When Wealth Inequality Arose - The Crux "We’ve heard how great times used to be, and I don’t mean in 1950s America. For eons, our hunter-gatherer ancestors shared their spoils with one another, didn’t own much and had very little social hierarchy. Sure, it wasn’t all kumbaya and high-fives. But the fact that individuals had so few personal possessions took the bitter dish of economic inequality off the table. More below. So how’d we get to a world today where 1 percent of the population controls so much of the wealth? That’s a complicated question. But scientists are in agreement that the Neolithic transition — when, between 9500 and 3000 BC, farming became the dominant subsistence strategy — was the moment economic inequality first flashed its billfold. The sedentary life of farming led to complex societies that included division of labor and land ownership. Farmers owning fertile fields got rich, while farmers with rocky plots got by or found other work." We know the essential reason wealth stratifies, the Pareto Distribution law which holds that in any productive endeavor, the square root of the whole number of people engaged will do one-half the work. Today this rule becomes diluted due to the social structure and mechanisms like socialism which divert money from the most productive to others. But in the past, none of these mechanisms existed. The most productive people killed more game, grew more crops and became wealthy. There were no government programs which stifled productivity by limiting how much an individual could grow or paying the unproductive not to grow crops. The "bitter dish" on the economic table during the hunter-gatherer phase of human existence was that the few at the high end of the Pareto Distribution did half of the work but received only a pro rata share of the benefits. There was inequality, it was severe, it was different than wealth inequality, and it was less explainable. And only a fool would call the Neolithic the "good times." If you want to know how not kumbaya it was you could read The Better Angels of Our Nature: Why Violence Has Declined by Steven Pinker Not kumbaya unless a short, brutish, violent life is your cuppa. We know that only a tiny fraction of people do the lion's share of the work in every organization, and in the past after the hunter-gatherer period, these people reaped the rewards of that labor. Today government takes much of it in taxes. Here in the USA, the tax rate is so skewed that the bottom 50% of taxpayers pay less than 3% of taxes while the top 1% pays 55% but only earn about 20% of the income. "Much of the growth in income tax payments was generated by taxpayers at the top of the income scale. In 2013, taxpayers earning over $250,000 paid $603 billion in income taxes. By contrast, in 2014, these taxpayers paid $700 billion in income taxes, 16 percent more than 2013. Moreover, their share of the income tax burden increased from 52 percent of total income taxes paid in 2013 (net of refundable tax credits) to 55 percent in 2014." New IRS Data: Wealthy Paid 55 Percent of Income Taxes in 2014 - Tax Foundation While income and wealth are not the same, they are related. What we are doing is holding down the most productive when there is little reason to do so. We allow government to siphon off much of the income and wealth that the highly productive produce through taxes, and other wealth transfer mechanisms. This burdens and slows the economy, reduces job formation, and makes both income and wealth inequality worse. The author here infers that the reason people got rich during the Neolithic was luck. Someone had a better, more fertile field, and they got wealthy. Luck played a small role, but it is not how long-term wealth building happened. The productive simply outproduced the unproductive and ended up able to buy or otherwise obtain the better land. With time this free-flowing capital system was controlled by the politically powerful who began to worry that the productive people would rule the world. The result was a political structure we call feudalism and when applied to the industrial economy, socialism. This "innovation" allowed wealth inequality to be fixed politically and over time. Bernie Sanders would like to make wealth inequality a permanent fixture with no ability, or very little ability to move between the wealth/income quintiles. I recently wrote about this here: The Story of the slaying of the Goose that laid the Golden Egg is the story of socialism It was not until free market capitalism came that the productive people were allowed to produce unfettered. After that the entire world quickly became wealthy. I lied about there only being two drivers of wealth inequality, chalk it up to a brain fart, the third is land use planning/land use restrictions which drive up the cost of dirt, making the Boomers who own the dirt wealthy and keeping out newcomers without existing wealth.
Housing Unaffordability Policies: "Paying for Dirt" | Newgeography.com
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