Tag Archives: income

… And Does Happiness Lead to Wealth?

Poverty may beget poverty. And happiness, happiness. According to the Los Angeles Times:

People who express more positive emotions as teenagers and greater life satisfaction as young adults tend to have higher incomes by the time they’re 29, according to a study published Monday by the Proceedings of the National Academy of Sciences.

The study asked teenagers about their life satisfaction, and later looked at their incomes at age 29. The happiest teenagers  were making an average of $8,000 more than the gloomiest by that time. According to the article, “Deeply unhappy teens’ future incomes were 30% lower than the average, while very happy teens earned 10% above average.”

 

Income Inequality in the U.S.

I remember when I was an undergrad, hearing people going on and on about income inequality. That was the 80s, the age of Reaganomics, and by many measures inequality was growing rapidly. Confession time. I was a self-centered college student back then. I had no intention of being anywhere but the top. Why should I care about inequality?

It’s taken decades, but I’ve gradually come around to other ways of thinking. I no longer view things quite so selfishly. I recognize that not all income differences are solely due  to hard work and brains. Dumb luck plays a role, as does outright unethical behavior.

People do need to be rewarded for working hard and being smart. Incentives are important. But excessive incentives and rewards lead to excessive behavior, and people shouldn’t be punished harshly for events that are completely beyond their control.

No, we don’t want our children growing up believing that the world owes them a living. Neither do we want them seeing the world as a cold and heartless place, where those whom fortune frowns upon are cast onto the streets.

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Regardless of how you feel about income inequality, one fact is certain: it has increased. No one can claim with a straight face that the rich haven’t gotten much richer, relative to the poor. This has been happening in the U.S. for decades, and few would try to argue otherwise.

There are of course debates over what’s causing it, and there are many suspects. Increasing global trade, increasing technology, increased demand for skilled labor, geographical inequality, decreasing minimum wages, CEO pay, decreasing unionization, and a slew of others.

And there are of course debates over what should be done about it. Some might even argue that the increasing inequality is a good thing for the economy, though I suspect only those towards the top of the scale would so argue. Increased income inequality has lots of implications, and not many of them are good.

My own, personal take is that many different things are causing increased inequality, making it hard to pin down primary culprits. A few of them might even have positive implications for the economy, but the overall effects I can’t say are beneficial over the long haul.

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Some specifics. According to the Census Bureau, the average household income of the poorest fifth (quintile) of households was about $11,200. This was actually down from (an inflation-adjusted) $13,400 in 1999, and was only 10 percent higher, in real terms, than the average for this group in 1968.

The average income for the second fifth of households in 2011 was $29,200. This was just 6 percent higher than in 1968. The middle fifth saw its real income increase from $43,500 in 1968 to $49,800 in 2011, a 15 percent increase.

The fourth – second richest – quintile of households saw their income increase from $60,700 in 1968 to $80,100 in 2011, an increase of 32 percent.

But that was nothing compared with the richest fifth. Their income increased from $105,500 in 1968 to $178,000 in 2011 – a whopping 69 percent increase.

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Let me say that I have no problem with income inequality. Having some people make more money than other people is good for an economy. It rewards people who work harder and smarter. That’s a good thing.

But I likewise do have a problem with unnecessarily excessive rewards for people. How big do bonuses have to be? Will $20 million in stock options really cause a CEO to make better long-term decisions for a company, or will they just lead to unwarranted risk-taking? Is the latter actually good for the the country?

And, more to the point, is it really economic growth if only a small percentage of the population benefits from it?

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So we aren’t certain what’s causing increasing income inequality in the U.S. But we’re certain that it’s increasing, and has been for decades.

The question remains then about what – if anything – we should do about it.

If we believe this is a good thing – the rich getting much, much richer, the poor and near-poor barely improving – then we shouldn’t do anything.

But if we as a society believe that rising income inequality is a bad thing, if we view it as unfair that the rich buy more yachts while the poor go hungry, if we object to only a small sliver of people seeing their lots in life improve substantially, then there are many policy options that can address this, starting with more progressive taxes and more spending for education and social programs.

If it’s not good for America, then we need to do something about it.