And even if we do use the CPI as sole our metric, we should take note that the current US calculation of CPI has been quite heavily criticised, and may be under-reporting inflation by as much as 50% (source).

I'm going to switch the order of your statements as this part of my reply is pertinent to the second part.

Pretty much what SGS has done is said that all the CPI biases shouldn't exist, which they do, and has removed them completely. CPI obviously isn't perfect nor can it ever be, but there are good reasons we have things like substitution accounted for in CPI. I could give you that CPI might understate inflation, but to the amounts in your source are pretty questionable.

That is true if we adjust for inflation purely based on the consumer price index. By almost any other metric, however, average income has *decreased* significantly between 1950 and 2008 (source).
[/quote]
CPI is the best metric for showing the price for an expected quality of life as it is designed for exactly that.

CPI is the best metric for showing the price for an expected quality of life as it is designed for exactly that.

It may be designed for that, but in reality it shows little more than the price for basic survival. For example, my expected quality of life includes a college education, but college tuition inflation has consistently been much higher than general inflation (weak source).

So the fact that average income has outpaced inflation by around 1.5x, can be construed to mean that we are actually *less* able to maintain an expected quality of life which includes higher education, than we were in 1950.

It may be designed for that, but in reality it shows little more than the price for basic survival. For example, my expected quality of life includes a college education, but college tuition inflation has consistently been much higher than general inflation (weak source).

That kind of ties into my original point, which was that education should be more readily available/better quality; that should include lowering the cost. Imo that is more a problem with soaring education costs than a problem with incomes decreasing or wealth distribution.

That kind of ties into my original point, which was that education should be more readily available/better quality; that should include lowering the cost. Imo that is more a problem with soaring education costs than a problem with incomes decreasing or wealth distribution.

Agreed - but keep in mind that healthcare costs also significantly outstrip inflation, so we need progress there as well.

My broader point is that CPI is not a very good indicator of the actual cost of living in our modern world, since it only takes into account the inflation of goods necessary for the the basics of survival (food, housing, etc.).

One big question that hasn't been brought up is whether it is better to have everybody be richer with a wide income disparity or to have no income disparity? The income gap is widening in the US, but the adjusted income has gone up at all levels. It's an interesting thing to ponder on.

I do not believe that having everybody be richer and having less income disparity are incompatible goals. When you look at standard of living as opposed to simply financial ratios, then history suggests that there is a (soft) limit to how far the standards of living of the poor and the super-rich can be apart. Even poor people in the Western world today have a better life than the richest kings in the middle ages, as long as you consider basic necessities like food, sanitation, housing, education and health. (Happiness is another issue, because happiness is linked to social status and inequality.)

I am not really sure which mechanism is mainly responsible for limiting the ratio between poor and rich, but mostly three reasons come to mind:

1. At some point, the poor will stop accepting an increasing gap, and they will cause social unrest that keeps the rich down. Clearly we shouldn't let it get to that point.

2. Innovation tends to build on things that are widely available. Flushing toilets are only invented once flowing water is available to a significant part of the population. Certainly the kings of the middle ages could have been able to afford such toilets, but nobody ever came up with the idea because the idea only became natural once plumbing was widely spread. Similarly, fancy software packages would not be available even for the super-rich (to that extent) if it weren't for the fact that cheap electronics make it easy for new generations of software developers to emerge.

3. In an advanced economy, economy of scale matters. Luxury cars would not be at the level they're at if it weren't for the massive system of automobile economy behind them - but this massive economy only exists because the majority of the population can afford cars. The same thing applies to basically every technological product. The iPad would not exist even for the super-rich if it weren't for an entire ecosystem of businesses such as chip foundries that can only exist because even the poor can afford electronics.

Especially with points 2 and 3 in mind, I would say that a low income disparity is necessary for everybody getting richer, at least for the kind of developments that are based on technological advances, which are more or less the only kinds that are left to us now that natural resources are starting to become depleted: The living standard of the majority is the foundation on which new luxuries for the rich are developed. Of course there are other necessary factors in play, but this one seems to be overlooked by most people (and the trickle-down crowd gets this wrong completely).

Slightly off-topic, but I just wanted to say that I appreciate the fact that we can have a civil discussion on such a politically charged topic.

CPI is the best metric for showing the price for an expected quality of life as it is designed for exactly that.

That's not what CPI is designed to do. CPI does not measure anything relevant about the state of the economy or the money supply. It is designed as a (seemingly unbiased, quantitative) tool with which the bureaucracy can justify its decisions, but is biased by the very fact that it was designed for that purpose. Because statistics are ostensibly based on concrete facts, they are used to great effect as a tool to manipulate opinion. The trick to understanding the machinations of this new religion of numbers is to take a step back and understand what the numbers are designed to actually report.

[quote name='Khaiy' timestamp='1303963820' post='4803835']
Actually, I think that every billionaire does in fact enjoy similar accounting gimmicks to take advantage of the tax code, reducing their effective tax rate. In my state (Minnesota), we had a big campaign issue a while ago about exactly that, where the wealthiest segment of our population paid ~8.8% of income as taxes, while the average middle class rate was more like 12-14%. The more money you have, the more likely you are to have some obscure tax break available to you, and the more likely you are to have an accountant who can get that for you.

Is that state or federal taxes? If it is state, then it really isn't a national problem and one most people won't have enough info to argue. If it is federal, how are you guys paying so little in taxes?

But still again, this is not a problem on whether the tax rates are right or not, it is a problem with the tax code having such loopholes, which I agree the tax code definitely has plenty of. Increasing tax rates won't get rid of those loopholes, just sorely punish the handful of people to whom no loopholes apply.[/quote]

We're in agreement that the loopholes are bad and should be eliminated or at least severely curtailed. But since the effective tax is distinct from the stated tax, it definitely obscures the issue.

That is a fair point against capital gains. How would you feel about restricting capital gains to investments in stocks/bonds rather than commodities or debt trading?[/quote]

That sounds fairer to me than the present system, I could get on board with something like that.

And the problem with your last comment is that people aren't all richer despite increasing disparity.
[/quote]
They are though. Average income at all levels as of 2008 have gone up pretty consistently since the 1940s after being adjusted to the 2008 dollar.
[/quote]

I stand corrected. You are correct that income has indeed risen, so I'll amend my quote above (after looking up some numbers, as I ought to have done in the first place). But it's not all that much of an increase-- and this effect increases as you descend the income groups. The average is not a very good measure for this discussion, because income his increased so dramatically for the wealthiest, especially since the late 60's or so. By median income, there's still an increase, but it's much more anemic. And we've lost some ground from 2000 through 2007.

So I'll try to address your question, regarding increasing wealth for all with increasing income disparity. I don't know that we can say the two are coupled all that tightly. That is, we could perhaps have better increases for most households if forces weren't directing most of the increase upwards to the wealthiest households, without a terrible effect on overall economic growth. We had far better and steadier income growth from 1954-1964 than we did from 1964-1994. Obviously there are a lot of factors at play, but the income gap started to really take off and then accelerate during the latter period, without much economic robustness to justify it. Also during that latter period, capital gains were great.

Exacerbating this is that when wealth concentrates enough among the wealthy, speculation tends to increase. So if the gap is wide enough, it can feed itself to an extent while harming everyone except the already wealthy. We've already agreed that this isn't a great way to handle investment, and that tax (and possibly other) incentives should try to alter this behavior. But I don't think that it's entirely reasonable to assume that we will ever be able to channel investment such that enough of the income disparity is actually used to the benefit of the economy rather than to its detriment.

There will always be some income disparity, and income may increase for everyone even so. But that doesn't justify any particular level of disparity, especially if your goal is raise income generally.

[quote name='way2lazy2care' timestamp='1304006551' post='4804011']
CPI is the best metric for showing the price for an expected quality of life as it is designed for exactly that.

That's not what CPI is designed to do. CPI does not measure anything relevant about the state of the economy or the money supply. It is designed as a (seemingly unbiased, quantitative) tool with which the bureaucracy can justify its decisions, but is biased by the very fact that it was designed for that purpose. Because statistics are ostensibly based on concrete facts, they are used to great effect as a tool to manipulate opinion. The trick to understanding the machinations of this new religion of numbers is to take a step back and understand what the numbers are designed to actually report.
[/quote]

This is just conspiratorial nonsense. The CPI measures how the price of some reference basket of goods develops over time. Can you criticize the composition of that basket? Yes. Can you talk endlessly about certain details of the method of those prices are measured? Sure, if you really want to. There is a space of possible CPIs that get you different results based on how you choose the parameters, in particular the relative weight that one assigns to different classes of goods in the reference basket. But to claim that the CPI measures nothing relevant about the state of the economy is simply ridiculous.

(No, the CPI has nothing to do with the money supply, but nobody in their right mind would claim that it does. Whoever gave you that crazy idea?)

@ Original Post:
I came across this similar train of thought a few years ago.

*An emerging trend is to automate repetitive and mindless work by replacing a human workforce with automation (improved processes, robots, technology). However, you'll never be able to completely replace a human workforce (who will maintain & run the systems?).

*The cost of automation for a company is a high upfront cost but in the long term, it saves money on overhead costs and decreases the net cost of producing goods.

*Some goods are impossible to produce without machine precision (microchips, razor blades, etc).

*It's a waste of human time and effort to create needless work for the mere sake of employing people. I'd even consider it unethical considering the alternative is to let machines do the work.

*The world population is increasing to meet the worlds carrying capacity. As work gets automated, there will be less work for people to do. This will lead to "higher unemployment". From a capitalistic perspective, this is a bad thing (ultimately leads to fewer people with purchasing ability). From a philosophical perspective, this is a good thing because it allows people to pursue lives without sinking time into menial labor.

My prediction: As the world becomes more automated, capitalism and money/wealth will eventually become obsolete. People will be able to pursue their creative interests and spend more time consuming entertainment goods. The only labor which can't be replaced is creative labor (making movies, painting pictures, building video games, writing stories, etc).

Therefore, if you want job security for the next foreseeable 50 years, make sure that you're either doing creative labor or in a systems maintenance role. Don't take a job that can be done by a machine.

...Hmm, I wonder... Can McDonalds replace 95% of their workforce with machines? Ordering a burger could be like selecting a soda from a soda dispenser. As long as you keep the burger making machines supplied with ingredients, you could have burgers made automatically. Would the cost of inexpensive human labor be cheaper than the initial cost of a burger machine and its maintenance? Would people be willing to buy burgers from a burger dispensing machine (like a pez dispenser) or is there an intangible value to the human connection? Will grocery stores eventually become 100% self-checkout? If so, how would that impact our economy if Wal-mart goes 100% self-checkout, considering they are Americas largest employer?

...Hmm, I wonder... Can McDonalds replace 95% of their workforce with machines?

I'll take that as a rhetorical question...