Inequality, the Landed Gentry, the Middle Class, and Capitalism
Classes of elites living off of returns (“r”) are hardly the invention of modern capitalism… Pre-Victorian landed elites earned “r” well before Adam Smith was kicking around. Capitalism extended their ownership rights to the peasant class. …
I have linked to this Robin Hanson post before. He points out how selective we are about which kinds of inequality we concern ourselves with. One point he makes is that inequality between siblings accounts for 3/4 of inequality within a modern nation. I suspect it is fairly common for most Americans to survey their siblings and cousins and find nearly the full range of American economic distribution. Think about that…Pre-capitalist economic station was almost completely predetermined by family. …
So, 3/4 of the inequality of modern capitalist societies has indeed been created by capitalism. This inequality now dwarfs all the forms of inequality that existed before. This is an inequality otherwise known as economic mobility.
And, thinking further about our problems with inequality, the most profound problem it creates is the unlevel field of opportunities available to the members of a particular generation. The complaint is that the rich can invest so much into the human capital of their children that the differences in opportunities between children become grotesque, and this leads to an intergenerational persistence of income inequality, because children of the rich capture a choice education in the high paying professions.
But, again, I say, step back a minute and think about what we are taking for granted here. The idea that the rich would concern themselves with helping their children be productive is also result of capitalism. As Deirdre McCloskey outlines, along with the ideas that individuals could accumulate capital and that the legal defense of capital wouldn’t be limited to a small group of people, came the idea that productivity was tolerable. This has become such a fundamental part of the Western point of view that we have to remind ourselves that it is unusual. Again, thinking of Jane Austen characters, or even of people in many pre-capitalist societies today, for peasants, human capital would be largely unattainable or pointless. For the landed elite, it would be insulting. Traders and commercial innovators – producers – became tolerable, and capitalism was the result.
Because of the capitalist revolution, not only is being personally productive tolerated today, but we would find it incomprehensible to imagine it another way. In fact, we are concerned about it! We say: It’s not fair that rich kids get the opportunity to be more productive! Today, high income workers work longer hours than low income workers. Imagine the look of confusion you might get from a pre-capitalist gentleman if you told him that in your society, the poor work fewer hours than the rich and the government is implementing school lunch programs to make sure poor kids don’t ingest too many calories. He wouldn’t just have a hard time understanding how that could be. Those words literally could not form that sentence. You might as well speak martian to him. Don’t even try to explain to him that you’re outraged by how the richest kids have an advantage in attaining productive employment. He’ll think you’re crazy before you even get to that.
Scott Sumner thinks we can all relax and take a deep breath
Here’s what I read yesterday morning:
U.S. jobs pay an average 23% less today than they did before the 2008 recession, according to a new report released on Monday by the United States Conference of Mayors.
So I decided to check the actual data. Average hourly earnings have risen from $21.63 in July 2008 to $24.44 today, that’s up 13%. And PCE price index has risen from 219.016 in July 2008 to 237.693 today. That’s up 8.5%. Everyone needs to take a deep breath; the “American middle class” will be fine.
Some on the left mock the “technology” argument for improved living standards. “Let them eat cell phones.” But that’s exactly the point—revealed preference. Peasants in low income countries will buy cell phones before they can afford TVs, or indoor plumbing, or even “health insurance.”
I’ve always found the mockery of “oh, they can afford cell phones, but not health insurance,” callow. Treating cell ohines as insignificant actually denigrates people who want them. Without intending to, it implicitly criticizes their economic decision-making. It also ignores the real value cell phones have for personal engagement.
Self-annointed cultural critics like to sneer at electronic interaction, in contrast to face-to-face interaction. But my wife’s family, for example, is spread between the Netherlands, Texas, California and Alaska. That electronic communication, even when it’s just Facebook updates, is humanly important.
I was struck in Dubai by the ubiquity of cell phones among hand truck cargo haulers. These are low end jobs, held by immigrant laborers. They’re busiest in early morning and late afternoon, and in mid-day they spend a lot of time napping on their carts, chatting…and on their cell phones, which were more sophisticated than what I had at the time. Bully for them. Treating cell phones as insignificant and destructive of personal connection is a first-world problem.
And let’s not forget the medical value of cell phones. In the 1980s if you had a car accident, someome had to go find a phone. That could be miles away. Now it’s in your pocket.
And where are we getting the videos from Ferguson, Missouri? And most of the other videos of abusive police? Poor minorities are finally starting to wake white middle class America up to the realities of living in a police state, thanks to cell phones. I’d argue this, among other things, a public health issue that may be alleviated in part by what some white middle class liberals dismiss as little more than toys or an annoying job requirement.
But that’s all some people can afford, while the rich have Park Avenue penthouses. Well, maybe. But it’s always been thus, and more importantly, it’s probably not getting worse, according to John Nye.
Dollar measures of income inequality always exaggerate differences because what matters to people is what they can buy for their money and how much value they derive from what they have purchased. …
The data on consumption, derived from the government’s Consumer Expenditure Surveys, shows that consumption inequality has not matched the rise in income inequality over the last two to three decades.
Moreover, even consumption, as measured by dollars spent, overstates inequality. Thus if I spent $400 a month on food and you spent $200 per month, my food consumption is double yours even if we bought exactly the same things at different prices. Measures of consumption expenditure ignore differences in the prices of what we consume. ..,
There is an even deeper problem that causes us to exaggerate differences in consumption between the rich and the poor: changes in the quality of goods are not properly accounted. The march of technology means the good becomes commonplace and the best is often only incrementally better, but usually costs a lot more money.
Doubling the price of an item doesn’t give you twice as much. As technology progresses, the price differences between low-end and high-end goods conceal relatively small differences in functionality. To take a simple example: If a good 25-inch cathode ray tube color TV cost $500 in 1990 and a larger flat screen TV cost about $2,000 in the same year, would you think that someone buying a TV today would get as much of a jump in quality for the equivalent price difference? For $500 today, you could get a flat screen TV not that much worse and only somewhat smaller than you could buy for $2,000. Some of the differences, such as 3-D capability, might not even matter to most consumers. Yet in both cases, statisticians treat the higher spending person as having consumed four times as much as the one buying the cheaper TV.
Or think of coffee. That one person spends less than a dollar a day on coffee and another spends $5 may reflect differences in quantity or the fact that one brews at home and the other goes to Starbucks. That’s not the kind of difference that would have been felt much earlier in the 20th century, when having regular coffee of any grade was itself a small luxury.
“Technology has turned many luxuries into commodities and made it much harder for the rich to distinguish what they consume from the cheaper but functionally similar products used by the average person.” …
That the poor and the rich are not living so differently is perhaps more readily seen in the convergence in mortality rates between the rich and the poor and the fact that the largest parts of the remaining differences are heavily driven by behavior (smoking, obesity, accidents) and from having intact families — and not by lack of access to basic health care. …
I expect these trends will continue, if perhaps in futs and starts, rather than in a smooth progression. But good news doesn’t sell, nor does it feed our apparent need for moral outrage.
Let the condemnation begin. 😉