Tag Archives: income inequality

A guaranteed minimum income: faux solution for the new industrial revolution

Summary: Solutions are proposed as the shockwave of the new industrial revolution becomes visible on the horizon. Naturally, we first get small and comfortable ones — such as a guaranteed minimum income, which guarantee high and growing levels of inequality. We might even implement these, leaving the resulting social turmoil for the next generation. First of 2 posts about the GMI.

Our future if we distribute technology’s gains via welfare.
Well-fed, well-dressed menials bow before the aristocrats.

Servants Bowing to their betters

Photo by ullstein bild via Getty Images.

First, the new industrial revolution was debunked. When it become too obvious to ignore, the coming destruction of jobs was denied. Now that too has become obvious — so attention turns to easy solutions. Most commonly recommended is a guaranteed minimum income — a greatly expanded welfare system. For example…

Productivity has risen, but the gains went to profits (not workers ), then flowed through to the top few percent of households, leaving little for the rest.

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The battle of institutions vs. technology = rising wage inequality

Summary: Although denied for years, by now rising inequality is acknowledge even by conservatives — so the debate shifts to its causes and remedies. The “standard” answer points to the “invisible hand” of “market forces”. New cutting edge research shows that this defense, much like the earlier denials, does not match the facts. This post excerpts from a important new paper by Tali Kristal and Yinon Cohen in Socio-Economic Review.We cannot fix what we do not understand.

Scales of Income Inequality

The causes of rising wage inequality:
the race between institutions and technology

Tali Kristal and Yinon Cohen, Socio-Economic Review, in press
Excerpt posted with the authors’ generous permission


Many inequality scholars view skill-biased technological change — the computerization of workplaces that favours high-skilled workers — as the main cause of rising wage inequality in America, while institutional factors are generally relegated to a secondary role.

The evidence presented in this article, however, does not support this widely held view. Using direct measures for computers and pay-setting institutions at the industry level, this article provides the first rigorous analysis of the independent effect of technological and institutional factors on rising wage inequality.

Analysing data on 43 US industries between 1968 and 2012, we find that declining unions and the fall in the real value of the minimum wage explain about half of rising inequality, while computerization explains about one-quarter. This suggests that much of rising inequality in the USA is driven by worker disempowerment rather than by market forces — a finding that can resolve the puzzle on the diverging inequality trends in USA and Europe.
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Populism arises amidst American workers abandoned by both Left & Right

Summary: Populism has arisen from the lower middle class, Americans abandoned not just by the Right (owned by the 1%) but the Left as well. Populists are the swing vote in modern elections. Who they choose to ally with might create a coalition that rules for another generation. It was the Left in the New Deal. And now? Either way, populism will last beyond Campaign 2016.

Fork in the road

Decline of the middle class in America

This report by Gallup shows the fracturing of the middle class, as they are slowly ground down. We’re near the historic moment when more Americans identify as “working and lower class” than “middle class” — a milestone in the Right’s long project to reverse the New Deal. This shows the force powering the political fires now ignited. We’re just discussing what form it will take.

Americans are considerably less likely now than they were in 2008 and years prior to identify themselves as middle class or upper-middle class, while the percentage putting themselves in the working or lower class has risen. Currently, 51% of Americans say they are middle class or upper-middle class, while 48% say they are lower class or working class. In multiple surveys conducted from 2000 through 2008, an average of more than 60% of Americans identified as middle or upper-middle class.

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The missing issue in the 2016 campaign: America’s long slowdown

Summary: Here we explore an important root cause of the rising stress on the US political regime, which combines with other similar problems to create a situation exploitable by extreme political movements — of the sort we associate with lesser nations, not America. Unless we wake up and act, we might find America has become one of them.

Economic Growth is over

Why so much dissatisfaction today, so that both Democratic and Republican parties have rebellions (challenges to the parties’ power structure)? Polls show a pervasive loss of public confidence in America’s institutions (except, disturbingly, the policy and military), which contributes to the stress on the regime.

Also significant is the slowing rate of economic growth (a similar dynamic contributed to the rise of populism and progressivism during 1873-1932). To learn about this see the interactive graphs at the Regional Economic Analysis Project (REAP). Perhaps the most important metric for people is the annual growth of real per capita personal income during the Boomer’s years. Note that our memories do not well match the facts of the past.

  • 1960-69: 3.5% — The golden years,
  • 1970-79: 2.3% — The terrible 1970s,
  • 1980-98: 2.2% — The Reagan Revolution (tax cuts!),
  • 1990-99: 2.0% — The tech boom,
  • 2000-09: 1.2% — The Bush Jr. years (tax cuts!),
  • 2010-14: 1.4% — First half of the Obama years (partial reverse of Bush Jr. tax cuts).

The sad reality is slowing growth, decade after decade. We have tried various nostrums; none have worked. Worse, these are mean growth rates. Median growth would be lower (less affected by rising inequality) and better reflect results for average Americans

The distribution of this growth was, as always, uneven — but regional distribution is surprising. The economic stars by this metric were (in decreasing order) North Dakota, Mississippi, Arkansas, South Dakota, South Carolina, Virginia, Vermont, Tennessee, New Hampshire, North Carolina, and Louisiana. There is no obvious pattern. For example, South Dakota’s fortunes varied with North Dakota’s, strong in five of these six decades (not the 1980s) — despite it having little oil production.

Washington DC was #21. New York was #34. California was #47.

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Our future will be Jupiter Ascending, unless we make it Star Trek

Summary: Will our future be like Star Trek or Jupiter Ascending? Star Trek shows us a world beyond scarcity where everybody benefits. In Jupiter Ascending the 1% takes the wealth produced by technology and uses it to rule us. We can choose to make Star Trek our future if we are willing to work for it, but now we’re condemning our children to live in Jupiter Ascending.  {First of two posts today.}

Jupiter Ascending

“No, I don’t share my wealth. Why do you ask?” From Jupiter Ascending.

Consider the increase in the West’s wealth since 1750 and the advancement in technology. Imagine similar progress for another 250 years, to the time of the original Star Trek TV series. Rick Webb describes that world in “The Economics of Star Trek: The Proto-Post Scarcity Economy“, a market economy whose productivity allows the government to easily provide a high basic income allowance to everybody.

The amount of welfare benefits available to all citizens is in excess of the needs of the citizens. … Citizens have no financial need to work, as their benefits are more than enough to provide a comfortable life, and there is, clearly, universal health care and education. The Federation has clearly taken the plunge to the other side of people’s fears about European socialist capitalism: yes, some people might not work. So What? Good for them. We think most still will.

Discussions about Star Trek often focus on what we do with the abundance of goods and services produced by their fantastic tech. It’s fun, like composing fantasy football teams or designing the ideal Prime Directive.

In our world the 1% shows us an alternative to Star Trek. The largest fraction of America’s increased income since 1970 has gone to the 1% — and even more to the .1%.  They could share the booty (nobody can consume a billion dollars in a lifetime), but prefer instead to amass wealth and power. Why would this change with the invention of robots and replicators? Continue current trends for a few centuries and you reach Jupiter Ascending — a world of servants and lords, where the rich own planets, live almost forever, and harvest the peons. A world like that of our past, as seen in Pride and Prejudice.

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