Canuckleheads are overpaid and have crap mortgages

[Eddie Teach]

Malt: worst human ever

Other than the Canuckleheadedness and baby-eating, he's ok. 

[Eddie Teach]

BTW, shouldn't Monaco and Luxembourg be showing up in that graph? 

[DGuller]

High inflation effectively acts as a tax on accumulated wealth.

The graph is measuring income, not wealth.

As an aside, not all forms of wealth get depreciated by inflation.

Inflation is bad for capital, even if some forms of capital are supposed to be "inflation sensitive".

[DGuller]

BTW, shouldn't Monaco and Luxembourg be showing up in that graph? 

It wouldn't surprise me if all those micro-state tax heavens were removed, as they're misleading much more than they're illuminating.

[Admiral Yi]

Syt's table is not a measure of distribution: it's a comparison of absolute income levels in different countries.  I don't see how inflation in the 70's explains the US 10th percentile having a higher income than anyone else's 10th percentile in 1980.

[DGuller]

Syt's table is not a measure of distribution: it's a comparison of absolute income levels in different countries.  I don't see how inflation in the 70's explains the US 10th percentile having a higher income than anyone else's 10th percentile in 1980.

It's a chain of reasoning.  Here are the facts that when put together make Syt's graph reasonable:

1)  US has for a long time enjoyed the lead in per capita GDP, and IIRC, it was farther ahead decades ago than it is now.
2)  US always had higher income inequality than European countries, though to a different degree depending on what year you look at.  It's this higher inequality that would cause low-tier percentiles to give way to Europe, if it gets high enough to overpower the overall per capita lead.
3)  However, in 1980, capital only started to anally penetrate labor, which explains the breadth of America's lead over Europe.  There are multiple reasons why it didn't do so earlier, and inflation is one of them.  Advantages to capital over labor manifest both in the wealth inequality and income inequality.  It makes it both easier to maintain your wealth, and it makes the income of the top percentiles go up disproportionately (as top percentiles are much more dependent on income from capital).

[Admiral Yi]

That's fine and all, but my comment was about the relative prosperity of the American 10th percentile in 1980, not about the changes since then.  I would have thought the 10th percentile in some workers' paradise would have been better off than our guys in 1980.

Also still don't see what inflation has to do with anything.

[DGuller]

Also still don't see what inflation has to do with anything.

As I said earlier, low inflation disproportionately favors people who derive their income from capital.  Since those people are at the top of the income charts anyway, everything that disproportionately increases their income increases the income Gini index.

[Eddie Teach]

That's fine and all, but my comment was about the relative prosperity of the American 10th percentile in 1980, not about the changes since then.  I would have thought the 10th percentile in some workers' paradise would have been better off than our guys in 1980.

Also still don't see what inflation has to do with anything.

I think it just reflects how much ass American businesses kicked during the middle of the 20th century.

[alfred russel]

Also still don't see what inflation has to do with anything.

To say what DGuller has been saying in other words, high inflation, especially over time, erodes real financial wealth. Thus you would expect high inflation over a period of time to reduce the real financial assets generating income.

You also get an increase in taxes. For example, suppose you have $100, but are earning only negligible interest in a no inflation environment. At the end of the year, you have $100, both in real and nominal terms.

But now suppose you earn 5% interest, but inflation is 10%. Keeping things simple, you now have $105 nominal dollars, and owe taxes on the $5 of interest. After tax, lets say you have $103 nominal dollars. But in real terms, you have more like $92.70.

[Admiral Yi]

To say what DGuller has been saying in other words, high inflation, especially over time, erodes real financial wealth. Thus you would expect high inflation over a period of time to reduce the real financial assets generating income.

You also get an increase in taxes. For example, suppose you have $100, but are earning only negligible interest in a no inflation environment. At the end of the year, you have $100, both in real and nominal terms.

But now suppose you earn 5% interest, but inflation is 10%. Keeping things simple, you now have $105 nominal dollars, and owe taxes on the $5 of interest. After tax, lets say you have $103 nominal dollars. But in real terms, you have more like $92.70.

And how, once again, does this relate to the  relative performance of America's 20th percentile compared to the ROTW's 20th percentile?

[DGuller]

  You know, Yi, occasionally in life you need to follow a chain of reasoning with more than two links, and keep the whole chain in your working memory as you're going from a link to a link.

[Admiral Yi]

 

The connection between inflation, to income distribution in the US, to changes in absolute income relative to the ROTW does not hold up.  If a US 1 percenter gets poorer it will not affect a US 20th percentiler's  position relative to a Norwegian 20th percentiler.  Nor does a US 1 percenter getting richer affect that relationship.

[alfred russel]

The connection between inflation, to income distribution in the US, to changes in absolute income relative to the ROTW does not hold up.  If a US 1 percenter gets poorer it will not affect a US 20th percentiler's  position relative to a Norwegian 20th percentiler.  Nor does a US 1 percenter getting richer affect that relationship.

Sure it does. If inflation is redistributive, and the US 1%ers are the top in the world, it makes sense that inflation would relatively benefit the general population in the US more than other countries.

[DGuller]

The connection between inflation, to income distribution in the US, to changes in absolute income relative to the ROTW does not hold up.  If a US 1 percenter gets poorer it will not affect a US 20th percentiler's  position relative to a Norwegian 20th percentiler.  Nor does a US 1 percenter getting richer affect that relationship.

You're assuming independence between the capital income and the labor income.