A Clash of Models

Avatar

James K

James is a government policy analyst, and lives in Wellington, New Zealand. His interests including wargaming, computer gaming (especially RPGs and strategy games), Dungeons & Dragons and scepticism. No part of any of his posts or comments should be construed as the position of any part of the New Zealand government, or indeed any agency he may be associated with.

Related Post Roulette

110 Responses

  1. Nob Akimoto Nob Akimoto says:

    James,

    I enjoyed your positing of models. I think the simplified models are relatively accurate in terms of belief, for example, I as a leftward leaning policy analyst tend to think about power relationships a lot, even though my training was primarily to look at the marginal value of labor.

    Problematically, your productivity argument is often used as a moral argument regarding distributive justice. There’s a strain, particularly in American conservatism, that argues that market outcomes are fundamentally just. That valuation of labor is somehow done morally, and the social utility of a dollar of earnings is all equal, thus the greater amount of earnings, the greater the social utility.

    I guess for me, the question becomes more one of whether or not the following are true:
    1. Do we place too much normative moral value in market economic outcomes?
    2. Have we sufficiently examined the factors that determine market valuation of certain types of labor?

    And I come down on the side that the answers are yes, and no respectively. There’s a lot of talk about the disruptive influence of government on markets, but in an era of mass media, preferences are shaped as much by cultural norms created by private entities. To the extent that there are forms of concentrated behavior setting powers, I think we need to be wary.Report

    • Avatar James K says:

      Problematically, your productivity argument is often used as a moral argument regarding distributive justice. There’s a strain, particularly in American conservatism, that argues that market outcomes are fundamentally just.

      That’s the thing about theories of justice, everyone has one, but generally they’re founded on nothing more than the moral instincts of the person who has them. You certainly decide that market outcomes are ipso facto just, you can decide that markets outcomes are just when the market is functioning properly (this would be equivalent to the Kaldor-Hicks Criterion), or you can have some other theory of justice entirely. That’s why markets don’t have regard for what is just, how could they?

      There’s a lot of talk about the disruptive influence of government on markets, but in an era of mass media, preferences are shaped as much by cultural norms created by private entities. To the extent that there are forms of concentrated behavior setting powers, I think we need to be wary.

      I’m less sure about that than you are. I really don’t think the media has much power to shape public opinion beyond some very narrow margins. In practice, I suspect the causality runs almost entirely in the other direction.Report

    • Avatar Brandon Berg says:

      There’s a strain, particularly in American conservatism, that argues that market outcomes are fundamentally just.

      Whether it’s just or not is, I think, beside the point. Paying people in accordance with the marginal product of their labor is good because it gives people an incentive to maximize the marginal product of their labor. We valorize productivity because we want more of it. I’m not sure that “Is this just?” is actually a coherent question.

      Whenever someone talks about intervening to make this process more “just,” it pretty much always involves blunting the incentives for productivity for the sake of some fairly arbitrary conception of justice.Report

      • Avatar Murali says:

        To be clear, are you being a nihilist about justice, or are you merely saying that most people’s conceptions of justice happen to be wrong and therefore arbitrary?

        Because, if it is objectively the case that justice requires us to maximise (within the constraints of respecting basic liberties) the lifetime material prospects of the worst off, then it is at least logically possible that this goal could diverge from the goal of maximising productivity. I tend to think that given clean and fair institutions, this happens less often than we think, but that is not always the case.

        For example, if some incentives for productivity are inextricably tied up with incentives to take risks with other people’s money, then we can predict that the management of such risk will be poor as thebenefit of proper risk management is not internalised. Especially in cases where the worst off are most affected by negative externalities (which happens often enough for us to be concerned) Even if such incentives increase total productivity or even total welfare, unless we are able to adequately compensate those hit by negative externalities, the system in at least that respect will not be just.Report

        • Avatar Brandon Berg says:

          Nihilist. They’re all arbitrary. Even mine. Really, how can they be anything but arbitrary? Justice is an abstraction, not a real thing. Theories of justice aren’t testable—they’re subjective value judgments.

          Because, if it is objectively the case that justice requires us to maximise (within the constraints of respecting basic liberties) the lifetime material prospects of the worst off

          If that’s true, then all that other stuff follows. But it’s not true. It’s a postulate. It’s assumed to be true for the sake of argument, but no more than that.Report

          • Avatar James Hanley says:

            Theories of justice aren’t testable—they’re subjective value judgments.

            Amen.Report

          • Avatar Murali says:

            Pythagoras’ theorem is an abstraction but it is not arbitrary. Just because something isn’t testable doesnt mean that it isnt a subjective value judgment. By justice, all I refer to is the moral principles regulating our basic social institutions. If justice is arbitrary, then either all morality is arbitrary or at least no non-arbitrary moral principles regulate said institutions. However, whichever of the two implications you accept I don’t know how your statements about the goodness of paying people according to the marginal product of their labour can be made coherent without severely fracturing the meaning of the word good.Report

            • Avatar James Hanley says:

              But the theorem has a proof. I don’t think that holds true for theories of justice.

              Let’s face it, there’s a reason there aren’t lots of theorems competing with Pythagoras’s.Report

              • Avatar BlaiseP says:

                There are. Riemann’s geometry of the sphere is just one, where the sum of the angles of a triangle inscribed upon its surface are more than 180 degrees. Funny what working in GIS systems teaches yez.Report

              • Avatar James Hanley says:

                Interesting. I assume it has a proof…unlike any theory of justice…and can therefore be said to be non-subjective?Report

              • Avatar BlaiseP says:

                Morality, like geometry, relies on axioms. Mr. Kant provides the proofs.Report

              • Avatar Murali says:

                This is precisely correct. When we engage in moral argument, we should aim to provide deductive proofs in the same way we would try to prove pythagoras’s theorem. That many of the proofs tend to be flawed just means we should try harder.Report

              • Avatar Brandon Berg says:

                Right. But Euclidian and non-Euclidian geometries are both valid—provably so—for different sets of axioms. Axioms which are based on observable properties of the real world. To the best of my knowledge, no theory of justice is based entirely on observable properties of the real world.Report

              • Avatar BlaiseP says:

                Which is why we need some Einstein-esque figure to emerge, to tell us about the real world, where the justice equivalents of space and time are inextricably linked, mass warping the universe as it does. The best we can do at present is to realise, however dimly and imperfectly, that we are in this mess together and justice for me ought to be justice for thee.

                It’s at Euclid’s Sixth where Riemann diverges from Euclid. The shortest point between two lines is the line of least resistance. That’s where our conceptions of justice start getting mangled: the line of least resistance is where we take our own relativistic viewpoint as the one viable reference point. You, however, are just an object flying by, heh heh.Report

            • Avatar Michael Drew says:

              However, whichever of the two implications you accept I don’t know how your statements about the goodness of paying people according to the marginal product of their labour can be made coherent without severely fracturing the meaning of the word good.

              Right. It’s not just-or-not-just (because that’s not “real”) but it is good-or-not-good (because that is?)? Who ultimately cares what the word we use is? Or alternatively, if we want to treat both categories, saying it’s good also says it’s however just it needs to be to be good. The question of justness is never beside the point of goodness. If it is unjust, would we be saying it’s good? No. If something is unjust, it isn’t good. So if we’re saying it’s good, we’re saying it’s not unjust. I don’t believe all things that are not un-x are necessarily x, but I actually do think that it works that way with justice. If it’s not unjust, it’s just (perhaps you can have degrees of justness, but if it’s not unjust, I think it’s just enough to be just). So to call something good is to call it just – just enough, perhaps, but just. It’s certainly to deny that it’s unjust.Report

              • Avatar Brandon Berg says:

                “Good” is very much a subjective value judgment. I think that having an economy in which people are paid based on the marginal product of their labor is a good thing because it maximizes productivity, which I like because I enjoy having a high standard of living. As do most people. Some people don’t. I think they’re nuts and will oppose their attempts to lower standards of living. But they’re not wrong in any objective sense—they just my enemies because they have preferences which are fundamentally incompatible with mine.Report

              • Avatar Michael Drew says:

                Would you think an arrangement that maximized productivity was good if you also thought it was unjust?Report

              • Avatar BlaiseP says:

                Good becomes less subjective with every individual who buys into the concept in question. Costco pays its staff more and they have less “shrinkage”, employee theft of product. They stock better product than their competition at Sam’s Club. They have less staff turnover.

                Why would Costco pay its staff more? From the goodness of their hearts or from a bottom-line analysis of what you call marginal product of labor? If I have two good workers who don’t steal and three who might cost me less but steal, that sorta affects my rate of return, too.Report

          • Avatar Michael Drew says:

            Theories of justice aren’t testable—they’re subjective value judgments.

            As a skeptic, though not a committed opponent, of Murali’s vision of provable theorems of justice, the right, the good, etc., I tend to agree with this.

            But that doesn’t mean that they shouldn’t be talked about. Theories of justice can be discussed and evaluated, and potentially coherently adopted, in cultures (political and otherwise), because cultures have prevailing sets of values (which are themselves untestable as to absolute rightness, subjective to a degree, contingent, and relative, but still endogenous to that culture). Societies’ laws don’t claim to enact absolute rightness (Natural Law theorists’ claims notwithstanding); they claim to enact the moral values of the culture of those unique societies. Certainly American laws do: pluralism &c. are predominantly defended on the basis that it is one of our fundamental values, because of the unique character of our republic, not because it is universally right. (That’s what American exceptionalism means!) If we didn’t engage in theories of justice, we wouldn’t be able to make any claims that any laws on the books or not on the books that we’d like to be there actually ought to be there, even in the context of our own society. We make such claims all the time. But we’re almost never making absolute claims about the moral justification of those laws; we’re nearly always making those claims as relative to a set of values we commonly embrace as a society; if those were different, the laws that would be justified would likewise be different, and what’s more, they very much could have been: the character of our nation is radically contingent.

            So sometimes despite ourselves, we are almost all societal relativists when it comes to the arguments we make about public governance. The result of this is that it is entirely possible for it to be neither here nor there that a given theory of justice can’t be proved true in a metaphysically absolute way. The relevant question from the respective of the kind of justification that our public governance has to meet is whether the theory of justice that justifies a given act of public governance reflects our society’s prevailing set of values in the way that other acts of governance that we have accepted as justified do or did.Report

      • Avatar Kimmi says:

        stealing money from the people most likely to make productivity enhancements doesn’t seem to be valorizing productivity, merely wealth.

        That marginal value of labor you’re cherishing? Lost us a full generation of new transistors. new velcro. new aids research.

        Marginal value of labor does not always lead towards the best productivity enhancing lines of inquiry.

        Nate Silver does a much better job enhancing productivity by running statistics on baseball or politics than he ever did working stocks. Yet he got paid more for working stocks.Report

        • Avatar Annelid Gustator says:

          “Nate Silver does a much better job enhancing productivity by running statistics on baseball or politics than he ever did working stocks. Yet he got paid more for working stocks.”

          So I wonder about that. How is he enhancing productivity in a socially beneficial way doing the political stats? I can understand the sports bit–because we recognize it as entertainment and for a large part steering baseball fans or clubs to better bang for the buck doesn’t have much of a social maleffect (here in the States, at least). I wouldn’t say the same for “political entertainment,” necessarily.

          I also wonder just how seriously to take the argument of the financializers–the HFT guys argue that they’re shrinking spreads and thus increasing liquidity, which might actually be true. Does the–both local and distributed–gain outweigh the risk of flashcrashes and the premium the HFT guys charge? I dunno, maybe. Financialization could, within limits, have really positive, infrastructure-like effects. Or they might just be vampire squids. Hard to say.

          I guess I would just be hesitant to say that the Silver was paid (relatively) more than his productivity (even total social productivity, however you define it) in his previous life than this one. Maybe? I certainly find it easier to like a baseball/polling nerd than a quant–and this spoken by a quant-type.Report

          • Avatar Kimmi says:

            If nothing else, he’s putting a lot of other analysis folks out of work (and giving the PR types a good solid footing to start pushing from — which they really need, cause most PR types SUCK at math). And he’s getting the NYT some valuable reporting when he stages one of those roadshows of his.

            Finance salaries bubbled just the way CEO salaries bubbled. I’m not going to step into it anymore than my knowledge — which is that banksters are needed to provide lubrication for the global economy. But FIRE makes a really, really poor global economy.Report

    • Avatar James Hanley says:

      There’s a strain, particularly in American conservatism, that argues that market outcomes are fundamentally just.

      I always begin my political economy class by emphasizing that the course isn’t about justice.

      in an era of mass media, preferences are shaped as much by cultural norms created by private entities.

      Preferences always and everywhere have been shaped (in part) by cultural norms. The question is where the cultural norms come from. Does the source of the norm actually matter?Report

      • Nob Akimoto Nob Akimoto says:

        The source matters a lot, particularly when we’re talking about corporate messaging. Entities that have profit maximization in mind and don’t suffer particularly from externality costs setting cultural norms is probably not the ideal situation we want to find ourselves in.Report

        • Avatar Kimmi says:

          a remarkably japanese view. 😉Report

        • Avatar James Hanley says:

          Nob, does anybody set cultural norms who’s not self-interested and really cares about externalities?Report

          • Nob Akimoto Nob Akimoto says:

            Yes. Me.Report

          • Nob Akimoto Nob Akimoto says:

            Less pithily…

            I would argue that common pool resource management in small communities one set of cultural norms that’s a form of non-self interested externality management. Others include things like voluntary licensing standards and externality mitigation by voluntary actors. There’s a mix obviously between these being altruistic and self-interested.

            May I recommend Michael Conroy’s work on this subject?Report

  2. Avatar greginak says:

    This is very fairly and well stated. While economists may not assign a moral value to productivity American’s do. Nob is correct that there is strong element of conservative thought that equates money with goodness and poverty with sloth. Talk about the “moochers” has been around a long time on the right. It is not just a right wing thing entirely though, America is a workaholic country in many ways. This leads to many of emotional, nasty and often clouded discussions about inequality, money and how we got where we are.Report

    • Avatar James K says:

      Yes the Protestant Work Ethic casts a long shadow on US culture, and to be fair the culture of much of the Anglosphere. Work per se is praised, whereas any economist would see that as madness.Report

      • Avatar Brandon Berg says:

        It’s a decent heuristic. If you’re working, you may or may not be doing something productive. If someone’s paying you to do it—and if you’re going to be working anyway, you might as well get someone to pay you—it’s even more likely that what you’re doing is productive. If you’re not working, you probably aren’t doing anything productive.Report

        • Avatar Kimmi says:

          nah, getting someone to pay you involves taxes and other whatnot.
          and disclosing who you’re working for.
          /corporate drone-slaveReport

  3. Avatar Brandon Berg says:

    Employers have every incentive to make their workers more productive, so chances are, if there are ways of doing this they will be non-obvious, difficult to implement and/or involve factors employers can’t control.

    Or just more expensive than the productivity improvement justifies. An employer may be able to improve his workers’ productivity by spending a million dollars on new equipment, but if that new equipment only generates an extra $20,000 per year in profits, he’s not going to do it.

    A corollary to this is that the cheaper and more abundant capital is, the higher worker productivity will be. Which, again, is why redistributing wealth from those with low marginal propensity to consume to those with high marginal propensity to consume is bad for workers in the long run.Report

    • Avatar James K says:

      Or just more expensive than the productivity improvement justifies. An employer may be able to improve his workers’ productivity by spending a million dollars on new equipment, but if that new equipment only generates an extra $20,000 per year in profits, he’s not going to do it.

      And nor should they, you don’t make society better off by making bad investments.Report

      • Avatar Kimmi says:

        you don’t make society better off by making good investments, if those good investments involve burning decent companies to the ground — or overinflating them, and then cutting and running.

        CNBC and Mad Money are certainly good investments for someone. Good investments in further clouding the market.Report

        • Avatar James K says:

          you don’t make society better off by making good investments, if those good investments involve burning decent companies to the ground — or overinflating them, and then cutting and running.

          If it’s a good company it’s worth more in one piece than it’s worth in spare parts.Report

          • Avatar Kimmi says:

            yes, but often worth more in the long run. burning things down is a time-efficient way to create money for shareholders.Report

    • Avatar NoPublic says:

      Employers have every incentive to make their workers more productive, so chances are, if there are ways of doing this they will be non-obvious, difficult to implement and/or involve factors employers can’t control.

      Yet in an economy like we currently have, productivity gains are likely to be a result of applying pressure to work more hours for less (hourly) pay. This is obvious, easy to implement, and is largely controllable (on aggregate) by employers. What balances this force in your model?Report

      • Avatar Citizen says:

        No public,
        Is “motivation depletion” a counter balance? What are the effects on production? Long term?Report

      • Avatar James Hanley says:

        What no public suggests is in fact what’s been happening during the recovery. It’ not necessarily nefarious , though. Companies unsure about the short-term economic future are hesitant to invest in training employees they won’t need if things tank again. It’ an explicitly short-term strategy, not their long-range plan. And in the last quarter U.S. productivity declined slightly, evidencing that employers gave mostly tapped out that strategy. That’s what balances it– workers simply can’ do it forever, so eventually it doesn’t provide further gains for employers. Just as machinery that’s used too hard breaks down, so does labor.Report

        • Avatar Kimmi says:

          nurses being an obvious counter to this…Report

        • Avatar M.A. says:

          Damn you, I was drinking a soda and your comments were so inane I did a spit-take.

          Companies unsure about the short-term economic future are hesitant to invest in training employees they won’t need if things tank again.

          Companies haven’t invested in training employees for 25+ years, it’s easier to fire employees and stick out want ads for someone already trained on what you want them to do. The 1% sees the 99% as replaceable cogs.

          And in the last quarter U.S. productivity declined slightly, evidencing that employers gave mostly tapped out that strategy. That’s what balances it– workers simply can’ do it forever, so eventually it doesn’t provide further gains for employers.

          Reclassifying workers exempt and working them to death is the norm, against all reason.

          Hiring enough employees to do the work well is no longer “smart business.” Counting on “business leaders” to figure this out isn’t going to work, they last 3 generations of soulless managers have been trained to “get more out of the workers without increasing payroll liability.”

          I’m ok with government stepping in on this one, for the good of society.Report

          • Avatar Brandon Berg says:

            Damn you, I was drinking a soda and your comments were so inane I did a spit-take.

            Your presumption of superiority here is, aside from being characteristically dickish, grossly unwarranted.Report

          • Avatar James Hanley says:

            Companies haven’t invested in training employees for 25+ years, it’s easier to fire employees and stick out want ads for someone already trained on what you want them to do. The 1% sees the 99% as replaceable cogs.

            That’s funny. In the late ’90s I worked part time at a building supply store. I was just a stock clerk, pretty replaceable. Nevertheless, the company put considerable efforts into training–each of us was required to attend at least one training session per month.

            There’s also other evidence that you are factually incorrect.Report

            • Avatar M.A. says:

              Oh, they’ll do the government-mandated stuff. Yearly “what constitutes sexual harassment”, “what the fuck is an MSDS and why do I care”, “learn these safety procedures so you don’t kill your coworkers.”

              Gone are the days where employees were given in-house training to apply for the next level up. Home Depot would rather poach a manager or night-school grad from Lowe’s or Builder’s Square.Report

            • Avatar Trumwill says:

              It’s entirely possible that training is a worthwhile investment and yet too many companies are still choosing not to do it.Report

              • Avatar James Hanley says:

                Oh, sure. That’s why the one article was titled, “Can’t afford employee training programs? Think again.” It clearly implies that some companies aren’t. But the suggestion that no companies are doing it is…well, somewhat inaccurate.Report

              • Avatar Will Truman says:

                As it happens, I wrote a post on this subject earlier in the week. I just brought it over to NaPP. I think that MA is right that a lot of companies aren’t doing it, in part because their is the delusion of coggery. I think that Home Depot and other customer service jobs are actually not the best example of this, though. And it’s clearly incorrect that nobody is doing it, as a good part of my resume suggests.Report

            • Avatar Brandon Berg says:

              I was twice hired to work as a programmer in a language I didn’t know at the time.Report

  4. Avatar M.A. says:

    James,

    1) There are actual economic reasons inequality is growing, which can’t be reversed.
    2) This is not to say the reasons are fair, but the mere fact something is unfair doesn’t imply any particular solution, or even that a solution exists.

    While I appreciate your position, it’s just not backed up by historical reality. Income inequality HAS been reduced in the past. In the last ~100years in the USA, we have a sharp drop in income equality at one point, which continued – due to regulation – until the deregulatory economic masturbation-fest of the Republicans beginning in the 1980s under Reagan.

    3) If we are to raise the standard of living of the poor, increasing their productivity will have to do most of the work.
    4) Increasing the productivity of the poor is really hard, so don’t count on making a lot of progress.

    Actually, improving wages can and will do most of the work, by eliminating the need to build economic structures on credit bubbles. The necessary corrolary to this is that the outsized and exploitative income gap between real value creators, and the financial class, needs to end.

    5) Regulation can (and often does) make it harder for workers to get a fair deal out of their employers. Some combination of deregulation and different regulation may improve matters.

    Regulation “can” do almost anything, but I vehemently disagree with your “and often does” statement. The reality is that it is the removal of regulation that has caused it to be harder for workers to get a fair deal out of their employers. The removal of strict limits on working hours by allowing employers to classify almost any job as a salaried “overtime exempt” position is a good example of this. Since 1980, the average working week has ballooned from 40 (with a 45 minute lunch included) to now 55 (with lunch being charged as “off the clock”) and the obesity epidemic has followed this trend; take 20 hours out of someone’s week and watch as exercise and adequate sleep become casualties of corporate greed.Report

    • Avatar James Hanley says:

      economic masturbation-fest

      Not making yourself look serious here, you know?Report

      • Avatar ktward says:

        I’m lurking on this series as my time allows (with high interest, mind you), so no doubt I’ve missed some dialogue and perhaps I’m off base.

        But it seems to me that some of the best of you are now refusing to engage M.A. on the substance of his comments simply because you don’t like his style. He’s making good points–a fact which seems, to me, to be largely agreed upon–but because he’s not “gentlemanly” enough y’all are sacrificing his substantive contribution because his form is apparently too disagreeable for your delicate sensibilities.

        Stop that. Please.

        If you’re gentlemen, then surely you can be the adults in the room. (If you’ve ever been the parent of a pre-teen or teenager, you know what I’m talking about.) Ignore his [arguably justified] anger and just address his points already. If you don’t do that, you look less like the gentlemen of intellect I have long appreciated and more like whiny evaders. Just saying.

        Fwiw, I notice that BlaiseP’s style these days kinda sticks in your craw.
        Yet, you either still engage him (even if it’s only to shut him down), or you don’t complain. Why not give the new guy in town the same kinda love? Just a thought to chew on.Report

        • Avatar ktward says:

          Mr. Hanley, it occurs to me that it may seem like I’m picking on you specifically, which I most certainly am not. I very much appreciate your views, even if–or perhaps especially if–I don’t immediately agree with them.

          Your comment was simply convenient to my point. Nothing more.Report

        • Avatar James Hanley says:

          KT,

          Actually I’ve been pretty blunt in criticizing Blaise. And I’ve been engaging him a lot less because of it.

          It’s not the ungentlemanliness that I object to. If I say something stupid and somebody says, “Hanley, that’s fucking stupid,” I don’t really mind. But certain types of phrasings indicate that a person isn’t actually interested in engaging in serious discussion, which requires listening with an open mind to the other person.

          It’s like ol’ whatsisnnames’ “commie-dems.” You know that type of person isn’t interested in discussion, but just in making their ideological outbursts. “economic masturbation-fest” is pretty much at the same level. And multiple times he’s trotted out a claim that libertarians only are interested in FYIGM (Fish you, I got mine). When someone is vehemently telling you what you really think, it’s difficult to believe they’re interested in an actual debate, as opposed to just beating down their opponent.Report

    • Avatar James K says:

      The trouble with your argument MA is that thousands have things have changed since 1980, and you have to be very careful in trying to pick out which thing (or things) is driving the changes you can see. Since real life is not a controlled experiment, it normally requires careful quantitative analysis to figure out what’s going on.

      For instance, the jump around 1987 is too sharp for it to be the product of a fundamental shift in labour market relations, more likely it’s Reagan’s fault, but not in the way you think. When taxes were cut in the Reagan era, there was less reason to hide your income in the form of perks or other non-monetary compensation. So when the cash incomes of the every wealthy suddenly jumped, they didn’t suddenly get that much richer, they just stopped hiding it quite so much. Now that doesn’t explain the steeper growth path starting in the early 1908s, but I still think that one is globalisation induced rather than being evidence of nefarious activity on the part of employers.Report

      • Avatar Jesse Ewiak says:

        So, it’s just a big coincidence that a massive shift of wealthy to the inequality started when the most 1%-friendly President in sixty years got elected?Report

        • Avatar Brandon Berg says:

          They make a compelling argument, James. Post hoc, ergo propter hoc.Report

        • Avatar James K says:

          If it were just the US, I might be more inclined to blame Reagan.

          This is a link to OECD data on the Gini index, a standard measure of income inequality (in fact its the inspiration for this post’s picture). You can Google it if you’re curious, but the basic idea is that is ranges from 0 (perfect equality) to 1 (total inequality). According to OECD’s data, 73% of countries for which data is available have seen an increase in their Gini Index since the mid 1980s, 5 of which (Finland, Sweeden, New Zealand, Norway and Germany) saw larger increases in the Gini index than the US. Even if you drop Germany (it’s data going to be a bit dodgy due to unification after the Cold War), that paints a picture of which the US is merely part. Under those circumstances it seems very unlikely that Reagan is a good explanation.Report

          • Nob Akimoto Nob Akimoto says:

            Seems to me the better explanation is simply the end of the Cold War and the substantial opening up of what had once been quite limited trade blocs. Trade liberalization has changed a lot of the calculus for both the high wage earners and those lower down the foodchain.Report

            • Avatar James K says:

              That’s my bet. Globalisation has led to a greater superstar effect. People with particular skills can make a lot more money than they used to and they are the 1%Report

  5. Avatar Roger says:

    James,

    This is fantastic. I enjoyed every sentence.

    PerhapsReport

  6. Avatar Creon Critic says:

    2) This is not to say the reasons are fair, but the mere fact something is unfair doesn’t imply any particular solution, or even that a solution exists.
    3) If we are to raise the standard of living of the poor, increasing their productivity will have to do most of the work.

    Provision of services and direct payments did an awful lot to successfully reduce poverty amongst the elderly in the US. I don’t see why that kind of sustained federal government focus wouldn’t work in other areas of poverty, for instance, the 36% of the poor population in the US that are children. Note also that the outrageously high levels of child poverty in the US don’t fit your suggestion of possession of “marketable skills or talents” being key.

    I don’t know that these fit in the frame you suggest of “promoting productivity, or increasing education”, but here’re some usual liberal/progressive wish list items: prenatal and early childhood health programs, nurse home visiting for instance, early childhood education support, headstart-type programs and subsidized (or free to parent) childcare, committing to state support to public higher education, and wealth inequality targeting measures like child trust funds (altogether, government action could go a ways towards providing a better environment for financial services for the poor, targeting the unbanked and underbanked population as a problem to be systematically remedied for instance).

    If we want to raise the standard of living of the poor, as government action has done for the elderly, direct government intervention is capable of doing a great deal of heavy lifting.Report

    • Avatar Roger says:

      Creon,

      Means tested transfers payments to the poor come to somewhere south of one trillion dollars per year. Not sure if this is too high or too low. However, it does imply a few things.

      First, income inequality is not even close to consumption or standard of living inequality. When you add up the 79 overlapping federal means tested transfer programs and the state ones, the total household “income” for a family of four goes up from $16000 to $44000 per year.

      Second, these transfer payments may be effecting the incentives and even the culture of the poor.

      I am not arguing we do not need social safety nets, we do. I will argue though that poorly designed ones can lead to more problems than they solve, and may be complicit in the sub segment of the poor that are stuck in poverty.Report

      • Avatar Creon Critic says:

        Roger,

        Source for that $44000 figure? And just to practice what I preach, the 36% of poor population being children figure was from here.

        Also, because I can’t take more than a quick look at the moment, the OECD stats on social protection (“Social Expenditure – Aggregated data”) don’t have the US as being particularly committed to the welfare of the less well off compared to peers (OECD StatExtracts). I’m open to being corrected on this.

        Second, these transfer payments may be effecting the incentives and even the culture of the poor.

        I can agree with this to an extent, so structuring of benefits matters a great deal – tapering of benefits matters and program design matters: guaranteed minimum income, negative income tax, vs. highly specified vouchers for food, etc. But I was struck by James K’s point’s 3 and 4,

        3) If we are to raise the standard of living of the poor, increasing their productivity will have to do most of the work.
        4) Increasing the productivity of the poor is really hard, so don’t count on making a lot of progress.

        The US has demonstrated significant progress can be made (elderly poverty), and various OECD peers have shown that there isn’t a reason to be so pessimistic as to the shape and scope of US poverty given more proactive policy.Report

        • Avatar M.A. says:

          I think he pulled it from a Heritage Foundation document (congressional testimony document here) which is full of the usual garbage assertions you’d expect to find in something from that collection of inveterate sophists.

          One of the most laughable assertions about this figure is that in order to reach it, a single person would have to simultaneously:

          – draw maximum Social Security benefits.
          – draw maximum Medicare/Medicaid benefits. Note that much of the cost of Medicaid is paying to keep seniors in nursing homes. If you’re under 65, you’re not in Medicare, and Medicaid is means-tested and not that easy to get into.
          – draw maximum unemployment/worker’s-comp benefits
          – pull the maximum value from all 79 other programs simultaneously.

          The entire argument is garbage, nothing more.Report

          • Avatar Annelid Gustator says:

            The total for that statistic ($900B MTT payments) seems to work, but the… interpolation… to a family of four is ridiculous. The distribution is what the distribution is, not what it would be if 1) the means testing were different 2) the program targeting were different.Report

          • Avatar Brandon Berg says:

            No, that’s completely wrong. What they’re saying is that with the total amount of money we actually spend on means-tested programs* ($927 Billion per year—roughly $3,000 per American, $9,000 per capita, and $19,000 for each American below the poverty line), we could supplement every household’s income enough to get them to the size-adjusted equivalent of $44,000 for a family of four.

            All of this is clear from reading the first page of the document.

            And before you start talking about the “laughable assertions” of others, you’d best pull that beam out of your own eye.

            *This does not include Social Security, Medicare, or unemployment benefits.Report

            • Avatar DensityDuck says:

              but dude heritage foundation i mean come on lolReport

            • Avatar Michael Drew says:

              we could supplement every household’s income enough to get them to the size-adjusted equivalent of $44,000 for a family of four.

              Perhaps, but then we’d be starting over in terms of figuring out how to get them health care. Half of the dollars he’s re-divvying currently go to paying for medical care, of which a considerable percentage is going to be low-frequency high-cost treatments and high-cost end-of life and elder care. Much of what is often assumed to be the domain of Medicare (old people), which as you say is not included in this sum, turns out to be the domain of Medicaid (much of the care old poor people receive), which is.Report

        • Avatar Roger says:

          Yes, it comes from the source MA cites. As I read it, they are adding up all means tested transfer payments and then dividing them by the number of poor. This gives the number of between $19000 and $9000 depending upon which number is used in the base — the higher number is divided by the actual poor, the larger by the bottom third of Americans.Report

          • Avatar Jesse Ewiak says:

            Let’s be blunt here, Roger. I doubt even the entirety of the League could figure out a way to get all 79 of those means-tested government programs if we all worked together under a false name. Yes, welfare allows poor people to have the semblance of a decent life, even if they work at a crappy job.Report

            • Avatar Roger says:

              I’m not sure we are in disagreement here. I believe safety nets are tony the Tiger GREAT. I am really, really glad that kids get good nutrition and a guaranteed education and health care. I would not want to live in a country where that is not true.

              But, the point stands that almost a trillion dollars is going to them, and this is part of what enables them to live decent lives.

              We also still need to ensure that income transfers do not lead to poverty traps. I suspect poorly designed ones do. In other words, good social safety nets are great, poorly designed ones that lead to cycles of dependency are bad.Report

              • Avatar Kimmi says:

                So, if we lose public schools, and we turn more into the british system, where the rich (and possibly uppercrust middle class) get good schooling and the rest get lied to about Global Warming, Evolution, Contraception (actual lies, as were documented in abstinence literature by Congress) and a bunch of other good science, you’d join the barricades alongside the rest of us?Report

              • Avatar Matty says:

                The British system.
                The rich get private (aka public) schools funded by fees and which tend to produce very good exam results and get people into top universities.
                The rest get state schools funded from taxation that do not all do as well but some are very good as I can personally attest.

                How apart from the terminology is this different to the American system do you currently not allow the rich to pay for private schools?

                As to the suggestion that British schools lie about ‘Global Warming, Evolution, Contraception’ I believe the phrase is – citation needed.Report

            • Avatar Brandon Berg says:

              We should totally do that. It’s been way too long since our last welfare heist.Report

          • Avatar Kimmi says:

            Well, when I was unemployed, I suddenly discovered that I had a 0% tax rate.
            Pretty sweet.
            And your dangnab heritage foundation ain’t counting that, cause THEY LIKED giving me free money. So long as it is an “anti-tax”, and not a handout.Report

        • Avatar James K says:

          They key question here is what problem are we trying to solve, inequality or poverty? I believe the government can use transfers to deal with poverty, but to make a dent in inequality would require transfers well beyond even what the Scandinavian countries could manage.Report

      • Avatar Kimmi says:

        oooga boooga! poo0r people might be “affected” by means transfer.
        Know who really is affected by means transfer? Rich dudes. Allow me to explain — it’s a standard rich canard that “they take all my money and don’t give anything back” — combine this with a natural desire to “keepupwith the joneses” by evading wealth transfer (taxes), and your precious capital gains tax cut inflates the stock market.

        Right about when the boomers are retiring, I might add.Report

  7. Avatar Matty says:

    A lot to take in so I’ll riff off one little bit instead of trying to be intelligent about the whole lot.

    the trades are skilled jobs, and a society that doesn’t have plumbers can run into serious problems.

    In Britain, in the 1990’s we went through a period when plumbers and similar trades were scarce and the result was higher rates for them. This was good for the plumbers of course but less good for a lot of other people who found they couldn’t afford to get things repaired so faced either increased debt or long periods living with a problem while they saved up to pay the plumber. The problem was solved not by any changes in regulation or incentives within the UK but by the EU expanding to include several east European countries with people happy to work as plumbers for less than UK rates but more than they could make at home. Today people almost expect a plumber to have a Polish accent. I’m not sure what my point is beyond the fact that you can change a situation a lot by simply expanding it.Report

    • Avatar James Hanley says:

      Bigger markets are often better markets. That’s why I get nervous when people talk about “food security” and advocate only localized food markets. It’s one thing if there’s not enough plumbers in my town, quite another if there’s a local drought.Report

      • Avatar Kimmi says:

        JIT is one day’s worth of food in Manhattan. That’s a hell of a lot more dangerous than a local drought. Bomb a couple of bridges and you got riots within a couple of days. (assuming they don’t get temporary bridges or a shitton of boats from newark or philly)Report

        • Avatar James Hanley says:

          Bomb a couple bridges in Manhattan and we airdrop food out of a C147. We’ve got nothing to worry about in distribution, short of an EMP, perhaps.Report

        • Avatar Matty says:

          I suspect any society weak enough that it couldn’t organize those boats would be weak enough that just about anything could set off a riot.Report

    • Avatar James K says:

      I can agree with that.Report

    • Avatar Brandon Berg says:

      Any idea why there was a shortage of plumbers? I get that it takes some training, but it’s not like you need ten years of college. Generally that sort of thing sorts itself out when people figure out that there’s money in it.Report

      • Avatar Matty says:

        I’m not entirely sure, I don’t think the situation lasted that long but the push towards more education instead of training for a trade certainly got blamed at the time.Report

  8. I doubt there’s a ton here that many top-ranking Dems would disagree with. Which is interesting, considering how we conceive of the Democratic Party as being Left; and what that says about where the center in America is, etc.

    What I’m most interested in is how James et al — more economics-oriented minds — consider the politics of inequality. This post would imply to a significant degree that James doesn’t think politics is particularly central to the development, beyond perhaps regulatory burdens and the promotion of free trade. But I’m extrapolating and don’t mean to put words through his keyboard.Report

  9. Avatar ThatPirateGuy says:

    I have to say that I do think large inequality causes significant problems on it’s own.

    Broadly it causes problems in three areas: political, economic, justice.

    In the political sphere it encourages corruption and cronyism as only the well off can pay to play. This is a problem even if add spending has little effect. This is because politicians believe they need the money thus believe they must curry favor with those who have it.

    In economics it hollows out the market by reducing demand by concentrating spending decisions In the hands of a few. The more inequality there is the more like a centrally planned economy you get.

    In terms of justice healthcare has to be a big part of the consideration as people with means do not have to worry about deciding between their health and life or their house. Those without do.

    All of this happens no matter which model you use. Though I do think that people recieve money based on their ability to convince others to give it to them. I don’t see a way around that. Pay will always be based on perception as humans make the pay decisions.Report

    • Avatar Roger says:

      Pirate,

      It is not true that money is the only currency of politics. It would take a lot of money to get a conservative elected in Berkely or Detroit. More importantly, money or votes or endorsements can be gathered from one individual or from a group of individuals. Special interest groups of all classes can lobby for political favors using whatever currency they can muster. Your concern also seems to imply that the wealthy have uniform interests, or that they make up a monolithic group with common interests. This is not true. They are even pretty evenly split by party,

      Free markets will not tend to over centralize decision making. The reason being that if a firm becomes too big and starts acting inefficiently or ineffectively, it becomes a target for a more efficient, smarter rival. To the extent it is big and efficient, this is probably a good thing. Monopolies are usually a sign of market interference.Report

      • Avatar ThatPirateGuy says:

        It doesn’t have to be the only currency in politics. It merely has to be seen as essential by most politicians.

        Also I am quite sure that a number of very competnt free market advocates have written some very fine articles noting that corruption such as large campaign donations can lead to market interference quite easily.

        I would like it noted that North Korea has neither a free market nor anything resembling income equality.Report

      • Avatar Kimmi says:

        special interest groups can also use blackmail and other coercive means to force pols to do what they want.Report

      • Avatar M.A. says:

        It would take a lot of money to get a conservative elected in Berkely or Detroit.

        That would be the magic of gerrymandering. It’s much easier to buy state offices, dump enough money in to control legislatures in critical districting years (2010!), and then rewrite the districts to stick the members of the party out of power into ghettos where they can elect a few representatives, but never enough to actually matter or give them any real input into what happens to them.

        I live in a gerrymandered area, and it’s pretty sad. I get much, much more mileage crossing the lines and voting for the lesser asshole in the republican primaries than I do voting for the best candidate in the general election. And that’s only because I occasionally can help tilt the choice between nominating someone who hates both gays and nonwhites, and someone who just hates gays.

        Free markets will not tend to over centralize decision making. The reason being that if a firm becomes too big and starts acting inefficiently or ineffectively, it becomes a target for a more efficient, smarter rival. To the extent it is big and efficient, this is probably a good thing. Monopolies are usually a sign of market interference.

        Monopolies are only a sign of “market interference” when they aren’t the product of vertical control of entire supply chains. That’d be the common result of mergers and acquisitions without regulation, which is something that rampant, ill-advised deregulation causes.Report

      • Avatar Kimmi says:

        Ya mean like SANTORUM, PITTSBURGH’s fucking representative?
        (again, gerrymandering)Report

  10. Avatar CK MacLeod says:

    This post, like others, seems to assume that something called “productivity” is virtually synonymous with “the good,” and susceptible furthermore to pure quantitative amplification: The more of it the better. One typical intermediate product of this applied ideology of productivity, as the posts in the series generally acknowledge early on, is material inequality – the last being the putative subject of the symposium, along with the question of “the wrong” (i.e., right and wrong, the good). Yet the typical rhetorical movement of the League’s “what is wrong with inequality?” post is to suspend both elements of the question in order to analyze something seemingly else altogether – until it becomes more clear that the author has already assumed the answer to his own question: For the author, inequality does not matter, has no bearing on right and wrong, as long as the absolute good of productivity can be actualized and augmented.

    Much more could be said on this topic. As for the post’s conclusions, the #s 3 through 5 seem to be dependent upon – implied by or logically contained within – 1 and 2.

    1) There are actual economic reasons inequality is growing, which can’t be reversed.

    This statement entails the simple fallacy of extrapolation of observed circumstances un-boundedly into the future. Some mixture of political, economic, ecological, and military catastrophe – even in the near-term amidst the continued discovery by the global capitalist system of inadequate rates of profit, aka “the global financial crisis” – could reverse this irreversible process tomorrow, and irreversibly. Such reversal would be the apparently inevitable final product of the civilization of productivity, anticipated by its proponents as mere destruction, but generally and inevitably hastened by their efforts to delay it. It would be inevitable because productivity as a global system entails the principle of its own annihilation and conversion.

    2) This is not to say the reasons are fair, but the mere fact something is unfair doesn’t imply any particular solution, or even that a solution exists.

    Don’t really disagree with this statement as far as it goes, but the fact that no general “fair” or particular yet somehow complete and comprehensive solution exists does not necessarily relieve us, individually or as citizens, of responsibility to seek a less “wrong” way of life. In other words, #2 seems to re-state the reductive nullification of the implied moral dimension of the main question, as already discussed. To say that there may be no morally sound (“fair”) response is easy to turn into a declaration of the irrelevance of the moral dimension. As is also typical, and not just of posts at the LOOG, this drift into amorality re-produces the reductive nullification of the moral dimension within the same economic processes that are being quietly declared to be as unquestionable as they are irreversible. The notions of un-questionability and irreversibility may even be the same notion.Report

    • Avatar James K says:

      One typical intermediate product of this applied ideology of productivity, as the posts in the series generally acknowledge early on, is material inequality – the last being the putative subject of the symposium, along with the question of “the wrong” (i.e., right and wrong, the good). Yet the typical rhetorical movement of the League’s “what is wrong with inequality?” post is to suspend both elements of the question in order to analyze something seemingly else altogether

      This post was never about the rights and wrongs of inequality. I generally don’t argue about fundamental ethical beliefs because there’s no point. Everyone has their own intuitions of right and wrong and arguing is never going to convince anyone their intuitions are wrong so why bother? This post was about the causes of inequality and how that might affect view of morality given certain moral views of inequality, namely that inequality is problematic because of its downstream effects. If you think inequality is problematic per se, then this post is probably of very little value to you.

      This statement entails the simple fallacy of extrapolation of observed circumstances un-boundedly into the future. Some mixture of political, economic, ecological, and military catastrophe – even in the near-term amidst the continued discovery by the global capitalist system of inadequate rates of profit, aka “the global financial crisis” – could reverse this irreversible process tomorrow, and irreversibly.

      Ah yes, good call. I was of course over-broad in my statement. What I should have said was that the trend couldn’t be reversed by government policy, or at least by any kind of sane policy.Report

      • Avatar CK MacLeod says:

        No, your post was not “about the rights and wrongs of inequality.” As I said, it was similar to the other posts in the symposium series in not actually addressing the topic question – which implies some ethical or moral element, but which could be examined in a variety of ways other than some Socratic interrogation. To your credit you make some effort to address divergent views that actually would address the question, but it seems to me you lose interest in them, and instead move to the theme you want to address.

        As for the policy question, the problem may be equally, or for that matter disproportionately, whether any policy by any government or group of governments can in fact sustain the trends you assert are irreversible, and whose supposed irreversibility would justify your setting aside the topic question and looking elsewhere. It’s less a criticism of your particular take than of a certain framework for discussion that turns into a framework for non-discussion or avoidance, but whose “products” end up tracing their own negation, as when “inequality,” taken as that which cannot be usefully discussed or “sane”-ly addressed on its own terms (is externalized or repressed), returns as major symptom and cause of the unsustainability and inadequacy of productivity (therefore production, within the civilization of production) taken as an end in itself.Report

  11. Avatar Scott Fields says:

    James –

    Thank you for this…

    I think most liberals object to the present levels of inequality because they think it is to a large extent the product of procedural unfairness. The disparity in incomes is evidence of the problem, rather than the problem per se.

    This is the most concise and fair expression of my particular objections to inequality I’ve yet read, so I appreciate your efforts to understand the “other side”. That said, I hope that you will help me better understand your side.

    It seems to me, that for the market forces model you favor to hold, the first corollary you give – “Rich people are rich because they have marketable skills or talents, and/or have jobs where their labour is magnified by capital or some other multiplier.” – needs to be better substantiated. In particular, I would think you’d want to demonstrate some change in marketable skills or talents that lines up with the dramatic income growth at the very top of the income distribution (not just CEOs, mind you) over the last few decades. The 30 year shape of the income curve for the top 1% is that of a hockey stick and “corporations getting larger so good executives matter more” is pretty unconvincing as an explanation of that curve. (OTOH, I find the second corollary of the bargaining power model – “Since wealth can increase power, [the rich having power] can cause self-aggravating income disparities.” – explains the hockey stick shape of the income curve pretty well.

    Actually, I find the second part of the market forces model’s first corollary – “and/or have jobs where their labour is magnified by capital or some other multiplier” – to be crux of things. I have no doubt that market forces are a critical driver of wage differences. It think this would be particularly true in a free market, but as most here would acknowledge, the market we have in the U.S. isn’t very free.

    I contend that the “some other multiplier” in your model is, in fact, power disparity. This power disparity drives the procedural unfairness that led to the dramatic rise in wealth inequality and this situation self-reinforces. As procedural fairness, as opposed to fairness of outcomes, is pre-requisite for free markets, I’d think this would be of greater concern to a libertarian. Can you help me understand why it is not?Report

    • Avatar James K says:

      The some other multiplier I had in mind was the capital you have to work with. A farmer is a lot more productive with a tractor than if they just have a hoe. That is why wealthy countries don’t have famines any more.

      This works for CEOs too. For example, let’s say that a decent CEO can improve annual profits per $ of capital by 1% over what some random hired a minimum wage could manage (note, this is a pretty small improvement I’m postulating). If your company has $1 million of assets, then basic math suggests a decent CEO is worth $10,000 per year more than minimum wage. If your company has $1 billion of assets, that exact same CEO would be worth $10,000,000 per year more than the minimum wage.Report

  12. Avatar Mike Schilling says:

    The theory behind this goes back to the Marginal Revolution (let it not be said that economists have no sense of humour) in the 19th Century and states that in a competitive labour market workers will be paid a rate equal to their Marginal Product of Labour, or the worth (to their employer) of one more hour of their work.

    That is, labor markets are unique in that both producer surplus and consumer surplus are always exactly zero? I am dubious.

    In fact, we see everywhere that they are not. In a tight labor market, wages increase. In one like today’s, they stagnate. In fact the hourly wages for salaries workers decrease, as more hours are insisted on for the same salary, with the threat of prolonged unemployment enforcing that demand. In the “professional ranks” salaries are kept secret, sometimes with the threat of termination for discussing them, to hide information employees could use to negotiate. As a result, salaries, rather than strictly tracking productivity, are as much a result of the ability to, yes, bargain. The marginal product is a ceiling for wages, but by no means a floor.Report

    • Avatar James K says:

      That is, labor markets are unique in that both producer surplus and consumer surplus are always exactly zero?

      Not at all, producer surplus comes from the difference between marginal product of labour and average product of labour, and consumer surplus comes from the fact that there’s a range of wages people would want in exchange for working a given job, and since by definition everyone who wants more than the market price doesn’t get hired the average person would in principle be willing to take the job for less pay than they are getting.

      I can’t really get into the math in a blog comment, but believe me there’s definitely consumer and producer surplus.

      In fact, we see everywhere that they are not. In a tight labor market, wages increase. In one like today’s, they stagnate. In fact the hourly wages for salaries workers decrease, as more hours are insisted on for the same salary, with the threat of prolonged unemployment enforcing that demand.

      That’s just supply and demand, you see the same dynamic even in perfectly competitive markets.

      In the “professional ranks” salaries are kept secret, sometimes with the threat of termination for discussing them, to hide information employees could use to negotiate. As a result, salaries, rather than strictly tracking productivity, are as much a result of the ability to, yes, bargain. The marginal product is a ceiling for wages, but by no means a floor.

      No doubt this has an effect, but compared to standard market dynamics, I don’t think the effect is especially large. I think the job you do affects your salary a lot more than your negotiating skill, or bargaining position.Report