Posts Tagged ‘Stupid Stupid Stupid’

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Income Inequality: the Imaginary Powderkeg

February 25, 2011

Mother Jones recently published a set of infographics on income equality in America, which is understandably kicking up some dust around various corners of the internet. The numbers are shocking: the top .01% make an average of $27 million per household. The bottom 90%? Only $31,000.

Looking at this chart, it’s easy to believe that some sort of unfairness exists. That somehow the richest 10% (who control over 70% of the wealth in this country) are undeserving of their income. The knee-jerk response is to start thinking of the nation’s wealth as zero-sum, and for every dollar going into Bill Gates’ pocket, a corresponding dollar is being taken away from the lower 90%.

Obviously, nobody believes this is done directly. But many do believe that this is being done indirectly through layoffs, wage suppression or actions along those lines.

But it’s an illusion.

It’s an illusion created by those who believe there is some sort of caste system, aided by political action, that serves to make the poor poorer and the rich richer.

But don’t fall for it. There’s nothing there.

The supposed “problem” of income disparity only exists if you believe it exists. I’m not saying that these charts aren’t accurate or that there is not a large gap between the top 10% and the bottom 90% of earners. I’m saying that this gap is only a problem if you choose to believe it’s a problem.

The thought process as to why you should believe it’s a problem is false. The theory is that the more the top 10% makes, the less you make. Unless the CEO of Goldman Sachs is siphoning money out of your bank account, this simply isn’t true.

“But I don’t work for Goldman Sachs, I work for X company.” Exactly. And every chart like this is intended to make you feel as though the CEO of X company is getting richer by suppressing your wages. People look at infographics such as these, compare that with their paycheck and subjectively apply it to their situation, forgetting that there are several people in the top 10% who don’t (directly or indirectly) have any effect on their paycheck.

Ask yourself this question: what do the super-rich have that I don’t? Multiple houses, luxury vehicles, housekeepers, etc. are not the sort of thing any reasonable person expects out of life. Even in the lower income levels, we still have access to services and consumer goods that used to be the domain of only the rich: decent medical care, a house, multiple vehicles, high-end electronics, computers, appliances, schools, and so on. These all used to be available only to the very well-off. In the past, only the rich could afford qualified doctors and education for their children. Computers used to cost thousands of dollars. The same with high-end electronics. Washers and dryers were luxury items.

As life has gone in the US, the cost of these goods has fallen dramatically. Everyone has a free option for their children’s education. Life expectancy has gone up. As the wages spread further and further apart, life has not gotten collectively worse for everyone outside of the top 10%. Life continues to get better for a majority of the other 90%. There are some outliers in the lowest percentiles but generally speaking, life is better for a majority of Americans despite this perceived inequality.

In fact, as wage disparity has increased, happiness levels in America have risen as well. Income disparity increased over 50% between 1972-2004 and yet a GSS (General Social Service) poll shows happiness levels increasing from 30 to 31 percent.

“If the egalitarians are right, then average happiness levels should be falling. But they aren’t. The GSS shows that in 1972, 30 percent of the population said that they were “very happy” with their lives; in 1982, 31 percent; in 1993, 32 percent; in 2004, 31 percent. In other words, no significant change in reported happiness occurred—even as income inequality increased by nearly half. Happiness levels have certainly shown some fluctuations over the last three decades, but income inequality explains none of them.”

There are a lot of reasons for people to be unhappy now. We’re in the middle of a recession. The housing market has collapsed, dragging down net worth for the bottom 90%. A jobless recovery is slowing progressing. People need a villain to take the blame and the top 10% is better than nothing. The perception that America is run by robber barons is taking hold again.

A lot of this perception stems from the financial industry’s top level compensation. There’s a huge disconnect between what CEOs in this field make and the perceived value of their actions. Resentment has built from the bank bailouts and other special treatment these institutions have received over the years, which when coupled with the current recession tends to bring most people to the conclusion that these same CEOs are extremely overpaid. I’d agree with this conclusion. They are overpaid. But then again, so is most of their rank-and-file. It’s a feeling that those who push imaginary money around shouldn’t be compensated this well, especially when their money-pushing results in hardship for the bottom 90%.

But this isn’t totally the fault of the financial institutions. If you want to blame somebody, blame the government. And keep blaming them because they’re never going to fix it. Goldman Sachs, in particular, is a revolving door that circulates its executives in and out of government positions and vice versa. Even if the government decided to step in and raise taxes appreciably on big business and the incomes of the top 10%, it would have no effect on the bottom 90%.

The ugly truth is that if you tax something more, you get less of it. Just ask New York City, whose latest tax increase (to $6.86 a pack!) resulted in an influx of tax-free bootleg cigarettes and the relocation of tax money to neighboring states with lower prices. Sales dropped 27% between July and November, far exceeding the 8-10% the politicians predicted.

A higher income tax would simply mean that more of the top 10% would relocate to countries with lower tax rates. The same goes for the businesses. They would incorporate in tax havens and dodge the bullet that way. The bottom 90% would pay more for goods and services as any applied tax meant to “punish” the high end would simply be passed along to the low end. It’s always this way and those who yearn for the golden era of 90% marginal tax rates on millionaires are kidding themselves if they think a tax hike will actually result in some sort of windfall for the bottom 90%.

Contrary to the images painted by those with class warfare on their minds, a majority of the rich did not simply “luck” into this money or exploit the hell out of others to get it. Many of them were innovators (Bill Gates, Lawrence Ellison, Sergey Brin) who developed new products and services. Others were savvy investors (Warren Buffet, Carl Icahn, Sheldon Adelson). With the exception of the Wal-Mart inheritance and the Mars family, no one on the Top 20 list of richest Americans simply had money given to them.

It’s at this point that merit comes into play. Do people who hate the income gap really want all people to be rewarded equally? Do they want the top end skewed down or do they want the bottom end to rise? Should this be handled via “redistribution” (in other words, taxes – an impossibility but we’ll let it slide for rhetorical reasons) or wage caps? Do they really want a world where hard work and foresight is punished?

Take Mother Jones, for example. Their ad income is most likely several times that of smaller online commentary sites. Should they be forced to toss their “excess” in a pool for the smaller sites to benefit from and close the “gap” that way? I would imagine they’d disagree with this, stating that they’ve built up their brand and hired talented writers and thus, deserve this additional income.

Is that any different than deciding that Bill Gates should be forced via taxation or salary cap to cough up his “excess” income so that those in the bottom 90% can have more? And how exactly does anyone expect this to happen?

All the ideas I’ve read revolve around raising the tax rate on the top 10%. This is the ever-popular “soaking the rich” tax plan. It plays well with voters but will never be instituted, thanks to the fact that many of our nation’s representatives are wholly beholden to the ultra-rich, if not actually part of the ultra-rich themselves. (Interesting note: Democrats are more prone to painting the Republican party as champions of the ultra-rich, but 7 out 0f 10 of the richest representatives listed below are, in fact, Democrats. And not just any Democrats, but Democrats who crossed party lines to vote FOR Bush’s tax cuts on higher incomes.)

Beyond the fact that there is nobody in Washington willing to do this, a further issue is the fact that the government is quite possibly the worst Robin Hood analogue imaginable. They cannot, despite constant assurances otherwise, redistribute wealth. They cannot take Bill Gates’ money and spread it among a random sampling of the bottom 90%. They can’t even do it indirectly through taxes, as much of that money is already promised to a variety of earmarks, subsidies and entitlements already.

Not only that, but a higher taxation rate wouldn’t close the gap. Gross income is still gross income, no matter what the tax rate. Someone making $20 million will still make $20 million, even if 60% of it is siphoned off in taxes. And the person making $30,000 will still be making $30,000, even if $12 million just rolled into the IRS offices.

They also have no business setting wages. Despite governmental creep into the private sector, there is no way these self-interested players should be allowed to cap wages or set minimums. They already have screwed up with the minimum wage and granting them the power to cap maximums is asking for a quasi-socialist system where even fewer people have a chance to get rich but many, many more will have the chance to be poor.

Beyond that, no one seems to have any idea how to close the income gap. If this were a real problem, rather than just a shoddy platform plank, ideas would flow freely. As it is, it’s just a political haymaker and another reason to get pointlessly angry.

My suggestion? Let it go. It won’t change. It can’t change. And anyone who thinks it can be changed wants to enlist the worse people possible to handle/redistribute other people’s money: the government. That’s not a solution. That’s a farce.

-CLT

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The Music Industry is Dying. I’ll Get the Shovels and Champagne.

January 28, 2011


Robert Verbruggen over at National Review Online asks “Can We Save the Music Business?” The first obvious question is “Why?”

[This post is nothing more than a reprint of my overly-long comment left at NRO. I’ve emphasized a few things with BOLD and corrected a couple of grammatical errors, but otherwise it’s intact.]

An “effective” plan?

I don’t know how anybody could willingly believe that the music industry legislating itself back into business with the aid of an all too cooperative government will actually save them for eventual implosion. All this would do is stick them on life-support on the taxpayer’s dime.

Equally stupid is the assumption that a graduated response, especially one that aids one industry (recording) while punishing another (ISPs) would be any less troublesome than straight-out “deputizing ISPs.” If both the government and the entertainment industries are involved, there’s is no way that any internet watchdog can ever be considered “independent,” as is dubiously stated in relation to France’s current anti-piracy program.

Speaking of which, you cite a 53% reduction in infringement (at least according those polled) but fail to provide any numbers showing a correlating rise in music sales. My guess is that there will be little change or at best, a short-lived uptick while everybody figures out how to get back into the free music business. This may come as a shock to the record labels, but it won’t surprise anyone who is aware of the fact that a pirated album does not equal a lost sale.

More troubling is the fact that your internet usage information is now in the hands of both the government and some very self-interested parties, both of whom have shown an ugly willingness to abuse the public’s trust.

Every dollar spent (taxpayer/music industry) on combating piracy is a dollar wasted, one which would have gone to better use pretty much anywhere else. Every time a file sharing service or data hosting site gets shut down, another two pop up. The music industry continues to view online piracy as the equivalent of a guy selling burned discs out of his trunk. They cannot seem to understand that this is millions of individuals acting alone, rather than under the control of some overriding directive.

They also don’t seem to understand that these “pirates” aren’t making any money off these “transactions.” What little they do understand of it causes them to scapegoat hosting services and ISPs. They know this isn’t directly their fault but I think they believe that going after services earning money will allow them to show some return on their lawsuit investments.

The more draconian the action, the further underground file sharing goes. New hosting will pop up to replace RapidShare, MegaUpload, et al. Limewire will be succeeded by others. With every step they fall further behind. Hosts will operate under masked IP addresses and innocuous URLs. And when they finally do decide to sue or kick someone off the internet, the only people they can victimize are those who are that many steps behind themselves. This is why they end up dragging clueless grandmothers and 8-year-olds into court.

Once everything is disguised enough, they’ll start booting people off for false positives. The government and the record labels have already proven they’re far from tech savvy and will start harassing citizens who’ve never considered piracy just because of a spike in usage.

They also fail to understand that kicking people off the internet will do nothing to increase their sales. Do they honestly believe that Joe Q. Pirate is going to trot to the nearest store and make up for his infringement by purchasing several shiny plastic discs? He’s not going to be able to buy digitally after all. And trust me, he’ll find another way to get back online. He may be dumb enough to get caught but he’s still smarter and faster that the ad hoc committee pursuing him.

There’s no equivalent for “free.” Just because someone downloaded Lady Gaga’s latest for free is not an indicator that they would have purchased it if there were no alternatives. Lots of people get stuff they don’t particularly want or need just because it’s free. It’s like going to a garage sale and picking up a half dozen drill bits and some Cussler paperbacks from the “free” box. It doesn’t necessarily follow that Black and Decker lost a sale or that I would have grabbed two Cussler books down at Barnes and Noble otherwise. Maybe I just figured you can’t have too many drill bits and I was tired of reading well-written books.

And as for the “poor artists” the labels are constantly using as penniless strawmen in their arguments? Well, he’s got fewer options and potential customers thanks to their actions. Fewer hosting sites. Fewer people online.

The claim that artists somehow deserve to get paid is just plain stupid. That’s a holdout from the good old days of the music industry, where they’d state that as an excuse to levy fees on blank tapes and CDs. But they’ve never been too keen on actually paying their artists. There are hundreds of stories of bands that got screwed by their labels, whose unrecouped amounts never seem to go down and how clever accounting and label finance opacity has allowed them to hide their gains from the prying eyes of their stable of musicians.

Look at the wonderful things Warner Bros. did to Too Much Joy.

Not only that, but if you’re getting into art to get paid, you’re doing it wrong. If you manage to make a living at it, congratulations. You’re part of the 1%. No guidance counselor ever recommended a student drop out of school and buy a guitar. No parent ever breathed a sigh of relief when their offspring told them they were quitting college to form a band. No one owes an artist a living wage. Art is supported, not purchased. The record labels have a hard time differentiating between “product” and “art,” which explains why most of their output is considered lousy.

I’m not saying music should be free or that piracy is ok as long as it’s from a normally unprofitable field. I’m just saying that demanding upfront that your contribution to the music world immediately start showing positive returns is an annoying combination of false entitlement and ignorance.

This sentence is troubling: “...if we want artists — and, by extension, everyone who works with and for artists — to be paid for their creations…” This is part of the music industry’s problem. While piracy is bad for their business, and by extension, artists, ensuring that everyone else on the overextended food chain gets their cut is unsustainable in this day and age.

The only artists that can feed this extended family at this point in time are the top 5-10% of their roster. Everyone else gets to wait for minute amounts of royalties to make their way down from the top, spending years attempting to get recouped and finally start making money on their own.

At some point you, the artist, get a small slice of whatever's left after taking care of everyone else.

With the distribution options available to artists today (bandcamp, Facebook, Myspace, Beatport, Amazon, iTunes, etc.), I see no reason why any of them need a major label to act on their behalf. Some people (mainly record execs) argue that without their assistance they’ll never get heard. They tend to assume radio airplay is still the only game in town. (And it won’t be for much longer, not with all the fees being extracted by ASCAP, BMI, PRS, etc.)

But those people, the “everyone” that “works with or for” artists are the ones doing most of the complaining. They’re swiftly realizing that they could easily lose their non-essential positions. The artists themselves rarely complain about piracy as most of them realize it will only alienate part of their potential audience. (See also: Metallica.) The few artists that do complain are from the stratospheric layer of fully-recouped and highly successful acts. Bono (and U2’s management) spend a lot of time griping about the unavailability of “ivory backscratcher” money. Bono has even gone so far as to ALMOST recommend we follow China’s lead in privacy violation and institute their internet tracking program. (He stops just short of siding with one of the world leaders in human rights violations in his NY Times editorial. He just kind of throws it out there and, I assume, hopes that our overzealous government will run with the ball.)

Now, like many people on the other side of a long-winded rant, you’re probably asking yourself if I have any solutions to this dilemma rather than just reciting a litany of problems. It’s a good question. I don’t see any. The industry gouged customers, screwed their artists and tried to sue their way back into profitability rather than actually deal with the shift to digital. The only option they have is to deal with what’s left of their market. Short of building a time machine, heading back 15 years and trying again, I really don’t see that they’ve got many options left.

But there’s a larger question that rarely gets asked in these sort of editorials: WHY do we need to save the recording industry? Who, beyond those employed by it, really needs them to continue on in any capacity, much less in a legislated pseudo-return to the money-burning days of the CD?

I honestly don’t think that their collapse would do any lasting damage to the economy or society as a whole. The music industry likes to pretend (and are aided in their delusion by pieces like this) that they are the gatekeepers for ALL OF MUSIC and that without their endless generosity over the years, we would be a cultural black hole.

There are thousands of bands waiting to fill the void should they finally collapse and thousands of indie labels, self-producers and hosting services will to handle the distribution. Who knows? Radio could even re-emerge once freed from acrimonious performance rights groups. The only ones feeling the pain would be the former employees and the upper echelon of bands, who without a label-supplied collection of flunkies, would be forced to do some of the heavy lifting themselves.

The last question is for you, Robert. Why this sudden show of support for over-reaching and potentially dangerous legislation? In fact, why bother to stand up for the music industry at all? I can’t see anything else in your archive that would lead me to the conclusion that you’re a major label apologist. I’ve read other pieces of yours that I’ve enjoyed and agreed with but this one just seems to be horribly misguided at best, and incredibly ill-informed at worst.

I’d recommend checking out Techdirt.com where Mike Masnick has been putting together a solid body of work refuting pretty much every point in this piece and others like it. With a couple of quick topic searches, you can probably gain a better understanding of how the music world will continue to function just fine without the major labels.

-CLT