The Wealth Inequality thread

Published on Sunday, March 3, 2013 By Brad Wardell In Economics

Found this video here:

Even being familiar with the stats, it was a really fascinating and well put together illustration of the massive level of inequality in wealth we have in the United States.

I have two fundamental criticisms with it.

First, knowledge isn’t understanding. That is, the author gives me the impression that he thinks wealth is “distributed” by some..entity. That somehow wealth is being divied up by some sort of directed intelligence and that we, as a society (presumably through our government) could somehow alter this inequality.

Second, it doesn’t even try to explain how this inequality happened in the first place. At best, it sets up strawmen such as “does the CEO work 318X harder than the average person in their company?”  While working “hard” is often the difference between poverty and middle class, it has relatively little to do with why 1% of the population controls so much of the nation’s wealth. 

Wealth distribution is a macro-system. If it is to be understood, it needs to be looked at from a macro-level. Emotionally driven anecdotes of individuals or even generalizations of individual groups is worthless.

Your local grocery store

To understand what is happening at the macro level let’s look at something that is so basic to our day to day lives that has also transformed right in front of our eyes. Your local grocery store.

In 1983 the store owner would need to employ many cashiers. When checking someone out, they looked at individual price tags and rang them up on the cash register. Those price tags were placed on every product by employees with a price “gun”. You usually had a bagger. You also needed a lot of these people because checking out was a relatively slow process.  People paid by cash or (burrrrr) more often a personal check.   The goods being purchased had been stocked on the shelves by a small army of stockboys who practically lived in the warehouse in back trying to manually sort out all the goods that had come in from a vast array of different suppliers.

As a result of the above, the owner of the store’s relative wealth was limited because the wealth the store generated was distributed out to a small army of employees.

Fast-forward to today.

That same store owner now owns a much much larger store.  In fact, that store owner is actually a principle at a consolidated franchise company that owns many many stores.

Goods come in with a bar code so no price tagging is needed, eliminating those jobs and the associated expenses. The goods also come him from a tiny number of suppliers who have undergone the same automation and subsequent consolidation as the stores have.  The number of stock boys is far fewer because it’s so much quicker to put things up. Goods arrive in the store already organized by a just-in-time warehouse at a franchise distribution center.

Most of the cash registers are gone having been replaced by automated ones. What few human-run checkout lanes are now operated by people who simply move the bar-coded item through a scanner and the customer does their own bagging. The customer pays by simply sliding their credit card through. 

It would not be an exaggeration to say that the equivalent store generates more than 318X more wealth for the owners than for each employee.

Automation is nothing new. However, the rate and pervasiveness of automation continues to increase exponentially. As a result, the inequality we see is likely to continue to grow.  In fact, the rate is likely to increase.

Our government has actually set in policies that hasten this trend. Minimum wage laws, while well intended, result in these business owners eliminating positions and making cutting edge automation more attractive.  Getting rid of minimum wage laws wouldn’t eliminate this trend, it would merely slow it down. 

We also have increasing regulations and costs associated with hiring humans which create an incentive for the store owner to invest in more machines faster and his suppliers to outsource more overseas where regulations aren’t as tight.  Decreasing regulations, however, would only slow this trend, it wouldn’t stop it.

In another several years, the store owner will likely have machines that can automatically stock goods onto shelves via their RFID tag. Even fewer cashiers will be needed because the customer will be able to simply walk out of the store with their items in the cart and have all their items charged to their credit/debit account as they pass through an automated RFID scanner. Your favorite fast food joint won’t need people to take your order. You’ll simply tell it to a Siri-like order taker (or input it on a keyboard).

Thus, the “store owner”, that 1%-er (and again, at this point, the “store owner” of 1983 is long gone) will have an even greater share of the wealth than they do today.

What can be done?

I don’t really have an answer.  I don’t think anything can be done even though I often feel the same distaste for wealth inequality as most people do.

Overall, the lives of nearly all Americans are vastly better than they were 30 years ago.  And before someone points out a statistic on “purchasing power” I think you’d be hard pressed to find any sane person who would want to go back and live in 1983.  Life is far better now than it was 30 years ago for virtually everyone in the United States.

But the wealth inequality strikes most people as being fundamentally unfair. Having had some success myself I am no stranger to that tingle of envy at the advantages others got – especially when they are given kudos by a society that is oblivious that the biggest difference between those people and the hundreds, if not thousands, of others who had the same idea/ability/drive was that those people started out with massive massive advantages.

While I spent much of my childhood growing up in a 2 bedroom apartment with my single mother eating “shit on a shingle” a few times a week because that’s what we could afford to eat and saving and scraping from an early age so that I could work 3-jobs to afford to attend a minor state-school that wouldn’t even get me an interview at a major tech company,  I’ve watched people become more “successful” largely in thanks to them starting out with connections from Harvard or MIT or some other place their parents sent them.  My point is, I can relate to that unspoken feeling of unfairness.

However, someone less successful than I am can point out that I was raised by a mother who instilled responsibility and economic common sense from an early age and that I’m a white male thus I too have many advantages over many others. There’s always someone more disadvantaged than you.

Hence, envy or resentment is a futile path to take. You just have to let it go or it’ll poison you.

As a society, should we really care about this growing wealth inequality? And if we should care, we should have take a hard look as to why we care. Because if that reason boils down to envy or resentment then any solutions that spring up are likely to take us down a very dark path.

I personally don’t like the level of wealth inequality. It offends my sense of fairness. But I can’t think of any solutions to it that don’t essentially involve stealing from one group and handing it to another “just because”.  It’s one of the reasons why I don’t like a strong federal government, it just creates more opportunity for the gamification of our economic system (talk to a successful hedge fund manager – federal regulations make the hyper-wealthy financial managers of the world possible).

Besides, in another 30 years, we should reach the singularity and at which point, who will give a crap? Winking smile