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Wednesday, April 13, 2011
The top 1% according to Stiglitz (or why Chris and Matt shouldn't get it all)
I was fascinated by the monopoly games last night--kudos to Beth and Laura for setting them up and running them. Everyone tried so hard to win even though the rules kept changing to keep everyone from winning except for those at the top of the income distribution. Joe Stiglitz has been thinking about the very same issue lately. He has a short video clip here . His longer piece is at Vanity Fair (see here) The monopoly game reminds me of Stiglitz's arguments. We all knew the games were rigged; yet, everyone played. It would have been wrong (selfish, non-participatory, childish???) not to have played. Stiglitz' data is straight from the census and IRS reports--yet we deny that a mass redistribution of wealth and income is taking place. I have a feeling that psychology is more important in explaining all of this than economics is.
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I think that if I am the beneficiary of the wealth distribution, I am going to deny that a gap exists all the way to the bank.
ReplyDeleteThe thing is in a regular game of monopoly game of monopoly the wealth still becomes concentrated in the hands of one or a few, in our case it was just predetermined. So what does fixing the game represent?
ReplyDeleteI thought Stiglitz made good points about why someone who is very wealthy (top 1%) wouldn't want big gov and spending. They don't need public goods because they afford privately anything they want. It also reminded me of the point in "This time is different" that political divisiveness can contribute to crisis. Again it comes back to how incentives are aligned, people will act in self interest
I thought the Monopoly game was very fun last night, but it was a highly behavioral exercise. The odds were stacked against most of us from the get-go, so I tried to cheat in any way possible, but Beth was quite the "regulator", every time I tried to steal from the cash drawer she sent me straight to jail. If there was no incentive for hard work and savings, what is to keep the players from abiding by the rules whatsoever? That was my take on the game, it was just interesting to see how, in a bubble, people react when they are oppressed.
ReplyDeleteI enjoyed the Vanity Fair article, but I felt that at some times Stiglitz made it sound like the "1% problem" was unique to America, and to modern times. I would argue that almost every country in the world is "governed" by the 1%. Also, America was founded/lead into independence by the 1%. Washington, Jefferson, Franklin, Adams, Hamilton, Madison, etc. were all 1%. They had massive plantations, most had slaves, they were the most well educated and the wealthiest individuals in the country. They formulated a government and a system that was beneficial to their social class, and that was in the 1700s, and our country has done pretty well for itself.
P.S. If Trump runs for office in 2012, there will be a whole new discussion about the 1% influencing government policy.
ReplyDeleteI was reminded of a Daily Show clip in which John Stewart commented on the "for the 1%, by the 1%" mentality that is so prevalent in America. See the video here: http://www.thedailyshow.com/watch/thu-march-3-2011/crisis-in-the-dairyland---for-richer-and-poorer---teachers-and-wall-street. He highlights some pretty mind blowing discrepancies about who deserves to be in that 1% bracket, making the rules, and enjoying all of the perks of belonging to that group. Hearing the commentary surrounding the teachers unions in Wisconsin compared to the commentary on individuals on Wall Street and what each of these groups should/does have access to is just plain absurd.
ReplyDeleteWe can sit around and make excuses all day about how unequal this game was, but Matt and I clearly won because we were the best monopoly players. I didn't see any inequality and I bet Matt would argue the same. :)
ReplyDeleteIm not sure if any one is familiar with the Pareto Principle, if not read this on Wikipedia http://en.wikipedia.org/wiki/Pareto_principle.
It sort terms it is a non-Gaussian (non normal distribution) that was thought up by the economist Vilfredo Pareto and applied to the distribution of wealth (exactly what we are taking about here). Pareto's basic argument is that 80% of wealth is concentrated into 20% of the population. This same distribution can be applied to a incredibly large number of things that naturally occur in nature and business (think Amazon business model).
Anyway, Stiglitz's article here seems to be a continuation of previous arguments by Paul Krugman (the original inequalitist) who argued that economic growth has occurred in the top 1% rather than 20%. Stiglitz makes a compelling argument as to why we have seen a deviation from the 80-20 rule stating it is a result of diminishing equality of opportunities and inefficient economic practices.
My argument is then that a natural economic equilibrium exists when wealth is distributed through the Pareto Principle. As to why America has managed to create a tax and benefit system that distorts this for the worse is beyond me.
I love monopoly. That being said the article states:"In terms of wealth rather than income, the top 1 percent control 40 percent."
ReplyDeleteIt does hark to the Pareto Principle, but what about the Pareto Optimum? Perhaps I am too naive and too big of an optimist, but something will change to push up the 1%.
And i like this guy, we have invested too much in technology and not enough in infrastructure.
MY favorite portion of the article was, "those who have contributed great positive innovations to our society, from the pioneers of genetic understanding to the pioneers of the Information Age, have received a pittance compared with those responsible for the financial innovations that brought our global economy to the brink of ruin."
ReplyDeleteIt suggests that hard working Americans (or the majority of the other 99%) are not financially compensated for their contributions to society. This tends to tie into the psychology of how we undervalue some of the most important professions that shape our nations future (i.e. teachers). I also found that this article was spot on in indicating the control the top 1% has over our government. I hate to reiterate our comments from previous blogs and class, but major firms are taking control over our government (i.e. Goldman Sachs).
It is sad that our so called representatives try to exemplify the top 1% and not the rest of the population that they "promised" to represent. "Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent."
I thought the monopoly game was a great idea and it taught me that me and ryan should never buy/sell real estate.
ReplyDeleteAnkur had some good points here, especially about how some of the most important professions in society (teachers) are underpaid and undervalued. It would be nice if everyone got paid their actual contribution to society but we all know that won't ever happen, pretty sad. Good article though!
Great article and video!
ReplyDeleteI'm looking forward to reading his book.