Management Exam 1 (notes 2)

figure 3 quote

"But more important than this is the fact that this measurement of relative poverty is not in fact a measurement of poverty at all. It's a measure of inequality. We can all argue about whether inequality is bad, how much is too much and so on but it's a very different concept from poverty." "What this tells us is that the very poorest of the poor in the US, the bottom 5% (and thus very definitely below that poverty line) are in fact richer than 95% of all Indians. And 85% of all Chinese and 55% of all Brazilians."

Thomas Aquinas

"Envy according to the aspect of its object is contrary to charity, whence the soul derives its spiritual life... Charity rejoices in our neighbor's good, while envy grieves over it."

Bono:

"In the United States," he explained, "you look at the guy that lives in the mansion on the hill, and you think, you know, one day, if I work really hard, I could live in that mansion. In Ireland, people look up at the guy in the mansion on the hill and go, one day, I'm going to get that bastard."

Figure 2 quote

"We don't actually count benefits in kind or aid through the tax system in our definition of poverty, although we do count just giving poor people cash money. The upshot of this is that in the old days what the poverty line was really measuring is the number of people who were poor after the things we did to reduce poverty. Today that same poverty line is measuring the number of people who are poor before all the things we do to reduce poverty. We don't care whether people have jobs or not, we don't even care whether people have incomes or not: we only care that people have the opportunity to consume. It's not income poverty that is the real concern, it's consumption poverty that ought to be. Figure 2 shows us this is around and about zero now in the US."

Conclusions on addressing absolute poverty

1)Grow the economy and employment. Ten million more employed, even at annual wages of $30,000 would grow the economy, increase social insurance taxes (that increase the viability of Social Security and Medicare), reduce the federal deficit, and reduce income inequality. 2)Pursue justice by providing equal opportunity and equality before the law. 3)Wealth transfers and public benefits do not reduce poverty or income inequality, nor do they create wealth.

why poverty, inequality, justice

1. To understand the importance and nature of wealth and its creation, we need to understand its evil opposite (poverty), its nature, its causes and its effects. 2. Creating wealth can and best reduces absolute poverty, yet it increases relative poverty. a. What happens when $1, $10, $100, and $1000 per day incomes each triple? 3. Poverty is at the root of many of our social, cultural problems, including race, health, education, and perhaps most of all - opportunity. 4. While we can create wealth without reducing poverty, it is not sustainable or moral strategy to do so. The good news is that history shows that as more wealth is created, more people move out of poverty.

analysis of wealth inequality in america

1. What happens to the analysis when we distinguish among income, wealth, and consumption, or were we to consider after-tax income or government benefits? 2. Is a widow living on Social Security in a million-dollar home poor or wealthy? Is a Millennial with $100,000 in college debt and a $80,000 income, living in Manhattan, poor or wealthy? The greatest shift in wealth in America in the past fifty years has been a shift of poverty (negative net worth) from the retired elderly to the young working college graduate. 3. In general, Americans have income mobility, i.e., you can start in the bottom quintile and move up two, three, even four quintiles in a lifetime. Most of those among the wealthiest in America did not inherit that wealth; they created wealth for themselves and for others. A college professor noted that from his first job to his last, his annual income increased 100-fold.d

absolute poverty

1. a condition that occurs when a person's or a household's income falls a specific threshold level of income, i.e., below the 'poverty level'. As explained by an NAS panel, "Absolute thresholds are fixed at a point in time and updated solely for price changes.... In contrast, relative thresholds, as commonly defined, are developed by reference to the actual expenditures (or income) of the population." In 2013, the American government-established absolute poverty threshold for a single person under the age of 65 was $12,119.

Reflect back two hundred years and the dilemma is clear:

94% of the world's one billion people live in absolute poverty, living on the edge, and threatened on a daily basis by natural forces, e.g., disease, starvation, pestilence, extreme weather. War was often the means to secure limited resources and to subjugate people for the benefit of nobility. Wealth was almost a surreal concept for all but the world's one percent, and wealth was almost exclusively natural wealth, mostly limited and hoarded whenever possible. What natural wealth that could be created and renewed by human effort, e.g., crops, forests, were unproductive, labor intensive, and subject to the whims of Mother Nature. Life itself was "nasty, brutish and short," with infant mortality above 50% and life expectancy less than forty years.

wealth inequality in america (2012)

A business professor and economist asked more than 5,000 Americans how they thought wealth was distributed in the United States. Dividing the country into five rough groups of the top, bottom and middle three 20% groups, they asked people how they thought the wealth in this country was divided. Then he asked them, what they thought was the ideal distribution, and 92%, that's at least nine out of 10 of them said it should be more like this. In other words, more equitable than they think it is. 1% of America has 40% of all the nation's wealth, the bottom 80%, eight out of every ten people, or 80 out of these 100, only has 7% between them, and this has only gotten worse in the last 20 to 30 years, while the richest 1% take home almost a quarter of the national income today.

Summary

A world of equal outcomes is the fundamental goal of socialism, yet socialism has more often than not meant a sharing of less and decaying wealth while also restricting or oppressing social justice in terms of opportunity or judicial due process. Without the wealth generated by capitalism, socialists would not have the needed resources to re-distribute.

Here is a simple, even simplistic guide:

Capitalists create, entrepreneurs innovate, socialists distribute and communists appropriate (take from you).

understanding and preventing poverty

Concerns about poverty stem from the growing gap in incomes and the contradictions of growth in both wealth and income inequality. Economic growth increases the income gap while decreasing the number of people living in absolute poverty.

how economic inequality hurts societies (2011)

Contrast the American assertion from our Declaration of Independence - life, liberty and the pursuit of happiness - with the comparable French motto - liberte, egalite, fraternite - both from the late eighteenth century and the time of their respective revolutions. These simple phrases demonstrate a marked difference in the two cultures and the political system and rights that emerged from this thinking. The American motto emphasizes more individual pursuits, not equal outcomes; the French motto is more collective, socialist. The following video demonstrates some of the issues that arise from profound cultural differences around the world, without clearly demonstrating cause and effect.

What about causality?

Correlation in itself doesn't prove causality. We spend a good bit of time. And indeed, people know the causal links quite well in some of these outcomes. The big change in our understanding of drivers of chronic health in the rich developed world is how important chronic stress from social sources is affecting the immune system, the cardiovascular system. Or for instance, the reason why violence becomes more common in more unequal societies is because people are sensitive to being looked down on.

How can we resolve or prevent this tragedy?

Do not assume that all important resources are fixed and zero-sum in their use. Understand and respect the personal and social value of private property. People tend to better manage resource when they own them. The antidote to poverty is not a fairer distribution of a fixed amount of wealth or income. The antidote is the broad creation of wealth and reduced wasteful consumption.

Wilkinson speaks from the clear perspective of an ...

English culture that has maintained a class structure that - by culture, not by income - creates feelings of disrespect and inferiority, based on one's social standing.

equal opportunity and treatment do not lead to equal outcomes

Equality can be expressed in terms of inputs, process and outcomes, or (1) equal opportunity, (2) equal treatment in process, and (3) equal outcomes, respectively. Equal opportunity does not produce equal effort or equal outcomes in wealth or income. Economic growth can be facilitated by equality in opportunity, e.g., property rights, and equality in process, e.g., rule of law. Growth can also improve equality in both opportunity and process. As either a cause or result of equal opportunity and equality before the law, economic growth is still most likely to increase income variation. The resultant success in reducing global poverty was due, in part, to increasing inequality, as all income quintiles worldwide increased. Now the United Nations has shifted its attention to relative poverty, failing to recognize that strong economic growth helped all income quintiles.

TED Does money make you mean? (2013)

How might that experience of being a privileged player in a rigged game change the way you think about yourself and regard that other player? So, we ran a study on the UC Berkeley campus to look at exactly that question. We brought in more than 100 pairs of strangers into the lab, and with the flip of a coin, randomly assigned one of the two to be a rich player in a rigged game. The rich player started to move around the board louder, literally smacking the board with the piece as he went around. this game of Monopoly can be used as a metaphor for understanding society and its hierarchical structure, wherein some people have a lot of wealth and a lot of status, and a lot of people don't; they have a lot less wealth and a lot less status and a lot less access to valued resources. What we've been finding across dozens of studies and thousands of participants across this country is that as a person's levels of wealth increase, their feelings of compassion and empathy go down, and their feelings of entitlement, of deservingness, and their ideology of self-interest increase. In surveys, we've found that it's actually wealthier individuals who are more likely to moralize greed being good, and that the pursuit of self-interest is favorable and moral. Now, what I want to do today is talk about some of the implications of this ideology self-interest, talk about why we should care about those implications, and end with what might be done. I don't mean to suggest that it's only wealthy people who show these patterns of behavior. the American dream is an idea in which we all have an equal opportunity to succeed and prosper, as long as we apply ourselves and work hard. But what we're finding is that the wealthier you are, the more likely you are to pursue a vision of personal success, of achievement and accomplishment, to the detriment of others around you. top 20 percent of our population own close to 90 percent of the total wealth in this country. We're at unprecedented levels of economic inequality. economic inequality is something we should all be concerned about, and not just because of those at the bottom of the social hierarchy, but because individuals and groups with lots of economic inequality do worse ... not just the people at the bottom, everyone.

how income inequality harms societies (2011)

I think the intuition that inequality is divisive and socially corrosive has been around since before the French Revolution. What's changed is we now can look at the evidence, we can compare societies, more and less equal societies, and see what inequality does. The average well-being of our societies is not dependent any longer on national income and economic growth. That's very important in poorer countries, but not in the rich developed world. You see, at the more unequal end, it's about 15 percent of the population who feel they can trust others. But in the more equal societies, it rises to 60 or 65 percent. This is social mobility. It's actually a measure of mobility based on income. Basically, it's asking: do rich fathers have rich sons and poor fathers have poor sons, or is there no relationship between the two? And at the more unequal end, fathers' income is much more important -- in the U.K., USA. And in Scandinavian countries, fathers' income is much less important. There's more social mobility. Sweden has huge differences in earnings, and it narrows the gap through taxation, general welfare state, generous benefits and so on. Japan is rather different though. It starts off with much smaller differences in earnings before tax. It has lower taxes. It has a smaller welfare state. And in our analysis of the American states, we find rather the same contrast. There are some states that do well through redistribution, some states that do well because they have smaller income differences before tax. So we conclude that it doesn't much matter how you get your greater equality, as long as you get there somehow. What about causality?

overview of poverty prior to progress and prosperity

In examining the 'why' question, we have to come to grips with the history of human development which can best and simplest be characterized as the progression from global poverty to global prosperity. This progression has been marked by (1) unprecedented, unrelenting increases in the creation of multiple forms of wealth, (2) tremendous reductions in absolute poverty, and (3) massive resulting increases in income and wealth inequality. Real, significant progress started about the time of the Industrial Revolution. The driving force was free-market capitalism. The development of entrepreneurial business, modern management practices, and enlightened forms of leadership provided the basis for sustaining and increasing the initial spurt of industrial growth that also guided us from the industrial age to the service economy and to the modern information economy to today's knowledge- and data-based network economy.

scarcity mentality

It turns out that people behave differently when they perceive a thing to be scarce. "It's like teaching someone to swim and then throwing them in a stormy sea."; experiment with sugarcane farmers

In 2013, you ran on reducing income inequality. Where has it been hardest to make progress? Wages, housing, schools?

Mayor Bill Di Blasio: What's been hardest is the way our legal system is structured to favor private property. I think people all over this city, of every background, would like to have the city government be able to determine which building goes where, how high it will be, who gets to live in it, what the rent will be. I think there's a socialistic impulse, which I hear every day, in every kind of community, that they would like things to be planned in accordance to their needs. Unfortunately, what stands in the way of that is hundreds of years of history that have elevated property rights and wealth to the point that that's the reality that calls the tune on a lot of development. if I had my druthers, the city government would determine every single plot of land, how development would proceed. And there would be very stringent requirements around income levels and rents.

As we will see in subsequent weeks, the world was in a precarious state...

Plagues had the possible of wiping out entire countries. Changes in the climate could make food production an iffy proposition. There was little room for error, not much in the way of savings, and low resilience in terms of health and natural wealth. The leading theory of the day was that people would continue to populate faster than food production could increase, producing even more dire circumstances for those fortunate (or unfortunate) enough to survive childhood.

experiment with sugarcane farmers

Ted Poverty isn't a lack of character (2017). American psychologists had traveled 8,000 miles to India, for a fascinating study. And it was an experiment with sugarcane farmers. You should know that these farmers collect about 60 percent of their annual income all at once, right after the harvest. This means that they're relatively poor one part of the year and rich the other. The researchers asked them to do an IQ test before and after the harvest. What they subsequently discovered completely blew my mind. The farmers scored much worse on the test before the harvest. --> scarcity mentality

equality and social justice

The paradox of equality thorough social justice claims results from the confusion between equal rights to opportunity or process with equal outcomes. Equality or social justice can occur in opportunity, process and outcomes. Social justice as measured by equal outcomes is much more problematic, because the diligent exercise and protection of equal opportunity and due process lead to great variability in outcomes. Opportunity and process improvements in the past thirty years have improved political and economic outcomes to people with daily incomes of $1, $10, $100, $100, or with comparable differences in initial wealth. The $9 daily difference between the two lowest income levels is now $27. The difference between the top and the bottom has grown from a daily $99 to $997.

Census data as far back as 1988 showed three essential behaviors that characterized American adults not in poverty:

They finished high school, worked for one year, and married and stay married. For more perspective, Google "three causes of poverty."

do we need to rethink capitalism? (2015)

This talk suggests a need to 're-think' capitalism when the problem is often one of the absence of capitalism, when markets and people are not free, or when crony capitalism creates phony capitalism. The media, academics, the political elite - and some financial 'experts' -- fail to understand or to appreciate capitalism, while benefitting greatly from its existence. A flat statement, e.g., "Income inequality is not a good thing," is rhetoric, not evidence. Americans displaced from jobs is the result of innovation, not capitalism. higher profit margins do not increase societal wealth. if the top 10 percent of American families own 90 percent of the stocks, as they take a greater share of corporate profits, then there's less wealth left for the rest of society. Income inequality is not a good thing. This next chart, made by The Equality Trust, shows 21 countries from Austria to Japan to New Zealand. On the horizontal axis is income inequality. The further to the right you go, the greater the income inequality. On the vertical axis are nine social and health metrics. The more you go up that, the worse the problems are, and those metrics include life expectancy, teenage pregnancy, literacy, social mobility, just to name a few. Yes, that's us, with the greatest income inequality and the greatest social problems, according to those metrics. capitalism has been responsible for every major innovation that's made this world a more inspiring and wonderful place to live in. Capitalism has to be based on justice. It's estimated that 47 percent of American workers can be displaced in the next 20 years.

defining and understanding poverty

Traditional measures of poverty focus on an absence of wealth, yet it is critical to understand the interrelationship of absolute poverty, relative poverty and consumption.

Many other factors correlate with social problems...

Wealthier, free countries tend to have more social problems because people are free to make bad choices and have enough money to make them. Countries with little economic growth and miniscule immigration also have fewer social problems. People in poorer countries and economies rely more on collective efforts to protect their interests, to survive.

The primary issues remain:

What constitutes poverty? Is poverty a relative or an absolute term? Is poverty an absence of wealth, income, consumption or opportunity? Is poverty defined as near-starvation? or food uncertainty? Or is it the absence of an opportunity for education? Or lack of access to medical treatment?

More than ten years later, the recommended strategy was similar...

William Galston, an assistant to President Clinton, said, to avoid poverty, do three things: finish high school, marry before having a child, and produce the child after you are 20 years old. He noted that only 8% of people who do all three will be poor; of those who fail to do them, 79% will be poor.

consumption

a better outcome indicator than income, is easier to measure than income, and better reflects a household's ability to meet basic needs.

Wealth creation is not

a zero-sum process. One person's success does not have to impair another person's state or prospects. Equality does not mean simply dividing the existing wealth "equally" among all people.

Greed is not peculiar to...

capitalism. Capitalism means creation, not accumulation.

While the cotton trading market is a symptom of capitalism...

cotton trading is not capitalism; it is not even a good metaphor for capitalism. And cotton trading does not create wealth; it is primarily speculation in price differences.

Capitalism is about...

entrepreneurship, creatively combining capital to create more capital. trade, markets, political and economic freedom; it is more about choice then the competition that often results. Capitalism spurs creative innovation.

Attention to wealth creation does not ...

imply inattention to social justice, poverty or human dignity. Rather, the practice of wealth creation provides the funds to empower people, to provide charity, and to reduce poverty. Most importantly, capitalism and wealth creation have created and continue to create numerous, sustainable routes out of poverty.

Global wars reduce ...

inequality. The greatest 'leveler' of global wealth inequality ever was World War I. In global conflicts, almost everyone becomes worse off. Massive, consistent, constructive, prosocial and altruistic efforts to reduce income inequality include taxation, wealth re-distribution, charity, pensions, public education and healthcare (e.g., Medicare, Medicaid), unemployment benefits, Social Security, disability payments, and other social welfare programs, none of which are considered by Wilkinson. In the United States, about 65% of what the federal government spends is in wealth transfers to improve the incomes of the 'bottom 95%.' Private, personal charity in the United States in 2016 was nearly $400 billion, which is more than the entire economy of 90% of the world's countries. The United States has about 4.67% of the world's people, 21% of world GDP, and 25% of global wealth.

While health outcomes inequalities are a form of injustice...

it is not clear that these differences are caused by income inequalities, nor is it clear that reducing inequality would reduce health outcomes, nor is it clear that the direction of the causality assumed in the talk is in the direction Wilkinson claims.

Inequality is correlated with...

negative social outcomes but that is not proof that income inequality causes social/health issues. The reverse may be true, e.g., health and social problems may cause income inequality.

Bill Gates

one of our nation's wealthiest individuals, in his Harvard commencement speech, talked about the problem of inequality facing society as being the most daunting challenge, saying, "Humanity's greatest advances are not in its discoveries -- but in how those discoveries are applied to reduce inequity." changes in social values and changes in people's behavior that work against their own economic interests, but that may ultimately restore the American dream.

George Orwell

one of the greatest writers who ever lived, experienced poverty firsthand in the 1920s.

Appreciate the differences between

political rights and economic rights. The former describes basic human rights, e.g., freedom of speech, freedom of religion, right to a trial and to due process. The seminal human rights document, the Magna Carta, guaranteed rights to people that were once the exclusive right of kings.

The American federal tax system is significantly...

progressive, e.g., the top 1% of wage earners pay 35% of federal income taxes. Wilkinson needs to use after-tax incomes and after-benefit incomes to better claim inequality in incomes. He is looking at before-tax wages, not after-tax incomes of those with high incomes nor the after-benefit incomes of those with low or no wages.

Poverty is...

relative and place-specific. A person considered 'poor' in the United States may appear wealthy to the poor in another country.

relative poverty

serves as the basis for political arguments in favor of income re-distribution, intended to eradicate inequality. Most western economies outside the United States, household poverty is defined as income below 60% of the median household income. Note this World Bank discussion of measuring poverty.

There is a cultural difference and a significant difference in economic impact between...

single mother households and two unmarried parent households. In America, about twenty percent of single-parent households are single father households.

Capitalism trumps

socialism. Despite its critics and shortcomings, capitalism does not create poverty. Capitalism creates and distributes wealth. The time-tested method from reducing poverty and human suffering is economic growth, not in trying to create equal outcomes. Per Winston Churchill: "Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery."

While businesses might prefer to operate as a monopoly...

the 'invisible hand' of capitalism usually precludes that option. However, governments are monopolies and they create monopolies through regulation, subsidies, and crony capitalism.

Freedom of choice is

the freedom to fail. If every risk were guaranteed against failure, there would be no risk and little reason to avoid failure. If a fair income and wealth were guaranteed, what would happen to incentives to create wealth?

TED Poverty isn't a lack of character (2017)

the standard explanation for why the poor make so many poor decisions was once summed up by the British Prime Minister, Margaret Thatcher. And she called poverty "a personality defect." scarcity mentality. The basic income is not a favor, but a right. I believe in a future where the value of your work is not determined by the size of your paycheck, but by the amount of happiness you spread and the amount of meaning you give.

Wealth and income distribution are secondary issues to

wealth creation and they are impossible to sustain without wealth creation. Per Margaret Thatcher, "The problem with socialism is that sooner or later you run out of other people's money."

A corporation's primary responsibility is...

wealth creation, not charity. Corporate charity pales in comparison to American personal charity (about $400 billion a year) and federal government wealth transfers (about $2.6 trillion a year).

Robert Rector of the Heritage Foundation (link) noted these conditions of Americans defined as poor by the Census Bureau:

•46% of all poor households own their own homes. •76% of poor households have A/C (30 years ago, 36% of U.S. had A/C). •The average poor American has more living space than the average person in Paris, London, Vienna, or Athens. •Nearly three-quarters of poor households own a car; 30 % own 2 or more. •Ninety-seven percent of poor households have a color television. •78% percent have a VCR or DVD; 62 percent have cable or satellite TV.

where is poverty

•Almost half the world — over 3 billion people — live on less than $2.50 a day. •The GDP of the 41 Heavily Indebted Poor Countries (567 million people) is less than the wealth of the world's 7 richest people combined. •Nearly a billion people entered the 21st century unable to read a book or sign their names. •1 billion children live in poverty (1 in 2 children in the world). 640 million live without adequate shelter, 400 million have no access to safe water, 270 million have no access to health services. 10.6 million died in 2003 before they reached the age of 5 (or roughly 29,000 children per day).