Why Is It Sticky at the Ends?
by Mad Rocket Scientist
Bloomberg recently had this article up, discussing income mobility in the US:
The short of it is that compared to other first world countries, for the past 35 years or so, not only has wealth been accumulating more and more at the top, but ascending the income ladder is getting harder and harder. So much so that even the tried and true ways that used to work (education, hard work, etc) are failing to pay off nearly as readily as they used to. Today, the single best indicator as to whether or not a person will be wealthy is the wealth of their family. There is also a lot of data to show that those who are wealthy rarely ever fall down the ladder.
This is known as “Being Sticky at Both Ends”.
As a person born of meager stature, I was raised under the idea that education and hard work will get me ahead. I got the education and I work hard, and compared to my beginnings, I am most certainly ahead (my standard of living is much higher than my parents and many of my peers from my youth), but even with the income of two professionals, my wife and I still struggle at times with finding economic security, which was the whole point of working hard and getting that education (i.e. economic security).
Of course, there are always stories of the modern Gatsby, the techno-whiz who makes it big with a widget, or the nobody who becomes a famous author/musician/actor/sports star, etc. so movement is still possible. It’s just getting difficult for those who are not such bright spots in the media.Now, if you are all so inclined, I’d like to elicit a discussion about how the ends got sticky, and what are some good ways to get them un-sticky (sans lube or soap and water). In order to keep it follow-able, I’d like to put forth some facts in evidence and lay down some ground rules:
- Please stay on topic – Don’t foray off into the weeds on some esoteric tangent. If you think it’s really that important, ask the admins if you can do a guest post.
- Don’t feed the trolls or encourage weed followers.
- The trouble with certain minorities ascending the income ladder is a given, so let’s not address that directly. Assume your test case is operating in a theoretical racially homogeneous society, from a decent family (no criminal history), but low on the socio-economic ladder.
- Whys and Hows can be social, economic, or regulatory, but be as specific as you can. No saying “It’s all the governments fault”, or “it’s because of greedy old rich white guys”, have some kind of real data to back it up.
- No one is going to have all the answers or see the whole picture, so don’t slam someone for only talking about a piece of the puzzle. We have discussions so we can ferret out all the pieces. To paraphrase the hacker from “Agents of Shield”, “No one person has 100% of the answer, but if 100 people have 1%, we are getting somewhere.”
- Let’s try to preserve liberty as much as possible for all involved – so sweeping suggestions like “tax the rich at 95%”, while legally, and maybe even politically, do-able is not going to solve the problem by itself.
- And related to number 6, be honest and not ideologically dogmatic. Please try to identify the inherent troubles & unintended consequences of your suggestions.
Ready? … Go!
Good question. I think about this a lot, actually, but I certainly make no bones about a lack of ability to pin things down. Clearly (at least to me, I could be wrong) investment income is the determiner of the statistics in the graph. It therefore seems reasonable to ascribe increases in wealth inequality to an economic dynamic which rewards investing more than it rewards wage-earning. So the question is why is wage earning not rewarded in terms of wealth acquisition at a comparable level. I think that’s a product of a bunch of things, actually: capital flexibility and all that that entails (offshoring, outsourcing, leverage at the bargaining table, etc); domestic wage stickiness (which is both a cultural as well as individual phenomenon); so-called “labor flexibility” which is often a euphemism (in a domestic context, anyway) for the weakening of unions as a leveler of the playing field; a cultural context in which capital flight is not only permissible but encouraged, at least from a policy pov. There are others.
Of course, a few people will be quick to point out that the wealth imbalances we’ve seen in the last thirty years (according to the graph, there are other graphs that take it back to 1972) has raised lots of people out of poverty. And that a fair enough point, even tho it misses the point.
On another level, tho, I think this is just a modern manifestation of an older principle: Income is best earned on the backs of others. And I think the “problem” which modern economic systems presented to that principle has to some extent been solved. It’s just not an obvious, linear solution anymore.Report
How about people who are income wealthy? Lawyers, doctors, and somewhat high up business people who make really good salaries but their lifestyle is dependent on these salaries.
They have investments but it is not at the same level of say the Romneys or the Hiltons of the world.Report
Some of them may manage to step it up. I know a few doctors in the Boston area who have based on developing some sort of medical test, procedure, or equipment.
But they certainly are better able to sip at the fountain of quantum wealth transfer to some extent.Report
And did I ever tell you about the attorney who represented someone with a large shoe collection?
That gig paid.Report
I did not mean to imply that they are not doing well.
I just meant that they can help their kids but not to the same extent that someone like Romney or Hilton can as random famous last-name examples. I hammer this out a bit below.Report
How about people who are income wealthy?
Good on em!Report
@newdealer, the people who are really wealthy use the doctors and lawyers as a shield to protect their incomes. Make sure any regulatory changes will hurt the six figure crowd, and it protects the seven-to-ten figure crowd.Report
@zic
That really depends on the kind of law a person does but is true for a bunch of lawyers for sure.Report
And did I ever tell you about the attorney who represented someone with a large shoe collection?
A complete heel who lost his sole.Report
Being sticky at both ends makes me think of a Cinnabon, but that aside i think it is odd to wonder why it is sticky at the high end. Rich people have the obvious advantage of starting rich but they don’t have to risk anything to stay that way. Just being competent will keep you rich and likely lead to getting richer. Especially considering the amounts of money you have to have to be considered rich. One million dollars isn’t remotely rich for the Rich nowadays. If you have a few hundred million you have to drive yourself into the ditch repeatedly to go poor. Especially with taxes being made much much more favorable to the rich over the last 30 years. Maybe decades ago or in the 19th century rich folk had serious risks to avoid so they could stay rich. Now, not really. There is no mystery about the right sided sticky part of the Cinnabon.Report
That’s a good point, greg. The stickiness at the high end doesn’t really call out for much explanation. On balance, lots-of-money + desire for more = increases in wealth. Sure some people lose their inherited or even earned fortunes. Just about as often as a white rapper makes it big.Report
I remember reading that the wealthy have a tendency to bail each other out to a certain extent, such that a person of wealth who drops down the ladder because of a bad investment will not have trouble finding other wealthy people willing to help them back up.
Basically you have to screw up so bad that you become toxic before you’ll be allowed to fall too far down the ladder.Report
I don’t really think that’s it. I think it’s more that the amount of wealth that these people have means that they cannot lose it all to the point of being bums in the street. A “bad investment” that costs twenty million dollars seems like an incomprehensibly devastating loss to you or me, because to us, a million dollars is fifteen years of our lives. We aren’t used to the idea that someone could just quit all work, live off their savings, and still spend a million dollars a year for the next century.Report
After many failed business ventures, George W. Bush earned his personal fortune by having been lent the money to buy a stake in the Texas Rangers, using his connections to lobby the government into building them a new stadium, and selling his shares after the value of them team increased significantly. I don’t know why all the people who whine about inequality can’t show that kind of initiative.Report
“George W. Bush earned his personal fortune by having been lent the money to buy a stake in the Texas Rangers”
“Not having enough ready capital to make a particular business deal” is not the same thing as being poor.Report
Mike’s example is actually relevant, since Bush Jr. never really had money he’d earned on his own to begin with. All of his business ventures were funded by family & friends, even after he had a string of failures.
BTW My apologies for being absent from a discussion I started. I got a tool set to release on Nov 1st, one of my beta testers got a little happy finding 1% bugs, & chasing these down, plus implementing a couple of minor last minute features, is consuming my whole weekend.Report
“Bush Jr. never really had money he’d earned on his own to begin with.”
I wish I’d known we were going to go down the “you didn’t build that / trust-fund baby” hole, because if I had I wouldn’t have wasted my time.Report
@jim-heffman If you have evidence to counter, please offer it, because while I know Bush Jr. worked & earned money, he did not have his own amassed fortune to fund his failed ventures.Report
It speaks to desert and how much justification someone in that position has to whine about taxes.
FTR, I would be thrilled to have my worst problem in the world be my income tax bill.Report
I think there’s a few different factors.
1) Poverty makes life more expensive, as outlined excellently here (especially points #4 and #1): http://www.cracked.com/blog/the-5-stupidest-habits-you-develop-growing-up-poor_p2/
For another example, if you’re reasonably well-off, you buy a car, an appliance. If you’re poor, you buy a crappy one. Which then breaks down. Which then needs to be repaired. And repaired again. To the point where it costs a lot more than just buying something good in the first place would have – but you didn’t have the money (or the credit) to do so.
If you’re poor and get sick or injured, you’re less likely to be someone with a decent unionized job who will get leave, and more likely to get laid off. You may be less likely to have health insurance (I’m not clear on the details of Medicaid in the US), and are certainly less likely to have access to legal counsel to deal with your insurance company if they refuse to pay due to a technicality or sleight-of-hand. The same goes for insurance for any other form of catastrophic event.
2) Poverty stifles opportunity. If you go to crummy school in a dangerous neighbourhood, then the main lessons you learn are how to be tough and avoid getting beaten up, not anything that’s taught in classes. That makes you less likely to get into a university, or have the knowledge to function there. Furthermore, even if you do manage to get good grades and want higher education, if you have to get a job straight out of school – or drop out and get a job before you can graduate in order to support yourself/your family – then you’re probably going to end up making less money than someone who had a chance for some career training, whether it’s trade school, college, or university.
3) Conversely, wealth – even moderate wealth – reinforces opportunity. I went to a good school. I had parents who read to me in my early years, and as a result I learned to read before I was in kindergarten. My parents had the time, energy, and knowledge to help me with my homework, take me to the library regularly, and generally take actions that instilled me with a love of knowledge. I had a comfortable home and neighbourhood environment where, as a kid, I didn’t need to worry about things other than schoolwork, friends, and the usual childhood stuff – certainly didn’t need to be constantly concerned for my own safety and self-defence. I had people around me at both home and school who understood the university application process and who could encourage and remind me to get my applications in early so as to be eligible for more scholarships. I had an allowance and gifts that enabled me to save up for university. And so I started university about as academically and financially prepared as any person could be.
And if I had grown up in a different kind of family, with a different kind of ideology, I could easily have grown up believing that this was all due to my own merit and intelligence, and not realized that a large portion of people don’t have all those advantages.
4) However, point 3 addresses moderate wealth more than the question of the super-rich continually getting richer. In contrast to the first two points – which are things policy can alleviate, but not directly caused by policy – this is a direct result of policies that tilt the playing field towards the rich. The overwhelming concentration of the world’s wealth among the super-rich didn’t always exist: it’s to a significant extent the product of major tax cuts for the extremely wealthy (estate, capital gains, and income), of acceptance that the super-rich are going to evade taxes to the maximum extent popular (see Romney for an example), of union-breaking and outsourcing so that more profits go to the CEOs and owners of companies and less go to the workers, and of political acceptance that the wealthy don’t have to feel the consequences of their actions while the poor have to pay for both their own actions and for the poor decisions of the rich (see: everything surrounding the 2008 financial crisis).
5) Related to 4: labour market structures. For decades people have been talking about raising wages by raising productivity, but in fact it’s done the opposite to a significant extent: if there’s more production per worker, there’s less demand for workers, the market gets ever-more tilted towards employers and corporations and against workers, and – combined with the aforementioned union-busting and outsourcing – wages go down.
For un-stickying things, I’d suggest looking at what’s done by countries with higher levels of social mobility. The good news is that a fair amount can be done policy-wise to improve social mobility. From an OECD report (2010): http://www.oecd.org/centrodemexico/medios/44582910.pdf
Intergenerational earning, wage and educational mobility vary widely across OECD countries. Mobility in earnings, wages and education across generations is relatively low in France, southern European countries, the United Kingdom and the United States. By contrast, such mobility tends to be higher in Australia, Canada and the
Nordic countries.
This appears to call into question some of my hypotheses, given the reputed power of French unions – but I’m not sure if that’s just the public sector, and how widespread or powerful unions are in the French private sector. Given that Britain is actually worse for social mobility than the US is, public health care doesn’t automatically benefit social mobility, but considering the number of nations with substantial safety nets that do FAR better on social mobility than the United States, I’d still say that the absence of a public health-care system is inimical to mobility and that the presence of a well-designed one can contribute to greater mobility.
The report substantiates other hypotheses – throughout Europe, better-educated parents tend to produce economically better-off children. Also in relation to schools:
Education policies play a key role in explaining observed differences in intergenerational social mobility across countries. For example, higher enrolment in early childhood education is associated with a lower influence of parental background on students’ achievement in secondary education. By contrast, school practices that group students into different curricula at early ages come with less social mobility in educational achievement. Moreover, increasing the social mix within schools appears to boost performance of disadvantaged students without any apparent negative effects on overall performance.
Given this, I think the starting post has made some questionable decisions about what things to exclude from the discussion – you can’t talk about class divisions between schools in the United States without talking about race, not if you want to have a meaningful conversation. I’m not sure you can even talk about intergenerational lack of mobility in the US, in an honest manner, without looking at race – not when we know that social mobility is much, much greater in other countries with a similar level of per capital income (25% of black Americans and 10% of Americans are poor, and exposure to poverty/poor environments is high among black Americans and very low among white Americans. Essential reading is this post by Ta-Nehisi Coates, which had some statistics that shocked me: http://www.theatlantic.com/national/archive/2013/09/a-rising-tide-lifts-all-yachts/279978/).
Again from the OECD report:
Redistributive and income support policies seem to be associated with greater intergenerational social mobility..
Denmark, Australia, Norway, Sweden, and Canada (in declining order) have the greatest levels of intergenerational social mobility; the Scandanavian countries are particularly known for having high levels of redistribution and social support. More progressive taxes are strongly associated with greater social mobility (see OECD report, pg. 194), as are higher unemployment benefits (pg. 196-198). Higher overall inequality is strongly associated with lower social mobility (this seems blindingly obvious to me, but it’s good to have statistics backing it up).
If America wants to have genuine social mobility, to actually be a “land of opportunity”, it’s going to have to discard the myth about this being a frontier meritocracy where anyone can pull themselves up by their bootstraps. The scales are weighted to favour the rich; if you want social mobility, you have to take actions that re-balance them, and that does, in fact, require government action. It’s not stealing money from the successful. It’s asking for proportionally greater contributions from those who have been served and benefitted by the system, to improve opportunity for those who are being shafted by the system.Report
@katherinemw I specifically said the issues of racial disparity are known & given. I’m interested in the other constructs that make things sticky.
If you think the racial component is critical, please ask to write a guest post about it. I think it’s big enough a component to warrant it’s own post.Report
I think a some of the shifting comes from high-speed trades, hedge funds, synthetic derivatives.
People make money off the volatility in the market; it’s like skim. Identify the weakness, and skim profit off the volatility that ensues, all that retirement account money dancing in the breezes. It’s like the rounding errors in Superman, it set Lex Luther to finance his hijinks, but all legal and taxed at the lowest rate. Even worse, with some stuff, particularly synthetic derivatives, there’s still vast amounts of money bet on stuff; there were derivatives available on US Default.
I would like to see graphs that compared profits from quantum trading techniques and income shift over time.Report
And the stickiness:
At the top, it’s policy driven.
At the bottom, it’s economic resources being sponged up by the top.Report
I don’t think you can ignore network effects either.
The wealthy know mostly other wealthy people so they find out about more opportunities and have better access to help and reputation advantages.
The poor have more poor family members whose misfortunes can easily lead to wiping out savings they have built up. They also have more stress which uses up mental resources that the rich don’t have spend.
Then we have to factor in the increased exposure to crime and violence from both criminals and the police.Report
@TPG,
I agree those are important variables. I would just add to them that the network affect influences knowledge and perception of the world, too. E.g., people with connections who are well off are likely to believe it’s possible to become well off (even if they aren’t actually well off themselves), and understand the ways to go about parlaying even a small stake into bigger gains. Conversely, people who aren’t well off and whose connections aren’t well off, are more likely to lack both that positive perspective about possibilities (sorry, unintentional alliteration) and the knowledge of how to go about making that kind of success happen.Report
I think it is a large confluence of factors that have gathered into a perfect storm and this perfect storm does not seem to be changing anytime soon. These factors include:
1. The End of the Cold War/Globalization: World War II did significant to enormous structural damage to large sections of the world and the Cold War made it impossible to do business with large sections of the world. According to Rick Perlstein’s Before the Storm, anti-Communist activists used to hold large bonfires of any product assumed made in a Communist country. This meant that the US made a lot of products nationally and strong trade unionism and relatively broad consensus created the mythical 30-40 year period with the middle-class factory/blue-collar worker with a high school education or possibly even less.
2. Now in the age of globalization and better shipping it often makes better sense to make products abroad and ship them to the United States for purchase. However, I think there are a lot of people who are still culturally attuned to the old idea especially for men. This is really the group of people who are at the heart of Hannah Rosin’s The End of Men.
3. Technological Advancements are rendering more and more people obsolete. This is often reported in the media. Kodak at the height of her power had over 100,000 employes. Instagram had less than 40 when they sold to Facebook for a lot of money. Technological advancements are going for more than blue-collar lawyers. A not unreasonably-sized part of the “law school crisis” is that computers can now do work that used to be done by associates and they can do it faster and much cheaper. The work still needs to be checked but that is still a smaller group of people. Lots of Wall Street trading is also done by computers that can monitor news and markets and make thousands of trades a second or more. There are countless stories of busy factories that are almost empty of people. We have either not gotten to the phase where technological advancement is creating new jobs or we are in a truly new frontier where technological advancement is going to kill more and more jobs than it creates.
4. Old-fashioned Morality. For thousands of years of human civilization, the mantra has been “Those who don’t work, don’t eat.” LeeEsq pointed out that even the most ardent anti-Capitalists like Lenin believed in this mantra. However if the observation above about a paradigm shift in technological advancement is true, we are going to need to have a frank and serious discussion about this viewpoint. A lot of tech-utopian neo-liberals and libertarians like to talk about how technological advancement is going to free people from drudgery work. They are all rather mum on what kind of work will replace the drudgery.
5. Another theory: A financial and investment and knowledge economy makes it much harder and has much fewer incentives for spreading the wealth than a manufacturing based economy. A factory owner is going to need people to purchase their products otherwise they are going to be just as poor if not worse off because of their debts. Henry Ford was no dope with his 5 dollar a day idea. The great Victorian Industrialists got rich through discovering economies of scale and turning luxury products (tea, chocolate, soap, jam, etc) into consumer goods that almost anyone could afford. A Finance guy on Wall Street does not have the same motives. Once upon a time, Wall Street was a lazy backwater in the US Economy. In the documentary Inside Storm, one of the commentators said he knew a Bond guy at Meryl Lynch. In the 1960s, the bond guy had to take an extra job on the LIRR to support his family. By the 1980s, the bond guy was making a million a year or more and thought he was the smartest guy in the world.
5. Tyler Cowen thinks the United States has killed all the low-hanging fruit. His book about this is called The Average is Over: Powering America Beyond the Great Stagnation. I haven’t read it but if true, it means we are now in a zero-sum economy. You can’t get ahead without taking from someone else. This is going to make it sticky. Suppose X owns a mid-sized law firm of 20 or so lawyers. X’s child Y just graduated from a decent but not great lawschool with good but not amazing grades. Z also graduated from the same law school with amazing grades. Z is the first person in their family to go to college and law school. X can justify bringing on one person. Who is X going to hire? Maybe in a different time X could have justified not hiring their kid because the economy was good enough that the kid would get a job on his or her own. Now not as much and families are wont to protect each other barring some unusual detail or philosophy.
Even if X did not hire Y, Y might have started with a ton of extra advantages like no student loans or other debt. Connections to part-time or contract legal work until something opens up or they gain enough experience. X can help Y hang his or her own shingle and throw work to Y.Report
@newdealer you don’t have Cowen’s thesis quite right. He believes the stagnation to be temporary – that we’ve eaten the low-hanging fruit from current technology, but he expects future technological advances to create new growth opportunities.Report
Ah I got my interpretation from Kevin Drum.
http://www.motherjones.com/kevin-drum/2013/10/yes-technology-going-destroy-middle-class
I suppose my issue is one of time frames. Like Lee’s example of the Weavers in the 1780s and the railroad jobs not coming until the 1830s or 40s.
It is a cold comfort to say: “Yes your lives are going to suck but your great-grandchildren might have good jobs!”Report
The US encourages free trade between the 50 states. Not only do we have the Interstate Highway System, we have federal laws that create a minimum standard which all employers must live up to.
Somewhere along the way, we encouraged “free trade” with foreign countries that impose a much lower minimum standard. Environmental, labor and IP standards (among others) no longer operate at the federal minimum standard. Instead, with the free mobility of capital plus the incredible success of containerization, certain jobs (notably manufacturing) moved off-shore. Followed by call centers. Followed by … well, I don’t really know.
The data I’ve seen is strongly suggestive that the stagnation in American wages (which is for everyone except the top 10%) correlates very closely with the ability of capital to move freely around the world and efficiently bring products back to the US for sale. (yes, correlation is not causation but …)
Which raises the old Ford question — if everyone’s unemployed / underpaid, who the hell is going to buy your product? On a micro level, it makes sense for each individual manufacturer to find the lowest cost labor, but on a macro level, aren’t we abandoning our sovereignty and a huge chunk of our workforce to a global race to the bottom?
If you’re competing with literally billions of Indians and Chinese workers for selling your unskilled labor, the next time you’re seeing a shortfall in supply is never. Only people who have non-exportable or rare skills or who have successfully raised barriers to entry (e.g., lawyers up to just a few years ago) can possibly demand raises. So all profits flow to capital. As the data shows.Report
Which raises the old Ford question — if everyone’s unemployed / underpaid, who the hell is going to buy your product?
I’ve been wondering for a while when/if the current breed of capitalists are going to figure that out. You’d think that 3 billion potential buyers of iBooks and iPads and iPods would be sufficient reason to provide your workers with a decent salary and decent hours. But it doesn’t appear to be so.Report
@katherinemw
You do realise that Ford was bullshitting right? Giving people money just so they can buy your stuff cannot possibly be a money-making strategy – its the equivalent of giving your stuff away. It only makes sense to pay people if you are getting something of sufficient value in return.
The real reason Ford paid so well is that it gave him leverage over his workforce – it let him be very selective in who he hired, and it let him do things like closely monitor the personal lives of his works for “improper” behaviour like gambling or drinking too much.
The wage premium was his way of exercising control over his workers, the “My workers need enough money to afford my cars” line was pure PR.Report
@james-k : It’s a little more complicated. Henry Ford faced heavy turnover. He paid people well to keep them in place, doing repetitive, seemingly meaningless tasks.
Henry Ford had some rum ideas about the power of capitalism. It was far more than being selective: he really did believe what he wrote in My Life and Work. It’s a fascinating read.
I think that we have already done too much toward banishing the pleasant things from life by thinking that there is some opposition between living and providing the means of living. We waste so much time and energy that we have little left over in which to enjoy ourselves.
Power and machinery, money and goods, are useful only as they set us free to live. They are but means to an end. For instance, I do not consider the machines which bear my name simply as machines. If that was all there was to it I would do something else. I take them as concrete evidence of the working out of a theory of business, which I hope is something more than a theory of business–a theory that looks toward making this world a better place in which to live.
The fact that the commercial success of the Ford Motor Company has been most unusual is important only because it serves to demonstrate, in a way which no one can fail to understand, that the theory to date is right. Considered solely in this light I can criticize the prevailing system of industry and the organization of money and society from the standpoint of one who has not been beaten by them. As things are now organized, I could, were I thinking only selfishly, ask for no change. If I merely want money the present system is all right; it gives money in plenty to me. But I am thinking of service. The present system does not permit of the best service because it encourages every kind of waste–it keeps many men from getting the full return from service. And it is going nowhere. It is all a matter of better planning and adjustment. Report
@blaisep
That’s a fair point.Report
“if everyone’s unemployed / underpaid, who the hell is going to buy your product?”
Easy answer: make it cheap enough that even those unemployed/underpaid schlubs can afford it. The people at OWS seemed to have plenty of smartphones.Report
It’s been 2 1/4 centuries since Adam Smith pointed out that money isn’t wealth, but the lesson still hasn’t become widely understood.Report
Then I assume you wouldn’t have an issue with sending me whatever cash have on hand and a check for the balance in your checking account. I’ll pick up the postage. 🙂
Seriously, he’s correct of course, from a macroeconomic perspective, but money very much is wealth at the personal, microeconomic level. If anything, it illustrates the hazards of extrapolation and analogies from one realm to the other. Like trying to use quantum mechanics to build a bridge.Report
Ugh, no, Rod, you seem to have totally missed the point. Double everybody’s paychecks or bank accounts tomorrow and you will not have doubled their wealth.
Put another way, I am indifferent between the prospects of my income doubling or the price of goods and services being halved.
Anyone who focuses only on raising wages and doesn’t think declining real prices matters doesn’t understand that.
Heffman gets it. Francis doesn’t. I’m uncertain about you.Report
@jm3z-aitch
Yet, if my understanding of standard macro is right, a general halving of all prices has a very different effect from a doubling of the nominal money supply.Report
Yes, @jm3z-aitch , I get that. You may want to have a word with @damon and other inflation hawks since they’re the ones obsessed with the nominal prices of things.
No, the real issue here is from WWII through the mid-70’s inflation was modest, averaging about 2.3%. It was also balanced, in the sense that both consumer prices and working class wages rose in tandem so it was all largely a wash. The only people that cared much were largely the wealthy holding large amounts of cash or fixed return, dollar denominated securities.
Then, beginning in the mid-70’s the overall, mid and long term inflation rate shifted upward to about 4.3% while working class wages have stagnated. Yes, the toys are shinier but the real purchasing/consumption power of basically everyone below the upper middle class has deteriorated badly. While it’s true that we enjoy nicer stuff due to technological progress and cheaper stuff due to globalization, it’s become progressively more difficult to deal with the basics of food, housing, healthcare, heat, light, etc. There’s a reason that fewer and fewer folks are anything like prepared for retirement and it’s really NOT due to an epidemic of shortsightedness and irresponsibility.
Pro-tip: Systemic problems have systemic causes which demand systemic solutions. Explanations and/or proposed solutions that contain or imply the phrase “If only everyone would just…” , even if true in some sense, miss the real cause and are ultimately useless.Report
Then, beginning in the mid-70?s the overall, mid and long term inflation rate shifted upward to about 4.3% while working class wages have stagnated. Yes, the toys are shinier but the real purchasing/consumption power of basically everyone below the upper middle class has deteriorated badly.
Rod, yes inflation was very high in the early mid ’70s, but not since then ~1981 when Fed Chair Paul Volcker clamped down tightly on the money supply, causing the so-called Reagan recession. Since then the Fed has target an knflation rate of about 3% and while they don’t have the capacity to hit thst precisely, the data show it averages right about that over time.
And, no, purchasing power of the working class has not really deteriorated badly, no matter how popular that belief is. Some consumer purchases are more expensive now, but many are much less expensive now, due both to technological advances and free trade. Clothes, toys, and many appliances, for example, are much less expensive now.
While it’s true that we enjoy nicer stuff due to technological progress and cheaper stuff due to globalization, it’s become progressively more difficult to deal with the basics of food, housing, healthcare, heat, light, etc.
You lump far too many things together, and ignore the different causes, almost none of which have to do with wages. If energy’s harder to afford it’s because of otherwise desirable environmental policies that internalize the costs of pollution, and not-so-desirable issues like NIMBYISM and refusal to support standardized nuclear power plant production, as for example France has done.
There’s a reason that fewer and fewer folks are anything like prepared for retirement and it’s really NOT due to an epidemic of shortsightedness and irresponsibility.
Source, please.
Pro-tip: Systemic problems have systemic causes which demand systemic solutions. Explanations and/or proposed solutions that contain or imply the phrase “If only everyone would just…” , even if true in some sense, miss the real cause and are ultimately useless.
A. This has absolutely no bearing on my original point, especially the “if only everyone would just…” Which has me thinking you’re confusing this conversation with one you’re having with someone else.
B. It’s true, but you’ve badly oversimplified the explanation of systemic problems. If Then, beginning in the mid-70?s the overall, mid and long term inflation rate shifted upward to about 4.3% while working class wages have stagnated. Yes, the toys are shinier but the real purchasing/consumption power of basically everyone below the upper middle class has deteriorated badly. While it’s true that we enjoy nicer stuff due to technological progress and cheaper stuff due to globalization, it’s become progressively more difficult to deal with the basics of food, housing, healthcare, heat, light, etc. There’s a reason that fewer and fewer folks are anything like prepared for retirement and it’s really NOT due to an epidemic of shortsightedness and irresponsibility.
Pro-tip: Systemic problems have systemic causes which demand systemic solutions. Explanations and/or proposed solutions that contain or imply the phrase “If only everyone would just…” ,
A. I have no idea how you think this applies to what ai said.
B. Although irrelevant to what I said, it’s true, but as far as I can tell you’ve badly ovetsimplified the cause, in lumping a bunch of different items together as though they had a single cause.Report
Murali,
Assume away any expectations about future changes, and focus strictly on the short term relationship between quantity of money and the supply of goods. It’s a simplified model to make a point too many people seem not to grasp; that simply increasing income does not necessarily make people better off, and likewise a non-increase does not necessarily make people worse off. It all depends on the relationship between income and prices.Report
Oh, Rod, on housing. In the past half-century house sizes have doubled while the average number of children per family has nearly halved. Before anyone can talk meaningfully about home affordability, they have to tackle that basic consumer choice issue. Ignore that and any complaints about housing affordabilitu for working class folks is beyond incomplete.Report
In recent years, new home size has gone down by 10%Report
@jm3z-aitch , please don’t put words in my mouth or pretend I didn’t say something when I did.
First, I readily acknowledge again that a lot of stuff we buy has gotten cheaper due to off-shoring. That’s not at issue. But how much of your monthly spending goes towards those items? In particular, the kind of semi-durable items like what you mentioned; clothing, toys, housewares, and all the other stuff at Wal-Mart and Target? It fills large stores but likely represents somewhere south of 25% of the average household’s spending. Of the big items in the typical budget, housing, absent a bubble, tends to rise at about the rate of inflation. Same for food in general. On the other hand, we’re all well aware that other costs have risen much faster.
But really, none of that matters. All you really need to know is that median wages have not kept pace with inflation over the last forty years. It simply is not true that those stagnating wages are buying as much stuff as before. We have houses full of cheap goods… and in foreclosure, because the owners are broke from medical bills. I actually spend more on health insurance each month than I do on my mortgage. And that’s before deductibles and co-pays.
Second, I am not and have never called for trade restrictions in the form of market distorting tariffs or quotas. I don’t give a flying fish what you buy from whom or for how much. All I’ve claimed–and I believe I’ve backed up the claim, whether you choose to accept my analysis or not–is that our economy has gone sideways along multiple dimensions since we abandoned balanced trade in 1973. All I’ve called for is for the USA to do what you and I have to do as individuals; sell as much as we buy. The argument is too long for me to peck out on my phone but it’s no more anti- free-trade than paying your bills.
As to your point about housing: this gets into the controversial weeds of quality adjustments in the CPI. For example, using quality-adjusted numbers new PC’s officially cost something like $50. Of course you can’t actually buy one for that price, hence the controversy. That’s the monkey wrench in your serial housing scenario (as you outlined in another thread) . The existing housing stock is gaining square feet. And while that’s nice in a way, it also means that even the older stock is more pricey than the equivalent in years past. Bottom line is that your average starter home is relatively more expensive than it used to be simply because it’s bigger and sits on a bigger lot. But the folks in that market dont have proportionally more mone to spend on it. Therefore, less affordable even if it’s nicer once you manage to swing it.Report
Rod,
I see two problems here. First, you are continuing to overstate inflation compared to wage growth. Your computer example is especially silly. I bought my first computer in 1992 for $1500, and it was a non-portable desktop with 50 meg. It doesn’t matter that a quality adjustment means that’s a $50 computer today that isn’t actually available. What matters is that recently I bought a laptop with god knows how much memory for $300. In other words, I can now buy far more quality for far fewer nominal dollars. You gloss over that reality. You also continue to gloss over Americans’ housing choices, which you cannot deny are a major monthly expense. And here’s another major monthly expense–car payments. Cars last far longer mow than 30 years ago, so Americans could pay cars off and drive far longer payment-free. Instead, leasing has increased, so people can always have a newer car, but always be making monthly layments. Your approach lets consumers off the hook for their own choices, and blames some mysterious “systemic” problem.
Second, this talk about trade balances is nonsense. A curious thing few people notice about trade balances is that they increase when the economy us strong and decline during recessions. They’re not correlated with a weakening economy. And of course every trade deficit is matched by a current accounts surplus. It’s nothing more than an accounting identity. And if you think there’s some way “we” could eliminate the trade deficit without in fact telling people who they can buy from–without setting up tariffs or manipulating the currency–then you’re operating in wishful thinking world.
In a nutshell, I think we come from such very different economic assumptions that I’m not sure if there’s any way for us to avoid talking past each other.Report
Re: trade deficits. Just the other day I was skimming some of Paul Krugman’s books, and was struck by aide where he was gently mocking the focus on exports. I can only paraphrase him here, bit the goal in an economy, he noted, is to provide goods and services for the people in the society. From that perspective imports are good and exports are kind of a loss, merely the price we have to pay to get other countries’ goods.
Of course he’s a raging right winger or an Austrian or some wacky thing like that, so we can safely ignore him.Report
Also, Rod, your comment on home size treats it purely as a function of supply, as though consumer demand doesn’t play a role. Such a fundamental economic error cannot help but make me question whether you even understand microeconomic fundamentals.
@blaisep,
Indeed. I had forgotten. That is evidence of the role of demand in housing size.Report
@jm3z-aitch , we’re done here if you can’t disagree and debate without turning into a condescending prick.
Some time back you cut off a conversation, noting that we don’t have a history. That’s incorrect. We have a long history of me walking away when, starting with our very first interaction, of you not being able to handle disagreement.
I’m convinced you just can’t help yourself. You’re so accustomed to being accorded deference in the classroom that disagreement out here feels insulting and insolent.
In any case, Good Day, sir.Report
Rod,
Who is the one who cannot handle disagreement here? I’m pointing out where I disagree and think you’re fundamentally mistaken. You’re the one walking away because you’re upset that I’m disagreeing with you.Report
@jm3z-aitch , we were doing fine, having a spirited but respectful debate until you ended a “…and another thing! ” series of posts with this: Such a fundamental economic error cannot help but make me question whether you even understand microeconomic fundamentals.
I may very well THINK something like that, but I wouldn’t actually say it unless I had consciously decided to terminate the conversation or was dealing with a troll. If you can’t see how condescending that was … well, that’s just part of the problem. You could have asked me to clarify my position or explain my reasoning but instead you elected to basically go ad hominem.Report
If you’re competing with literally billions of Indians and Chinese workers for selling your unskilled labor, the next time you’re seeing a shortfall in supply is never.
There’s low wages, and then there’s productivity. Sometimes low wages offset low productivity, sometimes they don’t.
Buy additionally, you’re not really thinking about the consumer. If someone can buy an equivalent product for less, who has a right to tell them they have to buy it for more, so that they will be buying it from the “right” person?
And if we force them to spend more on that product, what other spending/saving do they have to cut back on and whose job/wages does that negatively effect?Report
I don’t quite understand this meme of consumers on the one hand and workers on the other, as if they’re two separate categories. You do understand that those Venn diagrams overlap about 90%, right? In fact, the category of workers is completely contained within the category of consumers, correct?
So some consumers, those like yourself for instance (how convenient!), gain from globalization, others lose, and still others sort of break even.
Your claim that consumers benefit from globalization is at best only partially true. Furthermore, it has embedded within it a normative preference for one class of consumers over another that requires as much justification as the opposite policy preference.Report
The key to prosperity is to focus on the consumer as sovereign. The purpose of production is consumption. If we can produce more for less, then those previously employed can produce something else.
The sand in the gears of economic progress are when producers (including workers) try to use their incumbency privileges to prevent change and competition and to prohibit consumer choice.Report
“If someone can buy an equivalent product for less, who has a right to tell them they have to buy it for more, so that they will be buying it from the “right” person?”
Dodd-Frank?Report
“The key to prosperity is to focus on the consumer as sovereign. ”
I am going to correct myself. I think the key to prosperity is to focus on mutually voluntary interactions. If the consumers banded together and demanded interference in the terms of trade then it would tend on net to be destructive of value — more sand in the gears.
Self editing.Report
Rod,
People work so they can consume. Everyone is focusing on paying them more for their work so they can consume more. But you can get the same effect by lowering prices, without touching wages.
And even the blue collar class benefits from globalization. My neighbor is a Ford line worker, so he should be one of those who hasn’t benefited, right? But he buys clothes, tools, appliances, etc.
Further, anti-globalization based on worries about wages of American workers is an implicit fuck-you to workers–or would-be workers–in other countries. They’re human, too, and as deserving of my dollar as anyone in the U.S.
As to how lucky I am, please don’t pretend you know me. I work at a small private college. Every year one or two such schools close. Mine was on a path toward closing 7 years ago, and is now doing better, but our finances are still very very tight. I look at experiments like Harvards free online courses, or University of the People, or Khan Academy, and truely I don’t know that my school will survive until my retirement.
Finally, you dodged my questions. Who has the right to tell any of us from whom we must buy? And if we make Joe Consumer spend more on item X, who gets hurt because he can’t spend that extra money on something else? (You thought I onky focused on consumers? Not true; that question asks what other workers would be hurt.) Frankly, I’m not going to be impressed by any answer that dodges those questions. The first of those is about legitimate authority, the second is about considering the hidden effects of trade restrictions.Report
People work because there’s no alternative. If they save and invest or spend their earnings, that’s another matter entirely. Putting aside the rising cost of living, the tax structure is oriented to a consumer culture: there’s more incentive to spend than save. There’s more incentive to incur debt than to create interest earnings.
Workers in other countries are being fucked, all right. But we don’t have any control over how those workers are treated or their rights. If the situation is set up to consider bribes and kickbacks a cost of business, hey, we can create a contra asset, call it Accumulated Bribe Depreciation — we’ve paid off this official knowing he’ll only stay rented but thus are we able to make money — and might have to pay him more later.
The question isn’t who gets to tell anyone what to buy. We know how the quarters flow down the chutes of the vending machine of this economy. Joe Consumer isn’t Joe Investor, he’s creating mountains of debt and therefore paying interest where he might otherwise be earning money on investments. If extra money is being turned into video games where it might be invested, that’s a structural problem. Other nations do invest and save. China’s one.Report
“Workers in other countries are being fucked, all right. But we don’t have any control over how those workers are treated or their rights.”
This could easily be interepreted as “fuck you got mine”, albeit more from apathy than from greed.Report
Heffman, is there any doubt in your mind as to the meaning of each of those words? Do you understand the concept of the sovereign nation?Report
Education in the US is very inequitable. Since it is funded by local taxes, for the most part, schools in high income areas are far better than schools in poor areas. Since the children of better educated and generally wealthier parents start school with a massive vocabulary and skill advantage, the children of the poor have to really struggle to catch up.Report
@stella-b AFAIK, this has been true for far longer than the ends have been sticky. Is there another aspect of this that you think is causing trouble, beyond simply inequality in quality?Report
What’s happening is that the majority of wealth growth has come from financial trading, and that’s a game you can only play if you’re rich, and the richer you are the better you are at it.Report
@jim-heffman Being rich != being good at financial trading, although the converse is most likely true. Still, this point has merit. If the game is now all about making money by moving money, even if you are good at it, you might never be able to ascend if no one is willing to hand you some money to play with.Report
“Being rich != being good at financial trading”
Being tall doesn’t mean you’re good at basketball, but you’re more likely to be good than someone who’s short, and you won’t have to try as hard to be good, and your best performance will be better.Report
The rich-well they always get rich. Those who pull the strings and have enough amassed wealth buy influence and get laws passed limiting competition against their interests. If America ever had Capitalism it’s long been converted to Corporatism. But the wealthy, the real wealthy, have lost a lot of the “give back” virtue that they had in previous generations. I’m not optimistic that any change in these two issues can be made, if anything, I see this continuing on as it has. There is no way those in power will willing give it up. They will continue to protect their interests.
On the bottom end, the more regulations, laws, taxes passed, increase the strangle hold on the population. The technological changes further compound that by making education more valuable, manual skills worth less, if not redundant. This I don’t see changing nor do I see anyway it can. Education has lost it’s “lift up” ability-the single best method of advancement. As the poor get poorer and lose jobs, they go on public assistance, increasing the burden on a shrinking class of wage earners to pay for more and more people on the dole. This leads to another problem-at some point those who “pay the bills” for all this welfare, will decide they are disinclined to continue to do so. What’s going to happen when the payers revolt? If they are still in the majority of the population, they may have success, if not, they may lose….
The third problem is the continued devaluation of the dollar and the massive debt/welfare system. I, for example, currently earn an income that exceeds by father’s annual income for most of his employed life, yet he supported a wife and kid (me) with that income. Me? I live basically paycheck to paycheck. I have a Masters, he, just a BS. The dollar he earned was worth FAR more than the one I earn for all the above reasons. I only achieved or exceeded the same level of earning power he had when I pooled my income with my now ex wife. So the middle class, and the lower classes, are being continually impoverished through Corporatism, cronyism, corruption (like that alteration? ?), and the devalued dollar, while the technological changes have rendered many folks jobless and on the dole, making being on the dole more acceptable, feeding resentment of those who support the system. I don’t have a solution to any of these problems, but I don’t like the direction of where things are going. It’s increasingly looking “unpleasant.”Report
Corporatism, cronyism and corruption are not “natural” phenomenon in a market system. They are perversions of the system that have been designed in by law, as you note. If they can be designed in, then they can be designed out, can’t they?Report
Of course they can be designed out, as soon as people stop being people. That will make capitalism work as well as communism would have when practiced by New Soviet Man.Report
One word: Capitalism. Money makes money. You’ll never get rich working. You can only get rich investing, or in the case of execs, paid big money to increase the market cap of a firm. That’s it.
Anyone else got a scheme for getting rich, let me know.
The poor get poorer because they’re subject to market forces. The world is an unequal place, with an uneven distribution of capital. Badly paid jobs move where they must, into places where people will do the work for even less money. Eventually, once this phenomenon reaches its terminus and everyone’s had a chance to do the worst jobs, people will be paid better to do these wretched jobs, giving way to a true post-industrial world.
But things don’t have to improve. The previous paragraph does not account for bad government. Capitalism can reach a good terminus, in which case the entire society is improved — or it can reach a bad terminus, where it only improves the lives of a few.
At the good terminus, governments invest in their societies. At the bad terminus, capitalism begins to fail in a Fortress Society. Hard to drive that gold-plated armoured car down a dirt road, past beggars. Hard to cope with kidnappers and armed gangs intent upon breaking down the perimeter walls around your estate. Expensive keeping up those security patrols, especially if you don’t pay them enough and your kid gets kidnapped by one of them. Can’t trust anyone in a Fortress Society.
The feudal world didn’t enrich very many people. Though a few large marketplaces developed, they only appeared in large-ish cities, where enough free merchants and burghers, not beholden to the aristocracy, were able to keep capitalism going in any meaningful way.
Really, how could capitalism make the poor anything but poorer? Or the rich anything but richer? Money obeys the laws of gravitation, it comes into orbit around massive objects. Now, capitalism can lift the poor out of poverty but that only works if there’s some mechanism in place to keep it from accruing to the — capitalists who take the risks and invest their money — see first paragraph.Report
@blaisep I fear the Fortress Society is already upon us, given the prevalence of gated communities, and the desire of ourcorporate leaders & government officials & politicians to hide themselves behind Fortress Walls & legions of body guards.Report
There are virtues among the various classes that teach one how to survive as a valuable member of the class that would be seen as vices in a different class.
Given that people don’t really hang with people outside of their class anymore, they only hear “being different is vicious, being like us is virtuous” from their same class… so, barring a lifequake, people will be in their same class forever.Report
I suppose I’d wonder why people don’t really hang with people outside of their class anymore.
Church used to force people to sit next to each other (even if just for an hour) for a good while there but there are so many church options now *AND* fewer people overall go every Sunday than used to. There’s no reason to even meet someone who isn’t in your class anymore… which means that there are no role models that aren’t already in your class.
Barring lifequakes, of course.Report
Rich folk didn’t mix with poor people decades ago. Hell even blacks and whites went to different churches and still do in some places. At most upper middle class people went to church with some poor people since church attendance is essentially local. The Rockerfellers, so to speak, weren’t going to church with poor people.Report
At most upper middle class people went to church with some poor people since church attendance is essentially local.
I’m pleased we agree that this used to happen.Report
Was there ever a time when people really hung outside outside of their socio-economic class? Even in church? I don’t think JP Morgan attended the same church as more modest Manhattanites. Though to be fair, he was Episcopalian and they always had a more upper-middle and above set of parishoners.
There were probably congregations in smaller cities and towns that had a more mixed set of worshipers though.
I think the answers are probably sociologically very complicated but it can probably boil down to it is easy to associate with people with like-minded career goals and hobbies and politics. Homogeneous respect is very very hard.
Even in San Francisco, I think there is a separation between non-tech professionals and people in the tech/start-up industry. I go to young Jewish professional events every now and then and generally find the tech talk to be on the dull side. I’m rather tired of hearing about start-ups and disruptions and apps. There is a world of art, film, literature, ideas, etc to talk about. How much can you talk about some app?
I have internet friends who I think come from more working class and blue collar backgrounds and needless to say I don’t really get their entertainment choices and they seemingly don’t get mine. I don’t get the roller derby and burlesque revivals as prime examples. Our tastes in music also tend to be different. We also get into debates about the point and purpose of education.
Fandom is one area where I think there is a lot of class mixing but I’m sure someone will correct me if I am wrong.Report
Is this one of those things where we’re going to say that if the lower class doesn’t hang out with the upper class, then there isn’t really class mixing going on?Report
@jaybird
I think the dividing and go further than just blue-collar v. white-collar, middle class and upper-middle class and divides on a whole range of cultural and social issues, thoughts, and feelings.
My parents were educated professionals and both had masters degrees. They were also pretty liberal people and believed in the importance of public-school education as opposed to K-12 private school. Hence I grew up in an upper-middle class suburb of New York with really good public schools and a lot of my classmates parents were also upper-middle class professionals (lawyers, doctors, etc) who believed in good public education.
The parents in my hometown were probably just as well off if not wealthier than many of the parents who send their kids to Kazzy’s school. However, I doubt there was much social interaction because of the public v. private school dichotomy. Kazzy once mentioned that among the parents at his school sending your kid to private school is just the thing you do to show you care about education and/or to show your upper-middle class/professional status.
Likewise, my parents did not really hang out with any one who belonged to any sort of club whether it be a country club or something like the older styled gentlemen’s clubs. I contrast this with people who seemed to grow up largely in the country club set and there parents only seemed to socialize via their clubs.
This is not about economics but largely about a wide variety of temparments and other issues.Report
Hey! I do a Ctrl-F on my handle to find a different and see I’m being discussed. COOL!
I hung out with peeps of various SES groups growing up. But I don’t think our lives were intertwined enough that there was much transmission of values and the like. We all went to the same schools, though not necessarily on the same tracks.
I would imagine a much greater degree of intimacy was required for a values exchange. Either that, or being part of a small minority.Report
Kazzy,
I meant at the place of your employment. You mentioned on another thread that in “certain circles” sending your kids to independent schools was just the thing to do.
My parents could easily compete economically with these “certain circles” and probably be better than some of them. Yet they choose public school and are firm (especially my mom) public school advocates. My mom loved the Alison Benedick article that everyone hated about why you are a bad person for sending your kids to private school.
So what explains the difference?Report
Jaybird,
I notice more people in the Bay Area who are working on undergrad later than life than I did in New York. Though this could just be from being older but on okcupid, I see a lot of women in the Bay Area working on their undergrad degrees in their late 20s or early 30s. Back in New York, I did not see this really.Report
@newdealer
Indeed, there are groups of people where sending your kid to public school is seen as some sort of faux pas.
As to your question, what “difference” are you referring to?
As someone who attended both public and independent (parochial schools), has a mother who taught in both public and independent schools, and who has worked exclusively in independent schools, I can say relatively confidently that, on the whole, are more style than substance. Yea, the top independents are probably better than the top publics and even the worst independents are surely better than the worst publics. But for the vast majority in the middle, they generally don’t have a discernible difference between their public counterparts. Any difference in outcomes is going to be largely attributed to A) the self-selection process for those who end up in independents, B) better teacher:student ratios, and C) the ability to select/cull students. Only one of those can really be attributed to the school itself (B) and it would probably be one of the easier aspects to replicate in public schools.Report
Here we cite Burt Likko’s “Tennessee Taxonomy” again, and point out that even those people in church weren’t necessarily hanging out with people outside of their class. A low-income, low-wealth worker and a high-income, high-wealth worker have more in common with each other than either has with a person who has high income and high wealth but doesn’t work.Report
Well, what interests me most is the stickiness at the bottom.
I’m pretty sure we’d all agree that there wouldn’t be much of a problem if the overwhelming majority of the bottom saw a lot of churn, mostly from the young, right? I mean, if we looked at the numbers and saw that we’re mostly talking about pre-married people who are just starting out but by the time they hit, oh, 26 or so, they’re no longer at the bottom but at the top of the bottom and heading up, we’d all say something like “that’s as it should be, that’s how I did it, if they really want to help themselves, they’ll follow the advice that I ignored when I was their age…” and so on.
That ain’t what’s happening.
There are structural problems and cultural problems and they’re pretty much tangled. I suspect that if we change the structural problems without so much as acknowledging the cultural ones, we’ll find that the expected outcomes from reform won’t materialize. (I suspect that there have been a number of structural improvements already that have run into this problem.)
When it comes to so much as discussion of changing a culture, there’s a lot of potential mines to step on… but it seems to me that it ought to be safe to say that children who have a variety of role models to learn from are more likely to jump across cultures than children who have a narrow range from their own class.Report
@kazzy
Agreed. I am going to continue calling them private schools though because I think calling them independent grants too much to the schools.
You’ve mentioned before what they have to offer and that seems to be a place where precociousness is honed and students learn that they will be the ruling class by nature and nurture and how to be equal to adults. Even the most ordinary upper-middle class private schools can teach this and every major metro probably has a bunch of private schools like this or at least one. The older private schools have decades or over a century of tradition behind them as being the stumping grounds of the upper-classes.
@jaybird
There are all sorts of really tricky arguments about why there is stickness at the bottom and a lot of them can be based in unnecessary traditionalism, sexism, and racism. For example, until fairly recently it was not too common for women to go to college. There were always exceptions but most working women went to secretarial school or some such and maybe the “lucky” ones married the young and up-coming executive who was right out of college. Or women went to college for the sole purpose of getting an “MRS” degree (my mom went to college from 64-68 and she said a fair number of her cohort said this openly.) Perhaps some of these secretaries came from the working class and rose up via marriage.
I think there is some class mixing that still goes on in the social level. I notice this mainly in the alt-scene. There is a cafe near my house that largely caters to the tattoo and alternative piercing crowd. I see people who hang out there who are young techies and other professionals and also twenty-somethings talking about getting jobs as bus drivers, delivery people, in warehouses (presumably areas where having facial tattoos is not a barrier to employment.) I also do know some cases where women with white-collar jobs like lawyer or doctor are marrying blue collar men but these seem to be the exception and not the rule.Report
Or women went to college for the sole purpose of getting an “MRS” degree
Women are getting Mad Rocket Science degrees? Cool!
Although where I went to school, we just called it Engineering.Report
Is this an answer to the question in the OP? I’m not sure I follow it. What thing are you saying happened as a result of a certain (maybe we agree limitedly) greater amount of class mixing in times past that’s relevant to the question?Report
I’m saying that one of the things making class “sticky”, certainly at the “poor” end, is a set of behaviors. This set of behaviors consists not only of coping mechanisms but behaviors that one’s peers see as virtuous.
The classes above that, even the ones close, have different virtuous behaviors.
The middle class has different behaviors than the lower class does… and without role models, someone in the lower class is unlikely to ever pick up middle class behaviors (which haven’t done that bad of a job, historically, of keeping the middle class in the middle class (though the ride has gotten bumpy in the last decade)).
To answer the question: if no one you know has ever gone to college, say, then you’re exceptionally unlikely to go to college. If everyone you know has gone to college, then it’s pretty likely that you’re going to go to college.
And education, it seems to me, is a fairly decent indicator of class.Report
Lots of assumptions here. But if turned out that the children of the poor and non-college educated have nevertheless been going to college at higher and higher rates as the decades have gone by and overall, the poor (in America by American standards of poverty, which is I think the assumption of the post) have nevertheless been getting poorer at the same time (the latter being something that – and this is maybe a basic problem with the post – I think has not been happening), how would that affect the hypothesis?
But in terms of less mixing overall, if that’s happening, do you really think that it’s a function of things like decreasing church attendance? It seems to me that inequality itself could play a role in decreased mixing. It used to be that the upper-middle class didn’t have so much money, nor as much reason, to self-segregate via their most life-defining personal economic decisions (i.e, where to live, whether to send kids to public schools, etc.). Now, the upper-middle class and of course the wealthy have those resources, increasingly the reason to use them to self-isolate, and are increasingly creating insular worlds where they encounter the less well-off very infrequently. Even if they had kept up similar curch-attendance habits, doesn’t it seem likely that those broader trends would have swamped the class-mixing effects of church, as the churches that were founded and attended to track these more fundamental trends became more culturally and economically homogeneously sorted themselves? Hasn’t this in large measure been what’s happened, to the extent the upper-middle class and wealthy do still get stay involved with church and the like?
Not sure of the answers there; I’m just doing some idle hypothesizing myself…Report
Well, one thing that I probably should have gone into was not lower vs. middle vs. upper but lower lower vs. middle lower and middle lower vs. upper lower and upper lower vs. lower middle.
While, of course!, it’s not really likely to have upper and lower people mingling enough to make role models out of anybody, it’s probably likely that the above vses would probably be able to do so.
if turned out that the children of the poor and non-college educated have nevertheless been going to college at higher and higher rates
I’d wonder what “higher and higher” would actually mean in this context. What’s the difference between endpoints?
Here’s an article from The Guardian (not the US but I doubt that the dynamics are *THAT* different between our countries wrt higher ed.):
http://www.telegraph.co.uk/education/2186943/Number-of-working-class-students-barely-increases.html
In the article, the change was less than a percent.
(Honestly, I’d *HOPE* that the dynamics would be different in the US…)
But in terms of less mixing overall, if that’s happening, do you really think that it’s a function of things like decreasing church attendance?
I’m trying to think about where else people from different classes would mingle and have conversations long enough to maybe turn into friendships.
As it turns out, I wasn’t able to think of that many. There’s school, I guess, but if we want to define “middle class” using educational inclinations alone, we’d probably notice that upper lower and lower middle are the two that are likely to have significant chunks of people who had never considered college with chunks of people who talked about it from time to time.
But lower lower and middle lower probably wouldn’t. Moving from the one to the other doesn’t require college.Report
I saw an article suggesting it’s a difference of 4% between kids born in the lowest quintile around 1960 and ones born around 1980, but it’s a fair point. OTOH, if it’s rising at all, that suggests it’s not contributing to things getting worse – maybe just staying the same.
http://www.bloomberg.com/news/2013-03-05/the-diploma-gap-between-rich-and-poor.html
Again, I’d ask whether, assuming this theory were true, you really want to commit to the notion that it’s a function of a discrete change like church attendance, or whether it would be a function broader sorting patterns that we’d see in all/many areas of life – where people live, what schools they attend, what churches, where they shop, whether they interact at work, etc., etc.
But in reality, even though all of the above is happening, the phenomenon we’re theorizing about actually isn’t: the poor aren’t really getting poorer in America, though they are getting more concentrated, and it may be getting harder for them to rise out of poverty (I’m having trouble finding the confirmation on that, as most comparisons these days seem to be cross-country rather than cross-decade within the U.S.). This is a concerning issue, but it’s important to identify whether we’re talking about deterioration or simply stalled progress. If it’s deterioration, then we might need to find changing dynamics to explain it. For example, then it would be possible that the explanation is that the good habits of the better-off aren’t rubbing off on the worse-off as much s they used to though I still don’t really see much reason to focus so much on that mechanism alone when lots of others are possible, unless there is some separate agenda to focus on that kind of mechanism. If, on the other hand, there is basically just endemic low mobility at the bottom end in our society, it would make sense to look at longstanding structural features of our class system that could be seen in various indicators. Here’s an article that, in my view, assuming that a hypothesizing approach to thinking about the problem is appropriate, which I think is the case, in my opinion takes an appropriately broad approach to identifying possible contributing mechanisms: http://articles.washingtonpost.com/2013-08-14/opinions/41408615_1_mobility-american-dream-canadiansReport
…That article separates by quartile, not quintile, I mistyped.Report
Before we address the problems, let’s start with the actual facts. Let me divide my answer up into two parts, mobility and inequality.
First, mobility.
Mobility between classes in the US is similar to other wealthy countries (with one important exception, below) Within a decade, the majority of families in lowest quintile had moved to a higher one. Actual families tracked shows that the lower the starting income the higher the gains over time. Here is the actual data:
http://www.stlouisfed.org/publications/itv/articles/?id=1920
http://taxprof.typepad.com/taxprof_blog/2012/07/84-of-americans-.html
Studies of twins and adoptions and inter generational wealth reveal that family has a very small impact on future wealth. Genetics explains 33%, family explains only 11%, while other makes up 56%.
Scott Winship studied mobility and found that compared to the past and to other wealthy countries, the mobility problem is concentrated in one specific cohort… Poor males. They are disproportionately likely to stay poor if born poor.
The profile of long term poor is easy to describe: uneducated, unemployed and single.
Education is easy to fix in theory. End the state monopolies run for employees rather than students. Every parent should have the freedom to send their kid to a great school.
Unemployment is pretty easy in theory too. Re-establish the bottom rungs of the employment ladder. Eliminate minimum wages, mandatory benefits, occupational licensing requirements (now hitting 40%of jobs), and control the employment disability rolls. Also end prohibitions and regulations against self employment. Finally, end the war on drugs putting millions of lower class males in prison.
Until we get people onto the employment track, they can’t begin the climb.
Marriage follows from the above. Women marry dependable men with jobs and a future.Report
Marriage follows from the above. Women marry dependable men with jobs and a future.
Groan.Report
And just to be clear:
Household income increases that for lower-quintile families has increased not because wages have increased, but because two parents work; relatively flat household-income gains came at the price of steep hours-worked increases.
This has nothing to do with women marrying dependable men and everything to do with women entering the work force since the 1970’s.Report
You deny assortative mating trends? It certainly DOES include more women entering the work force. Professionals increasingly marry each other and working women no longer depend as much upon low income men.Report
Roger, I just have a serious problem with the construction you used; it has one basket: women looking for and marrying dependable, employed men.
Which doesn’t do jack to explain the sticky problems of the bottom quintile.
Not to mention the assumptions it’s based on, which verge on misogyny.Report
Not to mention the assumptions it’s based on, which verge on misogyny.
No. I have to come to Roger’s defense here. The assumptions are in part biological–there’s good theory to support this, in the parental investment literature,* as well as some good anthropological evidence. And there’s contemporary evidence in the U.S., most notably the documented frustrations of educated black women in finding black husbands, given the socio-economic difficulties among black males (statistically, not for every black male by any means).
So there’s a lot there that is not at all mysoginist. If anything, it’s a respectful recognition of the types of cross-pressures that face many women, particularly successful women, these days.
____________________________
* Biology is not determinative, and there is substantial, but still poorly understood, gene-environment interactions that mean socialization also matters a lot. But biology is not at all irrelevant, either; no matter how sophisticated and high-tech our contemporary culture, it is not capable of separating us entirely from our biological basis as a species.Report
Zic,
I wrote two extensive comments, one on mobility, one on inequality. On the mobility comment, one third of one subsegment of the comment was on this attribute of the immobile poor. There is a trend for smaller households with fewer full time workers.
Why is it you are pulling this one issue out and saying it does not explain stickiness? Read my full two comments and the supporting links and references please, and if you still feel I am missing the issues let me know.Report
Zic,
On the problem with low marriage rates among the long term poor, here is a fascinating article. Long. But I doubt she is a misogynist.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1592424Report
“Why is it you are pulling this one issue out and saying it does not explain stickiness?”
Because racism!Report
Heh. “Genetics” is the most capacious carpet imaginable. Anything we can’t otherwise explain is swept under it.
I don’t buy it. Nobody’s found a Wealth Gene. Any such “genetic” assertion is bunk.Report
Erm… you might want to think through what was written upstairs. We do know “certain” minority groups have trouble with income mobility, Heffman. Stay on topic. Why is total household wealth decreasing for the poor and rising the top two quintiles, especially for those at the very top?
As for you, Roger, it’s poor males what goes to prison.Report
?? Of course it is poor males who go to prison. That was my point on suggesting we eliminate the war on drugs.Report
@roger
Mobility between classes in the US is similar to other wealthy countries (with one important exception, below)
I think this is incorrect. There are significant differences between the US and other wealthy countries in terms of mobility. The short version, supposing you had a choice where to be born into the lowest quintile, you would be ill-advised to select the US. It would make more sense to select Finland or Norway, or if limited to anglophone countries, Canada. Also, if you were choosing where to be born into the top quintile, for the likelihood of remaining there, the US would be a good choice.
Comparing rates of intergenerational mobility, I’d focus on Figure 1 “Intergenerational income elasticity point estimates for men in developed countries”, Figure 2 “Intergenerational income elasticities in four Nordic countries, Britain and the United States (with 95% confidence intervals) that have been calculated using the same methods and similar datasets”.
Two tables that are even more on the point, showing that when compared to Nordic countries and the UK the US stands out in two relative respects. First, in the US the probability that a highest quintile son will be in the same quintile as his father is higher: Denmark .247, Finland .278, Norway .282, Sweden .262, United Kingdom .297, United States .422. Second, the long distance mobility in the US is lower; that is, the probability to for a son to go from highest to lowest quintile or lowest to highest quintile. The US only resembles the UK in similarly low lowest quintile to highest quintile movement. Just the movement from bottom quintile to top quintile figures: Denmark .144, Finland .113, Norway .119, Swden .109, United Kingdom .124, United States .079. These tables can be found in Anna d’Addio’s “Intergenrational Transmission of Disadvantage: Mobility or Immobility across Generations?”, Table 1 “Intergenerational mobility across the earnings’ distribution” and Table 2 “Long-distance mobility” on page 38.Report
“The Intergenerational Transmission of Disadvantage” pdfReport
Creon,
I will not have time to read this until tomorrow, but it seems this both reflects what was in my links and in my comments. The focal point of my comment was that we have a problem with upward mobility in lowest quintile males compared to history and OECD averages.Report
Thanks for the awesome source of data. I did read it this AM and it does reflect what I suggested yesterday. The core problem in the US vs other OECD states is a cohort of permanent poverty concentrated within the lowest quintile of males. Page 38.
So we are back to my recommendations: better education, less interference with lower skilled employment and self employment (bottom rungs of employment ladder), and ending the imprisonment of millions. Feel free to disagree….Report
“Education is easy to fix in theory. End the state monopolies run for employees rather than students.”
Ah yes, schools are run for teachers, not students, and teachers are in it for the bucks, not because they want to help kids. That’s why public school teachers and university professors (like yours truly) are rolling in the big bucks.
“Every parent should have the freedom to send their kid to a great school.”
As long as they can afford to pay for it, right?Report
Patrick,
Are you actually going to argue that monopoly organizations are not drawn to rent seeking and inefficiency? I could go on for way too long on why they are, but I fear it would violate the rules we were given in the original post. Let me just add that all the public school teachers I know are great people. The dynamics though of monopoly organizations is that they tend to resist change and to accumulate inefficiency over time. My suggestions to address the issue involves consumer/ parental choice using existing tax dollars.
I read last week that public school teachers were twice as likely to send their kids to private schools as the general public.
My comments did not apply to colleges. They have a completely different set of problems related to the funding mechanisms. The problems with rent seeking within universities is not relevant though to the core issue of inter generational mobility within lowest quintile males. Colleges are skimming off the middle and upper classes.Report
Then be more careful how you refer to the organizations. They may not be as efficient as they could be, but when you use that as an excuse for an offhand remark that disparages people, expect to be called out on it.Report
Patrick,
I did not disparage anybody. I stated a fact about the inherent rent seeking tendencies within organizations, especially public monopolies with unions. My quote….
“Education is easy to fix in theory. End the state monopolies run for employees rather than students. Every parent should have the freedom to send their kid to a great school.”
Public school teachers send their own kids to private schools at twice the rate of the general public.
I once worked for a company which was so bad that I always recommended my friends and family not ever use it. My knowledge as an insider revealed that it was a poorly run company with atrocious customer service and bad prices. I suspect the employees at some public schools know something similar (and yes I know some public schools are great — usually those in wealthy districts).Report
Ah yes, schools are run for teachers, not students, and teachers are in it for the bucks, not because they want to help kids.
Eh, I’d say schools are run for the teachers. And I’m a teacher, too. When the NEA says their first priority is the students, that’s just a flat-out lie. We’re human; we want to make things better for ourselves first, and students second. That doesn’t necessarily mean the students are greatly disadvantaged (I think it’s an open question as to how much that disadvantages them, from just a little to considerably).
Two caveats. First, sure we’re not in it for the money, but money isn’t the only value we get out of our careers. Second, my comment is not a claim that teachers–including public school teachers–are what’s wrong with America education. Parents are the primary source of what’s wrong, I think.Report
I’m a public university professor and my wife’s a public school teacher. The local schools she’s been in aren’t run for the teachers; to the extent that the teachers have a say, they’re run for the students. Given how little the teachers and EAs make and how much time they put into it, offhand remarks that sounds like “those selfish teachers” aren’t going to play well with me or others.
The bigger problem is not that they’re run by the teachers, it’s that they’re, in the end, run by politicians who want to pay lip service to education while refusing to pay for the quality of education they claim they want.Report
Patrick,
Do note I said employees, not just teachers. I also expanded my phrase to include the full panoply of rent seekers and the problems inherent in monopolies. I also said all the teachers I know are great folks with no malice. Most of them are drawn to helping kids.
Let me clarify my position further. A monopolistic bureaucracy lacks the feedback mechanisms of efficient delivery of its service or product. Large organizations have inherent cultural dynamics which draw them to inefficiency.
Employees seek higher wages, bigger titles, more authority, less responsibility, more perks, lighter workloads and more subordinates. This is human nature, not some commie plot. Thus people pull the org toward inefficiency.
Contractors push the organization for superior terms. Higher profits on shoddier services.
Managers crave power, and power is determined by budget, resources and manpower size relative to peers. Thus key to power is to attain a larger budget, to never lose it, and to spend it completely every year regardless of actual conditions. See Parkinson’s law.
The more nodes in a bureaucracy, the more time they spend just communicating to fellow nodes. The manager wants two subs and a secretary, each of these wants at least two plus one more. But soon they spend most of their day, coordinating, communicating, updating, meeting, socializing, handling administrative tasks and so on. More people doing same thing less efficiently, all trying to add nodes.
Risk in bureaucracies is dangerous to one’s career. Thus they make decisions via consensus and procedure. Procedure and red tape proliferate. Meetings and committees expand. Rather than assigning responsibility, decisions are made via committee, which is well documented to lead to suboptimal decisions (often the agreed upon solution is organizationally negative but least harmful to interest groups)
The growth is most severe in administrative areas, hr, finance, procurement and such. There is virtually no such thing as excessive red tape.
Soon you have five people paid twice what the going rate, doing the job of what one did, but all their time is just negotiating, coordinating, filling out red tape, administering. Blah blah blah.
This is even worse when the strategic element of the organization is set by politics.
Eventually organizations of this type are drawn toward becoming huge, bloated, sclerotic, change resistant organizations which perform their task poorly and inefficiently. They lack the customer feedback disciplined by exit.
I am well aware of good schools which are able to resist this pressure to some extent. I am also well aware of teachers who will nod their heads when I describe this process. They see it around them, especially in older, more sclerotic school districts, unfortunately often in the heart of the poorer socio economic districts.
Organizations are always attracted to inefficiency, bloat, wasted growth, change resistance and internal rent seeking. I have never worked for one that wasn’t. What keeps them honest is…. Drum roll please…
COMPETITION, CREATIVE DESTRUCTION & CONSUMER EXIT RIGHTS
Public school monopolies have very little of either. To exit a school, you need yo have parents wealthy enough to either send their kid to private school, or to move to a more expensive district which has its values bidded up by other wealthy parents.
Net result is we have a bifurcated school system which privileges the wealthy and screws everyone else. Today, the US spends double on education of kids compared to other developed nations and gets mediocre results at best.Report
Roger,
all due respect, but you’re addressign the wrong problem from where I’m sitting.
The problem is economy of scale, and fiefdoms in general. The bigger the district, the cheaper it is to operate and keep nimble. I’ve seen the school taxes for Pittsburgh — compared them to Wilkinsburg myself. Since they adjoin, it’s easy to see the difference in both housing prices and maintenance between the two places.
The right of exit occurs more often than you’d expect. But what you miss is the endless vicious cycle that suburbs inevitably fall into.
You can talk about “creative destruction” all you want, but all I see is people’s incomes disappearing down an ever increasing energy hole (and a real lack of planning that destroys good land for no reason).Report
Perhaps I am not clear, Kim. I am suggesting a subsidized market based approach to schools similar to the left’s beloved Scandinavian countries.Report
Roger,
it is perfectly okay if we take two different paths to the same destination. 😉
I’m just pointing out that your arguments (the bloatation of bureacracy) aren’t
actually as relevant as you might expect in this rusty old town where I live.Report
Roger,
Don’t worry; I thought your point was totally clear.
In fact one of the reasons I asked on this thread about the end of the decline in poverty rates is because I suspect part–not all, part–of the reason is the war on drugs. A youthful mistake can wreck your life. (And if that isn’t bad enough, now we’re making teens who sext life-long “sexual offenders” who have to register everywhere they go–what awesome policy; that 16 year old who just got silly and pulled a Weiner can never pay their debt to society and put their past behind them).Report
Hi James,
Since nobody else seems interested….
If you haven’t had a chance yet, take a look at page 38 of the OECD data base Creon linked. It clearly reveals the problem of class immobility can be narrowed down to a problem with inter generational poor. Fascinating. There are lots of other interesting facts in there too.
That is why I am focusing on assortative mating, better schools, less imprisonment and fewer job barriers.Report
Thanks, Roger, I will look at that.Report
Roger,
One thing I found fascinating on that page was the probabilities for sons being in the same quintile as their father at the lower quintiles. At the 5th quintile the number for the U.S. was .36, while for Denmark it was .363, and for Sweden 3.74. Only Finland and Norway were lower than the U.S., at 3.47 and 3.54 respectively, which is not a great difference. So it appears the Nordic countries aren’t, collectively, any better than the U.S. at moving people out of the 5th percentile inter-generationally. I think that’s a really important point.
Compared to that, however, is the bottom-to-top movement, at which the U.S. lags distinctly. Taken together, these data points suggest that these other countries aren’t doing better than the U.S. in ending intergenerational poverty, but what they are doing better is helping those who get out of the lower quintiles move farther up; not simply one quintile higher, but multiple quintiles higher.
(Note also that those countries have higher rates of top-to-bottom movement, too. I’m not sure how much of that is a policy problem and how much is just an inevitable function of higher rates of moving up that necessarily must be balanced by others moving down.)Report
James, are those top-to-bottom / bottom-to-top movements relative or absolute? (I’m assuming relative). And how does that correlate with the overall distribution of wealth in the country?
Because it seems to me–and I’m just spinning this out here, not doing math to support it–that if you plotted some of these other countries’ wealth distributions on the same graph as that of the USA, you’d see that the other countries were mostly a flat line near the bottom of the page. So the wealth change that would move someone from the 5th percentile wealth to the 95th, in those countries, is what in the USA would move them from the 10th percentile to the 70th. So it looks like the USA is doing a lot worse at “moving people out of poverty”, even though the actual wealth change is the same.Report
The entire report is fascinating reading. It covers assortative mating. It talks about the effects of education and even comments that the Nordic countries successes may be partially due to their adoption of decentralized competing schools.
It talks about the effects of culture and neighborhoods. The trap of poorly designed welfare programs. The correlation between inequality and education. The role of “parental characteristics” including cognitive skills, values and attitude and “self discipline.”
This is the most fascinating link that Creon has ever provided, and he is great at good links. This one is a keeper. I just wish those on the left would comment on it.Report
Short answer: Ratio and differences between exponential growth with different initial investments and different growth rates are non-intuitive to most people.
Longer answer: The poor start with less money, have less to invest, generally get lower returns on investment because of both fee issues and fewer contacts, and lose a greater portion of any investment to fees.
Why this results in such a large impact has to do with the basics of exponential growth. In particular:
1. The difference between any two exponentials is exponential.
Consider two people, one with $1,000 to invest and one with $10,000 to invest. Assume they get the the *same* return on investment. The difference in amount of money they end up with after N years grows exponentially. Using the standard future value formula:
(10,000*(1+r)^N – 1,000*(1+r)^N) = 9,000*(1-r)^N
After, say 10 years at 8% growth, the difference which started at $9,000, is more than $19,000. After 20 years, the difference is almost than $42,000.
2. The ratio between two exponentials of different growth rates is exponential:
Consider two people, both with $1,000. One invests at a 5% return on investment, the other, through dad’s friends, at 8%. After N years, the ratio between their incomes is:
1000*(1+7%)^N / 1000*(1+5%)^N = 1.029^N.
After 10 years, the person with the higher rate of investment with have 1.3 times as much money. After 20 years, they’ll have 1.75 times as much money. After 40 years, they’ll have 3 times as much money.
3. Combining different initial amounts to invest and different growth rates yields really huge differences. Consider person A at age 20 starting with $10,000 and getting 8% ROI, the person B at age 20 starting with $1,000 and getting 5%. That is, they start with a factor of 10 difference in wealth.
Here’s the *ratio* of their wealths over time:
Age 20: Factor of 10
Age 30: Factor of 13
Age 40: Factor of 18
Age 50: Factor of 23 ($100,000 for person A, $4,300 for person B)
Age 60: Factor of 30
Age 70: Factor of 40
Age 80: Factor of 54 (over $1,000,000 for person A, just under $20,000 for person B)
And then this factor of 54 passed on to the kids, and keeps on growing, generation by generation. More complicated analyses (with fixed fees, percentage cuts to brokers, and other things that make it *worse*) are also possible, but I think this illustrates the basic point pretty well.Report
Has anything changed over time, or was this equally true two or three generations ago?
To the extent that capital is being invested in such a way to generate returns, and this in new factories, products and jobs, this is a good thing overall right? People are becoming rich providing opportunity and wages to others in a win win scenario…right?Report
I’m not making any value judgement in my post here, Roger. I’m just showing how the basics of our markets and financial system can make small initial disparities in wealth lead relatively quickly to large long-term disparities in wealth (and power).
This has a number of implications, however. Consider racial discrimination:
1. Small amounts of past discrimination can result in significant racial disparities over time.
2. Even small amounts of continuing discrimination (which change rates of return) can be very pernicious, magnified exponentially over time.
3. Any actions to meaningfully address the results of past or continuing discrimination will have to have similarly have exponential impact if they’re going to be successful.Report
“To the extent that capital is being invested in such a way to generate returns, and this in new factories, products and jobs, this is a good thing overall right? People are becoming rich providing opportunity and wages to others in a win win scenario…right?”
How much capital is being invested in this way? And what happens to that capital when a more profitable but less win-win-friendly investment opportunity presents itself?Report
By any reasonable standards, the US is suffering from an investment glut — hence the massive rise of the finance sector and the Great Recession — too much investment money chasing too few investment opportunities. A finance bubble was inevitable, and it still hasn’t fully corrected.
Part of it is wealth concentration, but part of is the 401k. We convinced millions of people to pour money into investments. Into the market. 50 million 401ks offer a really hefty floor of investment.
Last studies I saw showed the US finance system was still something like two or three times larger than is optimum. All that excess is merely churning the system and extracting rents, not causing growth.Report
“How much capital is being invested in this way?”
Other than that stored under a mattress or used to invest in organized crime or political contributions I would say most of it…. Bank deposits, bonds, stocks, etc.
“And what happens to that capital when a more profitable but less win-win-friendly investment opportunity presents itself?”
I do not support interactions which are not mutually voluntary.Report
Patrick. You neglected to answer my questions. To the extent capital was used to create opportunity for others it was a force of good, right? I do not care how many gazillionaires there are if they become gazillionaires by creating value for others. Indeed. I hope there are a lot more gazillionaires.
Poverty is a problem. Inequality is not necessarily a problem, nor does it necessarily contribute to poverty, and assuming it does falls straight into the zero sum fallacy:
https://ordinary-times.com/blog/2012/06/12/the-positive-sum-outlook/Report
The basics of finance were also true three generations ago. However, the exponentials have had three more generations to work and magnify disparities. In addition, as these disparaties have grown, people with disparately large wealth have been increasingly able to use that wealth to game the political and financial systems, increasing their comparative advantage.
Exponentially increasing wealth differences create exponentially growing barriers to class mobility. Report
“I do not support interactions which are not mutually voluntary.”
Cute non-response to a really good question, Roger.
Transactions can turn out to be non-win/win even if they’re mutually voluntary, and your lack of support doesn’t mean they don’t happen or can even always be prevented. In fact, because such interactions can have higher rates of return, people with the leverage to enable them, have an incentive to manipulate the political and legal system to allow them to do so.
This is, in fact, another example of how those with more wealth can engineer the system to get higher rates of return, building growing barriers to social mobility.Report
You still didn’t answer my questions.
OK… You have shifted from a concern over wealth to a concern over wealth being used to game political and economic institutions. Here we have no quarrel. I absolutely reject using wealth (or political influence or majority consensus) to rig institutions as well.
I suggest the solution to this problem is a set of clear and consistent rules and minimal interference from the officials in the outcomes of the game. Again we are probably getting off topic though.
Let me restate what I think you are saying. Please correct me as necessary. *Wealth can be leveraged to create more wealth. Wealth can also be used to rig the rules of the game, therefore wealth is a problem.* Again, I grossly oversimplified just for clarity.
Here is what I say. * Institutions can be designed so that the pursuit of personal gain comes by creating mutual gains for others leading to self amplifying prosperity. Wealth and other forms of power must not be used to pervert the rules to lock in privilege or interfere with mutually voluntary interactions.*Report
Crazy talk. There’s no question wealth rigs the system. Happy talk about Minimal Interference is only accepting the proposition wealth will only further rig the system. Markets ought to be clear and consistent — which would imply they’d need regulation, a proposition which flies in the face of your assertion about Minimal Interference.
You don’t understand capitalism. Capitalism creates wealth by the process of buying low and selling high. It’s not a question of winners and losers, it’s a question of Assets = Liabilities + Capital. It may well be everyone “benefits” from the sale of something worth buying. But let’s not play stupid games about who profits.
You really want to Design Institutions? Do you really want someone coming up with Five Year Plans or something of that sort? You’re proposing communism here, you know.
Well, maybe you don’t know.Report
“Cute non-response to a really good question… Transactions can turn out to be non-win/win even if they’re mutually voluntary, and your lack of support doesn’t mean they don’t happen or can even always be prevented.”
The term we are looking for is “a mistake.” My recommendations for addressing the ever present potential for mistakes is feedback. In general this means that the people making the decision should be those experiencing the feedback.
My lack of support implies that I recommend institutional safeguards against win/lose interactions. I am well aware that the history of the human race involves a never ending stream of attempts to rig the game in favor of those lobbying for the rigging. My recommendations to avoid this are long and off topic, but they basically amount to CLASSICAL LIBERALISM.Report
I suggest the solution to this problem is a set of clear and consistent rules and minimal interference from the officials in the outcomes of the game.
I’m anxiously awaiting your proposal to how to go about convincing those that are gaming the system through political influence to quit doing that which profits them so richly.Report
Heh. Until further clarification, you’re sounding more and more like a damned old Communist, Roger. That’s what happens to unwary Classical Liberals who try to impose their own ethical proscriptions upon markets.
At any rate, you might as well demand the repeal of the law of gravity as impose your cockamamie schemes upon markets and nations. You have forgotten that individuals who bravely enter into these Voluntary (and entirely mythical) Transactions do so in a world where there are rules, whether or not they’re imposed by governments. The slow and weak are eaten by the fast and strong and thus it shall always be, unless the O’erweening State — the state you can’t find enough evil things to say about — does something about that state of affairs. Minimal Interference is a bad joke. You’re just not in on the joke.Report
“I’m anxiously awaiting your proposal to how to go about convincing those that are gaming the system through political influence to quit doing that which profits them so richly.”
You cannot. It would be logically futile. Basic Prisoners’ Dilemma. If you can gain more by cheating whether others cooperate or cheat, then it is logical to cheat. Thus everyone logically cheats and the human race is fucked.
The solution is to play games where cheating is prohibited. The key to making this a reality is to educate people on the potential of good institutions. This problem was solved two hundred and fifty years ago. The rule of law and property rights isn’t cutting edge stuff.
But no… Some folks still believe in mercantilism. Some folks still believe in imposed master planning from above. Some still believe that we need to mess with wages, prices and regulations to micro manage the market, thus introducing the opportunity for exploitation from within and above.
If you think the issue is convincing the exploiters not to exploit and the cheaters not to cheat, you misread me completely. The key is promote standard economic liberalism. If I can get YOU to see the light, then we can work together to ensure THEY AND WE no longer cheat.Report
Nobody, here or elsewhere, seriously believes in mercantilism any more. It’s a simple, stupid attempt to rescue a brain-dead proposition, you’re trying to cure dandruff with your Classical Liberal decapitation. You’re the only one holding onto this Voluntary
Now what is implied by “standard”? What Cheating do you intend to prohibit? How would you even define it? All this normative talk — blissfully unencumbered by even a hint of methodology — is just babbling.Report
I am not suggesting five year plans or even designing institutions. I chose my words carefully. I am recommending the rule of law, minimal market interference, and property rights. These are well established, greatly non designed principles with a proven track record which have delivered a per capita growth rate which roughly doubles standards of living every generation and has done so for two and a half centuries.
Despite propaganda from the left to the contrary, the last generation was the best yet for net gains for humanity — concentrated surprisingly in the places which adopted this old fashioned economic liberalism (granted imperfectly).Report
The rule of law? It’s already been established, even limiting the discussion to this thread, that your win/win scenario (a loathsome cliche) produces a few big winners and mostly losers. Your Minimal Interference and Rule of Law cannot be squared up with each other — and furthermore, you don’t intend to demonstrate how they might be conjoined. No, Roger, you are running a Sacred Cow ranch. You want the benefits of regulated capitalism, making fluffy statements about how this might be minimally achieved.
I believe in Capitalism, despite its intrinsic and unavoidable tendency to concentrate wealth in the hands of the few. For the poor to rise from poverty to self-sufficiency, we will need policies which start from the proposition it just doesn’t have to be this way, that nations ought to invest in their citizens, considering every scheme which will turn people into taxpayers and not dead weight upon the resources of the state.
I contend the rich may have to become even more astronomically wealthy if the poor are to rise from poverty. We shouldn’t be stupid about this as Liberals, the yardstick starts from the ground up.
First step, I’d cut out all the crappy Do Gooder schemes. If we’re to assist the poor, simply give the poor the money and let them work out how to spend it. Cuts out all the middlemen and idiotic moralists. They’ll spend the money and it will immediately re-enter the economy and it will inevitably percolate up into the pockets of the rich.
The poor are American citizens. As fare the poorest among us, so fare we all. It’s the poor who end up in prison. It’s the poor who get sick and clog our emergency rooms at great expense. The poor go to the worst schools. The poor are getting poorer in the USA because this economy is so bass-ackwards, we’ve allowed an entire underclass to be created under our feet.
And the poor are not lazy. Often, they’re proud people, refusing handouts. If there’s anything Classical Liberalism has to contribute to a solution, it will start with the idea that if we’re to tolerate authority, it ought to be to the benefit of each individual thus made subject to authority. Our current system tolerated and continues to tolerate financial crimes of unparalleled scope and magnitude — and not only fails to punish those criminals — but wades into preserve the status quo ante of cheating and rigging of regulations. These cannot benefit the individual but instead only a favoured few. Were any nation to consider the benefit of its poorest its highest priority, it would create an environment where more of them benefitted. Money is not the answer to life’s problems but it does give people options — and options are how freedom works in the real world.Report
“I’m anxiously awaiting your proposal to how to go about convincing those that are gaming the system through political influence to quit doing that which profits them so richly.”
As Roger notes,mthat’ll never happen. What we need is the Tea Partiers and the OWS folks to join up with libertarians on just one policy–a constitutional amendment to ban government granting of rents. Any rent-seeking/granting policy would be constitutionally void.
That, howeverl would require persuading the TP/OWS crowd to give up the rent-seeking game, too, which I don’t expect to happen. Curiously, rather than just end a game in which they’ll always be outmatched they’d rather just keep trying to tweak its rules.Report
@morat20 but part of is the 401k
You may be right, but I have to ask, what is the alternative? Defined benefit pensions also invest heavily in the market, and given the amount of career mobility these days,they are not attractive to a large number of workers. Fewer & fewer workers are staying with a single employer for 20+ years. 5-10 years is becoming more normal (what is the value of my Union negotiated Boeing pension if I leave the company after 5 years in order to pursue other career growth opportunities?).
Perhaps we need better retirement savings options, but right now, 401Ks & IRAs are the only way for a person to save for retirement specifically.Report
@jm3z-aitch a constitutional amendment to ban government granting of rents.
How would you word something like that?Report
Defined benefit pensions also invest heavily in the marke
This. If the issue is too much investment, how are 401ks different from any other pension?
Maybe the solution is to tax pension savings heavily enough to deter people from saving from retirement and encourage them to engage in current consumption instead of saving for future consumption. The tax on savings would only need to bring the returns down below the rate of inflation, I think.Report
Overall, I’d guess I have multiple points, not a single one.
1. The exponential nature of wealth growth can cause even small differences between initial investments or rates of growth to become very large. As a result, even things like dumb luck can cause huge disparities in wealth to be greatly magnified over time, making large barriers to class mobility.
2. Because of the huge power of exponential growth, there is a huge incentive for people to seek unfair advantages over others; this could include not disclosing important information or using insider trading in “mutually voluntary transactions.” (yes, I know you don’t regard fraud as falling in this category, but it happens and we can’t completely prevent it.)
3. Because wealth gives people more means for gaining advantages which are exponentially amplified, this results in increasing inequality.
4. Because of the huge power of exponential growth, any mechanism which seeks to address these disparities or their sources must be similarly powerful – for example, tax rates that progress *very* strongly, or wealth taxes, or something similar.
And a solution that requires a political system that can’t be manipulated by people with wealth for their own advantage? Roger, the system you’d “support” sounds as feasible in the real world as communism.Report
MRS,
I’m not sure. I’ve been puzzling over that for a few years. The general idea would be disallow laws that provide any non-genetalizable economic protections. So welfare and unemployment benefits would pass muster because anyone can become eligible for them. But any rules that protect a particular business or industry from competition would fall, whether tariffs, quotas, cartelization, subsidies, tax preferences and abatements*, etc.
_________________
* Tax abatements for things like brownfield recovery would be legitimate, so long as made available to any firm dling such recovery. Tax abatements that enable businesses to play cities off against each other would not.Report
Patrick,
I have no problem with progressive taxation within reason. I have a huge problem with what you actually seem to be implying though. Your actual goal seems to be the elimination of large wealth. Please correct me if I am wrong. I believe that this would be catastrophic to markets. It would cause them to collapse, and we would collapse with them. Eliminating wealth is the equivalent of chopping off our noses to spite our face.
As to my suggestions being unfeasible, you are assuming I am demanding perfection. I am simply pointing a direction, say North, and recommending we take steps in that direction. The more steps the better. North in this case is what is known as CLASSICAL LIBERALISM — rule of law, respect of property rights and a less intrusive state.* It has a great track record even if never achieved as a Platonic Ideal.
Do you support my general recommendations along with moderately progressive taxation?
* As an example, I am not expecting the end of rent seeking, but I would settle for setting our sights on reducing or eliminating ethanol subsidies and unionization within public monopolies. (And oddly, when you push a person on the left you find they actually want more rent seeking, but just for their favored groups.)Report
Also, regarding defined benefit plans, Detroit city workers will be getting $0.16 on the dollar for their pensions because the people who have been running the city of Detroit are incompetent.Report
Roger,
I’d settle for taxing progressively capital gains, just like we tax income.
(just read something on ending the corporate tax entirely. Tentatively
in favor, bears more thought though).
And a very, very robust estate tax. (sure, you can give enough for your kid
to support himself… for a while. not the rest of his life.).
Amassing wealth is where we get Carnegie or Westinghouse or Edison.
If all the wealth is in the Kochs’ or Walton’s personal fortunes, the market
is severely distorted. [among other things, sending our physicists,
mathematicians, and engineers to wall street. I’d rather see them working
on productivity increases. or, um, science.]Report
James,
Do you consider the national highway system to be rentseeking?
Its original purpose was national security, but it wound up
being a huge giveaway to truckers.
For that matter, how do you square any national security issue?
The US gov’t is funding a lot of smallish businesses, in the name
of national security.Report
I’m certainly not opposed to large wealth, Roger. Success should be rewarded and rewarded handsomely
. I’m frankly not sure what to about the barriers to mobility it equates or its influence on politics. That’s why I focused on describing what I viewed the causes of inequality and immobility, not prescribing solutions.
If I look at solutions, traditional liberal proposals like progressive taxation, a meaningful estate tax, and perhaps public funding of political campaigns come to mind. I have my concerns about them, however, in terms of how feasible, effective, and appropriate they are.Report
Patrick,
I am not opposed to the first two. On the political front I would suggest reducing the scope, power and influence of those in politics. As long as they have the power and control, the system dynamics will ensure that people will be drawn to controlling it for their benefit. Whether via contributions, sponsorship, political machines, illegal contributions and such.
Oddly, this is just supply and demand. The more we raise the barriers for political influence the more likely those clearing the barrier will be unsavory.
The only real cure is to eliminate the temptation. This is classical liberalism. A constrained government run with clear, consistent, objective laws.Report
Okay, so then a different question – say you limit the scope, power, and reach of government successfully to the things that best for the government to do in a Rogertopia. How, once you and I step down from our thrones, do you keep the government from doing only those things, since those with means and power will be continually be try to use those means to influence the watchmen to increase their means and power.
Assuming we’re actually talking about a representative democracy of some sort, that’s why I ponder public campaign financing, generous pay for civil servants, and harsh criminal and civil penalties on anything that even appears to be malfeasance, bribery, or conflict of interest.Report
Thanks for the Q, Patrick, though by adding the ending “topia” you are ignoring that I am suggesting movement in a direction rather than ever expecting a perfect outcome.
First, I am never suggesting I would be on the throne. My recommendations assume we can persuade people of the value of limited government or choice or that states continue to compete with each other in status. All my model depends upon is that some nations, states or provinces pursue a more liberal direction than others. Over time, and by this I mean generations, socio-political-economic mistakes will reveal themselves in how citizenry flourish. States with relative exploitation and regulatory interference will be outperformed by those with economic freedom. It is basically a case of math using the same compounding factors you started the thread with.Report
Roger,
Would that we had a world that could support your desire.
I fear that death will walk among us soon enough,
and that people, in fear, will turn towards most illiberal things.Report
Fair enough, Kim.
I certainly do not believe progress is inevitable. It may not even be likely. It is simply possible, and to the extent we can make it more likely by promoting truth, freedom and choice then we can be content.
People need to rise out of tribal politics and actually study history. The human race did make unprecedented progress over the past two and a half centuries. There are lessons we can learn from this modern breakthrough. We ignore the lessons at our peril.Report
Roger,
oh, indeed. I see basically free energy allowing us to make tons of progress.
Free Energy’s running out though… unless we do a lot better on the whole
nuclear fusion (or renewables).Report
@patrick-bridges
How, once you and I step down from our thrones, do you keep the government from doing only those things,
This is why I propose an anti-rent-seeking amendment to the Constitution. It won’t work perfectly, of course, any more than the 1st and 4th amendments do. But the Supreme Court is at least better shielded from direct influence peddling than the political branches. And as Roger notes, we should focus on directions, rather than on a utopian end point.Report
I think an anti rent seeking amendment is a great idea. The funny thing though is that those on the left and right rarely consider how much rent seeking they encourage and foster.Report
@roger Rogertopia and our thrones was a joke, man. I was trying to lighten things up a bit. Relax. 🙂
@jm3z-aitch Would your amendment cover things like “Why, United Healthcare would be happy to pay for a national campaign ad for you reelection, President Obama.”? If so, how would it be worded to do so? If not, isn’t that a significant obstacle to its feasibility?Report
Pat,
No, my amendment would not cover that. It would make such laws unconstitutional, so that any affected citizen could challenge them in court and reasonably hope to see them struck down.
That prospect should have some effect on the net financial value of paying for a candidate’s ad campaign.
Time and Tod willing, I may have a guest post about this soon.Report
It’s all good, PB.Report
Would it prohibit incumbent protection? By this term I mean people restricting the freedom of others to play the game? Entrance barriers? Tax medallions? Occupational license requirements? Import restrictions?
Just asking. Feel free to save your response for your post.Report
@jm3z-aitch
How would you go about barring rent-seeking? How would the law be worded?Report
Again, though, how do you define rent seeking and what would you outlaw? Would your amendment outlaw any shall-carry/shall-issue healthcare system? Only ones that insurance companies lobby in favor of?
Sometimes it seems rent-seeking is the term used for “anything I don’t like” in certain crowds, which is why I’m looking for specific language and what exactly it would and would not outlaw.Report
James touches on this a bit upthread:
https://ordinary-times.com/blog/2013/10/25/why-is-it-sticky-at-the-ends#comment-643341Report
And now on to inequality.
First, we need to clear away all the smoke and mirrors on inequality stats.
First, the stats are snapshots in time. People often assume that families stay in a quintile. In reality they constantly move in and out, up and down (see my mobility comment and links above). The quintile data basically shows the range in a steadily increasing average. Since the bottom income quintile includes non working and non income earning families (such as mine), it is always anchored at or around zero. Another way of describing the range of incomes is an increasing escalator. The bottom rungs are always about the same, the lowest quintile is the lowest steps including a paradoxical number of steps at or near zero income.
This is especially true because most statistics exclude some or all income transfers. We transfer a trillion per year to the lowest rungs of the escalator, (paid by higher rungs) and then often don’t count much (the gains to the lower or losses to the upper) of it in the stats. To the extent this is true, it seems mathematically unlikely that lowest tier incomes will ever rise appreciably. We are not counting much of their income at all.
That said, the attached chart in the above post was not income, but wealth. Again, the mobility within classes though is ignored. Lower quintile families are usually in debt until they become higher quintile. The data on wealth doesn’t represent a problem.
What are the causes though of income inequality before transfers? First, the data clearly reveals that we are seeing this same trend in most OECD countries since 1980. Economists explain it primarily as due to the influx of one billion unskilled laborers now competing with OECD labor. Supply and demand is holding down wage gains here, as it pulls a billion people out of destitution. Add in a steady stream of millions of immigrants, and the result is predictable and in general POSITIVE.
At the other end, we see superstar incomes as those in demand are leveraged across a wider market. There are shortages of doctors, financial analysts, actuaries, engineers, executives and programmers. They command a higher salary. Again this is a positive trend.
One final comment, in addition to global forces of supply and demand, there are also demographic issues. Most income quintiles are on families. Over past few generations we have seen two huge societal trends. First is smaller households with fewer numbers of working adults. The other, opposite force is assortative mating. High income professionals are marrying other high income professionals and having high income bright kids (income is influenced by genetics as per my prior comment). We thus see two higher individuals making up larger shares of the upper tiers, and a single adult unemployed household on the bottom tier.
In summary. The data is misleading. Mobility is alive and well. Higher incomes is a good thing not a bad. And the problem is lowest-tier permanently immobile males and the answers are obvious but impossible to address as they are caused by the abuses of the modern state as explained in my prior comment on mobility — bad monopoly schools, the war on drugs, and economic and regulatory burdens on hiring lower skilled workers and against self employment.Report
The following are my reasons for stickiness:
1. Wealthy people tend to marry, poor people tend not to marry (*). Marriage is good for income growth.
2. Wealthy people, as a group, work more ( *). The more a persons works, the more money a person will tend to make.
3. Wealthy people tend to live among wealthy people more than in the past (* ). If this is broken down by zip code it is even more pronounced (*). Their children concentrate the wealth.
4. Increased governmental regulation increases the cost of small business ownership, which prices out middle and low income people, leaving only wealthy small business owners or larger businesses. This is based upon my own personal observations, so perhaps is should be a separate comment.Report
I fixed the tags. For future reference, the proper form for a link is
<a href=”link url”>text</a>Report
In addition to what others on my side of the aisle said, the decline of labor unions is another reason why inequality is growing. Corporations did not start treating their workers well because they wanted to, they started paying decent wages and giving them decent working conditions because workers formed unions and agitated for these things and lobbying for laws to curb abuses.
The deregulation of the financial industry is another reason why inequality is growing. As ND pointed out above, a lot of the new wealth and the problems of inequality have their origins in the unregulated finance industry. When the banks were very closely monitored by the government, a lot of the worse behaviors were not allowed. It was Wall Street that really led the charge to relocated factories to developing countries and generally destroy the manufacturing sector of the economy.
Another change was how CEOs and other directors started viewing their charge. Right now CEOs and Board of Directors see their job as to maximize the value of shares in the company for the shareholders. In the past they saw their job as to nurture and grow their companies with shareholders being rewarded by regular and hopefully high dividends. The latter kind of leadership is better for the company’s employees because it means that the Board is not going to do something destructive in order to give the shareholders a decent stock value.Report
Monetary wealth is, more or less, zero sum. For one person to gain money, another has to lose it. So unless folks are on board with constant infusions of money (and the resulting inflation), monetary wealth is and always will be roughly zero sum. So it makes perfect sense that if the uber rich are getting richer, it is being done at someone’s expense.
But why are the uber rich getting richer? I’ve been thinking about this recently and think it has to do with the American ideal of individualism. We live in a me-me-me culture.
Apple made approximately $41B in 2012. Billion. With a B. In profit. So why did Apple’s leaders feel the need to run the company in a way that generated $41B in profit? Why not lower prices? Or raise wages? They could have done both and profited $20B… a pretty hefty take home. But they went for $41B. And if they could have gotten $45B without damaging their longterm prospects, I’m sure they would have.
But that ain’t who we are as Americans. People would call them foolish to leave money on the table, even if it is money that is essentially of no value to them.Report
The FED prints 85 billion every month.
Who loses that money and where is the inflation?Report
Source?
You must also factor in the money taken out of circulation and how much of that money actually enters circulation.Report
Keep in mind that most (like 90+%) of our money supply (termed M2 in monetary theory) is created by banks issuing loans. The money created by the Fed is the base of the money supply but only a small fraction of the actual effective money stock.Report
Source?,
Really?
Have you not heard of Quantitative Easing?
The FED has pumped $2.8 trillion into the economy.
Created out of thin air. Taken from no one.
Inflation remains at all time lows.Report
Asking for a source seems fair. I’m not saying you are wrong. I’m asking you to do more than just say it.Report
OK, Link:
CNBCReport
Given that the Fed lists there being only $1.22T in circulation, that $2.8T is… suspect.
Again, printing money is not the same as infusing the currency supply. Money is coming out of the supply all the time.Report
“Fed lists there being only $1.22T in circulation”
What is that M0?
M1 is about 2.6 trillion
M2 is about 11 trillion.
You really have to include more than just physical currency.Report
@kazzy , don’t confuse money with currency. Currency is physical paper money. The.base money stock also includes the banks and other institutions in what amounts to checking accounts at the Fed itself. @stevethecat is correct.Report
Fair enough. But how much of that $85B/mo ends up in the hands of poor people?Report
Precious little, and then only incidentally. The Fed is purchasing relatively illiquid assets such as mortgage backed securities from commercial banks. Without getting too deep into the technical weeds, this should free up credit for commercial lending. Unfortunately, this is like pushing on a rope right now. The problem isn’t so much that banks can’t lend as it is that businesses have little reason to borrow due to slack demand.
There’s only so much the Fed can do given the tools at its disposal. Congress controls fiscal policy. Need I say more?Report
The FED has pumped $2.8 trillion into the economy.
Inflation remains at all time lows.
Well, if you pump $2.8 trillion into an economy of 306 million people but the $2.8 trillion goes mostly to two million of them, you’re not giving the vast majority of the people any more buying power.
You double everybody’s money, you can charge twice as much for pretty much everything.
You double very few people’s money, you can only charge *them* twice as much for what they buy, because the vast majority of folks don’t have any more money.
Look at home prices. They’re mostly stabilized at around 2006 levels. But home prices freaked out back in 2001, not in 2006. Still, right now, in most markets, home value of the available for-sale inventory is priced completely out of whack with the norms from 1945-1999, based upon local median income.
Home prices should probably *still* be 12-25% lower than they are, if home prices were going to be anything like the normal for 55 of the last 65 years. So there’s a big chunk of your inflation.Report
“Monetary wealth is, more or less, zero sum. For one person to gain money, another has to lose it. ”
CHRIS…. YOU OWE ME A BEER! It has only been a week and we already have the zero sum fallacy cropping up!
Btw, I am a Guinness man.Report
Not so fast, @roger , the claim concerned “monetary wealth”, not just “wealth”. I feel confident in claiming that you haven’t created a dime in monetary wealth in your lifetime (neither have I). You can accumulate it, you can steal it, you can earn it, and you can spend it. The one thing you can’t do is create it, not unless you’re a central bank. (With the proviso that commercial banks also create money when they issue loans which then disappears again when the loan is paid back.)
At best you’ve created “value” for which you’ve been compensated. But given that your career has been in the financial sector, even that’s debatable. From a macroeconomic perspective the financial sector is overhead; a necessary cost which one should strive to minimize in the interest of efficiency (in the technical sense) .Report
@roger
It’s only a fallacy if it’s false. Are we, collectively, better off with Apple clearing $40B or $20B and $20B paid out in additional salary to low wage employees?Report
A few things…
First I was kidding Chris. We did not actually bet a beer.
Second, without getting pulled into a discussion on the difference between monetary wealth and wealth and value (I have too many brands in this fire already) I want to concentrate on the implications which Kazzy offers us.
Prosperity is in no way shape or form zero sum. It is possible to take actions or engage in interactions which are mutually beneficial. Indeed, the central insight of economic liberalism is that individuals acting or interacting voluntarily will tend to enhance their position in life. Using a system of the rule of law, property rights and money, we constantly create value for ourselves by creating value for others. We create a network of voluntary action/interaction which self amplifies utility. That is what a modern economy is. There is virtually no limit to the amount of utility which we can create.
Today there are five times as many people living twice as long each with an average per capita standard of living ten to twenty to a hundred times higher than those living before Adam Smith. At current rates of growth, world per capita GDP is on pace to grow to over a million dollars a day in four hundred years. This sounds absurd, but I offer it only for shock value. Prosperity is a positive sum thing.
” So it makes perfect sense that if the uber rich are getting richer, it is being done at someone’s expense.”
No it does not. If we are dealing with a reasonably free market, the assumption is that any party becoming uber wealthy did it by creating massive amounts of value for others. Specifically, investors in Apple such as myself made money by investing in a huge cooperative network of entrepreneurs, managers, employees, retailers, suppliers and consumers. Every one of which expected to gain in each interaction. Investors continue to invest in apple because it is an incredibly successful utility generation organization. As revealed by the very profits you bemoan.
“But why are the uber rich getting richer? I’ve been thinking about this recently and think it has to do with the American ideal of individualism. We live in a me-me-me culture.”
The central insight of the moral philosopher Adam Smith was that institutions can channel self focused behavior to the greater good. The key is to establish voluntary networks where no node in the network is allowed to directly harm another node. The optimal strategy within this network is to specialize and cooperate with other nodes to create value for still other nodes. This creates a worldwide network of cooperation and non destructive competition where nodes effectively compete to cooperate better.
With proper institutions, egoism can be channeled into utilitarianism.
” So why did Apple’s leaders feel the need to run the company in a way that generated $41B in profit? Why not lower prices? Or raise wages?”
Profit, gains and losses are the feedback mechanisms of markets. A profit signifies that resources are being pulled into efficient uses. Every device or app sold involved multiple people expecting a gain. If Apple lowered the price or raised wages arbitrarily (I am assuming they optimized both to optimize long term profit) it would reflect a less efficient use of resources. Played out over time, this would create a less prosperous world. We would on average all be a little poorer.
Kazzy, I really suspect you are not considering secondary and tertiary effects of lower prices, higher wages or lower returns on investment.
“People would call them foolish to leave money on the table.”
No, it would be foolish of them to leave money on the table (Again assuming they optimized expected long term profits to start with.) The feedback mechanism would be less transparent and worldwide growth trends would all else equal tend to decrease.
The intersection points of supply and demand are feedback mechanisms which markets use to properly allocate resources. Properly operating Markets are complex adaptive learning systems which constantly solve a certain domain of human problems. Arbitrary interference in this system makes it less effective at creating utility and prosperity.Report
As an example…
If Apple arbitrarily doubled wages, you assume it would be a good thing. It would not. At double the wages, you would totally change the demand for workers. This would move capital and jobs from lower skilled workers to higher skilled workers ( you effectively have created an arbitrary attraction point for those more skilled or valuable employees currently earning between Apple wages and the double figure) to STOP doing what they are doing and start doing what Apple is willing to overpay them to do. This would result in the original lower paid workers losing their jobs, and in more skilled workers doing less productive work for an amount way above the clearing price. We have just described inefficient use of resources and a less productive world. You are in effect arguing for throwing sand in the gears of free enterprise. You think it good, in reality it makes us all poorer.Report
“If Apple arbitrarily doubled wages, you assume it would be a good thing. It would not.”
It’s also worth pointing out that if Apple doubled wages, it would be able to pay its workforce for about nine months, at which point it would have spent all of that forty billion dollars.Report
I suspect that the biggest contributor to the very rich getting richer is the abolition of the criminally high tax rates of the mid twentieth century. When your income beyond a certain point is taxed at 70%, or 93%—without adjusting for inflation—it makes it much, much harder to accumulate wealth.
But that ain’t who we are as Americans. People would call them foolish to leave money on the table, even if it is money that is essentially of no value to them.
Of no value to them? You understand that not everyone who owns Apple stock is a billionaire, right?Report
You mean it becomes much harder to accumulate *more* wealth, Brandon. If you were getting any significant portion of your marginal income taxed at 70%, you had an income vastly higher than almost all other Americans.
Oh, and why were 70% tax rates “criminally” high, as opposed to, say, unwisely high?Report
I question the premise. First, the poor aren’t getting poorer. The poor are getting richer. The last few decades have seen a decline in global inequality, owing largely to the world’s poor becoming less poor. This is the issue, unless you think that only the (relatively well-off, globally speaking) American poor matter.
I also don’t think that the American poor are getting poorer. Rather, they’re getting more numerous. If you control for everything, I’m pretty sure that a person today is significantly better off than his 1983 equivalent. But we’ve had dramatic increases in the populations of traditionally poor demographics: blacks, Hispanics, and single-parent families. It’s Simpson’s paradox.Report
So much so that even the tried and true ways that used to work (education, hard work, etc) are failing to pay off nearly as readily as they used to.
Google “college wage premium.” It’s pretty much at an all-time high, though it backed off a little bit during the recession.Report
Heh. There’s more college loan debt out there than revolving credit debt. Surely you’re not implying going to college means the economy is going anywhere.Report
The cost of most colleges far outstrips the wage premium. Some state schools are keeping their tuition rates low enough to avoid that trap, but there are more people pursuing 4 year degrees than there are spots at state schools for them.Report
Private universities often practice price discrimination, charging the high sticker price to rich families and giving need-based aid to poorer families. I don’t remember the exact statistics, but the vast majority of students who graduate do so with less than $50,000 in debt. Six figures is extremely rare for those who didn’t go to law or medical school.Report
35,200 USDReport
Then the question becomes, how many poorer students do private colleges accept?
Also, are new graduates getting jobs that pay? Last I heard, we have a problem with graduates defaulting on student loans because they can’t get jobs. A wage premium is only good if you can get a job.Report
So much for the poor getting ahead…
http://www.upworthy.com/9-out-of-10-americans-are-completely-wrong-about-this-mind-blowing-fact-2?g=3&c=bl3Report
Ah, Upworthy. Aggregating all the idiocy the left has to offer. I don’t even know where to start with this.Report
There are good things and bad things about this video. Maybe you could try stating your problems with it, as opposed to just going ad hominem on upworthy and “the left”?
From my point of view, on the bad side, it conflates wealth and income pretty badly in a number of places (e.g. the poverty line is based on income, not wealth). It also implies that having a linear distribution of wealth is “desirable” just because that’s what people expect. Finally, if doesn’t actually offer any solutions to this supposed problem.
On the good side, though it is a nice illustration of how strongly exponentially distributed wealth *is* in our economy and how poorly people as a whole understand that. That, in turn, speaks to how large the barriers between classes, especially at the top, are.
Of course, you may not view this large amount of inequality as a *problem*. You may also not view the resulting barriers to movement between classes (and their comparative political and legal influence) as a problem, as this video implies they are. It is good the magnitude of the differences, however.Report
It wasn’t ad hominem. I didn’t intend it as a substitute for an argument—I just couldn’t be bothered to type it out, and I wanted to express my contempt for Upworthy.
It pisses me off that we live in a world where people can present this kind of garbage as legitimate analysis and be taken seriously. Sure, the video gets the facts right, AFAIK. But the analysis is utterly without merit. Which is business as usual over at Upworthy.
To point out just a few of the things it gets wrong:
1. No mention at all of lifecycle effects. Most people start out with zero or negative (student loans) wealth, then accumulate wealth throughout their working lives, and then spend it down in retirement. Even if everyone has exactly the same lifetime income and exactly the same savings patterns, you’d still see an exponential wealth distribution due solely to lifecycle effects. That’s one of the things that makes the “ideal” wealth distribution so ridiculous. Someone who doesn’t understand this has no business preaching about wealth inequality.
2. No accounting for the net present value of government benefits such as Social Security. If the government is promising you an annuity when you retire, that’s wealth. But I don’t think it shows up in these statistics, because it doesn’t technically belong to the beneficiaries until the checks go out. You know what would significantly decrease wealth inequality? Private Social Security accounts.
3. The narrator claims that those with no wealth are just scraping by. Non sequitur. Some of them, as noted above, are young and still paying off student loans. Some have incomes that allow them to save, but choose to spend the surplus.
4. He says that “a CEO” makes 380x the average wage at his corporation. What he doesn’t mention is that there are really only a handful of CEOs who make this much money, and there’s a lot of turnover in this group.
And of course the conflation of income and wealth.
And what’s the deal with the scare quotes around “the left?” It’s a perfectly value-neutral term to describe people who subscribe to left-of-center political ideologies. Some of those people make videos in which they say stupid things. And thus was Upworthy born.Report
As far as the conflation of wealth is concerned… well, I’m not sure you they can be so neatly disentangled. If you’re spending most of your income on food, shelter, and transportation chances are you will probably never accumulate any appreciable wealth. On the other end of the scale, if you have massive wealth chaces are that wealth will provide you with some form of income. This is all regardless of the “lifecycle effects”.
Bottom line is the more you have the more you get.Report
By the way, it’s not clear from the chart whether people with negative net worth are included. That is, it’s possible that the people in the lower quintiles of the wealth distribution are not poor, but middle-class people with student loans or underwater mortgages. The wealth distribution is not only different from the income distribution, but doesn’t even have the same order as the income distribution.Report
Even if they were included, it would change nothing. The poor are getting poorer and the rich are getting astronomically richer.Report
The poor are not getting poorer. One billion people emerged out of severe poverty in the last generation. The most ever in the history of… History. How is it that people are spinning the era of unprecedented escalation of humanity out of poverty as a bad thing?
It is well established that there are negative side effects in terms of demand for developed-world-lower-skilled labor when a billion workers get a shot at a better life.
The severe poor are getting much better off. Full stop.
We do have a problem with class mobility with poor males in the US as clarified above. Focusing on the wealth increases of the top quintile misses the nature of the problem by a country mile.Report
I see. So basically, you’re right and the statistics behind this post are wrong.Report
Of course I am right that a billion people emerged out of extreme poverty. Over six hundred million emerged in just China over past thirty years. I am assuming this is common knowledge among anybody commenting on inequality.
1) Poverty worldwide has plummeted in the past generation due greatly to the expansion of economic liberalism.
2) This positive trend has had the negative side effect of increasing the supply of low skilled labor, thus suppressing the rate of gains of low wage incomes in OECD countries.
3). The envy against the wealth is a red herring. The modern equivalent of blaming the Jews.
3) the US does however have a systemic problem with immobility in lowest quintile poor males as per Creon and my data above. My recommendations included better schools, less economic interference in lower skilled jobs, and ending the war on drugs.Report
Another part of the puzzle.
A lot of work is supposed is expected to be done for free:
http://www.nytimes.com/2013/10/27/opinion/sunday/slaves-of-the-internet-unite.html?ref=opinion&_r=0#commentsContainerReport
I suspect that the folks being asked to give speeches, provide essays, or play music for free don’t tend to be in the lower lower or middle lower classes.
But that’s a gut intuition, there.Report
Obviously not if this guy said that he can’t afford to give speeches for free.
A lot of people like to make assumptions about the kind of people who choose to study art or go into creative fields. These assumptions are wrong.
I know people from all economic backgrounds who went into art. Yes thee are people who are independently wealthy and can afford to do art for little or no money. There are also people who grew up very poor and understood privation from a very early age and can deal with the uncertainty. There are also a lot of people from more ordinary circumstances (neither rich nor poor) who need to pay the rent by writing, acting, giving speeches, playing music, etc.
Believe it or not, people go into art for passion but also because they want and I think should be able to make a living at it.Report
I’m probably excessively cynical but I do not think that we could ever realistically achieve everyone with a passion for an art being able to make a living at it*. It’s simply too easy to have a passion for these fields.
*Without, that is, guaranteeing that everyone passionate or not gets a basic living by default.Report
Obviously not if this guy said that he can’t afford to give speeches for free.
I yearn for a world where this is the definition of lower lower class.Report
@north
I was not arguing for a world where everyone who wants to be artist can make a living from their art.
I am arguing for people to have more respect for artists and too realize that artists come from all socio-economic backgrounds and do need to get paid for what they do if they are professionals.Report
should be able to make a living at it.
“Should”? What if there simply isn’t sufficient demand for that kind of work? Where does the “should” arise from them? “Should” they be publicly funded because they deserve it somehow? “Should” consumers be more interested in and spend more on the arts? Or is there some other source for this “should”?Report
Who gets to decide who is and isn’t a professional?Report
Heh. The definition of a professional is a paid invoice with the text “For Services Rendered:” on it.Report
@will-truman
Good question and one that is very hard to answer because of complications. Partially the audiences, partially the producers, sometimes casting directors and literary agents, sometimes directors, etc.
@jm3z-aitch
Should might have been too strong a word but I do side more with the artist in these “work for free” kind of disputes and believe in treating artists with respect.Report
I’m pretty sure we both live in a world where there’s homeless people with untreated mental health disorders.Report
For example:
NAR Wants Free PhotosReport
Right. This is rather shocking to me and the very definition of chutzpah.
I think doing art for free becomes a kind of trap. A lot of younger artists will volunteer their time and skills because they think it is necessary to get their foot in the door and then they will discover that no one will pay them because they have spent so much time working for free.Report
It’s expected to be done for free because people are in fact willing to do it for free.Report
And if you heard or saw or viewed people who are willing to do it for free as opposed to people who make some kind of living at it, you will see why they do it for free.
Most people who do it for free are not very good.Report
You’re describing a scenario where the problem solves itself. People worth paying for will get paid, because those who give their stuff away cannot or do not deliver comparable work.Report
And if those who use free stuff find the quality of the free stuff acceptable, and are unwilling to pay for better quality, it just means the market for better quality is limited. I understand the frustrations of would-be suppliers in those markets, but there’s no inherent right to have satisfactory levels of demand for your product, and complaining about limited demand never did anything to enlarge the size of a market.Report
How much should we have been willing to pay for a guy who was playing four-chord folk rock in the corner? I assure you, there is no shortage of people out there who are willing to mumble their way through “House at Pooh Corner” in exchange for a plate of food, a kind word, and the opportunity to say “I’m playing a gig on Thursday.”Report
House on Pooh Corner has more than four chords. To make any money in the music biz, you must have a better manager than some jamoke who will set you up at Ted’s Chikin Lickin’ Bar and Grill for a plate of food and a kind word. You must first have enough friends and/or fans to make it worth Ted’s time to let you onto his little stage, but you knew that already.
Unless you’re Ted’s friend, trying to drum up a little more business for him, don’t play his joint for free. At least ask for 5% of the bar receipts and do your own promo.
Software, that you can push up into the Open Source world, especially if you’re benefitting from Open Source already. Anything you can copy that quickly — it’s pointless trying to sell it. Support, that you charge for. Extensions, that you charge for. People won’t value your services if you don’t charge for them.
But standing on a stage, making music, that’s work. I don’t work for free. Nor should anyone.Report
Scabs, man. Ruining it for everybody.Report
Things are worth precisely what the paying public perceives they’re worth. That statement works both forwards and backwards.Report
Yeah as has been mentioned multiple times I think the original question kind of loads the bases by restricting the question to the US/developed world. The section of the developing world that’s been developing at breakneck speed to the benefit of billions of people is being left out of this narrative. Some random thoughts:
>I struggle with the issue of declining unions. I’ve read good assertions that the regulatory environment of the US is tilted against modern unions (the deals the old unions struck worked for them then but don’t work for them now while the deals corporate america struck yielded benefits then that still apply now). Then again unionism is either declining or at the best not advancing all across the first world. It doesn’t pass muster to think that regulation is stifling unionism across the entire developed world.
>Corporate America’s incestuous boardroom politics are a -massive- problem. The spiraling CEO pay, near powerlessness of shareholders and complete de-linkage of payment from performance does enormous damage to free market sentiment entirely out of proportion to the actual dollar amount of money involved.
>Labor is cheap right now, probably historically cheap. We’re increasingly looking at a global labor market and that puts the floor low indeed for many things. This may well be the crux of unionisms problems but I don’t see any way out but through. Either labor levels will start to rise in our low labor cost trading partners (and they have begun to) or else unionism should arise to agitate for it.
>Goods, and I don’t just mean toys and gee-gaws, are historically inexpensive. Clothing for instance, shoes, many kinds of tools, and innumerable other stuff is massively inexpensive. Entertainment and information have probably -never- been as cheap or as high quality as they are now. This is not a small thing, it is a massive thing. It cannot just be hand waved away.
>A lot of this growth is coming on the backs of externalities that market cheerleaders like to mumble or hand wave away. The fisheries, oceans and atmosphere are absorbing a huge cost that is not being accounted for. They’re finite and at some point the bill will be presented. Whether economic growth and scientific development can bail us out or not is incidental, the market has failed to address this so far in the face of general government paralysis.
>Bad government impedes most of this process. If we could have competent government (which is not synonymous with democratic government short term but in the long term seems basically to be) then the development process could speed up a lot or finally pick up in places like Africa, the Middle East and the Russian hinterlands where it’s suffering.
>The Left wing remains groping for a solid alternative. In its absence we’re left with some form of market liberalism and that strikes me (with my market/neoliberal tendencies) as a virtuous thing. The right wing appears to be losing its goddamn mind in the face of this rightward shift by the left (America being the poster child of this problem).
>Capital is being privileged strongly, especially in this post recession environment in the US where the country is utterly awash in capital seeking safe harbor often eagerly accepting negative rates of return in exchange for security. Inflation hawks have a been wrong so long now that they should qualify for some kind of Guinness Book of World records notation yet people still listen to them. Stupefying.
>Tech is pushing forward in a manner that heightens the effect of this privileging of capital. 3D printing, for example, is a tech that has almost unlimited potential to completely topple the scales between labor and capital. If it pans out well we’re looking at a much lower scarcity world. If it pans out poorly we’re looking at a horrific imbalance between have’s and have nots that would inevitably result in a backlash against free market policies.
>Ironically I think the newly more moderated liberals (and some strands of libertarianism) have better answers to these challenges. Conservatives and most libertarians* don’t. Their answers would inevitably lead to the kind of electoral backlash that could undo all the strides that globalization has achieved (and likely would yield ruin in return).
*Though libertarian measuring is a difficult thing to do with any precision so this is an estimate. Still Negative Income Tax/Guaranteed Minimum Income strikes me as a distinctly minority libertarian position.Report
Why do you think it is the somewhat l right-ward shift on economics that liberals have done that has turned the right crazy?
My cynical bet is that tech innovations are probably going to be poorly implemented. So many of them seem to have at least the unconscious factor of alienating techies from the working class. I live in ground zero for a place where it feels like techies are in their own world including against other professionals. I’ve heard people talk about one of the benefits of lyft and sidecar being that they are being driven around by hipster-grad students instead of older and usually immigrant cab drivers from different cultures and mores. The tech community got rather low marks in the media for how they responded to both BART strikes because they seemed rather petulant and cruel. One twitter executive tweeted that dobermans should have been used to solve the strike. He received enough push back to delete the tweet but that the thought crossed his mind is a bridge too far.
http://www.latimes.com/business/hiltzik/la-fi-mh-bart-strike-20131021,0,1746516.story#axzz2iwe9oLmt
I can point out lots of stories like this.Report
It’s an intuitive thing. Political groups aren’t good at taking yes for an answer. When your opponents steal the moderate end of your agenda* it makes it easy for you to drift towards your extremes.
I have no doubt that techies, like any new master of the universe group of people, will behave like twats. I think it may be the default position of humans in general until failure comes smacking you upside your head. Time’ll cure that. I don’t see it having much bearing on the underlying technologies though. Techies may be inventing the new tech but everyone will ultimately determine the implementation.
*This is also known as winning the argument or at least winning a piece of it.Report
The BART strike and the Twattish reactions demonstrate the shallowness of the Egalitarian Left. It’s as if San Francisco was Gilligan’s Island and these tech morons are Thurston Howell III. No sooner do these fishes get some money in their pockets than they become the Vile Oppressors they once used to scoff at in college.Report
Excellent comments, North. With the minor change of just two or three words I would agree with every point.Report
Good comment! I’m short on time, so I can’t comment as fully as I’d like, but one point I will make is this…
Re: Unions – In absolute principle, I find the idea of workers unions to be a positive thing, a social good that should be encouraged & protected to a degree. I truly believe the decline of Unions in the US & elsewhere to be the result of the old guard unions becoming too similar to the very thing they were formed to stand against. In essence, you are right, the chess match between labor & capital that was played out in the US long ago was won by capital long before the match ended. The victory was not one solely of laws, but also of public perception.
In short, People who are not part of the Union culture are often at the very least skeptical of who the union is protecting. Too many stories of union pension funds drained, of union leadership excesses, and of union temper tantrums over minor negotiating points have damaged the view of unions. I know the laws regarding labor need a lot of work, but I also know that many people who would be best served by a union are resistant to them because they see them more as a threat than an ally.
If it could be done, I think a complete overhaul of both the laws, & the very structure & nature of unions, would go a long way. A turn to a more cooperative style (e.g. Europe). But the old guard is too invested in protecting themselves to ever entertain such a transformation.Report
I have nothing to disagree with in particular here MRS, though I am under the impression that unions, even the most productive, cooperative and adult forms of them in Europe for instance, are still at best not advancing as a social phenomena even given friendly regulatory and social environments. If I’m mistaken on that I’d be delighted to be corrected. Of course it goes without saying that unions are utterly stricken in North America outside of the perverse matter of public sector unions.Report
@north Yea, I think that all comes from the fact that Unions as a whole have lost the ability to message adequately.Report
The old trade union paradigm failed. Europe’s soft socialism, especially Germany’s, simply short circuited the Battle Bots, putting a few workers on the boards of directors. Thereafter, things were far more sensibly organised, putting an end to the stupid tussles for control. Better by far if workers and owners are on one side of the table, together, with customers on the other side.Report
The biggest hit Unions have had in the last few decades are the whole outsourcing thing. Going on strike is only a useful bullet against people who need you to work *THIS* factory in *THIS* location… and, more than that, have enough solidarity with the community to keep “scabs” from working in their stead.
If a corporation can say “oh, you won’t work? okay” and then find “scabs” overseas (“scabs” who will tell management “also, you should hire my best friend, my mother, and my brother-in-law and in that order”), the biggest weapon that Unions have to achieve parity is removed.Report
I think that sometime soon we are going to see an outbreak of unionism in the developing world. Conditions in clothing factories in Bangledesh and elsewhere are basically the same as they were during the Triangle Shirtwaist Fire. Eventually, sooner than latter, workers in the developing world are going to demand hire wages and better working conditions. As birthrates decline across the world and all labor becomes globalzied, its going to become harder and harder for management to find cheaper labor without switching to automation. Automation will lead to other problems as the displaced workers are simply not going to disappear.Report
Lee,
You may be right, but I’d be wary of wagering on that outcome. First, all your statements about conditions are right–what we see over there is precisely analogous to what we saw in previous industrializations, such as the UK and U.S., that led to unionization. So the seeds for the demand for unions are undoubtedly planted.
But the globalized world is different. I agree that it will be increasingly difficult for firms to move to cheaper labor (and hooray for that, not because of the constraint on firms, but because of the gains for labor (which, by the way, contradict what some other liberals have said here recently, so let me extend to you my warm welcome to the dark side)), but unionization will impose an extra cost on firms, and so the same-price labor elsewhere may be, in total, cheaper. Unionization is a lot easier if the firm can’t just pack up and move, and in the current world, it’s a lot easier for them to do just that.
It’s also an open question as to how authoritarian and semi-authoritarian regimes will view unionization. Unions are ideally structured to become political players, even parties, that challenge the ruling elite (unless they are co-opted).
That’s not an argument either for or against unionization. Just my off-the-cuff musings about the likelihood of seeing it develop. But I am in full agreement with you that the demand side of the equation is ripening.Report
James and Lee,
It’s not the dislocated workers that I worry about.
It’s the dislocated foremen, the brownshirts, the overseers.Report
James,
I’m just tired of the narrative that people in developing countries are so happy with their new industrial jobs that they would never unionize. Its demeaning to them. Being a factory worker or other member of the working class was better than being a peseant during the developed world’s industrialization process and unions and calls for alternatives to capitalism appeared relatively quickly after industrialization started. There is no reason to believe that a similar dynamic will not happen in the Western world.
I do not doubt that authoritarian and semi-authoritarian regimes will take a hard stance against unionization since the members of these regimes get a lot from outsourcing. Even the least authoritarian of the Western states took a harsh stance against unionism for most of the 19th and good part of the 20th century. I basically think that a lot of what happens in developing countries will be a replay of what happened in the developed world in many ways.Report
@leeesq
I’m just tired of the narrative that people in developing countries are so happy with their new industrial jobs that they would never unionize.
??? I’ve never heard that narrative.
I have heard the narrative that people in developing countries are happier to have those crappy jobs than to not have them. But that’s an entirely different narrative.Report
I do not doubt that authoritarian and semi-authoritarian regimes will take a hard stance against unionization since the members of these regimes get a lot from outsourcing.
Maybe. I’m more inclined to see them resisting unionization because of unions’ political capacities. But I don’t say you’re wrong. It’s an interesting question.Report
Lee,
No, you’re missing the actual point.
The reason the Factory Owners only hire female workers
is because they’re more exploitable, respond better to threats (aka bowing down),
and are less likely to “stand on principle” to spite their nose.Report
Lee,
“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups..” *
Unions can only achieve higher than market wage rates and benefits by forming a cartel which is immune from defection. The greater the above market rate, and the larger the cartel, the greater the incentive and opportunity to defect and the greater the incentive of the employer to replace the cartel labor with automation or non-cartel labor. Thus cartels tend to extinguish themselves. As long as employers are free to move elsewhere or replace labor with automation, and as long as prospective employees somewhere on the planet are free to not join the union, we will be able to avoid these cartels.
Hence unions, guilds and other cartels lobby AGAINST free immigration. Free trade. Globalization. Imports. Outsourcing. Freedom to not join a union. Freedom to end labor contracts. Freedom for third world labor to sell their labor at market rates. Freedom of consumers to buy non union, non guild, non cartel labels.
A union or cartel able to achieve above market rates is effectively an organization which reduces the effectiveness and efficiency of markets. It works by rent seeking. Favored groups (labor with a job) screw over non favored groups (immigrants, third world labor, the unemployed consumers and capital). It is de facto exploitation and detrimental to the economic advancement and prosperity of humanity.
* from Henry Hazlit’s Economics in One Lesson which is available free on the netReport
Money is the best proxy we have for material wealth. (It is an imperfect proxy in many cases, yes, but still a good measurement.)
The U.S. now has more wealth inequality than it has had in the past or than many other first world nations currently have. This should be obvious. And intergenerational mobility from wealthy to non-wealthy and vice versa is lower than previously and lower than elsewhere.
You can try to see this wealth inequality as not a problem in two ways: 1. By arguing that the current wealth inequality benefits the poor more than they would be benefitted in a more redistributive system. (Roger’s position) 2. By claiming that a just or fair society is one that doesn’t ever redistribute to help the poor, but is rather a society that lets people freely choose to enter into agreements that will result in winners and losers, i.e. there is nothing intrinsically wrong with wealth inequality as long as it is the result of free choices in a free market. (Nozick’s position.)
Here is a nice critique of the morality of #2, i.e. Nozick’s position: http://opinionator.blogs.nytimes.com/2013/10/20/questions-for-free-market-moralists/?smid=fb-share
Position #2 is even easier to criticize. The U.S. economy before the 1980’s and the Nordic economies now grow very well and create new technologies and had more redistribution than we in the U.S. do now. Thus, it is very possible to redistribute a bit more than we do to the poor, thus benefitting the current poor, while growing the economy as much (or more), thus benefitting everyone in the future, including the poor in the future, as much (or more) than a less redistributive state would.
Ultimately the case against claim 2. is empirical. But note that we Rawlsians and contemporary liberals do recognize that too much redistribution (e.g. out and out Communism) could be harmful to longterm growth and overall well-being. This is why Rawls says inequality should be tolerated only in so far as it benefits the economically worst off.
I have seen no reason at all to believe that we couldn’t reduce inequality (for example by slightly raising taxes on the wealthy and instituting Medicare for all, by increasing taxes on the wealthy and on elite colleges to pay for a more egalitarian college system, by increasing social security payments for the poorer elderly, or all sorts of things) and improve the long term outlook of the economy in order to benefit everyone and the worst off.Report
I have no objection to any substantial part of this. Well done Shaz.Report
I would also take a swing against position #1.
I call it the “Poor People Are Historically Rich” argument, or the “Obamaphone” argument for short.
I define a successful society one in which people believe themselves to be recognized and enfranchised, where they have meaningful input and power.
There is a point at which wealth inequality is so extreme, as to make participation in society meaningless.Report
Whoops, I meant one of the above to be an attack on #1.
In simple terms I agree with you LWA. The fact that the poor now have things that the poor of the past didn’t, doesn’t justify unnecessary inequality in the present.
Part of the problem is that the rich (and many others) think they deserve what they have, which is at best a half-truth. If the economic competition/game we were all playing started off on a level playing field (like Monopoly, where everyone starts the same), then maybe the result of the game in terms of haves and have-nots would be fair. But the playing field isn’t level because of advantages conveyed by parents (and, more controversially, by the genetic lottery to see who gets talents and who gets disabilities).
But, IMO, even if the playing field were level (which is almost inconceivable given how the rich put so much effort in making sure their children have “advantages” in life) it is not clear that the results of the game would be deserved. If I win at a luck-based game, it is hard for me to make a morally serious claim that I deserve the results of my luck. For example, imagine you have to roll a dice, and if it lands on 1 you get cancer. That hardly means you deserved cancer. Lottery winners don’t really deserve their winnings either.
Rather, each person (regardless of talent or disability, rich parents or poor parents) deserves happiness and freedom. The goal of a political system is to see how best to get people what they deserve (which will never be a perfect system in this fallen world) and then implement that system.
This is why we like the concept of the original position. If you didn’t know which member of society you were, you would look at each member of that society as deserving equal treatment. However, you would recognize that any attempt to impose strict equality, a la some Marxist dream, would harm everyone, perhaps especially the worst off. So, your view that everyone is deserving of equal desert would express itself in a concerned about protecting the worst off and tolerating inequality only so far as it benefitted the worst off.Report
Shaz
Your initial comments seem to assume inequality is a problem. I assume inequality of outcome is essential to a functioning economy. Indeed, I can prove it.
Inequality does not need to be justified. If you mean to say *privilege isn’t justified* then I suggest you say so (and I would agree, though privilege means same rules regardless of starting conditions). In other words you are either skipping a big step here or misstating the issue completely.
As to your second statement, there is nothing in property rights and the rule of law which states that contracts and property rights only apply when everyone on earth has exactly the same initial starting position. Indeed this requirement would be absurd. It could probably never be met and if it could be would only be true for one second according to one person on earth and would then be untrue from then on. In other words, you have accidentally introduced an absurdity into functioning markets and called it justice. Or perhaps you have just introduced a way to insert your view of justice into other people’s business.
In a market context a person DESERVES exactly what they can get others to agree to pay them for a good or service. This is not “just deserts” or cosmic justice. It is how property and contractual rights are defined according to centuries of cultural evolution.
It is similar to saying that a football team deserves the points they earn by playing according to the rules. If they play fairly and score 30 points and the other team scores zero, then each got the score they deserved according to the rules. There is no implication of cosmic deserts. Just proper accounting. And yes, a lottery winner 100% deserves what they won according to the rules of the lottery.
Granted I agree that if you can convince everyone that it is best to play the game so that ten percent of every dollar earned goes into the general welfare fund, then fine. Let’s argue that point. If we all agree to it, then those are the rules and that is the way we will do the sums to figure who deserves what. You must first argue the point and achieve consensus though.
I too like the idea of original position and a veil. I would choose a liberal democracy with safety nets. I would not choose a game where we had to first let a cosmic justice representative redistribute everyone’s goods to make the starting point even.
And by the way, it is the poor who are benefitting the most through the rule of law and property rights. The rich get more fancy buttons and new buckles on their shoes and the poor avoid starving to death and having to watch their kids die. You tell me who the real winners are.Report
If you didn’t know which member of society you were, you would look at each member of that society as deserving equal treatment
Well, that really depends on what kind of treatment we’re talking about, doesn’t it?
My poli sci prof who grew up in the USSR used to say, “we were all equal–we all stood in line for hours for no bread.”
Not to imply that Shazbot was even remotely suggesting that (and of course there was an unequal elite in the USSR), but just to critique the inevitability of people in the OP choosing equal treatment, if they were offered a choice between what my prof described or our current American system with all its inequalties, economic, social, and legal, with no idea where in our current system they would be situated, I think a oerson could rationally choose our system (although that is not to claim they wouldn’t like to have a few more options).Report
Roger, your proof is great, except irrelevant.
You are assuming that economic utility- producing a bunch of stuff- is somehow our goal.
It isn’t, for most people.
What is important is to create a society to which people feel a part, a sense of belonging and kinship.
In fact, without that, society itself can’t function. Property rights, individual rights- these all require collective consensus to be made meaningful.
And no, collective consensus doesn’t mean Soviet style equality anymore than liberty means shouting “Somalia!” But there has to be some sense that we are all following the same rules, pointing towards a common goal, and sharing some rough set of values.Report
Offering the choice between USSR, where the shortages were divided among the peasants — and the USA, where the same is true — is really just yelling “Somalia” in a crowded theater. Fact is, the USA is an increasingly unappealing option.Report
@jm3z-aitch
Well, shazbot did say that strict equality is to be avoided if it makes everyone (especially the worst off) worse off. So, I doubt you are disagreeing on that point.
@shazbot9
Rawls’s phrasing is misleading in that it assumes tight knitted-ness between the positions of the best off and the worst off when such an assumption is not necessarily plausible.
Rawls’s more general leximin criterion seems like a better bet. Any amount of inequality is justified so long as the worst off are doing as well as possible.Report
Hello LWA,
“You are assuming that economic utility- producing a bunch of stuff- is somehow our goal. It isn’t, for most people.”
Let me push back. First I am not assuming anybody should pursue utility. Many do, and I am suggesting they be allowed to do so without interference as long as they do not harm others in doing so. Can you agree with this? If not, me thinks you concede the high ground.
Just as importantly, your comment demeans utility by reducing it to just a bunch of stuff. Utility includes food for the poor. An education. Art. Security and protection from catastrophe. Medical care and a long healthy life. These are not shiny buttons and buckles. In reality pretty much everyone wants food, security, education, health and such.
Health care, retirement security and food don’t grow on trees, (oops scratch that last part, as food can grow on trees, but you get my point). My defense of economic liberalism is a plea for the very things you seem to want redistributed. Be careful, it can’t be redistributed unless it is produced.
“What is important is to create a society to which people feel a part, a sense of belonging and kinship.In fact, without that, society itself can’t function. Property rights, individual rights- these all require collective consensus to be made meaningful.”
Nope. These are not what are really important. These are important TOO. Big difference. And a sense of belonging does not require anything other than what I am recommending. It certainly does not require you justifying the acquisition of fairly achieved wealth.
“But there has to be some sense that we are all following the same rules, pointing towards a common goal, and sharing some rough set of values.”
I AM arguing for a common set of rules and the elimination of systemic privilege (defined as rules biased toward favored parties). I think I have repeated this about a dozen times in the comments to this post.
As for a common goal, this is nonsense on stilts. The world has seven plus billion people with different goals, values, desires, needs and contexts and different ideas about how to accomplish them. Do you really believe that everyone needs to agree with your goals? The difference between us is that I respect people and their varying goals and wish to encourage institutions which allow decentralized goals and multiple paths. Your path leads toward imposed order and eventually totalitarianism.
That said, I agree there is a value in shared values. The way we achieve this is via persuasion. I believe in freedom, equal opportunity, constructive competition and optimizing the range of mutually voluntary interaction. You believe in other values. Persuade me or let me be.Report
Ah, I’ll say more later today.Report
Just as importantly, your comment demeans utility by reducing it to just a bunch of stuff. Utility includes food for the poor. An education. Art. Security and protection from catastrophe. Medical care and a long healthy life.
I’ll go even farther. Utility includes LWA’s “a society to which people feel a part, a sense of belonging and kinship.” Utility is subjective value. People value that. Hence it’s utility. In fact that’s not even a good formal definition; it’s circular, which actually helps demonstrate just how inseparable these aspects of a good society are from the concept of utility.
Modifying things by speaking of “economic utility” won’t help make a distinction. Economics is about choice (from Paul Krugman’s textbook, “Economics is the study of scarcity and choice”). The choice we make about balancing pure wealth acquisition with creating a “society to which people feel a part…” is an economic question.Report
So, your view that everyone is deserving of equal desert would express itself in a concerned about protecting the worst off and tolerating inequality only so far as it benefitted the worst off.
Maximin is a pretty lousy heuristic, and not actually what a reasonable person would choose behind a veil of ignorance. Consider, for example, that you have to choose between a 99% chance of 10 utils and a 1% chance of 1 util on the one hand, or a 100% chance of 1.1 utils on the other hand. Note that utils do not have diminishing marginal value; 10 utils are exactly ten times as good as 1 util.
The maximin heuristic says we choose the second option, because it has the greater minimum payoff. But just about any reasonable person would choose the first option, because it means a 99% chance of a much, much better payoff, versus a 1% chance of a slightly worse payoff.
The veil of ignorance was an interesting idea, but Rawls really fished up the execution.Report
Roger, when you toss out assertions of values such as :
“I believe in freedom, equal opportunity, constructive competition and optimizing the range of mutually voluntary interaction. ”
These are so powerful as to be nearly irrefutable.
Because they are platitudes, based on assumptions which are unexamined.
For example, freedom is meaningless unless it is defended, which requires a collective construction such as police, and a set of laws which are mandatory, not open to individual refutation. Wouldn’t you agree? I mean, what good it is to say “I own this land” if someone can just come along and say “no, I disagree, now leave my land!” There has to be some legitimate authority.
So right here we have involuntary interaction, as the basis for nearly all laws, land claims, and individual rights.
However, your original point, to which I was responding, was this:
“I assume inequality of outcome is essential to a functioning economy. Indeed, I can prove it.”
Yes, that is a completely true statement, but only within reason.
My point was that equality of outcome is ALSO important, and essential to a functioning society.
In society, we require the permission of the majority to define rights, establish rules and set the boundaries you propose.
The majority in return, sets terms and conditions for their consent, one of which is that they are given reason to conclude they have a beneficial stake in the outcome.
The fact that you want to prove with charts and graphs that this is so, is what is irrelevant. your opinion as to whether people are becoming better off isn’t what is important.
If people are not convinced they are getting a fair shake, they are entitled to- (and more importantly they WILL)- change the terms of their consent, i.e., change laws to satisfy their interest and achieve a better outcome.Report
I do not deny that freedom and property rights require a shared collective construction or agreed upon rules. They often involve specialized authority figures as well.
“So right here we have involuntary interaction, as the basis for nearly all laws, land claims, and individual rights.”
No. We have an agreed upon set of rules and enforcement mechanism. A voluntary interaction at the meta level of agreeing to the rules of the game. For those not agreeing to the rules we have a a declaration of intent that in effect amounts to “I consider this a transgression and will respond as such, so do not transgress.” As an example, if I consider my breasts my private property and you insist on touching them be warned that I will slap you. In return I agree not to fondle you. The threat of the mutual slap solves the prisoners dilemma by converting win lose into a lose lose, thus the win lose is avoided as it becomes illogical.
“My point was that equality of outcome is ALSO important, and essential to a functioning society.”
No it isn’t. This is like saying in football that every team has a right to equality of points scored, or that in science we should demand equality of fame/status. Saying this seems not just wrong but absurd. Could you explain the logic? I get that everyone would be expected to agree to fair and equal rules, but if a team refused to play defense, or a consumer refused to work long hard hours at a productive occupation, then I would expect totally unequal results. And I would judge this a very very good thing.
If I agree to the rules, and the rules include that I need to throw a set percent back into the shared kitty, then I agree that is my duty. The obligation of the majority is to persuade me to go by these rules or allow me the exit freedom to find a more like minded set of folks to play with.
“If people are not convinced they are getting a fair shake….”
This goes both ways. Those getting zero points and those being demanded to give up ten percent of their points. Both groups need to agree before playing to the rules.Report
“My point was that equality of outcome is ALSO important, and essential to a functioning society.”
So is it your contention that never in history has there been a functioning society?Report
@ James and Roger-
I phrased my sentence about equality poorly, and so yield the point, that complete equality of outcome is impossible and unecessary.
I know this is a long thread, but this is very worth discussing, I think:
“A voluntary interaction at the meta level of agreeing to the rules of the game. For those not agreeing to the rules we have a a declaration of intent that in effect amounts to “I consider this a transgression and will respond as such, so do not transgress.”
So for those not agreeing the societal agreement on rights, there is what response to transgression? Only a reaction by the offended party, nothing more?
In the current practice, the response is much more. The response itself is collective, as in (to put it in libertarian terms) Men With Guns, Coming to Put You In A Cage.
Unless you want to move to an anarcho-capitalist position, the societal framework is not a voluntary agreement, on the individual level.
What makes this so important, is that this protection is purchased; The collective body of citizens provides this in exchange for their terms, such as taxes and regulation and yes, some degree of outcome equality that makes opportunity equality credible.Report
I always enjoy your comments LWA and I frequently follow them on other sites as well. You are one of my left leaning role models.
I am not an an anarchist. I see big value in assigning a role to a cop, a judge and a jailer. I am primarily suggesting that your fairness comment works both ways. Those at the ass end of outcomes need to feel the game is fair, and so do those subsidizing the losers.
I certainly am not so idealistic that I think it is reasonable that everything be voluntary at the meta level. We have no practical way to go from here to there overnight. I DO believe we should begin the centuries-long transition to a fairer society. For me this involves baby steps in the direction to more institutional competition which people freely agree to.
Like BB, I take Rawls seriously.Report
LWA,
There are few libertarians who don’t believe in laws, cops, and a judicial system.
Continual resort to the assumption that libertarians are arguing against these things is equivalent to a libertarian repeatedly assuming liberals are all in favor of state ownership of the means of production.
Could we strike a deal that henceforth both of us will scrupulously avoid making these erroneous assumptions?Report
Like BB, I take Rawls seriously.
Eh? Where’d you get the idea that I do?Report
Sorry to misrepresent. I meant to echo this idea…
“The veil of ignorance was an interesting idea, but Rawls really fished up the execution.”
I agree to it entirely.Report
I think the problem many folks have with Rawls’ veil is that they don’t take it seriously. It’s not just about imagining yourself in different circumstances but imagining yourself as a different kind of person. It’s about public reason liberalism, constructing a society that all reasonable actors have sufficient reason to endorse.
The qualifier of reasonable does a lot of the work here. Virtually no doctrinaire ideology qualifies. And we’re all likely more doctrinaire than we care to admit and prone mostly to detecting that quality in others.
So… it’s hard to do right.Report
My take on it (take, not interpretation) is what kind of society would an egoist, an altruist and a utilitarian agree to behind a veil. I believe most would choose a society with lots of freedom, minimal exploitation, free riding and harm, rising prosperity, effective safety nets, and positive self reinforcing incentives.
However I have little or no value in philosophical pondering. I am too practical. I believe we should quit talking about it and begin to offer up choices among constructively competing institutions and allow cultural evolution to do the sums. My take thus becomes a Hayekian form of Rawls.
In general, over the long haul, institutions with reasonable amenities and higher rates of median per capita growth would trump all. I am sure many people would choose poorly for a while. But eventually the paths most amenable to the egoist, altruist and utilitarian would emerge.Report
@roger , thanks for the reply. What I want to know is why you believe we’re not already doing that with our 190-odd nation-states, between the fifty states in our federal system, amomg the thousands of individual communities in those states, between the government actors, NGO’s, for profit entities, and individuals? And why don’t you recognize that our present position is nothing less than the outcome of thousands of years of cultural evolution to date?
I realize you don’t like where it’s all led, but why do you imagine that a re-do would yield substantially different, and particularly better, results?Report
Good push back… I believe we are evolving with 190 nation states, and I am quite happy with the results. I think incrementally more choice would improve the process and reduce the degree of pain in the learning.Report
@brandon-berg
The veil of ignorance prevents you from knowing the probabilitiesReport
The qualifier of reasonable does a lot of the work here. Virtually no doctrinaire ideology qualifies. And we’re all likely more doctrinaire than we care to admit and prone mostly to detecting that quality in others
@rod
A qualification. Rawls really wants his theory to be realistic. In this way, it should be (and in fact is) compatible with any ideology. All that is required is that people not be doctrinaire and be willing to live with second best.Report
@murali That’s a big part of the problem. Probabilities matter a lot. In fact, they matter much more than just knowing the minimum payoff. A society where 99% of the population has 10 utils and 1% have 1 is much, much better than one where 1% have 10 utils and 99% have 1. But if you don’t look at the probabilities, you can’t distinguish between the two.Report
@brandon-berg
Probabilities may be important, but there are good reasons why probabilities are obscured in the original position. Basically, the original position is not where talking about justice ends. After you get the principles out of the original position, those principles are introduced as further constraints on another choice situation where information about probabilities is revealed.
The most intuitive way to think about this is in terms of constitutional essentials. We expect constitutional essentials to be robust to changes in demographics. Another reason can be seen in the following way. Consider the hypothesis that there are some ways in which we cannot treat anyone no matter how few of them there are. If there are any such side constraints, then the obscuring information about probabilities is required in order to pick out those constraints. For one thing, if such constraints exist, they cannot be sensitive to the probabilities. If there is not, then parties in the original position will decide to pass the buck. They will say, there isn’t anything that is unacceptable to do to a person, it all depends on how many people are involved. In that case, the second stage will go forward with no additional constraints, but with information about probabilities revealed.
The point about the above is this. Firstly, it is natural to expect a certain amount of indeterminacy from the original position. We cannot expect the constitutional essentials to solve all of our political problems. All it does is set a floor by which we constrain people from being treated in certain ways. A fuller account of justice is going to require subsequent iterations where constraints that we develop in the earlier stages are imposed on later stages while the veil of ignorance is simultaneously thinned out over each iteration.Report
Shaz,
As the discussion above and data supplied by Creon reveals, the problem with inter generational mobility is concentrated in the poorest males. Seriously, go to page 38 and look at the data:
http://www.oecd.org/els/38335410.pdf
We don’t have some new crisis of immobility. We have a crisis of males stuck in extreme poverty. Different problem and different solutions.
On inequality increases, the basic trends have occurred in most developed countries. The obvious answer is increased competition from unprecedented numbers (a billion!) of lower skilled workers. Supply and demand. This really is not that complicated.
On redistribution, you have made a claim of which I am skeptical. You stated that redistribution was greater in the US prior to the 80s. However, I admit I do not have redistribution trends by decade, so I may be wrong to question you. My gut tells me their is more redistribution today in the US than ever before. Do you know of data which answers the question? Currently the number thrown around is about one trillion in means tested annual redistribution per year. This comes to a significant chunk of change per poor person. Why is more called for? Or should we distribute it more wisely?
I would support universal catastrophe care, and I am fine with raising SS taxes. They are supposedly insurance programs and it should be self funding.
On the Rawls issue I agree that any long term hit to growth rates will harm the poor and must be avoided.Report
One interesting point that Rawls does bring up is about how much we owe future generations. The idea is that the more we delay our own consumption the more that can be saved and invested for future generations. Of course, very often future generations are going to be better off than ours, so it is possible that we do not always owe it to the future generations to save for their sake. Sometimes we have to consume for our own sake as well. Rawls just says that we should have a savings rate that we would choose if we did not know which generation we would end up as. The point being that not all hits to long term growth rate are necessarily bad.Report
Yeah, it is not that all hits to growth are bad, only the hits to the well-being of the worst off, and then there is a tricky question about long term and short term.Report
I can’t seem to open the OECD link. I thought the data showed that “stickiness” of inequality and inequality were too broad a phenomenon to be accounted for entirely by race.
Social mobility in the U.S:
“Several large studies of mobility in developed countries in recent years have found that the US among the lowest in mobility.[4][8] One study (“Do Poor Children Become Poor Adults?”)[8][10][13] found that of nine developed countries, the United States and United Kingdom had the lowest intergenerational vertical social mobility with about half of the advantages of having a parent with a high income passed on to the next generation. The four countries with the lowest “intergenerational income elasticity”, i.e. the highest social mobility, were Denmark, Norway, Finland, and Canada with less than 20% of advantages of having a high income parent passed on to their children. (see graph)[8]
According to journalist Jason DeParle
At least five large studies in recent years have found the United States to be less mobile than comparable nations. A project led by Markus Jantti, an economist at a Swedish university, found that 42 percent of American men raised in the bottom fifth of incomes stay there as adults. That shows a level of persistent disadvantage much higher than in Denmark (25 percent) and Britain (30 percent) — a country famous for its class constraints.[14]
Meanwhile, just 8 percent of American men at the bottom rose to the top fifth. That compares with 12 percent of the British and 14 percent of the Danes.
Despite frequent references to the United States as a classless society, about 62 percent of Americans (male and female) raised in the top fifth of incomes stay in the top two-fifths, according to research by the Economic Mobility Project of the Pew Charitable Trusts. Similarly, 65 percent born in the bottom fifth stay in the bottom two-fifths.[4][15]”
Surely race is a big part of the problem of stickiness at the bottom (though not the top), but I don’t see how it could be the whole problem.Report
“You stated that redistribution was greater in the US prior to the 80s. However, I admit I do not have redistribution trends by decade, so I may be wrong to question you.”
It depends on what you mean by “redistribution” and how you calculate it, I suppose. If we are just talking tax rates to pay for social programs, that is one thing. If we are talking how laws that favor unions allow unions to redistribute wealth from owners to workers (in the form of pensions, wages, etc) that is a different thing. (There was definitely more of that pre-1980’s)
It also depends on how you deal with the fact that healthcare is more expensive now and medicare and medicaid help the poor. Suppose healthcare keeps getting more expensive and the U.S. keeps getting wealthier and we keep seeing record profits and income for the rich. If we spent more on medicaid, but completely eliminated welfare, social security, SSI, EI, food stamps, housing assistance, etc. are we redistributing more, all while the overall wealth that America possesses booms and the rich become richer than ever, all while wages fall partially as a result of inevitable de-unionizatiion, are we redistributing more? Not so much, I’d say.Report
Try clicking on Creon’s link above. It is really good data and does make the case that there is a specific mobility problem in the US.
After reading your expanded definition of redistribution, I now see it includes what I define of as privilege and exploitation — allowing unions to use violence and legal coercion to form a cartel and exploit consumers, non union labor, the unemployed and capital. I find this suggestion reprehensible. It basically amounts to a plea for rent seeking for privileged groups you approve of. It is the antithesis of a level playing field.
In other words, I disagree, though I think totally voluntary unions free of any restrictions imposed by management is a fine and dandy thing. Reality is that in a free market, voluntary unions, monopolies and cartels are not usually self sustaining, at least as a form of redistribution.
As to the problem that the things we redistribute are now costing more, I can only laugh. You do realize that this is an essential part of the reason classical liberals and libertarians argue against poorly designed redistribution schemes? If an individual doesn’t pay, they have no incentive to economize or seek efficiency and the producer had every incentive to seek rents and pad costs. Amplified over a few decades and the cost can become astronomical.
So the left has been warned that this would happen for a century. You ignore the warnings and now complain that a dollar in redistribution doesn’t go as far as it used to? To quote MasterCard… “Priceless!”Report
what I define of as privilege and exploitation — allowing unions to use violence and legal coercion to form a cartel and exploit consumers, non union labor, the unemployed and capital. I find this suggestion reprehensible. It basically amounts to a plea for rent seeking for privileged groups you approve of. It is the antithesis of a level playing field.
In other words, I disagree, though I think totally voluntary unions free of any restrictions imposed by management is a fine and dandy thing.”
Ugh. This is not a serious comment.
Unions do not coerce members. A group of people gets together and votes to bargain collectively with an employer. Employer agrees to avoid strike and signs deal. As part of deal, employer can’t hire non-union people. If you want to join union, you can.
It would be coercive if a prospective employee used force to break the deal between the union and the employer that requires the employer to only hire union people.
This is so patently obvious that I might now take you as a non-serious, intellectually-blinkered person for not getting it. Sorry.Report
Roger,
How much money have you made on slavery recently?
[yes, this is a goddamn serious question.]
Was it worth it?Report
Shaz,
As I have said a thousand times before, voluntary agreements between fellow workers and employers in the firm of a union is a fine and dandy idea. I support it completely. It can lead to better negotiation.
The problem with a voluntary union is that it is incapable of achieving substantially above market wages over the long haul. I have provided this logic repeatedly and nobody has even contested it for over a year. If you wish to contest it, then please do so. I value a good debate and we can both learn from the dialectic process.
And for the record I do not support an employers desire to use coercion either.
“This is so patently obvious that I might now take you as a non-serious, intellectually-blinkered person…”
I suggest a dialogue on the issue rather than insults. Do you want me to lay out the logic again? Time to put your quarter on the table….Report
Kim,
Can you explain how this is in any way a serious comment?Report
Roger,
I am well aware of what I have invested in, and how many people died because of it.
How many people were employed illegally… how many people were employed in
situations that you or I or any Redblooded American would throw a fit if they even saw.
(Okay, maybe you wouldn’t).
I can tell myself that my money went towards employing them… and that they worked
under better conditions than other places I might have invested with. It’s true, of course (anything’s better than China), but was it worth it?
So, yeah, it’s an honest question.
Have you bothered looking at your investments? Do you choose them based on return, or based on how much productivity they enhance?Report
Shaz,
You accused me of being non serious and intellectually blinkered, yet it is you who refuse to have a dialogue. I have repeatedly supplied my logic of why cartels — including labor cartels — can only succeed at getting significantly higher wages/prices over the long term by using coercion. I can back this up with several hundred years of economic theory and empirical history.
So, who is non serious?Report
Kim,
I invest only in low fee, non actively managed funds that track market averages. If this makes me a white slaver in your book, then so be it.Report
The causes of wealth inequality are many and varied. I’ll guess at a few here. Sorry for no links, but you get the point.
The death of unions and the fall of using unionized factory labor to extract money from owners to workers no longer works to create equality for a big chunk of the working class.
The U.S. has low effective taxes for the rich, comparatively, and doesn’t offer sufficient basic help to the poor in the form of welfare, mental health, healthcare subsidies, educational subsidies, help for single mothers and fathers, etc. This has gotten much worse since the 1980’s in all sorts of subtle ways. The poor suffer, and then their children suffer even more and are less able to compete when they reach adulthood. The poor are often psychologically defeated by the time they come of age to compete and have fewer resources (cash, connections, etc.) to compete.
Race, race, race and the drug war. Impoverished black communities suffer greatly from the drug war and even more from the effects of oppression, past and present. (IMO, culturally and psychologically, there are also pernicious effects that make a small percentage of young oppressed people feel a little less excited about excelling in the very system that oppressed them and their parents. This is how I would feel.)
A tradition of elite colleges that pick from the rich class and segregate out many of the poor, with a few exceptions here and there. Canada and Western Europe don’t do this as much. (Canada doesn’t have Harvard and Yale.) There are some better colleges, but a good education isn’t a $200,000 ticket to becoming one of the top 5% (I made those numbers up, but you get the point) of wealth earners like it is here. (The U.S. needs to keep elite colleges but create more egalitarian college acceptance, I would argue, through heavy taxation on college tuition at elite colleges and taxes on those colleges based on how many rich kids they accept to directly pay for spots for the poor.)
Nepotism is really bad here. Really bad. And worst amongst the wealthiest. It really is true that it is who you know and not what you know. (Though Canada and other places can be bad for this, too.) Here is Pareene with some links:
http://www.salon.com/2013/08/21/the_rich_summed_up_nepotism_cronyism_narcissism/Report
There’s also the fact that a number of problems are emergent.
Move from “people dying, on average, at 65” to “people dying, on average, at 75” and suddenly you’ve got a bunch of people who, once upon a time, would be leaving their wealth to their children who are now needing it to keep up with stuff like food, heat, gas, and entertainment.
Move from “many of the remainder of those folks retiring, on average, at 65” to “people being healthy enough to keep working at jobs that no longer destroy your body well into their late 60’s and early 70’s” and you’ve also got a bunch of folks in their 50’s who are wondering why they can’t get promoted… and the people beneath them who are in their 40’s would have been promoted into the jobs left vacant by the people in their 50’s… and beneath them and beneath them and beneath them until you get to the guy in the mailroom who, when he got hired, was told “we have a tendency to promote from within” but hasn’t seen any evidence of that.
By solving some problems, we created others.Report
But this wouldn’t explain why there is more inequality here than elsewhere. Elsewhere people are living longer, too, and they have less inequality.Report
And less inheritance money transferred should create more equality, no?Report
And less inheritance money transferred should create more equality, no?
I imagine that the number of offspring might change amounts being left. If the upper classes tend to have fewer children and the lower classes tend to have more, we’d see much more “equality” among the lower classes after just a couple of generations when the grandparents pass on.Report
This is really about the stickiness of inequality, though.
Is the inequality of Europe as sticky as the US or have they achieved less stickiness?
My intuition is to say that “class” is even stickier over there, even among the various middles, than it is over here but I’m not basing that on hard numbers or anything.Report
I think “stickiness” refers to how improbable it is to move from rich to poor or vice versa, which occurs less here than in the Nordic countries, Canada, Australia, the U.S. pre-1980’s (of course not prior to FDR), etc. Inequality is worse here and is more sticky here.
We have the real aristocrats now. They primarily live in NYC and DC and SF an LA and they have a few Barons in other cities. They own stock and percentages of corporations, not land, and send their children to NYU and Stanford and Harvard, not Oxford and Cambridge, although they do send them there, too. They hold power through landed positions, often inherited, at financial institutions, the media, etc., not through inherited titles or inherited estates. Different but the same.Report
I don’t care about moving from rich to poor and care only slightly more about moving from poor to rich. Moving from poor to middle class ought to be the focus, I’d think, because that would, I’d hope, get us closer to a system where “poor” was much more correlated with age than it would be to anything else.Report
“Moving from poor to middle class ought to be the focus, I’d think, because that would, I’d hope, get us closer to a system where “poor” was much more correlated with age than it would be to anything else.”
The problem is that people keep plotting charts of wealth and wealth growth, and there are big huge bars on the right side and not much of a bar on the left, and the monkey-tribe jealousy instinct kicks in, and suddenly we hear about how there are Huge Problems With Inequality In This Country. The idea that the goal of “economic equality” is to lift people from the gutter is ignored in our quest to pull other people out of the trees.Report
The problem is that people keep plotting charts of wealth and wealth growth, and there are big huge bars on the right side and not much of a bar on the left, and the monkey-tribe jealousy instinct kicks in, and suddenly we hear about how there are Huge Problems With Inequality In This Country. The idea that the goal of “economic equality” is to lift people from the gutter is ignored in our quest to pull other people out of the trees.
To ask a clarification question:
While it’s certainly the case that there could be monkeytribing going on (even, perhaps, more monkeytribing than is warranted by current circumstances)… is there, in fact, a point at which you, @jim-heffman would say, “clearly, those guys and gals there on the right-hand side of the bar graph must be getting some sort of structural advantage compared to days of yesteryear”.
When the top 1% owns… 15% of the total wealth? 35%? 45%? 60%?
Is there a number where it matters to you, Jim?Report
“is there, in fact, a point at which you,@Jim Heffmanwould say, “clearly, those guys and gals there on the right-hand side of the bar graph must be getting some sort of structural advantage compared to days of yesteryear”.”
Obviously this is the case. I’ve never argued differently.
But all of these inequality whinges beg the question of whether there’s an actual problem, which is why I bring up the monkeytribe aspect of the situation. It is increasingly less true that rich people at one end means starving children at the other. (And I mean “starving” in the “insufficient calories to maintain life for the next twenty-four hours” sense, not “food insecurity” or “lack of healthy options” or any of the other equivocations we’ve come up with to obscure the fact that First World people don’t starve to death anymore.)Report
Jim,
back the fuck up.
You’re talking starving to death? Dude, nobody starves to death.
Not even those kids with the huge bellies dying of insufficient protein.
Yup, those third world kids? not starving to death.
Maybe a few kids in Haiti, eating mud after an earthquake.
Talk about moving the fucking goalposts.
Child abandonment has been historically more common than starving to death.
If only because it’s easier.Report
The disease is kwashiorkor. They die of liver failure, mostly. And concomitant infections.Report
@jim-heffman
But all of these inequality whinges beg the question of whether there’s an actual problem, which is why I bring up the monkeytribe aspect of the situation.
Instead of digressing the discussion and implicitly flinging a detraction at half the audience, maybe you could do the work of discussing whether or not there’s an actual problem?
It is increasingly less true that rich people at one end means starving children at the other.
Is that your sole benchmark for, “There’s a problem”?
You got any other points on that scale of “there’s a problem”? Or is it pretty much, “Eh, nobody’s starving, so there isn’t a problem”?Report
Nope. Sorry. This is a stupid question.
Pretend that wealth equality isn’t highly,
highly racially segregated is like asking
people to paint on a moderately darkish
color on their face, and then see how
everyone reacts.
I could write something substantive here,
but instead I’ll vacate the thread.
Because the thread is dumb.Report
My $0.02 worth:
At the bottom, let’s start with the various social “Wars on Things & Concepts”. A criminal record in the lower SES is damning, preventing any kind of ascension to higher SES absent some kind of incredible entertainment talent (try getting a student loan with a drug conviction on your record). Those in the lower SES are more likely to be ignorant of laws, more likely to be involved in activity that is illegal as a means to survive, more likely to be targeted by Law Enforcement (low hanging fruit), and more likely to be unable to adequately defend themselves &/or navigate the court/legal system. Our national obsession with being hard on persons whose behavior we don’t like (& thus label as criminal), & our need to to make everything a felony with lengthy jail time, is damaging. We are busy burning the village to save it from itself, then feeling real bad about all the homeless poor people in that village (who really should know better than to live in such flammable housing).
Let’s also factor in the national obsession with 4 year degrees. Not every job/career needs one, and not everyone is cut out for University. AFAIK, there is not as much financial support for trade schools as there is for University. There should be more, and more push for people to go to Trade Schools, and perhaps we need to rethink which jobs need a University degree.
Speaking of degrees & education, as was mentioned above, we have a lot of laws (mostly at local & state levels) that legally require certain credentials to perform, but which in reality are merely barriers to entry (see the work the Institute for Justice has done lately on laws for Funeral Directors). We really need to stop letting industries shield themselves from competition this way, either through expensive credentialing requirements, or labyrinthine regulatory environments. It’s too bad the courts are inconsistent on striking down such laws. Perhaps @jm3z-aitch idea about a rent seeking amendment would be a good idea.
At the top, this is tricky, because as much as I think massive personal fortunes are socially toxic, I am convinced our government is a horribly inefficient mechanism for wealth distribution (too much corruption & cronyism for the wealth to really make it down the SES – it’s much more likely that it will just shift around at the top). So I am disinclined to try to tax the wealth away from the top. I do wonder, however, if a good idea would not be to eliminate Corporate taxes & levy hefty taxes against personal income & fortunes. Keep the money wrapped in the business, not in the person.
Ultimately the idea is to incentivize growth & investment by making it more attractive to put money into something real (like creating actual jobs – instead of investing in a stratosphere of financial markets & devices & pretending that these are creating jobs somewhere, somehow). But maybe I’m thinking about this wrong. My perception is that money is just floating around in financial markets, but not doing much real work on the ground helping others out. Or maybe it is, just not in the US (which begs the question, how to we make the US an attractive place to invest in job creation?).Report
Like I pointed out on some other thread the other day while tossing comments back and forth with Roger, globalization has put enormous downward pressure on wages for traditional blue and increasing numbers of white collar jobs, while increasing avenues for capital to grow.
This has been good for the billion or so people worldwide who have been raised out of abject poverty, and has been good for the 1% of the investment class (really, about 0.5%) who have provided the capital, and it’s really been of suspiciously not so great benefit for all the local folks who aren’t in the investment class.
James points out that my television is now HD whereas the one in the garage is just a CRT. That’s all fine and dandy, but let’s compare me to my parents, shall we?
One income family
Mom & Pop -> 2100 sq. ft. house in San Jose suburbia, good public schools (sent all four kids to private school through 12 anyway). Neither parent had an advanced degree. Usually one step behind the Joneses, but after I was a younger kiddo, we had a home computer and we had cable and we had occasional vacations, both my younger siblings had cars in high school.
Me -> 1700 sq. ft. house in Pasadena, passable public schools (we’re sending both of our kids there, which is a huge difference in monthly expenditures). Both parents have at least a Master’s Degree, although the existing PhD isn’t working. Usually one step behind the Joneses, but we have cable and we have a home computer and we have occasional vacations. I eat out less than my parents did, we throw fewer parties, and generally I have a pretty hum-drum existence. Shoot, when I was 9 we got an Atari 400; it’s going to be a while before Jack sees a new, top of the line gaming console.
Even with more schooling and a more conservative lifestyle, I am basically well behind where my parents were with them having less schooling and more kids and them shelling out a significant chunk of change on private school.
This doesn’t really make up for the fact that Mom’s car phone was a brick and mine fits in my pocket. The quality of life difference for those two things isn’t really all that awesome.
The things that we, as a nation, are spending increasing amounts of GDP on are… not surprisingly… services that aren’t anywhere near as subject to globalization pressures. Education and health care are the two poster children. Public service, as well.Report
All great points. I am really tired of hearing the fact that we could, if we chose, play Angry Birds while sitting in traffic extolled as proof of how good we have it.Report
Here is data on consumption inequality. Again the actual data shows that the lives of the poor have improved dramatically compared to income trends.
Fascinating reading.
http://www.brookings.edu/~/media/Projects/BPEA/Fall%202012/2012b_Meyer.pdf
Just one other minor comment.
You guys do realize that the term income mobility implies movement in both directions, right? For every generation rising above, there is another going the opposite way….right?Report
Roger,
Shadowstats makes a strong,
market based argument for CPI being strongly underprojected.
This paper is making the opposite claim based on “consensus”.
If you believe the paper rather than the market, it’s up to you
to show what value Shadowstats is adding to our global
knowledgebase.Report
Roger,
indeed, this is fascinating reading.
But I do not think that consumption is a good index, either.
wealth seems to be a better index, as it’s a better gauge of
lifelong poverty, and significantly more stable than consumption
or income, particularly in these brackets.Report
Kim, do you have a link?
This thread is getting stale, but I would like to add that I personally believe cost of living is grossly overestimated today. Most things which are not fucked up by government interference (schools, medical care, universities, government services) have become substantially cheaper and of better quality over time as a share of average hourly wages. The conclusion I reach is similar to the link I provided. When adjusted for income transfers, the ability to move purchases from expensive to cheap, I would say it has never been a better time time to get by on low pre transfer income.
I have no idea why wealth is a better standard in your opinion than consumption.Report
In describing your childhood household, it should be somewhat apparent that there are a number of unmentioned social and economic phenomenon that made it possible. The relative lack of development in places like China, Korea and India, for instance, meant that U.S. manufacturing and U.S. workers didn’t face any substantial competition until about 30 years ago. You mention that in your comment. However, you don’t mention the other advantages that your family might have had. One person, usually a man, was able to support a family, in part, because women were largely excluded from the workforce and minorities largely excluded from the highest paid professions and the poor effectively excluded from all sorts of educational opportunities. You lived in a nice suburb and to some extent it was made nice by the exclusion of the “wrong kind of people.” You likely got very good public services, which reflected political choices about where to spend public revenue.
Also, you are trivializing the importance of things like cell phones. The move from the Zach Morris phone to the smart phone may have somewhat diminishing returns for things like making social calls or wasting time on the bus, but affordable access to that sort of technology makes a real difference to the poor in both the developed and the developing world.Report
Roger,
Here’s a quick example for you:
I’m poor. My furnace breaks. I call the contractor, and get it fixed. Cost: $10,000.
I’m rich. I get my furnace checked occasionally (cost $40), and when it’s old, I get it replaced. Cost: $4000.
The poor person has just lost a relative $6000. It won’t show up in the consumption statistics (which will indeed show the poor person consuming more than the rich person), but it is a tangible loss. That much money could buy a $500/year discount on ones gas bill.
(other than the furnace getting checked these are real numbers.)
Wealth is the difference between paying $2000/month and paying under $700/month for my house. Again, I’m not making up these statistics. but the consumption would say that the poor person is paying more.
Wealth aggregation is VITAL to moving out of the lower class, but consumption based metrics actively disincentivize savings (as far as I understand it — I’m slowly reading your article).Report
um
so the poor person has $10000 to get their furnace fixed
but they don’t have $4000 to get a new furnace
…?Report
“That’s all fine and dandy, but let’s compare me to my parents, shall we?”
So you’re admitting that you don’t have a good counter to his argument, and you’re changing the subject of discussion to something you can counter.
In other words, MOVE THOSE GOALPOSTS, RAH RAH RAH!
“when I was 9 we got an Atari 400; it’s going to be a while before Jack sees a new, top of the line gaming console.”
I mean, is your point of comparison “spend a large amount of money on something”, or is your point of comparison “buy a gaming console”? Because there are an awful lot of options for the latter beyond “buy the newest most expensive thing you can find”, options which did not exist when the Atari 400 came out. And maybe you don’t feel comfortable with the former, but the point we’ve been making all along is that you don’t have to do that anymore to get what the 1970s considered The Good Stuff.Report
Jim,
it’s called a LOAN. And a loan that you’d damn well better make, or they’ll take your house. (I suppose you could get by with space heaters. theoretically).Report
Patrick,
You’re not usually one to rely on anecdotes over data. And I can match your anecdote. My dad was a low level government bureaucrat and my mom worked in a factory. I’m a modestly paid college prof (after over a decade of experience, I finally cracked $60k last year), and my wife is a low paid 9 month contract secretary/admin assistant. And yet I have more than my parents did. I can afford to travel more, I can afford to eat out more, I can afford more expensive tools to indulge my hobby of home renovation, I can afford to have my kids on the Y swim team and take them to meets (almost every meet is 1 1/2 to 2 1/2 hours away, and many are two day meets requiring overnight stays–so it’s normal to drop a couple hundred or more for each of these weekends).
And Mike can get as huffy as he wants about the little things that he thinks are unimportant. But 1) I’m going to offer a wager that he’s personally unwilling to give them up. If I’m right, it demonstrates they actually are of real value to him, and not just unimportant frivolities. And 2) like many parents I gave my teen a cell phone, and am going to give the other ones cell phones. These are not necessary items. Many of us here grew up without having the ability to call our parents (and friends) at any hour of the day, and we did just fine. Nor are they particularly cheap, once you factor in the cost of the service across time. And yet damn near every middle class, even lower-middle class, family I know—and I live in a predominantly lower-middle class town, and in a distinctly lower-middle class neighborhood—has cell service for each of their kids. They are able and willing to bear that cost. And I can tell you for damn sure my parents would have really struggled to pay that cost.
And ultimately, although not truly necessary, those damn little cell phones are really really advantageous. My daughter stays after school to work on homework, so I don’t always know when she’ll be ready. I can stay at my office and work until she calls, instead of cooling my heels in the high school lobby. Now that she’s starting to drive, I know she can contact help if she has trouble on the road. If she’s at a party and things get unpleasant, or her ride leaves, I know she can contact me. We can huff and puff all we want about such things not being important–mere “playing angry birds in traffic,”–but as a parent, there’s a goddam good reason I’m willing to bear the cost of cell service for my kid, and it’s got jack all to do with playing angry birds. When all someone wants to do is throw out a cheap attack, rather than think an issue through, it’s pretty easy to do just by misrepresenting what something like a cell phone is really all about. It’s not particularly intelligent nor honest, however.
So what does that prove? Whether nothing, everything, or somewhere in-between, it proves exactly as much as your own anecdote.Report
James,
a cell phone clocks in at $8 a month, or so. I don’t really think that’s terribly big money to be talking about (and yes, they do provide nice big benefits in terms of saving people’s lives).Report
Roger,
alright, i mentioned I was reading slowly? 😉
“142
Brookings Papers on Economic Activity,
Fall 2012
Second, to convert housing expenditure to housing consumption for
homeowners, we substitute the homeowner-reported rental equivalent of
the home for the sum of mortgage interest payments, property tax payments, spending on insurance, and maintenance and repairs. For respondents
living in government or subsidized housing, we impute a rental value
using detailed housing characteristics available in the survey including the
number of rooms, number of bedrooms and bathrooms, and the presence of
appliances such as a microwave, disposal, refrigerator, washer, and dryer.”
This is the relevant graf to my example.
I will obviously agree that consumption provides a much better picture than
“declared income” (underground income if nothing else is hard to measure by
“let’s just ask people”)Report
“it’s called a LOAN. And a loan that you’d damn well better make, or they’ll take your house.”
Still not sure how you can get a $10000 loan but not a $4000 loan.Report
Kimmie,
Mostly I’ve taken to ignoring your endless stream of idiotic bullshit. But your $8/month per phone nonsense kind of pissed me off. Look at a Verizon share everything plan with smartphones; $40 per month per phone. Over the course of a year, that’s $500. Two kids? That’s $1000 per year. You and your spouse each have one? That’s another $1000 per year.
Of course nobody has to buy the smart phones and get the share everything phone. Frugal folk can get pre-paid plans and tell the kids, “text me, don’t call.” My point is that these desperately struggling middle class folks whose buying power is so shockingly diminished compared to dear old mumsie and popsie do get smartphones and share everything plans for themselves and their 2.1 children. Anyone who spends $1,000-$2000 per year on phones is not suffering from severely depressed purchasing power.Report
Jim,
well, one is more likely to be secured (and seen as necessary by the very bank you took the loan out from). But that’s really beside the point.
The point is that the poor are already spending every nickel and dime (and often spending more than that. nothing credit card companies like more than unpaid debt.)Report
You’re not usually one to rely on anecdotes over data.
I’m not, actually. I’m not trying to use the anecdote to illustrate a descriptive point, rather a normative one.
One of the reasons why these discussions go off the rails is because half the folk are talking about income, wealth, poverty, in absolute terms relative to some point in time in the past (or some concurrent point elsewhere in the world, in the present)… and some people are talking about those same things in relative terms within the U.S. society, today.
So we can keep dancing around each other arguing numbers, but we’re not going to get anywhere unless and until we agree as to what constitutes an appropriate standard for “middle class living”, right now, today, right here, in America.
And I suspect that we have wildly divergent ideas, across all Leaguesters, as to what constitutes an appropriate standard for “middle class living”, let alone what constitutes wealthy or poor.Report
@jim-heffman
So you’re admitting that you don’t have a good counter to his argument, and you’re changing the subject of discussion to something you can counter.
Whose argument? What exactly did you think I was trying to counter, there?
In other words, MOVE THOSE GOALPOSTS, RAH RAH RAH!
Considering I asked you upthread if you had a goalpost, and your response was, “Of course I do!” without telling me what it is, you get a half point.Report
@roger
Just one other minor comment.
You guys do realize that the term income mobility implies movement in both directions, right? For every generation rising above, there is another going the opposite way….right?
Oh, damn straight I realize that.
In fact, it’s kinda integral to the entire situation, really.Report
“So we can keep dancing around each other arguing numbers, but we’re not going to get anywhere unless and until we agree as to what constitutes an appropriate standard for “middle class living”, right now, today, right here, in America.”
Perhaps you are right. I had no idea we were talking about what constitutes an appropriate standard of middle class living. I thought the discussion was about inequality and mobility and the ramifications. I am fine with your anecdote. Like I said, it is a good example of class mobility, which I think most of us view as a good thing.Report
I had no idea we were talking about what constitutes an appropriate standard of middle class living. I thought the discussion was about inequality and mobility and the ramifications.
Well, if we’re talking about inequality and mobility, we need to know what we’re measuring and whether the scale is ordinal or ratio or what.
Money’s just a proxy for wealth, after all. What it *means* to be “lower class”, “middle class”, and “upper class” determines where the mobility targets *are*. Making $N vs. $N x 2 vs. $N x 100 tells us what thing, but earning power vs. buying power makes those measurements only useful for half the conversation.
Which we keep going back to, too.
What does it mean to be poor, in the U.S., what does it mean to be getting along fine, what does it mean to be well off… and what does it mean to be successful inside those three groups?
Somebody who is at 1.5 x poverty line who has the opportunity to double their income, they have a *staggering* difference in quality of life, via leveraged purchasing power.Report
With all respect, it seems like you are bringing up a new, though useful, discussion — namely have standards of living really improved over past generation?
In terms of inequality and mobility, we have answered the questions.
Inequality has risen in OECD countries (we still disagree in causes and the extent of whether it is a problem or even a good thing)
Mobility has not changed much over time in the US nor does it differ from other OECD nations with the very important exception of a segment of the poor stuck in inter-generational poverty.
In terms of consumption (living standards), poverty has declined dramatically. This is explained via the success of transfer payments, and probably off the books income. I would suggest inflation is grossly overestimated, but others disagree.Report
“Considering I asked you upthread if you had a goalpost, and your response was, “Of course I do!” without telling me what it is, you get a half point.”
You need to read more carefully. I was agreeing with your assertion that a concentration of wealth at one end indicated some kind of imbalance.
I then went on to ask why that’s automatically assumed to be a bad thing that needs correcting. Because everyone just kind of seems to say “oh, it’s not balanced, that’s bad”.Report
I then went on to ask why that’s automatically assumed to be a bad thing that needs correcting.
I think I can guess pretty accurately based upon the totality of peoples’ comments around here whether or not they think “it” is a bad thing and many of them have explicated on one thread or another to what degree they think it is or is not a bad thing, or capable of turning into a bad thing.
And generally most of them don’t “automatically assume” those positions, they’ve come to them through some sort of thought process. There’s a couple of dogmatic pros and cons who will parrot a talking line, but none of them really seem to be participating in the thread.
In any event, I wasn’t asking *them* whether or not they thought it was indicative of a problem, I was asking you.Report
So I need to quote you to yourself, but what you actually asked me was “is there, in fact, a point at which you would say, “clearly, those guys and gals there on the right-hand side of the bar graph must be getting some sort of structural advantage compared to days of yesteryear”.”
And my answer is, as I said earlier, that obviously there’s some sort of advantage that they have.
My question back to you is why that’s a problem, and your answer is to point to a bunch of other people who also think it’s a problem. Meaning “here’s a whole bunch of people who agree with me, that means you’re wrong”. In other words, argument from authority.Report
Ah, I see, I wasn’t clear.
I’m asking you. That was the point of the original question… sorry if wasn’t clear in my original question. I want to know if you think it’s a problem.
I think wealth disparity is a problem for systemic reasons. I think I’d spelled this out before over the last year and a half, but I’ll go another round of it, if you think it’d be interesting. But that’s largely “me spending time typing a lot of words again” if you already think it’s a problem.
And if you don’t think it’s a problem, you explaining *why* you don’t think it’s a problem actually saves a lot of time, because I can figure out if we have a disagreement in principle (in which case we’re not likely to agree) or a disagreement in practice (in which case maybe I can can make a case you find interesting).Report
Jim,
people have empathy towards people they interact with. Plain and simple.
The more the wealthy wall themselves off from the rest of us, the more troubled I get.
I liked the rich in first class, rather than private jets. At least they sat in the same
airport as the rest of us schmucks.Report
Kim,
Don’t forget about us non wealthly folks who “wall off” themselves from the rest of you all because *insert whatever reason* 🙂
I find I get along well with pretty much everyone when I don’t interact with them.Report
Damon,
oh, stop it. you shop at the same stores as everyone else.
you go to the post office.
you see other people, and you interact with them.
You don’t go to private popup restaurants that cost over
a thousand dollars per meal.Report
Well, actually, no to all the examples you provided (generally) but I get your point and I was just being “difficult” for the sake of some wed am humor. :pReport
Damon,
Well, then! allow me to be difficult in return (if somewhat more serious, can’t help it!):
http://consumerist.com/2012/04/13/study-says-the-more-walmarts-in-the-area-the-more-hate-groups-there-are/
The fewer interactions we have with our neighbors, the worse we tend to act towards ’em.Report
I would agree, but you should appreciate that I already had a dim view of humanity before I was 21-which was many years ago-and I currently live in a area that takes a dim view of my most cherished beliefs. Perhaps most annoyingly, the members are very highly educated, and yet have no common sense or situational awareness. Consecquently, they cannot drive well, among other things.
Now as to you link, sounds like DC should be a thriving locale for a few walmarts! :pReport
Kimmi,
That link was absolute trash. I should respond with some links proving the correlation between Beatlemania and sunspot activity.Report
Roger,
You might have a care whose work you call trash.
I’m inclined to take it rather personally.
Walmart, in this case, is serving as a decent proxy
for the dissolution of “small town live” — and the
subsequent decay in communities.
The continued alienation and withdrawal of
Americans from one another is a matter of concern to me.
In particular, the concentration of said alienation in
certain rural and exurban is quite interesting.Report
“you explaining *why* you don’t think it’s a problem ”
Because the people who think it *is* a problem either use historical examples that aren’t relevant, or they’re just monkeytribing. Neither of these things convince me that inequality is a problem rather than a symptom.
In societies with limited overall wealth, inequality matters because the lower end of the wealth distribution didn’t have sufficient wealth to actually maintain life. Regardless of what Kim and BlaiseP said earlier, people without money will end up starving from calorie deficiency. Worrying about the long term effects of poor nutrition is only relevant when you know there’s going to be a long term.
If you insist on an uncharitable reading, then yes, I’m saying “iPhones and aspirin means no poverty”, but then I can reply that you’re moving the goalposts on what “poverty” means and therefore you’ll never be wrong about whether inequality is bad, and we’re done.
And people who post scare charts (like in the OP) and then stand around with a serious expression saying all “hm, doesn’t this LOOK BAD” are engaged in monkeytribing(*), albeit a more genteel version than screaming and throwing turds.
Not every statistical measure indicates a problem. Professional athletes generally have a BMI that puts them in the “overweight” or even “obese” range. Whatever other health problems they have, they’re unlikely to suffer from actual obesity-related complications.
“Oh, but it does mean something might be going on and we should take a second look!” Sure, but that doesn’t mean there’s a problem.
(*) thanks for inventing that phrase, by the way, it’s a lovely bit of newspeakReport
Jim,
Okay, hotshot, cite your damn sources.
Show me where calorie deficiency led to death,
absent of large scale disease (prolonged diarrhea
and dehydration does not mean caloric deficiency)Report
Jim,
I’m willing to be that a considerable portion of the liberals on this board are in the top 5% of earners. I’m also willing to be that a considerable portion of the liberals on this board own well above the national average of guns.Report
Because the people who think it *is* a problem either use historical examples that aren’t relevant, or they’re just monkeytribing. Neither of these things convince me that inequality is a problem rather than a symptom.
So what would it take to convince you that inequality is a problem? This can play out two ways: “resolved: wealth disparity is a problem” or “resolved: wealth disparity is not a problem”. Let’s say, “resolved: wealth disparity is not a problem”. I’ll accept the burden of doing the work, you tell me what it would take to convince you that it’s a problem.
I mean, “Well, people are neither starving in the streets nor engaging in mass civil disobedience” is a non-starter. If that’s what it would take to convince you that wealth disparity is a problem, then obviously you’re not going to be convinced that wealth disparity is a problem. Which is fine.Report
“So what would it take to convince you that inequality is a problem?”
Nothing. I cannot be convinced that inequality is a problem in and of itself.Report
JESUS FUCKING CHRIST, JIM.
Nothing. I cannot be convinced that inequality is a problem in and of itself.
I am not talking about whether or not inequality is a problem “in and of itself”.
I am asking if there is a consequentialist argument that can be made that will convince you that inequality – at some level of inequality – leads to some sort of consequence that you’d consider sufficiently bad that hey, we should avoid that.
Because if your answer is, “I don’t believe that inequality can ever be a problem” that’s different from “I don’t believe that inequality is a problem in and of itself”.Report
“I am asking if there is a consequentialist argument that can be made that will convince you that inequality – at some level of inequality – leads to some sort of consequence that you’d consider sufficiently bad that hey, we should avoid that.”
And those were not the words you used until just now. Don’t get all huffy at me for answering the question you asked instead of the question you thought you asked.
And to answer this new question, the only way I can imagine “inequality” leading to “some sort of consequence” is if people look at scare charts and get jealous. Inequality is no more the cause of geniune problems than sneezing is the cause of the flu.Report
And those were not the words you used until just now. Don’t get all huffy at me for answering the question you asked instead of the question you thought you asked.
Fair enough. However, dude, you’re an informational black hole. Pulling stuff out of you is a task with very little reward, while you stand athwart a comment thread snarking (usually with trivial reductos) at people’s positions without ever actually positing anything falsifiable yourself.
Maybe you should try staking some sort of claim, some day. Put some sort of intellectual skin in the game.
And to answer this new question, the only way I can imagine “inequality” leading to “some sort of consequence” is if people look at scare charts and get jealous. Inequality is no more the cause of geniune problems than sneezing is the cause of the flu.
Ah, okay.
No argument or evidence can convince you that inequality can ever be a problem, is what I’m reading? I want to be clear on this reading. I don’t want to put words in your mouth, but this sounds an awful lot like “I hold a non-falsifiable belief that wealth disparities are a problem”. Is that actually what you’re saying? Or are you saying, “Eh, there might be an argument out there that may convince me otherwise, but I’m not sure what it is”, which is something else.Report
“Maybe you should try staking some sort of claim, some day. Put some sort of intellectual skin in the game.”
Maybe someday I’ll be doing this as an actual paid-for job instead of a few quick bites while I’m waiting for my work to upload.
“No argument or evidence can convince you that inequality can ever be a problem, is what I’m reading?”
I said what I was saying, twice, and you started yelling about how I wasn’t answering your question.Report
Jumping in.
To convince me inequality is a problem you would have to convince me that inequality harms someone. This can be accomplished several ways…
1) show me that those getting wealth did so in a zero sum way by taking it from someone else*. I frankly do not support taking, and to the extent that a subclass of the wealthy are getting so by taking from others, then I am against them. This is why I am against rent seeking, theft, coercion, fraud and wealth attained via politics or incumbency.
2). Prove the world is zero sum and that if more resources go to the wealthy that there are less available elsewhere. This is oddly the most promising line of argumentation and is true to at least a limited extent However, in market economies, I believe over the long haul this is not the case. The reason is that humans don’t just consume, we also produce. Wealth is not taken out of the system and buried in coffee cans, it becomes property and market logic dictates that the optimal use of this property is to invest it in further production or positive sum interactions (or zero sum actions which I oppose as above). Wealth is not zero sum in properly functioning markets, it is self amplifying.
3). Show me that wealth is used to seek privilege AND that the optimal solution to this problem is to limit wealth as opposed to restrict privilege seeking. Limiting wealth in a positive sum environment is like cutting off your nose to spite your face. It makes everyone worse off. Thus the only reasonable solution is to limit privilege seeking and coercion and NOT TO LIMIT INEQUALITY ITSELF.
There is my logic, but I am open to arguments to the contrary.
* my definition of harm does not include incidental harm of not being chosen to participate in a positive sum interaction. People effectively compete to cooperate, and I do not see the absence of being chosen as harm. I can explain why, but it is probably a separate post.Report
Redistributing wealth provides more opportunities for wealth aggregation.
Wealth aggregation is a key way we promote new ideas.
Concentration of wealth among a small subset of people inevitably leads to
much less risk-taking, and much less of a quest for productivity enhancements —
if you’re already rich, there’s less incentive to become more rich.Report
Once you start down that Redistribution route, you’re damaging markets. Capitalism does concentrate wealth by definition and we interfere with that process at our peril. Now capitalism can lift the poor out of poverty, the middle class into the realms of the moderately wealthy — but only to the extent that we tolerate the wealthy becoming even more wealthy.
The trick is to improve opportunity for the poorest. And the worst possible approach is to Soak the Rich. The rich have great tax guys who can erect the most fantastic umbrellas over every such attempt to Soak them. We’re always better off if we make it possible for the rich to do more intelligent things with that wealth, right here at home, instead of hiding it offshore — trillions of earned dollars are lurking out there, just waiting for the right opportunity. All these cash-rich corporations — why aren’t they investing that money in ventures which would make for a sounder economy? Because we’ve still got too much Us versus Them thinking out there.
Want this economy to improve? Want to lift the poor out of poverty? We’ve got the math to demonstrate how such things could be done. Straighten out the tax code. Quit distorting the markets with all these ham-handed subsidies from years gone by. They’re the same problem, really.
As for what motivates the rich, heh. There’s plenty of incentive to become richer. Being a millionaire just means you can borrow a million. The millionaire’s money is parked somewhere. Give him a reason to park it where it will do some good in the world, or at least our own nation, he’ll put it where it serves his own best interests.Report
Blaise,
I’m sure you’re in favor of a progressive taxation scheme.
That’s mostly all that I’m talking about, plus a stiff estate tax.
Straightening out the tax code would indeed be a great idea.
I don’t think that the best markets ever are those where we market everything to the rich.
It’s far better to have a robust middle class, and if that means redistributionism, so be it.
(As James mentioned above in the thread, there’s a decent argument for a negative income tax).Report
I don’t know. Progressive taxation is meaningless in the current tax system. Too many ways to shelter it all.Report
I’m pretty sure most of the shelters’ live within the capital gains portion…
but that could just be me.Report
I agree with Blaise.Report
1) show me that those getting wealth did so in a zero sum way by taking it from someone else*
Does this have to be active, or can it be passive?
I would contend that the wealth transfer that has occurred since 2000 is largely structural. Unlike some of the liberal brethren, I see government as complicit in this… specifically… we’ve had four massive fiscal calamities since 1999 – the dot com bust, the energy bubble, the real estate bubble, and the financial crisis of 2007. To some extent they are coupled (especially the last two).
The response to these events, at a government level, has been to take rather significant steps to keep capital flowing, almost entirely by pumping massive amounts of cash into the economy (or, buying private market securities, which is basically accepting massive amounts of private liabilities, which amounts to the same thing)… but all of that capital injection has been at the upper end of the wealth curve.
We’ve more than doubled the money in the last ten years.
While incomes have remained largely stagnant (mostly due to globalization pressures), capital returns have skyrocketed, and the beneficiaries of that doubling of the money supply have been pretty much the top 1/2 of 1%.
We’re propping the economy up from fiscal calamities by printing extra money and giving it to a very small set of people, which has the nice feature that it keeps inflation from going crazy, but has implications for long term structural power advantages.Report
Patrick,
there are enough active zero sum interactions that wealthy folk perpetrate… you don’t even have to look at the structural stuff. They don’t call it dumb money for no reason,you know. The rich won, big time, during the last fiscal collapse.Report
The rich also lost big in the 2008 collapse. All those hi-flyin’ investment banks, look at them now, all hiding under different incorporations. The problem was, and still is — put ten different investments on a table, each inside a manila folder. You get two questions to determine which one you’re going to pick. Which two questions will you ask?
1. How secure is this investment?
2. What’s the rate of return?
The mortgage bundlers had the most appealing answers. So that’s where the money flowed. For all the damage done in 2008-9 to ordinary people, home foreclosures, job losses — those pale in comparison to the damage done to the investor class. The investment houses were all in a big craps game out back by the dumpster, where nobody could see them, betting on how many people wouldn’t pay their mortgages next week.
Trillions of dollars still remain on the sidelines. Look at the current stock market, gone apeshit. Very little congruence between equity prices and actual earnings. When that sort of market appears, it’s one where too much money is seeking too little value. Look at the betas for the current markets, market’s off a ton today — any good reasons? None I can see. Average P/E on NYSE is currently 20.4. Insane. This market is propped up with more Fed money than anyone can stomach.
At some point, the Grown Ups need to take control of this situation. Precious few of them in Congress at this point. There’s nothing wrong with the intersection of Capitalism and Regulation which can’t be managed on a results-oriented basis.Report
Blaise,
Goldmann still seems fine. But that’s really beside the point.
The point is that it was quite possible to make oodles shorting
during the crash, and a lot of people (hedge funds) did just that.
I suppose I could pull the numbers, but with all the bailouts and
money floating out there, mostly the rich did just fine.
Sharks are hungry out in this market — it’s a bad time to be a small fish.
Me? I’m just hedging for inflation (which you know is coming, sooner or late).Report
I am not for structural rigging of the economy to create privileges for individuals with wealth at the expense of others.
This is a fair distance though from having concerns with inequality. I am anti rigging, but in general still pro- inequality with the above caveats.Report
Seems to me that at any given time, the amount of wealth is finite. When the majority of that wealth is transferred in on direction (and one party is the major beneficiary) I’m not convinced that it isn’t a zero sum game.
Let’s talk about “voluntary transactions”. From a labour perspective, most employers run fiefdoms that are more restrictive than the government when it comes to rules and procedures. Sure you can find a new master, but when they all play from the same rule book….Report
Richard (and Chris)
“Seems to me that at any given time, the amount of wealth is finite. When the majority of that wealth is transferred in on direction (and one party is the major beneficiary) I’m not convinced that it isn’t a zero sum game.”
How do you explain five times as many people as three hundred years ago with average standards of living ten to twenty times higher? Energy is conserved, utility is not conserved. It can be created and destroyed. When kids exchange candy after trick or treating, utility is generated as they exchange lower utility candy for higher utility. Utility can also be created via production/conversion processes. Low value wood can be converted to a high value cart wheel. Low value sand to high value circuits.
“Let’s talk about “voluntary transactions”. From a labour perspective, most employers run fiefdoms that are more restrictive than the government when it comes to rules and procedures. Sure you can find a new master, but when they all play from the same rule book….”
Then they can work for themselves. Oops, the over-regulators made this illegal.
Or you can start a firm and hire them all away at awesome wages and conditions and put every other employer out of business. This will make you the wealthiest person on earth and a saint to boot. I jest.
The problem with your logic is that a cartel of employers can only continue with this strategy if they can force membership and discipline defection. Otherwise, each will be tempted to get better employees by bidding them away from the others. In the end, the cartel collapses and supply and demand win out.
On a personal anecdote level, I always found I was able to find a great job at company which treated employees good. Sometimes too good. I think we would have been a better company to emphasize customers more and employees less.
If you want names of awesome companies that treat employees great I can provide them, or you can google it. There are independent groups that rank places to work. Of course the reason they try to be so good to employees is that it makes economic sense. It attracts a better class of employees, and leads to better productivity. It pays for itself.Report
Not entirely related to the topic at hand, but this is interesting.
tl;dr – The world seems to be growing tired of Uncle Sam being a financial bully & insisting that the rest of the world obey the IRS. Basically if you are an ex-pat with money, Uncle Sam still wants a piece of you & is demanding the rest of the world play tax collector for them.
If that isn’t an indicator of a government too big & out of control, I am at a loss for what is.Report