove it a long time. They didn't pay for TV (and you don't have to either...you WANT to, but you don't have to), they only had 1 TV and they didn't replace it because a fancier TV came out, they waited until it died to replace it. They didn't spend hundreds on things they don't need all the time. They didn't buy expensive clothes, and if they did, they wore it a very long time. Face it folks, we screwed ourselves more than any corporation or government screwed us.

 

i think you mean median not average.

 

Absolutely correct. And I was part of that crowd back in my twenties. I had car notes, a wallet full of credit cards, student loans, living paycheck to paycheck. I finally reached a point when I said to myself there has got to be a better way...

But I will say it does require self discipline and a commitment to stick to with it. You need to set up a budget and review it often to make proper adjustments. But in todays microwave society those principles are not taught and I would be most people don't (or can't) even balance a check book.

 

a little of both, I think. People spend beyond their means, get into ridiculous amounts of debt, don't save anything, and then if they are underemployed for 3-6 months, or unemployed, they can't make ends meet. I love new toys, and wagering a little on a few games, but you have to be recognize what your needs are.

it depends on how you plan, and your situation. My wife has been wanting to go part time, so we have adjusted our budget to live like we will when she goes part time. Its not as easy, but has been doable. But that is my situation. If we were making 35k between the two of us, and our income was slashed 40%, it would be really tough.

Overall, the disparity in income distribution is an issue, and it certainly relates to the economic situation of the nation. I don't think it caused it, but I don't think that is your point. I just think there needs to be some education to people about budgeting and saving, and not just spending every dime you get, or someone will lend you. And thats not just for low or middle income folks, its for everyone. I know people who made over 150k/year, lost a job, and were barely getting by 2 months later.

 

That makes 3 of us. Back in my 20's, I wrote all sorts of synthetic credit derivative instruments that neither I nor anybody fully understood, and pitched them as a means of reducing risk.

Sure, I made a few million every year, but that was just play money compared to some of these guys. Anyway, in the end, instead of reducing risk, these instruments amplified it, and we ended generating huge losses, wiping out hundreds of billions in equity (some of which was even mine!), bankrupting companies, and sticking the taxpayer with the bill.

My severance was limited to my guaranteed bonus and my deferred comp plan, plus whatever I could recoup for undoing the mess I made, which was just few hundred k per year. Not exactly Buffet money - in the end, I learned my lesson. Personal Responsibility .