Tag Archives: income inequality

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

Abstract

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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When marriage disappears: rising inequality as the threat to the family

Summary:  This post looks at the disintegration of the family, another example of America’s regression as we quietly surrendering generations of gains. The America we loved — relatively classless, with a big middle class, low inequality and high social mobility — dies a little every day. The evidence lies before us, obvious in the news and described by countless studies. But to see it would create pressure to take political action. Work, risk, expense! It’s not too late to reverse these trends, but time is not on our side.

When Marriage Disappears

When Marriage Disappears: The Retreat from Marriage in Middle America
The National Marriage Project, U of VA

Introduction

In middle America, marriage is in trouble. Among the affluent, marriage is stable and may even be getting stronger. Among the poor, marriage continues to be fragile and weak. But the most consequential marriage trend of our time concerns the broad center of our society, where marriage, that iconic middle-class institution, is foundering.

For the last few decades, the retreat from marriage has been regarded largely as a problem afflicting the poor. But today, it is spreading into the solid middle of the middle class. …

Race, Class, and Marriage

Forty-five years ago, Daniel Patrick Moynihan drew the nation’s attention to the growing racial divide in American family life with the release of his report, “The Negro Family: The Case for National Action.” Moynihan later noted that his report had just captured the first tremors of “the earthquake that shuddered through the American family” over the course of the last half century.

Moynihan was right. This can be seen in Figure S1, which tracks trends in the percentage of working-age adults (25–60) who are in intact marriages, by race and educational attainment. While it is true that the nation’s retreat from marriage started first among African Americans, it is also evident that the retreat from marriage has now clearly moved into the precincts of black and white Middle America.

Specifically, in both the 1970s and the 2000s, blacks in all educational groupings were less likely to be in intact marriage than were their white peers. For both groups, marriage trends were not clearly and consistently stratified by education in the 1970s. However, by the 2000s, they are clearly stratified, such that the most-educated whites and blacks are also the most likely to be in intact marriages, and the least-educated whites and blacks are also the least likely to be in intact marriages.

This report is too rich in insights to summarize. The message and graphs are clear; it’s easy to read. I strongly recommend reading it. Here’s one graph I found especially compelling.

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Three visions of our future after the robot revolution

Summary: During the past 2 years the robot revolution has come into view, and all but Right-wingers living in fantasy-land have begun to realize it might (like the previous ones) produce large-scale social disruption and suffering. But to prepare for these changes we must first image what kind of world they’ll create. Here we look at three visions about what lies ahead for us.  {1st of 2 posts today.}

“We did not come to fear the future. We came here to shape it.”
— Barack Obama’s speech to Congress, 9 September  2009.

Dark futures

 

Contents

  1. The center-left sees the problem
    ……and offers mild solutions.
  2. Realistic analysis and prescriptions.
  3. Visions of dark futures.
  4. For More Information.

 

(1)  The center-left sees the problem and offers mild solutions

Slowly, people have come to see the coming robot revolution (aka, a new industrial revolution), even economists. The Left has adopted this issue, as they have climate change, as a means to enact long-sought changes in the US economy. Like climate change, their solutions are far too small for the problem described.

(a) A World Without Work” by Derek Thompson in The Atlantic, July/Aug 2015 — “For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving. Could that be a good thing?” Typical of The Atlantic. Long, meandering, confused mish-mash of issues. Never confronts the core issue of how people will earn money to live. Lots of nonsense about people living by selling crafts to each other.

(b) The Future of Work in the Age of the Machine” by Melissa S. Kearney, Brad Hershbein, and David Boddy at the Hamilton Project, February 2015. See the slides and transcript from the seminar they held for academics and businesspeople. Their prescription is aggressive application of conventional methods…

The Project’s economic strategy reflects a judgment that long-term prosperity is best achieved by fostering economic growth and broad participation in that growth, by enhancing individual economic security, and by embracing a role for effective government in making needed public investments.

(c) The future of work in the second machine age is up to us” by Marshall Steinbaum at the Washington Center for Equitable Growth, 23 February 2015 — They show that the robot revolution has not yet appeared in the macroeconomic statistics. But it’s coming. Their conclusions are the standard center-left recipe, like those of the Hamilton Project…

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We worry about rule-breaking by the underclass, not the upper class

Summary: The daily press gives us lurid tales of the underclass breaking social norms, but seldom does so about the more serious lost professionalism that helps the upper class. Before we tinker with American society to reverse our rising inequality, we should understand the processes that created this problem. I believe we not only don’t understand the causes, we don’t even clearly see the deep changes in American society during the past few decades — during the Boomers’ years. This is another post about our poor vision of America.  {1st of 2 posts today.}

Our Broken Society

Content

  1. Breaking social norms.
  2. Loss of professionalism.
  3. Rise of self-interest in other occupations.
  4. Conclusions.
  5. For More Information.

(1)  Breaking social norms

We talk a lot about underclass break society’s behavioral norms. In his 1986 book Beyond Entitlement Lawrence Mead (Prof Pol Sci, NY U) taught us to fear their increasingly “dysfunctional” behavior: criminality, drug use, promiscuity, out-of-wedlock births, excessive rates of divorce, etc. Sadly we seldom notice the breaking of norms occurring just as strongly in the upper classes — with greater effect on our social cohesion and level of inequality.

(2)  Loss of professionalism. Broken professions.

Like the word “gentleman”, the meaning of “professional” has eroded away to a bland sense of well-behaved. Managing conflicts of interests was a major factor distinguishing professionals from other trained people. For example, doctors, accountants, and attorneys balanced their clients’ interests vs. theirs as business people vs. those of society. Attorneys were expected to act as “officers of the court”. In an epidemic doctors were expected to place the public’s health above that of the patient’s and their own. Accountants were to maintain the integrity of the financial reporting system that guides the money flows of our society.

These standards were often honored in the breach — America was never Heaven — but during my lifetime they have collapsed. What’s happened in medicine and law clearly shows the problem and the result.

In the early 1980’s doctors realized they the controlled America’s health care checkbook, and could leap from affluent to wealth by “optimizing” their practice: bringing in-house diagnostic and out-patient services and then over-utilizing them, taking de facto bribes from drug and medical device companies, and in a hundred other ways. Conferences and articles gave step-by-step instructions, and their incomes rose — varying widely by specialty, skyrocketing for the most aggressive doctors (see this paper, and a later one).

Only slowly did the pushback arrive, the current push to disenfranchise them — turning decision-making over to the HMO’s, enmeshing doctors in paperwork, authorizing less-trained technicians to do aspects of their work, and eventually automating much of their work.

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