|
|
Home | Switchboard | Unix Administration | Red Hat | TCP/IP Networks | Neoliberalism | Toxic Managers |
| (slightly skeptical) Educational society promoting "Back to basics" movement against IT overcomplexity and bastardization of classic Unix | |||||||
| Home | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 |
For the list of top articles see Recommended Links section
|
|
Switchboard | ||||
| Latest | |||||
| Past week | |||||
| Past month | |||||
 |
 |
 |
December 18, 2015 | cepr.netDean Baker:
Working Paper: : In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period.This paper argues that the bulk of this upward redistribution comes from the growth of rents in the economy in four major areas: patent and copyright protection, the financial sector, the pay of CEOs and other top executives, and protectionist measures that have boosted the pay of doctors and other highly educated professionals. The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality, as for example argued by Thomas Piketty.
Flash | PDFRC AKA Darryl, Ron said in reply to Fair Economist, December 18, 2015 at 11:34 AM
RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:42 AM"...the growth of finance capitalism was what would kill capitalism off..."
"Financialization" is a short-cut terminology that in full is term either "financialization of non-financial firms" or "financialization of the means of production." In either case it leads to consolidation of firms, outsourcing, downsizing, and offshoring to reduce work force and wages and increase rents.
Consolidation, the alpha and omega of financialization can only be executed with very liquid financial markets, big investment banks to back necessary leverage to make the proffers, and an acute capital gains tax preference relative to dividends and interest earnings, the grease to liquidity.
It takes big finance to do "financialization" and it takes "financialization" to extract big rents while maintaining low wages.
[THANKS to djb just down thread who supplied this link:]pgl said in reply to RC AKA Darryl, Ron, December 18, 2015 at 03:25 PMhttp://www.democraticunderground.com/10021305040
Finance sector as percent of US GDP, 1860-present: the growth of the rentier economy
[graph]
Financialization is a term sometimes used in discussions of financial capitalism which developed over recent decades, in which financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics.
Financialization is a term that describes an economic system or process that attempts to reduce all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either into a financial instrument or a derivative of a financial instrument. The original intent of financialization is to be able to reduce any work-product or service to an exchangeable financial instrument... Financialization also makes economic rents possible...financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics...
Companies are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions. The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt.
Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding "forced saving" for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges. ... This diverts spending away from goods and services.
In the United States, probably more money has been made through the appreciation of real estate than in any other way. What are the long-term consequences if an increasing percentage of savings and wealth, as it now seems, is used to inflate the prices of already existing assets - real estate and stocks - instead of to create new production and innovation?
Your graph shows something I've been meaning to suggest for a while. Take a look at the last time that the financial sector share of GDP rose. The late 1920's. Which was followed by the Great Depression which has similar causes as our Great Recession. Here is my observation.Peter K. said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:50 AMGive that Wall Street clowns a huge increase in our national income and we don't get more services from them. What we get is screwed on the grandest of scales.
BTW - there is a simple causal relationship that explains both the rise in the share of financial sector income/GDP and the massive collapses of the economy (1929 and 2007). It is called stupid financial deregulation. First we see the megabanks and Wall Street milking the system for all its worth and when their unhanded and often secretive risk taking falls apart - the rest of bear the brunt of the damage.
Which is why this election is crucial. Elect a Republican and we repeat this mistake again. Elect a real progressive and we can put in place the types of financial reforms FDR was known for.
djb said..." and it takes "financialization" to extract big rents while maintaining low wages."
It takes governmental macro policy to maintain loose labor markets and low wages. Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low.
RC AKA Darryl, Ron said in reply to djb, December 18, 2015 at 12:03 PMhttp://www.democraticunderground.com/10021305040
I don't know about the last couple years but this chart indicates a large growth in financials as a share of gdp over the years since the 40's
[Anne gave you FIRE sector profits as a share of GDP while this gives FIRE sector profits as a share of total corporate profits.]Puerto Barato said in reply to RC AKA Darryl, Ron,*
[Smoking gun excerpt:]
"...The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent...
[Ouch!]
[Now the whole enchilada:]
If you want to know what happened to economic equality in this country, one word will explain a lot of it: financialization. That term refers to an increase in the size, scope, and power of the financial sector-the people and firms that manage money and underwrite stocks, bonds, derivatives, and other securities-relative to the rest of the economy.
The financialization revolution over the past thirty-five years has moved us toward greater inequality in three distinct ways. The first involves moving a larger share of the total national wealth into the hands of the financial sector. The second involves concentrating on activities that are of questionable value, or even detrimental to the economy as a whole. And finally, finance has increased inequality by convincing corporate executives and asset managers that corporations must be judged not by the quality of their products and workforce but by one thing only: immediate income paid to shareholders.
The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent. This isn't just the decline of profits in other industries, either. Between 1980 and 2006, while GDP increased five times, financial-sector profits increased sixteen times over. While financial and nonfinancial profits grew at roughly the same rate before 1980, between 1980 and 2006 nonfinancial profits grew seven times while financial profits grew sixteen times.
This trend has continued even after the financial crisis of 2008 and subsequent financial reforms, including the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Financial profits in 2012 were 24 percent of total profits, while the financial sector's share of GDP was 6.8 percent. These numbers are lower than the high points of the mid-2000s; but, compared to the years before 1980, they are remarkably high.
This explosion of finance has generated greater inequality. To begin with, the share of the total workforce employed in the financial sector has barely budged, much less grown at a rate equivalent to the size and profitability of the sector as a whole. That means that these swollen profits are flowing to a small sliver of the population: those employed in finance. And financiers, in turn, have become substantially more prominent among the top 1 percent. Recent work by the economists Jon Bakija, Adam Cole, and Bradley T. Heim found that the percentage of those in the top 1 percent of income working in finance nearly doubled between 1979 and 2005, from 7.7 percent to 13.9 percent.
If the economy had become far more productive as a result of these changes, they could have been worthwhile. But the evidence shows it did not. Economist Thomas Philippon found that financial services themselves have become less, not more, efficient over this time period. The unit cost of financial services, or the percentage of assets it costs to produce all financial issuances, was relatively high at the dawn of the twentieth century, but declined to below 2 percent between 1901 and 1960. However, it has increased since the 1960s, and is back to levels seen at the early twentieth century. Whatever finance is doing, it isn't doing it more cheaply.
In fact, the second damaging trend is that financial institutions began to concentrate more and more on activities that are worrisome at best and destructive at worst. Harvard Business School professors Robin Greenwood and David Scharfstein argue that between 1980 and 2007 the growth in financial-industry revenues came from two things: asset management and loan origination. Fees associated either with asset management or with household credit in particular were responsible for 74 percent of the growth in financial-sector output over that period.
The asset management portion reflects the explosion of mutual funds, which increased from $134 billion in assets in 1980 to $12 trillion in 2007. Much of it also comes from "alternative investment vehicles" like hedge funds and private equity. Over this time, the fee rate for mutual funds fell, but fees associated with alternative investment vehicles exploded. This is, in essence, money for nothing-there is little evidence that hedge funds actually perform better than the market over time. And, unlike mutual funds, alternative investment funds do not fully disclose their practices and fees publicly.
Beginning in 1980 and continuing today, banks generate less and less of their income from interest on loans. Instead, they rely on fees, from either consumers or borrowers. Fees associated with household credit grew from 1.1 percent of GDP in 1980 to 3.4 percent in 2007. As part of the unregulated shadow banking sector that took over the financial sector, banks are less and less in the business of holding loans and more and more concerned with packaging them and selling them off. Instead of holding loans on their books, banks originate loans to sell off and distribute into this new type of banking sector.
Again, if this "originate-to-distribute" model created value for society, it could be a worthwhile practice. But, in fact, this model introduced huge opportunities for fraud throughout the lending process. Loans-such as "securitized mortgages" made up of pledges of the income stream from subprime mortgage loans-were passed along a chain of buyers until someone far away held the ultimate risk. Bankers who originated the mortgages received significant commissions, with virtually no accountability or oversight. The incentive, in fact, was perverse: find the worst loans with the biggest fees instead of properly screening for whether the loans would be any good for investors.
The same model made it difficult, if not impossible, to renegotiate bad mortgages when the system collapsed. Those tasked with tackling bad mortgages on behalf of investors had their own conflicts of interests, and found themselves profiting while loans struggled. This process created bad debts that could never be paid, and blocked attempts to try and rework them after the fact. The resulting pool of bad debt has been a drag on the economy ever since, giving us the fall in median wages of the Great Recession and the sluggish recovery we still live with.
And of course it's been an epic disaster for the borrowers themselves. Many of them, we now know, were moderate- and lower-income families who were in no financial position to borrow as much as they did, especially under such predatory terms and with such high fees. Collapsing home prices and the inability to renegotiate their underwater mortgages stripped these folks of whatever savings they had and left them in deep debt, widening even further the gulf of inequality in this country.
Moreover, financialization isn't just confined to the financial sector itself. It's also ultimately about who controls, guides, and benefits from our economy as a whole. And here's the last big change: the "shareholder revolution," started in the 1980s and continuing to this very day, has fundamentally transformed the way our economy functions in favor of wealth owners.
To understand this change, compare two eras at General Electric. This is how business professor Gerald Davis describes the perspective of Owen Young, who was CEO of GE almost straight through from 1922 to 1945: "[S]tockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer." Davis contrasts that ethos with that of Jack Welch, CEO from 1981 to 2001; Welch, Davis says, believed in "the shareholder as king-the residual claimant, entitled to the [whole] pot of earnings."
This change had dramatic consequences. Economist J. W. Mason found that, before the 1980s, firms tended to borrow funds in order to fuel investment. Since 1980, that link has been broken. Now when firms borrow, they tend to use the money to fund dividends or buy back stocks. Indeed, even during the height of the housing boom, Mason notes, "corporations were paying out more than 100 percent of their cash flow to shareholders."
This lack of investment is obviously holding back our recovery. Productive investment remains low, and even extraordinary action by the Federal Reserve to make investments more profitable by keeping interest rates low has not been able to counteract the general corporate presumption that this money should go to shareholders. There is thus less innovation, less risk taking, and ultimately less growth. One of the reasons this revolution was engineered in the 1980s was to put a check on what kinds of investments CEOs could make, and one of those investments was wage growth. Finance has now won the battle against wage earners: corporations today are reluctant to raise wages even as the economy slowly starts to recover. This keeps the economy perpetually sluggish by retarding consumer demand, while also increasing inequality.
How can these changes be challenged? The first thing we must understand is the scope of the change. As Mason writes, the changes have been intellectual, legal, and institutional. At the intellectual level, academic research and conventional wisdom among economists and policymakers coalesced around the ideas that maximizing returns to shareholders is the only goal of a corporation, and that the financial markets were always right. At the legal level, laws regulating finance at the state level were overturned by the Supreme Court or preempted by federal regulators, and antitrust regulations were gutted by the Reagan administration and not taken up again.
At the institutional level, deregulation over several administrations led to a massive concentration of the financial sector into fewer, richer firms. As financial expertise became more prestigious than industry-specific knowledge, CEOs no longer came from within the firms they represented but instead from other firms or from Wall Street; their pay was aligned through stock options, which naturally turned their focus toward maximizing stock prices. The intellectual and institutional transformation was part of an overwhelming ideological change: the health and strength of the economy became identified solely with the profitability of the financial markets.
This was a bold revolution, and any program that seeks to change it has to be just as bold intellectually. Such a program will also require legal and institutional changes, ones that go beyond making sure that financial firms can fail without destroying the economy. Dodd-Frank can be thought of as a reaction against the worst excesses of the financial sector at the height of the housing bubble, and as a line of defense against future financial panics. Many parts of it are doing yeoman's work in curtailing the financial sector's abuses, especially in terms of protecting consumers from fraud and bringing some transparency to the Wild West of the derivatives markets. But the scope of the law is too limited to roll back these larger changes.
One provision of Dodd-Frank, however, suggests a way forward. At the urging of the AFL-CIO, Dodd-Frank empowered the Securities and Exchange Commission to examine the activities of private equity firms on behalf of their investors. At around $3.5 trillion, private equity is a massive market with serious consequences for the economy as a whole. On its first pass, the SEC found extensive abuses. Andrew Bowden, the director of the SEC's examinations office, stated that the agency found "what we believe are violations of law or material weaknesses in controls over 50 percent of the time."
Lawmakers could require private equity and hedge funds to standardize their disclosures of fees and holdings, as is currently the case for mutual funds. The decline in fees for mutual funds noted above didn't just happen by itself; it happened because the law structured the market for actual transparency and price competition. This will need to happen again for the broader financial sector.
But the most important change will be intellectual: we must come to understand our economy not as simply a vehicle for capital owners, but rather as the creation of all of us, a common endeavor that creates space for innovation, risk taking, and a stronger workforce. This change will be difficult, as we will have to alter how we approach the economy as a whole. Our wealth and companies can't just be strip-mined for a small sliver of capital holders; we'll need to bring the corporation back to the public realm. But without it, we will remain trapped inside an economy that only works for a select few.
[Whew!]
"3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5"
~~RC AKA Darryl, Ron ~Growth of the non-financial-sector == growth in productivity
Growth of the financial-sector == growth in upward transfer of wealth
Ostensibly financial-sector is there to protect your money from being eaten up by inflation. Closer inspection shows that the prevention of *eaten up* is by the method of rent collection.
Accountants handle this analysis poorly, but you can see what is happening. Boiling it down to the bottom line you can easily see that wiping out the financial sector is the remedy to the Piketty.
Hell! Financial sector wiped itself out in 008. Problem was that the GSE and administration brought the zombie back to life then put the vampire back at our throats. What was the precipitating factor that snagged the financial sector without warning?
Unexpected
deflation
!Gimme some
of thatpgl said in reply to djb...
Rock O Sock O Choco said in reply to djb... December 18, 2015 at 06:26 PMPeople like Brad DeLong have noted this for a while. Twice as many people making twice as much money per person. And their true value to us - not a bit more than it was back in the 1940's.
JEC - MeanSquaredErrors said...
tew said...Wait, what?
Piketty looks at centuries of data from all over the world and concludes that capitalism has a long-run bias towards income concentration. Baker looks at 35 years of data in one country and concludes that Piketty is wrong. Um...?
A little more generously, what Baker actually writes is:
"The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to **this** rapid rise in inequality, as for example argued by Thomas Piketty." (emphasis added)
But Piketty has always been very explicit that the recent rise in US income inequality is anomalous -- driven primarily by rising inequality in the distribution of labor income, and only secondarily by any shift from labor to capital income.
So perhaps Baker is "correctly" refuting Straw Thomas Piketty. Which I suppose is better than just being obviously wrong. Maybe.
cm said in reply to tew...Some simple math shows that this assertion is false "As a result of this upward redistribution, most workers have seen little improvement in living standards" unless you think an apprx. 60% in per-capita real income (expressed as GDP) among the 99% is "little improvement".
Real GDP 2015 / Real GDP 1980 = 2.57 (Source: FRED)
If the income share of the 1% shifted from 10% to 20% then The 1%' real GDP component went up 410% while that of The 99% went up 130%. Accounting for a population increase of about 41% brings those numbers to a 265% increase and a 62% increase.Certainly a very unequal distribution of the productivity gains but hard to call "little".
I believe the truth of the statement is revealed when you look at the Top 5% vs. the other 95%.
pgl said in reply to tew...For most "working people", their raises are quickly eaten up by increases in housing/rental, food, local services, and other nondiscretionary costs. Sure, you can buy more and better imported consumer electronics per dollar, but you have to pay the rent/mortgage every months, how often do you buy a new flat screen TV? In a high-cost metro, a big ass TV will easily cost less than a single monthly rent (and probably less than your annual cable bill that you need to actually watch TV).
Are you trying to be the champion of the 1%? Sorry dude but Greg Mankiw beat you to this.
anne said...
anne said in reply to anne...In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period....
-- Dean Baker
anne said in reply to don...http://www.census.gov/hhes/www/income/data/historical/household/
September 16, 2015
Real Median Household Income, 1980 & 2014
1980 ( 48,462)2014 ( 53,657)
53,657 - 48,462 = 5,1955,195 / 48,462 = 10.7%
Between 1980 and 2014 real median household income increased by a mere 10.7%.anne said in reply to anne...I would be curious to know what has happened to the number of members per household....
http://www.census.gov/hhes/www/income/data/historical/household/
September 16, 2015
Household Size
2014 ( 2.54)
1980 ( 2.73)[ The difference in household size to real median household incomes is not statistically significant. ]
cm said...http://www.census.gov/hhes/www/income/data/historical/families/index.html
September 16, 2015
Real Median Family Income, 1948-1980-2014
1948 ( 27,369)1980 ( 57,528)
2014 ( 66,632)
57,528 - 27,369 = 30,15930,159 / 27,369 = 110.2%
66,632 - 57,528 = 9,1049,104 / 57,528 = 15.8%
Between 1948 and 1980, real median family income increased by 110.2%, while between 1980 and 2014 real median family income increased by a mere 15.8%."protectionist measures that have boosted the pay of doctors and other highly educated professionals"
Protectionist measures (largely of the variety that foreign credentials are not recognized) apply to doctors and similar accredited occupations considered to be of some importance, but certainly much less so to "highly educated professionals" in tech, where the protectionism is limited to annual quotas for some categories of new workers imported into the country and requiring companies to pay above a certain wage rate for work visa holders in jobs claimed to have high skills requirements.
A little mentioned but significant factor for growing wages in "highly skilled" jobs is that the level of foundational and generic domain skills is a necessity, but is not all the value the individual brings to the company. In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers.
This applies less so e.g. in medicine. There are of course many heavily specialized disciplines, but a top flight brain or internal organ surgeon can essentially work on any person. The variation in the subject matter is large and complex, but much more static than in technology.
That's not to knock down the skill of medical staff in any way (or anybody else who does a job that is not trivial, and that's true for many jobs). But specialization vs. genericity follow a different pattern than in tech.
Another example, the legal profession. There are similar principles that carry across, with a lot of the specialization happening along different legislation, case law, etc., specific to the jurisdiction and/or domain being litigated.
|
|
|
Dec 15, 2015 | The Fiscal Times
White House spokesperson Josh Earnest described Donald Trump as "offensive and toxic," though that only begins to describe the corrosive effect his bigotry, divisiveness, and xenophobia have on our society. It is at odds with our values as a nation.
It's also bad for the economy.
A divided society cannot function optimally, especially when the divisions erect walls between groups that are difficult to cross. There are all sorts of attempts to divide us right now, but I want to focus on something other than the bigotry that has been on display in the Republican race for the presidential nomination, the division into winners and losers.
It might seem at first that this is exactly what capitalism does. It uses competition to separate people into various income classes, decide who gets the best jobs, who gets to live in desirable locations – it decides who wins and who loses. Some people, hopefully those who have earned it, do well and others fall behind. This drive to be a winner, it is argued, is the driving force behind capitalism.
To some extent that's correct, but competitive capitalism is not divisive. In fact, it is just the opposite. Competition is a great leveling force.
For example, when a firm discovers something new, other firms, if they can, will copy it and duplicate the innovation. If a firm finds a highly profitable strategy, other firms will mimic it and take some of those profits for themselves. A firm might temporarily separate itself from other firms in an industry, but competition will bring them back together. Sometimes there are impediments to this leveling process such as patents, monopoly power, and talent that is difficult to duplicate, but competition is always there, waiting and watching.
Competition also drives us forward individually and as a nation. It is a source of new innovation and new technology as people and firms try to find ways to do better than others, to earn higher incomes, gain more popularity, to escape from the pack. People pursue education and other ways to improve themselves not just as a source of knowledge, but also as a way to distinguish themselves.
However, any successful strategy will be followed. There are differences in talents and abilities, of course, that prevent a full leveling, but to the extent possible people will copy anything that leads to success. The fact that this is true – that capitalism will take away gains and differences if it can – is what drives people to continue to try to get ahead. If you rest on your laurels, they will be taken away.
But there is an essential feature in the system that makes it work, and this takes us back to the attempt by Trump and the Republican Party more generally to erect walls between groups of people. The system works best when people have the freedom to enter a new business (if they have the means and are willing to take the risk). It works best when people compete for jobs on equal footing, have access to the same opportunities, when there are no artificial barriers in society that prevent people from reaching their full potential.
Inequality erects those barriers as those who have been fortunate try to protect themselves from capitalism's inherent tendency to erode away their superior position. They feel threatened by competition and do all they can to avoid it once they have found success. And it's not just the wealthy. Even the middle class will attempt to erect roadblocks – social, legal, whatever it takes – if it feels threatened from competition from traditionally disadvantaged groups.
When those barriers exist, talent is wasted and we are worse off as a nation. How many great ideas will never be known simply because some people never had the education or opportunity needed to draw the ideas out?
But it's not just the children of poorer households that are disadvantaged by inequality. The children of the wealthy have no incentive, in many cases, to reach their full potential. Why struggle, take risks, do the hard work that is needed to come up with a new and useful idea when your needs are already taken care of? How much talent is wasted because of this?
It is not inequality that drives innovation and economic growth--it is the attempt to escape the leveling forces of capitalism. If we truly wanted to produce the most economic growth, everyone should start off equal to the extent possible. That way, everyone would have the incentive to differentiate themselves from others, and the means to do so. Inheritance taxes would be 100 percent; schools would be assigned randomly to ensure there's an incentive to equalize resources, and so on, and so on.
Of course, that will never happen. As we're seeing in the presidential election, those with means are trying to make the divisions larger rather than break them down. They tell us inequality drives our economy, when in fact inequality is an outcome, the driving force behind it is the desire to escape the equalizing forces of competition. Inequality as a starting point takes away opportunity from the children of the poor, and it dulls incentives for the children of the rich. It's not hard to understand why recent research has found that high and persistent inequality is associated with lower economic growth.
Separating the winners from the losers is okay if it is based on merit. If we start equally, and have the same chance to get ahead, then unequal outcomes are less of a concern. The problem is that some people are born "winners" even though they have done nothing to earn it, and others have little chance to win due to our unwillingness to truly embrace what equal opportunity means.
And, as Republican campaigns for the presidential nomination are making abundantly clear, that's just the way some people want it.
|
|
|
Dec 14, 2015 | Economist's View
Syaloch said in reply to cm...
So you think that offshoring does not eventually increase living standards in the destination countries? That's odd. What's your evidence?
Automation may not be the first response, but it's always in the equation:
CEO: "Those pesky foreign workers are asking for more again! Machines are so much easier to work with. Can we replace them with machines yet?"
CTO: "Let me check... No, not yet, but a lot of smart people are working on it."
CEO: "OK, then let's look for another offshoring partner with more complacent workers for now and revisit this later."
The answer to this automation question only has to be yes once to permanently change the playing field.
reason said...
I actually think that the bigger effect is not just offshoring, but a vicious circle relating to increasing inequality. After all, most of the economy today is services, but if normal people can't afford the services anymore, then that will of course stagnate, forcing down wages decreasing the affordability even more (or causing substitution of inferior automated or remote services).
That is why the one employment bright spot is medical services which are subsidised (one way or the other) almost everywhere. We really have to investigate more the distribution of the circulation of money, how the concentration of money in a few hands means that money circulates through relatively hands. I don't know of anybody who actually investigates this. You could say, it is the disaggregation-is-important problem.
reason said...
One thing that really annoys with political discussion today is the dominance of money illusion. This is particularly extreme in the Euro area today where Germans keep complaining that so and so will be taking "our tax money". No one ever seems to stop and think, "where does the money come from in the first place", and yet, in macro-economics, this is absolutely the most important question. Nobody even seems to notice that both deleveraging and bankruptcy actively destroy money and that money needs to be replaced.
RC AKA Darryl, Ron said in reply to pgl...
"...the empty suits running GM and Ford were both greedy and incompetent..."
[Yep!]
http://www.amazon.com/The-United-States-Toyota-Squandered/dp/1592993028
The United States of Toyota: How Detroit Squandered Its Legacy and Enabled Toyota to Become America's Car Company
September 11, 2007
by Peter M. DeLorenzo
The United States of Toyota is many stories in one. First and foremost, it is a business story, detailing the decline of the American automobile industry - and the simultaneous rise of an Asian manufacturer to take its place. It is also a history book, providing an intimate portrait of the larger-than-life personalities and cars that led the American auto industry through its glory days and down the path toward extinction. It is a political/current affairs piece, presenting the rise of a Japanese company - Toyota - not just in terms of its sales success but also in terms of its cultural success, as it works to assimilate into American society. And finally, it is a never-before-seen primer on Detroit - The Motor City - a town and a region dominated by the auto companies, their suppliers and their ad agencies - and by a mindset and culture all its own. In commentary that is as accurate as it is blunt, Peter De Lorenzo presents the players and the action in the auto business in a way not seen before in print. His voice is unique and refreshingly candid. His provocative analyses and assessments - grounded in personal experience and a lifelong immersion in all things automotive - present a compelling picture of the state of the auto business - how it used to be, what it has become and where it is headed. From the arrogance and short-sightedness of the Detroit manufacturers to the acumen and relentlessness of Toyota, The United States of Toyota paints an insightful portrait of an iconic American industry as it struggles for survival in the early years of the 21st century.
http://www.amazon.com/The-End-Detroit-American-Market/dp/0385507704
The End of Detroit: How the Big Three Lost Their Grip on the American Car Market
September 21, 2004
by Micheline MaynardAn in-depth, hard-hitting account of the mistakes, miscalculations and myopia that have doomed America's automobile industry.
In the 1990s, Detroit's Big Three automobile companies were riding high. The introduction of the minivan and the SUV had revitalized the industry, and it was widely believed that Detroit had miraculously overcome the threat of foreign imports and regained its ascendant position. As Micheline Maynard makes brilliantly clear in THE END OF DETROIT, however, the traditional American car industry was, in fact, headed for disaster. Maynard argues that by focusing on high-profit trucks and SUVs, the Big Three missed a golden opportunity to win back the American car-buyer.
Foreign companies like Toyota and Honda solidified their dominance in family and economy cars, gained market share in high-margin luxury cars, and, in an ironic twist, soon stormed in with their own sophisticatedly engineered and marketed SUVs, pickups and minivans. Detroit, suffering from a "good enough" syndrome and wedded to ineffective marketing gimmicks like rebates and zero-percent financing, failed to give consumers what they really wanted - reliability, the latest technology and good design at a reasonable cost. Drawing on a wide range of interviews with industry leaders, including Toyota's Fujio Cho, Nissan's Carlos Ghosn, Chrysler's Dieter Zetsche, BMW's Helmut Panke, and GM's Robert Lutz, as well as car designers, engineers, test drivers and owners, Maynard presents a stark picture of the culture of arrogance and insularity that led American car manufacturers astray. Maynard predicts that, by the end of the decade, one of the American car makers will no longer exist in its present form.
*
[Like the executives of the US steel industry before them, the management of the big three (plus one) US automakers possessed legendary inabilities when it came to product development and production quality control. One can only imagine that their golf games must have been better than their understanding of auto making.]
pgl said in reply to RC AKA Darryl, Ron...
Exactly - products designs that were better than our. Lean production which we were slow to adapt. And there are those Jan commercials. Toyotas are selling like crazy. But at least Ford and GM is finally under new management.
sanjait said in reply to pgl...
A few decades later ... Ford and GM do indeed look to be getting their act together. I'd buy a car from either one of those companies today.
lower middle class said...
Paging Dr. Proteus... Dr. Paul Proteus!
cm said in reply to lower middle class...
That was automation, not offshoring.
Syaloch said in reply to cm...
In the end that's a distinction without a difference.
Julio said in reply to Syaloch...
Yes, I see offshoring as a transitional stage while foreign workers are cheaper than machines.
RC AKA Darryl, Ron said in reply to Julio...
Machines could not open up SE Asian markets to US firms in the way that offshoring could.
Syaloch said in reply to RC AKA Darryl, Ron...
Suppose we visited those factories from Player Piano and discovered that the few highly educated workers remaining were not overseeing automated machines, but rather shipping raw materials over to a foreign country where goods were produced by low-wage laborers. In terms of the domestic economy, would that make any difference?
Large-scale offshoring was enabled by machines that made the exchange of goods and information between remote locations possible. Whatever residual labor component is involved is merely an automation problem that hasn't been solved... yet.
RC AKA Darryl, Ron said in reply to Syaloch...
MNCs wanted their capital investment to have access to the markets with the most growth potential. Regulatory and FOREX arbitrage helped. Labor costs were low on the totem pole.
Syaloch said in reply to RC AKA Darryl, Ron...
That's more true with offshored manufacturing than with services. US companies aren't sending call center jobs to India because they hope to serve the Indian market.
But even with regard to manufacturing labor costs are obviously a major consideration. Just watch any episode of "Shark Tank" and listen to the sharks explain how stupid anyone is for trying to manufacture anything here in the US. Are t-shirts sewn in Bangladesh because of the huge growth potential in apparel sales there? Were the Mexican maquiladoras set up to have better access to the Mexican market?
lower middle class said in reply to cm...
The plot was about automation, but the moral was about humanity. :)
"The main business of humanity is to do a good job of being human beings," said Paul, "not to serve as appendages to machines, institutions, and systems."
― Kurt Vonnegut, Player PianoSyaloch said in reply to lower middle class...
Toward the end of Player Piano the Shah of Bratpuhr asks a very good question: What are people for?
When I first read Player Piano I also happened by pure chance to be reading a collection of essays by Wendell Berry titled "What Are People For?"
The eponymous essay from Berry's collection was a great complement to Vonnegut's book.
lower middle class said in reply to Syaloch...
Time for me to visit the library, thanks Syaloch!
reason said...
New Deal democrat
Yes, it is part of your name (and was copied then throughout the Western world). Then of course there was the Russian and Chinese revolutions, which at least initially were very egalitarian.New Deal democrat said in reply to reason...
I think you misunderstood my point, which was about liberalizing international trade. I'm not 100% sure, but I don't think that was a really high priority of the Russian and Chinese revolutions. :)
pgl said in reply to New Deal democrat...
I studied Russian history. Free trade was not exactly what drove Lenin. And it is certainly not what drives Putin.
PPaine said in reply to New Deal democrat...
There was a significant debate about trade early on with bukharin advocating. Two way openness. And Lenin a two way state monopoly. Lenin anticipated what happened to russia after the wall fell ....70 or so years later.
He had a keen insight into MNCs free for all tactics. Unfortunately state concessions which he supported faced a tacit constriction.
Despite notable exceptions including Pater Koch
reason said...
P.S. New Deal democrat
It is not the PRODUCERS who have a huge incentive to make sure it never happens. Au contraire, they want their consumers to have more money. It is the OWNERS who want to make sure it never happens because that would dilute their power.
RC AKA Darryl, Ron said in reply to reason...
Yep. Capital gains... and gains... and gains, until there is little left for labor gains.
pgl said in reply to RC AKA Darryl, Ron...
Nike makes obscene profits. And for what? Designing new shoes? They don't make anything - their third party Chinese manufacturers do the hard work at low wages. BTW - the US does not get to tax those Nike profits as they end up in Bermuda.
|
|
|
Economist's View
Syaloch said in reply to anne...
In other news, here at home we're shrinking too.
http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground/
The American Middle Class Is Losing Ground
No longer the majority and falling behind financiallyAfter more than four decades of serving as the nation's economic majority, the American middle class is now matched in number by those in the economic tiers above and below it. In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point, according to a new Pew Research Center analysis of government data.
Peter K. said...
I don't believe I've seen DeLong talk this way before. He and Krugman often focus on the Republicans or the European VSPs, with good reason.
But if Hillary doesn't move the ball down the field despite Republican opposition, increasing inequality will make politics worse and worse.
Live from Evans Hall: I would merely point out that the out-of-touch elite is not confined to the Republican Party. There are substantial elements within the Brookings-Third Way wing of the Democratic coalition that would rather cut Social Security than establish a sensible retirement-income system, and that would rather cut Medicare than improve the efficiency of health care finance and delivery, after all.
As all of the authors of the Brookings-AEI joint "consensus plan for reducing poverty and restoring the American dream" write:
there are reasonable ways both to cut spending and to raise revenue that are consistent with our core values. For example, Social Security spending is projected to consume over one percentage point more of national income in 2040 than it does today...
Why a one-percentage-point rise in the GDP share of Social Security is something that calls in any technocratic sense for cuts to the Social Security system is something that eludes me. What cutting Social Security has to do with reducing poverty eludes me. But it is something that all fifteen of the authors thought was so obvious as to require no explanation or justification whatsoever...
Paul Krugman: Empowering the Ugliness: "The story is quite different in America...
Continue reading "" "
|
|
|
angrybearblog.com
Angry Bear... ... ...
The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation.
Krugman posted a graph showing how the US graph of inflation and unemployment has changed (just click the link and look). In the past high unemployment gradually lead to lower inflation and then to lower inflation and unemployment - this is the pattern predicted by Friedman, Phelps, Tobin (and discussed already by Samuelson and Solow in 1960). But in the recent past extremely high unemployment has come with low and stable core inflation.
Things used look very different here in Italy than in the USA. Here is a graph of data from before January 2008. Extremely high unemployment was consistent with moderate and then with low inflation. The only clear shift in inflation occurred in 1996 and 1997 (which may or may not be when Italians began to think they might actually earn the wonderful reward of being allowed to adopt the Euro).
By 2008, The flat Phillips curve (the Fillipo curve?) was already very clear to anyone who read Italian newspapers.
Here are all data which are available on FRED (yes I sit in Rome and surf to St Louis for Italian data). Oddly the harmonized unemployment series is only available (at FRED) from 1983 on.
In this graph there is also very little sign of Friedman-Phelps cycles. The old pattern was a steady decline from extremely high inflation - it looks almost like an expectations unaugmented Phillips curve. But then (really from 1986 on) there was fairly stable moderate to low inflation along with extreme swings in unemployment. I stress that this is CPI inflation including food and energy not core inflation. the peak oil spike in 2007 and the collapse in 2008 are clearly visible. It is possible that the most recent observations show a slide to actual persistent deflation, but it is more likely that the recent decline in inflation is due to the collapse of the price of oil.
Unlearning economic paradigms | Bruegel , November 30, 2015 7:22 am
[…] Robert Waldmann writes that that the reason Krugman was surprised by the failure of the supply side is that he didn't pay enough attention to the European unemployment problem. The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation. By 2008, the flat Phillips curve was already very clear to anyone who read Italian newspapers. […]
|
|
|
Dec 10, 2015 | naked capitalism
David Carl GrimesAccording to the Credit Suisse Global Wealth Report, the middle class makes up only 38% of US adults. The poor make up 50%!
https://www.credit-suisse.com/ch/en/about-us/research/research-institute/publications.html
CliveThe only real population growth in the US is at the extreme lower end. Nowadays we see fewer and fewer white baby boomers working. For now employers can hold their prices up somewhat because the baby boomers still consume and the employers now can profit because their labor gets less and less money. This will only last until the baby boomers die out. The replacement workforce and the workforce for the future is brown and sees minimum wage as a huge improvement over the situation in their native countries. The US is in the midst of transforming itself into a much lower wage environment for all employers. This study should be combined with a demographic analysis. My suspicion is that the "middle class" is simply dying off to be replaced by third world refugees who are going to earn a lot less.
Where I live most of the houses around are the definition of "middle class" for England, and it has been a middle class neighbourhood for about a century. You can tell this from the houses types - starting at Edwardian villas with an attic for one (two at the most) live-in maids which would have been the bottom-run of middle class at the time, through to post-war medium sized houses, townhouses, a couple retirement bungalows then some more recent building from the mid-1990's. Nothing is much over 2000 sq. ft. and most are a little less than that. The majority of residents have lived here for 20+years (until recently, it had an extremely stable population base) and their occupations are, again, what you'd have thought of as being text-book middle class (teachers, local government mid-ranking managers, skilled manufacturing, some semi-skilled such as CNC machine operators but no unemployed households or people who are forced to rely on social security.
Now the most telling part: Of the households with children in their twenties (a mixture of high school only and graduates in an approximately 50/50 mix of the two) none - absolutely none - can afford to live in the same style as their parents did. I will emphasis again, this is not historically 1%'er or even a 10%'er neighbourhood. Up until the last 20 years, it was the middle of the middle. Those will college educations (most have had to return to their parents' houses, which is a social issue in itself) are having to wait until they - so they hope - get pay significant rises from their starting salaries to find a place which is not so far down the level they have been accustomed to or else move in with a partner (which again is a social issue because relationships are more difficult to sustain if they begin to be forced by the need to find suitable accommodation).
Those with no college degree are having, again, to live with their parents until they can afford somewhere to rent. This sounds ridiculous (the whole point of renting should be that you don't need to tie up capital or much savings) but because rents are so high this close to London, such a significant portion of their likely incomes will be tied up in rent that they need a cash cushion to survive the inevitable periods where work is not easy to come by and they have to take whatever is offered. Either that or, again, they need to be in a relationship and have someone to split the rent with. But founding a relationship is kind-a hard while living with your folks.
Traditionally, parents might have been able to help their kids with a loan deposit. But many parents already cleared themselves out of their own savings paying tuition fees and the worst excesses of their children's student loans so they would at least not end up starting out £30-£50k in debt. Even if they hadn't done that, a 10% deposit comes in at £25k on the sorts of housing which the middle classes expect to be living in - the kids' parents have been so hollowed out over the last two decades that they don't have that sort of money lying around. Oh, and even if they did, a £225k mortgage is - rightly - outside of most mainstream lender's mortgage criteria for those on a "middle class" job/salary combination as huge salary multiples are no longer available.
Even with college educations, while people in their twenties might be fairly able to get a job in London and the Home Counties paying, say, £30k pa. before taxes, they will have travel costs of £3-5k a year which takes a big chunk out of that before they've even started. Student loan payments will take another couple of thousand out of pre-tax income. If they live link monks (or nuns), they might just about be able to save £5 to £10k a year. Which means it will be another 5 to 7 years before they can achieve any sort of financial or family-life independence - they'll be pushing 30 in other words.
Without college, they are facing renting very poor accommodation for the rest of their days, with no viable option to improve their lot.
So it's RIP the Middle Class, in South East England anyway. If it's died here, I can't think where it might still have any hope of being alive. I've not even mentioned pension provision here, so old age will hold no succour whatsoever.
The FT piece was a Panglossian interpretation of this reality.
perpetualWARJust wanted to say I appreciated this comment. I see the realness of what you have described in Central Ohio, USA myself. Thank you.
I am a former 6-figure earner who has been fighting foreclosure on my house for six years. Right before the last go-round with the bank, I lost the job I got in 2010 (after a year and a half of unemployment.) So, rather than getting a job, I fought the foreclosure pro se for two years.
Just got new employment and am earning $14/hr.
BTW, my former career was marketing to architects. The gal in Atlanta is crazy to think that the newest construction boom will keep her employed. During my employment in 2010, I would ask architectural firms how the Greatest Depression affected their office. Most never responded to that question, however I will never forget one pricipal replied, "Eight out of our ten employees lost their homes to foreclosure."
You just can't bounce back after losing everything in middle age.
allanDamn those neo-liberals, damn them to hell!
PraedorIn 1997, some guy wrote this about the effects of globalization:
Critics of the global economy invariably reply that America may be creating lots of jobs but that they are tenuous because of the prevalence of downsizing, which is a reaction to international competition (a line of reasoning that also provides a good excuse for companies undertaking layoffs).
Come again? Newsweek ran a story last year, titled "The Hit Men," about executives responsible for massive layoffs. The chief executives of AT&T, Nynex, Sears, Philip Morris and Delta Air Lines were high on the list. Of course, international competition plays a role in some downsizings, but as Newsweek's list makes clear, it is hardly the most important cause of the phenomenon. To my knowledge there are no Japanese keiretsu competing to carry my long-distance calls or South Korean conglomerates offering me local service. Nor have many Americans started buying their home appliances at Mexican stores or smoking French cigarettes. I cannot fly Cathay Pacific from Boston to New York. …
Many on the left dislike the global marketplace because it epitomizes what they dislike about markets in general: the fact that nobody is in charge. The truth is that the invisible hand rules most domestic markets, too, a reality that most Americans seem to accept as a fact of life. But those who would like to see us revert to a more managed society in all ways hope that popular unease over the economic influence of people who live in far-off places and have funny-sounding names can be used as the thin end of an ideological wedge.
If a vanishing middle-class is the price that needs to be paid for the triumph of Econ 101, so be it. /s
The ONLY reason these corporate scum downsize is to artificially drive up "productivity" numbers, not real growth in anything, just productivity (because fewer workers NOW have to do the work of 3, and THAT for less pay than before! Instant explosion in productivity!). This only serves to bump up share prices which don't actually reflect anything of value or even approach reality on its own terms. They get to say, "See? Massive increase in productivity, so pay me a bazillion damn dollars in 'bonus'".
Every pay cut, every job loss should be legally tied to a requirement to lay off a proportionate number of execs AND a proportional cut to top pay and compensation. The income of the top MUST be hard-locked to pay for workers. Worker pay and compensation decreases, then so MUST executive pay and compensation.
If we reasoned similarly in physics, we should probably discover that weights possessed the property of levitation. It is the economist's definition of wealth that is at fault …
Frederick Soddy, WEALTH, VIRTUAL WEALTH AND DEBT, p. 78
As Ruskin said, logical definition of wealth is absolutely needed for the basis of economics needed for the basis of economics if it is to be a science.
ibid, p. 102
"But the securities of American millionaires can be exchanged in a flash for any currency in the world, for land, for other stocks and bonds. The wealth of the Indian princes is immobile, static; the wealth of their American counterparts is mobile, dynamic. In the money markets of the world the feudal wealth of the Indian princes is of no consequence."
Ferdinand Lundberg, "America's 60 Families", The Vanguard Press, New York, 1937, p. 7
Multiply that 'wealth' by the leverage a country's bankers are able to create with fractional reserve lending and you get:"Finance is the new form of warfare - without the expense of a military overhead and an occupation against unwilling hosts."
http://michael-hudson.com/2010/10/why-the-imf-meetings-failed/
America's and Europe's middle class is dying because:
a. time marches on. We don't need armies of workers laboring day and night to create REAL, NEEDED wealth
b. the world's 0.01% would rather continue "doing God's work" than share the wealth created by advances in science and technology with their "laboring cattle". A leisure class with a genuine clue about what real needed wealth is and what is really happening in the world constitutes a genuine threat to the established order and to all that 'wealth' the 0.01% has piled up in the form of money. (See graph above)All those jobs this country has off-shored with all the technology and education it takes to perform them ARE real wealth – along with things like renewable energy.
If it really is such a big surprise that countries like China are becoming relatively more wealthy and powerful than the U.S. then the world's rich really are as stupid as many of us believe they are.
KeithWell, I'll throw in a socialist comment and hope I'm not flamed.
Isn't it the case that everyone needs a roof over their heads, food and clothing? Perhaps a bicycle too. These things and free education are the minimum a government should supply to its people.
America was a young country full of opportunity, like China a decade or two ago. As a nation matures the wealth concentrates without strong progressive taxation and high inheritance taxes. Now US social mobility is on a par with the UK, putting it at the second lowest in Europe which is pretty bad. Our privately educated elite are an obvious cause of low social mobility in the UK and perhaps private universities are doing the same job in the US.
If we want equality of opportunity we should think what a meritocracy would look like.
"What is a meritocracy?"
1) In a meritocracy everyone succeeds on their own merit.
This is obvious, but to succeed on your own merit, we need to do away the traditional mechanisms that socially stratify society due to wealth flowing down the generations. Anything that comes from your parents has nothing to do with your own effort.
2) There is no un-earned wealth or power, e.g inheritance, trust funds, hereditary titles
In a meritocracy we need equal opportunity for all. We can't have the current two tier education system with its fast track of private schools for people with wealthy parents.
3) There is a uniform schools system for everyone with no private schools.
Thinking about a true meritocracy then allows you to see how wealth concentrates.
Inheritance and trust funds are major contributors.
When you start off with a lot of capital behind you, you are in life's fast lane.
a) Those with excess capital invest it and collect interest, dividends and rent.
b) Those with insufficient capital borrow money and pay interest and rent.If the trust fund/inheritance is large enough then you won't need to work at all and can live off the rentier income provided by your parents wealth and the work of an investment banker.
If you are in life's slow lane, with no parental wealth coming your way, you will be loaded up with student debt, rent, mortgages and loans.
To ensure the children of the wealthy get the best start we have private schools to ensure they get the best education and make the right contacts ready for the race of life.
The children of the poor are born in poor areas where schools are typically below average and they are handicapped before they have even started the race of life.
Wealth concentrates because the system is designed that way.
A meritocracy gives everyone equal opportunity but that is the last thing those in charge want for their children
It is easier to see what is going on if we put things in a historical perspective. Is Capitalism the first social system since the dawn of civilisation to trickle down?
Since it is based on self-interest this seems highly unlikely. It would be drawn up in the self-interest of those that came up with the system, i.e. those at the top.The 20th Century saw progressive taxation to do away with old money elites and so looking at the playing field now can be rather deceptive. Today's ideal is unregulated, trickledown Capitalism. We had unregulated, trickledown Capitalism in the UK in the 19th Century. We know what it looks like.
1) Those at the top were very wealthy
2) Those lower down lived in grinding poverty, paid just enough to keep them alive to work with as little time off as possible.
3) Slavery
4) Child LabourImmense wealth at the top with nothing trickling down, just like today.
The beginnings of regulation to deal with the wealthy UK businessman seeking to maximise profit, the abolition of slavery and child labour. At the end of the 19th Century, with a century of two of Capitalism under our belt, it was very obvious a Leisure Class existed at the top of society. The Theory of the Leisure Class: An Economic Study of Institutions, by Thorstein Veblen The Wikipedia entry gives a good insight. This was before the levelling of progressive taxation in the 20th Century.
It can clearly be seen that Capitalism, like every other social system since the dawn of civilisation, is designed to support a Leisure Class at the top through the effort of a working and middle class.
After the 20th Century progressive taxation the Leisure Class probably stay hidden in the US. In the UK, associates of the Royal Family are covered in the press and show the Leisure Class are still here with us today.
It was obvious in Adam Smith's day.
Adam Smith:
"The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers."
With Capitalism it's better hidden:
The Rothschild brothers of London writing to associates in New York, 1863:
"The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests."
Everyone works in their own self interest even economists.
- Malthus – supports the vested interests of landlords and so finds nothing wrong with parasitic landlord rent extraction.
- Ricardo – supports the vested interest of bankers coming from a banking family, sees problem with feudal landowners but not bankers that create money out of nothing
- The Austrian School – Austrian aristocrats, of the European Leisure class, support investor's interests. Anti-Government as they are trying to do away with the old European aristocracy. Give preference to those with money:
You are free to spend your money as you choose.
No money, no freedom.
Money is freedom.Most classical economists differentiated between earned and unearned wealth. The Austrian Aristocrats benefit from inherited wealth and hide the distinction. As members of the European Leisure class, they liked to invest and make money from the hard work of others while doing very little themselves.
A monetary system devised by bankers where they create money out of nothing and lend it out charging interest to make a profit. When you come up with a system you make sure it works for you.
How is the legal system loaded? Why do people use expensive barristers/legal teams? It increases your chance of winning the case. What if you can't afford expensive barristers/legal teams? You decrease your chance of winning the case. It's loaded.
Our current wealth distribution is more the product of meritocracy than of inheritance. Harvard decided to go meritocratic back in the '50s. The average IQ of the incoming freshman class skyrocketed. There were still legacies, of course, but the whole Ivy League opened up to highly motivated, highly intelligent strivers. The result, in my view, and in the views of 'The Bell Curve' and 'The Revolt of the Elites' was a cognitive elite taking all the best jobs. Ivy league dominance of the most desirable positions in the FIRE sector, government, and the judiciary is far more pronounced today than it was in 1950.
What would the smartest strivers of the last sixty years have been doing if they hadn't gone to the Ivies? For one thing, they'd probably be living in the Heartland, or wherever they were from. They might have gone to a local college. IQs at local schools have dropped as IQs at the Ivies have risen. They might have worked at a union job. Losing people in the top 1% of intelligence to the Goldman Sachs and McKinseys of the world has been a terrible blow to those segments of society whose interests needed to be protected from unfettered capitalism.
I wish the terminal lefties here at Naked Capitalism would stop trotting out the tired old horse of wealth being perpetuated across generations. By and large, in the United States, it is dispersed over time. Europe may be a different story. There are still wealthy Fuggers, etcetera. But in the US it tends to get dispersed. Only one member of the Forbes 400 of which I am aware has a tie to a great 19th century fortune: David Rockefeller, and he worked at Citigroup. See Rob Arnott's take on wealth dispersion, and Dr. William Bernstein's.
"I wish the terminal lefties here at Naked Capitalism would stop trotting out the tired old horse of wealth being perpetuated across generations. By and large, in the United States, it is dispersed over time."
There is a very narrow sense in which this is true. We do not enforce a system of male primogeniture among a landed aristocracy here in the United States. The fact that some of my ancestors once owned large estates, in New Holland and New York, doesn't entitle me to life as a lord of the manor today. What it did do for me however, was give to my maternal grandparents the easy circumstances necessary to pursue their own interests with no desperate struggle for survival. This allowed my parents to pursue careers in philosophy and linguistics. My generation saw my brother become a physicist and myself a medievalist. We will never be as wealthy as our great-great grandparents were. Yet, because of their wealth, (even much dispersed over time) we were given opportunities to pursue interests that are simply not often available to many others.
I always hear how Bill Gates was a "self-made" man. Really? His mother, Mary Maxwell House Gates was on the board at First Interstate Bank of Washington, and his father William H. Gates, II, was a wealthy attorney and philanthropist.
I know that not all DuPonts, Rockefellers, Whitneys, Vanderbilts, Sharpes, Hutchinsons, Van Rensselaers, etc. are super wealthy today. Yet the vast majority of them are at least comfortable, just as Bill Gates would have been– even if he had never worked a day in his life.
You don't seem familiar with the actual data. The US is more unequal than any other major industrialized nation on the planet. By a lot. And it's not a leftist thing. When Americans are surveyed about their desired wealth distribution, the mainstream – not leftist – viewpoint is that the ideal distribution looks roughly like Sweden.
Also, in a meritocratic society, the socioeconomic status of the parents would have no material impact on the child. In the US, by contrast, the parents are highly predictive of the child. Google the general term social mobility if you are interested in this. For example, we can predict that some kids will be arrested by police more than others simply by looking at the zip code of the parents at the time of birth. Stuff like that is nuts and completely incompatible with a merit-based hypothesis.
|
|
|
Dec 11, 2015 | Crooked Timber
on December 10, 2015
Thomas Piketty's Capital in the Twenty-First Century is an important and valuable contribution to political economy, both empirically and philosophically. Piketty grounds his theory in vast empirical data,rather than settling for elegant mathematical models. He courageously embraces the fact that economic theory is inevitably value laden, and proposes a theory of the historical dynamics of wealth accumulation in order to offer an updated moral critique of capitalism. Grounding his prediction in the historical data and profoundly simple mathematics, Piketty projects that economic inequality is likely to increase and to favor those who own inherited capital over time. He advances the normative judgment that rising inequality is unjust and must be contained. Although Piketty raises important concerns about the possibility of growing wealth inequality, he fails to normatively ground or argue for his presupposition that this inequality is unjust. Since relative poverty can coincide with high levels of objective or subjective well-being, this presupposition is brought into question. However, there are causes of inequality (including wealth inequality) that clearly can be shown to be unjust. By considering other forms and causes of inequality and oppression, we can distinguish between those forms of wealth inequality that are unjust and those that are normatively benign. In this way Piketty's concerns about growing wealth inequality from inheritance can be partly justified, though of course not empirically verified. Piketty's argument for the injustice of growing economic inequality has two parts. The first part is an empirical, economic argument for the claim that returns from inherited wealth will far outstrip income. This argument can be summarized as follows. Let r be the rate of return on capital, and g be the growth rate of the annual flow of national income.
- If r>g, then (wealth) inequality will grow over time.
- Individuals who own a greater amount of capital earn a larger r.
- Growth, g, is likely to be slower in future.
- If r is great enough and g is low enough, then there will be ever more capital from older, inherited wealth, than from wealth saved from income.
- Hence, (wealth) inequality will increase, and inherited wealth will make up the greatest amount of capital. [click to continue…]
T 12.10.15 at 4:24 pm
"To show that income inequalities are unjust, they also have to be shown to derive from injustice or to lead to injustice." First, thank you for taking the time to join the group blog. Second, it seems that high income and high wealth individuals have been very effective in tilting the tax, regulatory, and legal environment even more in their favor thereby increasing the inequality that you may argue was not originally unjust. Do you think those behaviors lead to unjust income inequality? Do you think those behaviors are a necessary consequence of increased wealth and income inequality?Rakesh Bhandari 12.10.15 at 4:29 pm 2
Interesting and challenging comment which will take several readings to understand and evaluate the many different arguments being made.Here is why Piketty thinks a rentier society contradicts the meritocratic worldview of democratic societies:
"…no ineluctable force standing in the way to extreme concentration of wealth…if growth slows and the return on capital increases [as] tax competition between nations heats up…Our democratic societies rest on a meritocratic worldview, or at any rate, a meritocratic hope, by whichI I mean a belief in a society in which inequality is based more on merit and effort than on kinship and rents. This belief and hope play a very crucial role in modern society, for a simple reason: in a democracy the professed equality of rights of all citizens contrasts sharply with the very real inequality of living conditions, and in order to overcome this contradiction it is vital to make sure that social inequalities derive from ration and universal principles rather than arbitrary contingencies. Inequalities must therefore be just and useful to all, at least in the realm of discourse and as far as possible in reality as well…Durkheim predicted that modern democratic society would not put for long with the existence of inherited wealth and would ultimately see to it that the ownership of property ended at death." p. 422I understand Cudd to be raising a neo-liberal point discussed in Raymond Plant's book on neo-liberalism -- that if a fortune has been made through no injustice to a concrete other and its gifting and bequeathing does no concrete injustice to another, then there is no coherent ideal of social justice (Hayek's idea that social justice is mirage) that would allow us to condemn the resulting distribution of wealth, as fantastically concentrated as it may be.
Yet a rentier society would actually undermine social utility by reducing the incentives for entrepreneurial exertion; the largest incomes also could not be justified in terms of meritocratic principles; and rentiers would be in a position to use the political process to extract not what Piketty calls rent in terms of the income of a rentier but what most economists mean by rents. The last would have no justification in terms of welfare economics (of which Cudd gives an eloquent defense in her book on capitalism). Piketty is correct that to the extent that citizens understood the nature of a rentier society they would rise in opposition to it.
Plus, the wealth concentration of a rentier society would not be accepted in a Rawlsian original position and to the extent that some wealth is needed to exercise one's capabilities would be unjustifiable from Sen's and Nussbaum's capabilities theory. Piketty expresses sympathy for both normative political theories.
Now Cudd also notes that Piketty argues that the astronomical pay of super-managers cannot be justified in meritocratic terms; his argument is more developed than she lets on–it involves cross-sectional comparison and econometric analysis, controlling for luck and other factors in company performance outside the control of a supermanager as well as the inapplicability of marginal productivity theory to the unique jobs that a CEO does. Plus, he gives an institutional analysis of the way in which CEO's can capture boards and how their incentive to do so rose with lower marginal tax rates. Of course that Piketty undermines this justification does not necessarily mean that such compensation is unjustified, but he does undermine the meritocratic justification that is given for it.
MPAVictoria 12.10.15 at 4:34 pm 3
"When wealth inequalities stem from unjust inheritances"Is there any inheritance anywhere in the world that is not an "unjust" inheritance? Serious question...
Bruce Wilder 12.10.15 at 4:34 pm 4
Piketty treats economic inequality stemming from return on capital . . . as a zero sum sort of situation, but that is clearly not true. Investment of capital creates improvements in standard of living for all."that is clearly not true" seems a bit emphatic for a proposition that should not be clear at all. It might be the case that an instance of capital investment improves the standard of living or it might be immiserating. A wealthy investor might invest in a payday loan operation with a remarkable return on investment. A corporation might invest in automation of a production process and bargain for a reduction of wages for the now less numerous and "less-skilled" workforce.
The emblematic condition of Piketty's work, r > g, ought to imply something about the balance at the margin. If the income share claimed by capital is rising faster than total income, it cannot be the case that all capital investment entails a positive-sum bargain in which the net gain is distributed.
We can certainly hope for the kind of capital investments that result in economic growth that exceeds the return to the owners of capital, but that's not the world Piketty is worried about.
Bruce Wilder 12.10.15 at 4:47 pm 5
Piketty argues that top managers today are paid unjustifiably large salaries because it is too difficult to assess the marginal productivity, and in the absence of any information they are able to manipulate their own and each other's wages. A market failure is not an injustice . . .Calling an exercise of power and authority in a bureaucratic hierarchy "a market failure" is an error of ideological obduracy, since hierarchies are not "markets". Hierarchies of authority make economic use of social domination, which is, at least, potentially problematic for justice.
Bruce Wilder 12.10.15 at 4:53 pm 6
A significant cause of income inequality is the differences in human capital developed through education. Piketty notes that the educational systems in Europe and especially the US tend to prevent rather than promote social mobility, and instead transmit privilege. 'Parents' income has become an almost perfect predictor of university access.' (p. 485) Piketty's explanation seems to be that it is because wealthy parents buy places for their children in universities, but I think this overestimates the corruption in university admissions and it underestimates the degree of stratification of the developed academic abilities of college age students. Wealthier families are better able to invest in developing children's abilities and talents to prepare them for college, and have better schools in their neighborhoods. Especially elite universities in the US compete very hard to find and attract low income and minority students, but the competition is stiff for qualified students who will not need remediation in order to succeed.Demand for low-cost tokens is outrunning supply.
Trader Joe 12.10.15 at 5:03 pm 7
I struggle a lot with the concept of inheritance and when/when not justified. Its easy to see how its unfair/unjustified when the amounts are signficant, far less so when they are not.If I'm a Rockefeller and hand over the emprire to my children, its easy to see an undeserved conferred advantage.
If I'm farmer Joe who has worked my farm all my life, own it outright through my labor and savings and then want to pass that to my children, who have also worked it all their life(s), so that it can sustain them the same way as it sustained me – it seems far more fair though it still confers on them an advantage of priveldged and if they successfully manage that advantage they should be able to make it grow. Over some number of generations, the differences would collapse.
I think its a very natural instinct for a parent to want to transmit advantage to their children. Teaching them and nurturing their character are never criticized though no less an asset than dollars or farms.
I can see how the provision of an elite education transmits priveledge, but I'malso hard pressed to suggest a child should be denied the best possible education that they can get. If a child has intellectual talent it should be developed regardless of whether they come from a rich or poor family.
One take away from Picketty could be the best possible biological strategy is to try to get as rich as you possibly can because that's the best possible insurance for perpetuating your DNA. Probably not the policy prescription being encouraged, but certainly supported by the data.
Paul 12.10.15 at 5:21 pm 8
All property rights are oppressive; they amount to the restriction of the freedom of the non-property owner. Unless one wants to go communist (and argue that it is possible to create a society without property rights) or libertarian (and argue that property rights somehow exist a priori of society), any society is necessarily oppressive and unjust. The goal is to minimise this injustice without creating others or destroying the ability if society to function.So I think the OP is wrong in asserting that any allocation of property rights should be assumed just in the absence if evidence that the distribution is "oppression". Property rights are (probably necessary) oppression, almost by definition.
notsneaky 12.10.15 at 5:43 pm 9
"Is there any inheritance anywhere in the world that is not an "unjust" inheritance?"So… if I work hard all my life, say three minimum wage jobs, to put my kid through college, their college education is "unjustified"?
MPAVictoria 12.10.15 at 5:55 pm 11
"So I think the OP is wrong in asserting that any allocation of property rights should be assumed just in the absence if evidence that the distribution is "oppression". Property rights are (probably necessary) oppression, almost by definition."Yep. Property is violence. Maybe beneficial violence in the utilitarian sense but violence all the same.
Ze K 12.10.15 at 6:34 pm 12
Nothing is a priori just or unjust; Thomas More had slaves in his Utopia. However, when a socio-economic arrangement reaches a phase where its fairness is commonly questioned, that's a sure sign that the dominant ideology fails to convince, and the system is in trouble. Doesn't mean it's going to collapse tomorrow, obviously.Rakesh Bhandari 12.10.15 at 6:45 pm 13
It could be argued that entrepreneurial behavior is already individually irrational -- see Kahneman and Tversky. But it is often motivated at least partially by the dream of creating dynastic wealth and glory. Otherwise, it would make little sense to do the hard labor of thinking of new ways of doing things, convincing financiers of the worthiness of the project and giving up more secure incomes. One could worry that Piketty has exaggerated the importance of inherited wealth even in the face of his own evidence (only a small fraction of the top 1% receive most of their income as rentier rent IIRC) and that he has under-estimated its importance as an economic incentive for entrepreneurial labor and that he has also underestimated the extent to which great fortunes dissipate over time due to the growth of heirs and reasonable taxation.MPAVictoria 12.10.15 at 6:51 pm14
"Nothing is a priori just or unjust"He said as he foreclosed on the poor family and cast them out to starve in the street.
cassander 12.10.15 at 6:51 pm 15
>If r>g, then (wealth) inequality will grow over time.If this were true, every Kennedy alive today would be richer than Joe Kennedy was. This is not the case. It is not the case because people eventually die and fortunes get divided up. It's not a statement of how feudalism works under primogeniture, but it doesn't describe modern economies. Everything Pikety says is built on this fundamental mistake.
> Wealthier families are better able to invest in developing children's abilities and talents to prepare them for college, and have better schools in their neighborhoods.
Large American urban school districts are not just the best funded in the country, they're the best funded in the world. And what Bruce says about market failure applies equally well here. people have voted massive amounts of money for urban schools, when those state run schools fail to perform well despite these resources, the failure cannot possibly be attributed to market forces.
> In the 19th century the top 10% most wealthy owned 90% of capital, the middle 40% owned 5% and the bottom 50% owned 5%.
In a perfectly equal society where no one inherited anything, everyone got exactly the same starting salary, saved the same amount, got the same raise every year and earned the same rate of return, the richest 1/5 would still control 66% of the wealth just due to cohort effects. This simple characterizations of wealth inequality by quintiles or deciles do more to conceal than to reveal. what matters is not snapshots, but lifetime expectations. These, however, are harder to calculate and make for much less snappy talking points
Paul 12.10.15 at 6:51 pm 16
This is an interesting paper about the dissipation of wealth: What is the True Rate of Social Mobility in Sweden? Suggests that the tendency of fortunes to fade away is generally underestimatedPaul 12.10.15 at 7:00 pm 17
My reading of r>g is that its piketty's attempt to put an overarching intellectual framework over his results and that its the least successful part of the work, although Brad Delong has made pretty good sense of it herehttp://www.econ.hit-u.ac.jp/~makoto/Piketty_readings/Delong_2015.pdf
But even if you consider it in error its the conclusion more than the foundation. The data speaks for itself.
Cassander @15: I read your comment as "even a pretty equal society would be pretty unequal". The definition if a " pretty equal" society us surely one where the richest 20% only control a little more than 20% of the wealth, surely? After all, the tallest 20% do not account for 66% of the total height in the population.
Layman 12.10.15 at 7:13 pm
If we are to complain that Piketty fails to demonstrate that income inequalities originate from or lead to injustices, can we not also complain that he fails to demonstrate that the sun rises in the east, or that night follows day, or that it is quite difficult to put the toothpaste back into the tube? While this is not as bad as complaining that he fails to discuss 20th- and 21st- century novels, it approaches that degree of badness.cassander 12.10.15 at 7:49 pm 21
@Paul>This is an interesting paper about the disspation of wealth:
I just skimmed it, but that the paper argues that there's a great deal of dissipation of wealth, just that it's well below 100% dissipation.
>The definition if a " pretty equal" society us surely one where the richest 20% only control a little more than 20% of the wealth, surely? After all, the tallest 20% do not account for 66% of the total height in the population.
If everyone was born 2 feet tall and got 10% taller a year, then the tallest 20% would have 80% of the height. the point of the math I laid out is precisely that "a society where everyone has the same amount of stuff" and "a society where everyone gets the same amount of stuff" are not the same, despite our basic instinct that they should be.
T 12.10.15 at 7:52 pm 22
@16This and other studies using unique surnames tends to suggest that mobility may be overstated.
http://faculty.econ.ucdavis.edu/faculty/gclark/papers/Sweden%202012%20AUG.pdfengels 12.10.15 at 7:53 pm 23
Apologies if I've misunderstood but does the OP really think that someone who affirm's Paine's maxim that'Social distinctions can be based only on common utility, must believe that someone's inviting different numbers of people to two different dinner parties is unjust?
Paul 12.10.15 at 8:02 pm, 24
@cassander
But a world where everyone is born poor and steadily becomes rich is also a pretty unequal world, is it not? And piketty's shows that 50% of people in most western societies own nothing, which suggests a lot of people are not accumulating.I can see your point that headline numbers can be misleading, but piketty also shows a clear trend, that wealth is becoming more concentrated. Unless the metrics are somehow a deteriorating representation if reality that's a real thing.
cassander 12.10.15 at 8:55 pm 25
@Paul>But a world where everyone is born poor and steadily becomes rich is also a pretty unequal world, is it not?
For some definitions of unequal, yes, but I say those framing are not particularly useful We are all born ignorant and spend a lifetime accumulating knowledge, but we do not lament the "knowledge gap" between old and young. A world where everyone made X dollars a year, except for their 20th year when they make 1000X would not have a Gini score of 0, but I would call that world equal.
> And piketty's shows that 50% of people in most western societies own nothing, which suggests a lot of people are not accumulating.
It shows that most people aren't accumulating YET. In the real world, people do not save X percent of their income a year, they they consume a larger share of their income when young (consume much more than their income, actually) and save more as they age, for obvious reasons. That's why you have to look at wealth over lifetimes, not in snapshots.
Peter K. 12.10.15 at 9:15 pm 26
@ 15 Cassander">If r>g, then (wealth) inequality will grow over time.
If this were true, every Kennedy alive today would be richer than Joe Kennedy was. This is not the case. It is not the case because people eventually die and fortunes get divided up. It's not a statement of how feudalism works under primogeniture, but it doesn't describe modern economies. Everything Pikety says is built on this fundamental mistake."
It's not saying that wealthy dynasties don't fall apart. They often do. But new dynasties are formed (often from well-off families, not the lower middle class).
Trump. Warren Buffet. George Soros. Bill Gates. Mark Zuckerberg. Oprah Winfrey.
These people need the financial sector to put their money to work. And as we've seen the last 100 years, the fiancial sector grows and grows as many of the newly rich are financiers.
Peter K. 12.10.15 at 9:21 pm 27
And the one percent also effect politics and policy through their generous campaign contributions (Koch brothers); sponsorship of think tanks; ownership of mass media (think Rupert Murdoch); etc. etc.Politics and policy can effect both *r* and *g.*
http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html
"Around the same time that Mr. Rauner began running for governor, a group of researchers based at Northwestern University published findings from the country's first-ever representative survey of the richest one percent of Americans. The study, known as the Survey of Economically Successful Americans and the Common Good, canvassed a sample of the wealthy from the Chicago area. Those canvassed were granted anonymity to discuss their views candidly.
Their replies were striking. Where merely affluent Americans are more likely to identify as Democrats than as Republicans, the ultrawealthy overwhelmingly leaned right. They are far more likely to raise money for politicians and to have access to them; nearly half had personally contacted one of Illinois's two United States senators.
Where the general public overwhelmingly supports a high minimum wage, the one percent are broadly opposed. A majority of Americans supported expanding safety-net and retirement programs, while most of the very wealthy opposed them. And while Americans are not enthusiastic about higher taxes generally, they feel strongly that the rich should pay more than they do, and more than everyone else pays.
"Probably the biggest single area of disconnect has to do with social welfare programs," said Benjamin I. Page, a political scientist at Northwestern University and a co-author of the study. "The other big area has to do with paying for those programs, particularly taxes on high-income and wealthy people.""
Soru 12.10.15 at 9:40 pm 28
One thing is that in reality, setting 'the wealth of a new born' as zero is rather arbitrary. In one country they might get , by right of citizenship, X dollars of security, legal, health and welfare services. In another, Y dollars..Both have no money, but if X >> Y, then they are going to have very different average expected life outcomes.
At a high zero point, you get cops and judges who uphold the law, at a low one you can hire some bodyguards. At high zero point you can go to a library, at a low one hire a hack to write your autobiography.
You can extend that to cases of active oppression by giving that a dollar equivalent and a minus sign. After all, even slavery could usually be escaped from, in theory, by buying yourself…
Thing is, the _potential_ floor of wealth in a modern society _could be_ as far above active oppression as room temperature is above absolute zero.
And raising it never stops being a good.
T 12.10.15 at 9:53 pm 29
@27
Exactly. Regardless of how how rich got that way there is no question that they are using their wealth to increase and capture economic rents and to take actions that diminish income and wealth mobility. To the extent the economy veers to increased rent seeking, it could very well lower future growth by diverting resources to non-productive activities. If this behavior is baked in as inequality reaches a certain threshold, then it is inherently unjust. To the extent its not always baked in, it has certainly had that effect in the US over the last 30 years. Consequently, we can conclude that current levels of US inequality are unjust.Mike Furlan 12.10.15 at 10:27 pm 30
An interesting snapshot of where we are.http://www.nakedcapitalism.com/2015/12/demise-of-the-us-middle-class-now-official.html
cassander 12.10.15 at 10:31 pm 31
@Peter K.>It's not saying that wealthy dynasties don't fall apart. They often do. But new dynasties are formed (often from well-off families, not the lower middle class).
That's explicitly the argument pikety makes with R>G, that the rich get richer by virtue of being rich, not that the moderately well off occasionally become rich by some other means. None of the people you mention got rich by sitting on accumulated capital, nor did any of the fortune 500.
>And as we've seen the last 100 years, the fiancial sector grows and grows as many of the newly rich are financiers.
getting rich by playing financier with other people's investments is not what pikety is talking about. Warren Buffet's fortune, and almost every other financial fortune I can think of, was made by taking a percentage of the profit he got from investing other people's money, not his own.
js. 12.10.15 at 10:50 pm 32
However, the equality presumption is false; it is a fallacy akin to the principle of insufficient reason, which assumes equiprobability of events where there is no reason to assign another probability. But there is also no reason to assign equal probability rather than any other, and thus rationality cannot demand that. By the same token, morality cannot demand equal shares of a good (or bad) in the absence of a reason for it. I take this to be a point of logic, not morality.
This is almost bizarrely unconvincing. You seem to be using "inequality" in a purely formal sense-a sense in which "4 > 2" counts as an inequality. In this sense of the word, it may well be true that there is no presumption of equality. But that fact has no bearing on whether or not a presumption of equality is plausible in the case of interest, namely social and economic inequalities. In this particular case, if there is a widespread moral intuition in favor of the presumption of equality (as I think there is), you can't simply hand-wave away the presumption as a "matter of logic". You need to either (a) show that there is in fact no such widespread intuition, or (b) provide some sort of error theory for this intuition. And until one of these arguments is forthcoming, I'll continue to think that the presumption of equality has quite a bit going for it.
Tabasco 12.10.15 at 11:05 pm 33
wealthy dynasties don't fall apart. They often do. But new dynasties are formed (often from well-off families, not the lower middle class). Trump. Warren Buffet. George Soros. Bill Gates. Mark Zuckerberg. Oprah WinfreyGates is giving his money away. Buffet and Zuckerberg say they are going to give away their money. So, no dynasties there.
T 12.10.15 at 11:32 pm 34
@33As for dynastic wealth, there are 4 Waltons, 3 Mars, and 2 Kochs among the top 18 richest Americans. That's 50%. Pinketty is forecasting a future of dynastic wealth, the Forbes 400 in 30 years. It's the kids of today's plutocrats that will be the beneficiaries.
UserGoogol 12.10.15 at 11:50 pm 35
Paul @ 8: I'd push against that in multiple directions. Even without property per se, some degree of excluding people from using resources is inevitable just from being an organism living in a world of limited resources. If I eat some food, I exclude others from eating that food. Property gives people rather extensive abilities to exclude others from using resources far beyond what is strictly necessary in a state of nature, but any existence involves curtailing the freedoms of others. The only way to have absolute freedom is to be God.But by the same token it seems kind of vacuous and silly to call that injustice. Minimizing the amount of suffering (or keeping the suffering within "reasonable" bounds) seems like a more sensible way of defining that word.
To get back to the actual point you were making instead of making vague philosophical rumbling, property certainly ipso facto causes some degree of restriction of freedom and this is something deserving of critical attention. But I don't think you can usefully say that they're oppressive by definition.
F. Foundling 12.10.15 at 11:52 pm 36
The OP's notion of justice is not explained in the text, but it seems to be different from mine, and, I think, from that of many others. I think most people would agree that a just distribution is a distribution in accordance with the merits and/or needs of the individuals. Any deviation from such a distribution, for whatever reason, is unjust (it 'harms others' in the sense that the same resource could have been allocated to others more deserving of it based on their merits/needs, and the fact that more wealth has been created doesn't change anything as long as that new wealth is not distributed according to the same principle). This means that inheritance-determined distribution is inevitably unjust, just as any other distribution that is not deliberately made to reflect the merits and/or needs of the individuals can be reasonably assumed to be unjust by default, for the same reason that any random lottery ticket can be assumed not to be winning the jackpot, and any random sequence of body movements can be assumed not to result in the making of a sandwitch.The equality presumption is basic to most people's sense of justice: most people, when asked to divide a loaf of bread 'justly' between two complete strangers of whom they know nothing, will split it into two equal parts unless there is an obvious criterion by which to differentiate (size, age, gender, caste, etc.). Indeed, even when the bread is distributed unequally in accordance with one or more of these characteristics, the very fact that the difference in share size is made proportionate to the difference in the chosen characteristic(s) shows that no other inequality is assumed apart from the one explicitly entailed by the characteristic – i.e. equality is assumed by default 'other things being equal'. Yes, it is very unlikely that these two random strangers really are *precisely* equally good and deserving; the point is that we have no *right* to assume otherwise, and as humans they have a *right* to be treated equally unless there is a specific reason for the contrary.
Bruce B. 12.11.15 at 12:26 am 37
It's worth noting that in a lot of cases where a particular family dynasty falls apart, a great deal of the money doesn't travel far. It goes to co-owners of shared enterprises, colleagues and rivals, and others in the same stratum. Cash can flow out quickly, but lots of assets hang around, and get used by someone close at hand.If the principle that "since I didn't set out to harm anyone, you have no right to tax my stuff" were taken seriously in general, we wouldn't have laws against pollution or having your car run over someone because you didn't set the parking break. The idea sounds appealing widely at first hearing, but it doesn't take much of a context to establish how incompatible it is with a bunch of other moral reasoning.
John Quiggin 12.11.15 at 12:41 am 38
The OP seems to be completely misconceived. As Cudd concedes, Piketty presents a positive analysis predicting that inherited wealth will become dominant, and doesn't spell out any theory of justice, though it's obvious that he thinks this is a bad thing.So, Cudd makes up a theory of justice, imputes it to Piketty and then says it hasn't been proven. What's more she writes as this topic is being addressed for the first time. She doesn't mention any of the vast number of people who've written on equality and whose arguments might be relevant here.
The closest actual engagement with Piketty is her reference to the epigraph 'Social distinctions can be based only on common utility,' which would most naturally be interpreted in utilitarian terms (that's the default assumption for an economist anyway). So, Piketty can be taken to say that a combination of slow growth and increasing inequality is unlikely to promote common (aggregate) utility. There are plenty of arguments that can be made for or against this, but Cudd doesn't even bother. Having cited the epigraph, she never again mentions utility.
js. 12.11.15 at 1:02 am 39
UserGoogol @35 - I'd make it even simpler: if you've got a conception of "justice" such that any possible social arrangement is unjust, i.e. justice is actually impossible, then whatever you've got is not a conception of justice.engels 12.11.15 at 1:05 am 41
I agree with other posters. The OP 'reconstructed' an argument Piketty never made about a topic he didn't address, and then complained about how bad it is (and for really unconvincing reasons). It's not often you see someone lose an argument so badly with a straw man of their own construction.Robb Lutton 12.11.15 at 1:16 am 42
…In the US today, top 10% own 25% and the next 40% own 25% of capital,…This cannot be true else there would be no inequality as it would mean the bottom 50% would have 50% of capital.
Markos Valaris 12.11.15 at 1:51 am 44
js, UserGoogol, I suspect Paul is after something somewhat different, which is the idea that using force to exclude others from some resources must *either* be backed by good reasons *or* count as oppressive/unjust. This doesn't seem crazy, and it would generate the kind of request for justification the OP puzzles about.LFC 12.11.15 at 2:06 am 45
I haven't read the comment thread with great care but I have the read the OP.It seems to be the basic argument of the OP is roughly this:
1) Absolute poverty (in today's world) is always unjust, but relative poverty resulting from economic inequalities is not necessarily always (or even presumptively) unjust. Some economic inequalities are unjust, others aren't, and one needs to make an argument about why particular inequalities (when we're talking about relative and not absolute poverty) are unjust. This point strikes me as fairly uncontroversial.
2) Economic inequalities resulting in or reflecting relative (not absolute) poverty are unjust when they are caused by (or transmit) oppression and/or discrimination, or when they 'stigmatize' and thereby cause psychological harm to an identifiable group. This point I think is more controversial but interesting and defensible, at least with a more elaborate account, which I take it the author of the OP has given elsewhere.
As for where the OP directly engages with and criticizes Piketty, I'm not well-placed to get into this, but ISTM the passage where the OP criticizes him for ignoring the factor of oppression, e.g. w/r/t women in particular time periods, can be taken as a reasonable criticism.
When read with some care, the OP seems not anywhere near as hostile to some kind of egalitarian position, istm, as some commenters here apparently think.
LFC 12.11.15 at 2:27 am 47
One last thing: the criterion of "stigma" is arguably not that far from the Rawlsian criterion of 'self-respect' (which came up in the thread on Chris B's post), or at least it might be related… If one feels stigmatized or is objectively stigmatized by a particular situation of ec. inequality, then the social bases of self-respect are not being met. The OP refers to "social psychology" as tool of empirical investigation here, whereas in the other thread we were talking about moral psychology, but obvs. there's a common element: psychology.LFC's reconstruction of the post strikes me as not only charitable, but pretty much obviously right. I'm pretty surprised, and sorry, to see the comments mostly get on the wrong foot and not address what's interesting in the post.John Quiggin 12.11.15 at 4:20 am 49
'Surely not the case for women'. This is far from obvious. 40 per cent of female headed families live in poverty. http://www.epi.org/publication/female-headed-families-children-poverty/This is an absolute poverty line set in the early 1960s, so the position of these families relative to the median household is considerably worse. Relative to the top 1 per cent of households, the gap has grown enormously.
The poverty rate for female headed households has barely changed since the 1970s, but (I think) the proportion of such households has increased substantially. On the other side of that equation, the proportion of couple households with two high incomes has also risen.
So, while it's certainly true that the wages of employed women have risen relative to those of employed men, that doesn't mean that gender based inequality and poverty have declined.
I haven't got a conclusive answer on this, but if it's going to be the central point of a critique it deserves more than a handwaving "surely".
F. Foundling 12.11.15 at 4:31 am 50
@js. 12.11.15 at 1:02 am
> if you've got a conception of "justice" such that any possible social arrangement is unjust, i.e. justice is actually impossible …A banal point, probably, but AFAICS, everything is unjust compared to perfect justice, and perfect justice is impossible, because perfect anything is impossible. Not a reason not to keep 'perfecting' things. It's what humans do.
@LFC 12.11.15 at 2:06 am
> the OP seems not anywhere near as hostile to some kind of egalitarian position'Some' does a lot of work here.
>Some economic inequalities are unjust, others aren't, and one needs to make an argument about why particular inequalities (when we're talking about relative and not absolute poverty) are unjust. This point strikes me as fairly uncontroversial.
The problem is that the OP's idea of what it takes to prove an inequality to be unjust is highly restricted. Not only is inequality assumed to be just until the opposite is proven, but it is argued that even if an inequality demonstrably, as Piketty claims, lacks any basis in merit (a blatant example being the case of inheritance), this is still not sufficient to make it unjust. That inequality per se does not even need to be justified by merit, or in any way at all, is a position so radically and counterintuitively anti-egalitarian that even right-wingers usually won't take it openly (rather, they'll insist that there is, in fact, a merit that justifies it). You see, only some very specific reasons such as certain proof of the presence of what the author calls 'stigma' and 'oppression' might potentially convince the author to deign to care about wealth-induced unequal outcomes in a way roughly comparable to the way the author cares about gender-induced and race-induced unequal outcomes. Personally, I don't think convincing the author is worth the trouble.
js. 12.11.15 at 4:35 am 51
Hey Markos, it's Jamsheed. I think I see what you're saying-maybe. If that's what Paul was getting at, fair enough. But if I'm understanding you correctly, I think it still ends up turning on the "equality presumption" bit, on which see below.LFC - I agree with you that Cudd is sympathetic to egalitarianism in the post-and her points about gender inequality are well taken. I didn't mean to imply otherwise. It just seems to me that she's given up a good direct argument against inequality for a considerably more circuitous one-for reasons that remain utterly opaque to me. (For one thing, all those old homilies about the "gentler and fairer sex" can be taken as ways to defeat the equality presumption, which would militate against gender inequality; one could of course find more modern equivalents too.)
Anyway, this still seems wrong to me:
one needs to make an argument about why particular inequalities (when we're talking about relative and not absolute poverty) are unjust
I really think it's the other way around. One never needs to justify why an inequality is unjust-one only ever needs to justify the inequality itself. Of course, one sees plenty of arguments for why some inequality is unjust and why we need to fix that, but I think these are really arguments for disrupting existing social arrangements so as to make them more egalitarian, rather than arguments for the justice of equality per se, which again is something that's rarely needed an argument, it seems to me.
LFC 12.11.15 at 4:44 am 52
Matt @48
Thanks.
(Btw, in re-reading my comment @45, I see there are typos in the first two lines - sorry.)9JQ @49: I said that "could be" a reasonable pt of criticism of P., but I don't/didn't know the empirics, so wasn't endorsing.
A H 12.11.15 at 4:46 am 53
I read Piketty as being a reformist liberal similar to Keynes. The reason wealth inequality is bad is because it threatens meritocratic liberal capitalism with either a return to feudalism or political upheaval. So any normative critique of Piketty needs to start with meritocracy.Any distribution of income in a society requires the consumption of resources to maintain itself. That distribution which requires the least consumption of resources to maintain itself is the most 'natural.' It is the most efficient, as well as the most robust economy.A greatly unequal society requires a great amount of resources to maintain its inequality, and thus itself. (A perfectly equal society also requires a large amount of resources just to maintain equality.) This consumption of resources, merely to maintain inequality, reduces the amount of resources available to actually operate the economy. That is, it reduces the efficiency of the economy. If the efficiency of the economy is sufficiently reduced, the economy cannot maintain itself.
But I suppose the survival of the economy is beside the point.Paul 12.11.15 at 6:51 am 57
UserGoogol @35: If you stop a hungry person picking an apple from a tree, it may be just (there may be a hungrier person who has planted and tended the tree, for example), but it's hard to argue that it isn't oppressive. But I concede this is a silly argument.The serious argument is that property is so deeply engrained in our society that it tends to get a free pass. I suspect that most people's conception of justice is based on the idea of "everyone has the right to their own stuff" ignoring completely how arbitrary our moral claims to owning anything as individuals actually are. What I dislike about the OP is that it effectively works from the position that existing claims on property are to be considered valid unless demonstrated otherwise; and doesn't make this argument directly, but instead makes it implicitly by making egalitarianism prove its case.
John Quiggin 12.11.15 at 7:12 am 58
Rather than imputing a theory of justice to Piketty based on hints from Capital in the 21st Century, it would have been more helpful to respond to the explicitly normative analysis in his work with Saez, which leads to a call for a top marginal tax rate of around 70 per cent.This gives a clear answer to the "burden of proof" question raised in the comments above. In the absence of welfare-relevant differences between people, the utility derived from a given aggregate income is maximized when that income is distributed equally. So, any inequality needs to be justified, either on the basis of welfare-relevant differences, or on the basis that it is needed to generate a larger aggregate income.
Again, the OP does none of this. There's no sign that the author is even aware of Piketty's large body of work leading up to Capital in the 21st Century
The article is poorly argued and based on irrelevant speculation.Bruce W 4: "The emblematic condition of Piketty's work, r > g, ought to imply something about the balance at the margin. If the income share claimed by capital is rising faster than total income, it cannot be the case that all capital investment entails a positive-sum bargain in which the net gain is distributed."
In the light of our discussion in the other thread, I am a bit surprised. You are now admitting that Piketty's argument is based on capital's share of total income rising but clearly, that share cannot rise indefinitely or else it would swallow up all of production. This is what I have argued and you, if I remember correctly, called that "idiotic". So which is it?
"a country that saves a lot and grows slowly will over the long run accumulate an enormous stock of capital (relative to its income)." (Piketty)This kind of argument really drives me to despair. If that stock of capital is productive capital, it is a good, not a bad thing for a society to have accumulated an "enormous stock" of it. As of ownership, a lot of our accumulated capital is actually publicly owned and actually makes people's lives better. Piketty makes no difference between productive capital and unproductive wealth and none between publicly and privately owned capital. Piketty makes it sound as if public investment in productive infrastructure is a bad policy because we really shouldn't be accumulating so much capital. Exasperating.
Ze K 12.11.15 at 10:52 am 61
The justice thing is tricky. In the current western worldview, as I understand it, the only 'just' way to distribute a loaf of bread is to negotiate and sell it.Capitalist inequality doesn't need to be justified, because it's not explicitly postulated (quite the opposite: 'all men are created equal'), but is merely a side-effect of a much more fundamental concept, the right to own property, also known as 'freedom', 'liberty'.
Social distinctions can be based only on common utility, but wealth, according to our worldview, can be legitimately acquired by luck. Inheriting wealth is one example of such luck.
Questioning these assumptions (again, in our current worldview) makes one a supporter of totalitarianism.
Richard M 12.11.15 at 11:45 am 62
> If that stock of capital is productive capital, it is a good, not a bad thing for a society to have accumulated an "enormous stock" of it.That seems a failure of charitable reading. You can't get publicly owned utilities as a consequence of private savings. So by 'capital', he clearly means money, i.e. ownership rights, not the things that money buys.
Some interesting back-of-envelope calculations from link below suggest that there is two-to-three times as much ' investable capital' as 'capital required to run the economy'. Which explains why so much of it is spent trying to play zero-sum-except-in-case-of-fraud financial games. And why every-time someone does come up with a semi-valid new thing, they end up a billionaire.
http://continuations.com/post/134920840275/capital-is-no-longer-scarce
"You can't get publicly owned utilities as a consequence of private savings."But Piketty ("a country that saves a lot" etc.) doesn't make any of these distinctions. Is it really uncharitable to take him literally?
reason 12.11.15 at 1:22 pm 64
There are some very controversial points raised in the OP.This "even though human capital can create great wealth in a single lifetime, as Bill Gates's example would attest." is clearly fallacious (Bill Gates great wealth came from Intellectual Property not human capital).
reason 12.11.15 at 1:27 pm 65
"It seems that Piketty treats economic inequality stemming from return on capital or income as a zero sum sort of situation, but that is clearly not true."I know Bruce W addressed this before @4, but to take another tack – it is also empirically not true since wage rates have been falling for 30 years at the same time as inequality has increased (not to mention that capital investment, at least since the invention of the joint stock company, is not an exclusive imperative of the wealthy).
reason 12.11.15 at 1:32 pm 66
Where do the figures from
" In the 19th century the top 10% most wealthy owned 90% of capital, the middle 40% owned 5% and the bottom 50% owned 5%. In the US today, top 10% own 25% and the next 40% own 25% of capital, while in Europe the top 10% own 60% and the next 40% own 35% of capital. " come from (there is no source given).The figure for the US today looks simply odd:
http://inequality.org/wealth-inequality/ suggests the top 10% today own 75% of the wealth.reason 12.11.15 at 1:45 pm 67
"Piketty claims that 'economics is a subdiscipline of the social sciences, alongside history, sociology, anthropology, and political science.'"I regard this as rather unfortunate. I think economics is much closer in content and style to ecology and should be seen as a subset of ecology. If it saw itself that way, it would be much better.
MPAVictoria 12.11.15 at 2:19 pm 68
Paul I think you may find this article by Matt Bruenig interesting as it relates to many of the points you have made here:http://www.demos.org/blog/6/3/14/lesson-grab-what-you-can
engels 12.11.15 at 2:27 pm 69
Lfc, speaking only for myself the problem with the OP of not that it's 'hostile to some kind of egalitarian position' but that it's making bad arguments against a set of made-up claims.LFC 12.11.15 at 2:49 pm 70
reason @64
This "even though human capital can create great wealth in a single lifetime, as Bill Gates's example would attest." is clearly fallacious (Bill Gates great wealth came from Intellectual Property not human capital).I think Cudd's point here in the context of the post is the fairly banal one that not all fortunes are inherited, even today: Gates did not inherit his wealth (though presumably he came from a middle or upper-middle class background) but made his fortune via inventing stuff in a garage etc and then turning it into a corporate empire, helped *greatly* of course by intellectual-property laws once the software etc hit the market. I agree the sentence should be tweaked, but the 'human capital' reference here is to the fact that he and others he worked with were able to come up w/ whatever they came up with in the first place. Anyway, it's sort of a side issue because the post is not about the legal, socioeconomic, and 'luck' conditions that allow some inventors to get wealthy and others not, and it was really a point just made in passing.
reason 12.11.15 at 2:54 pm 71
LFC @70
None the less the value of his human capital is what an employed programmer would have been paid to do what he did. And such a basic error, may not change the argument substantially, but along with some other errors (notably the incorrect wealth distribution figure quoted) gives the whole OP less authority than it otherwise might have had.LFC 12.11.15 at 3:07 pm 72
JQ @58
In the absence of welfare-relevant differences between people, the utility derived from a given aggregate income is maximized when that income is distributed equally. So, any inequality needs to be justified, either on the basis of welfare-relevant differences, or on the basis that it is needed to generate a larger aggregate income.But "welfare-relevant differences between people" frequently exist, so at this level of generality that mostly kicks the can down the road, so to speak. Piketty and Saez's call for a top marginal tax rate of around 70 percent is presumably based on a combination of their normative leanings and their empirical judgment that such a tax rate would not harm economic growth in a major way so as to offset its redistributive or other benefits. Assuming that judgment is correct, I'm still not sure it's reasonable to expect Cudd, who is a philosopher not an economist, to grapple with it. But I take the point that the OP as it's presented infers (or imputes) a normative analysis on P.'s part w/o noting what he had written in that vein before the book.
Layman 12.11.15 at 3:09 pm 73
"Gates did not inherit his wealth (though presumably he came from a middle or upper-middle class background) but made his fortune via inventing stuff in a garage etc"I think this is the wrong myth. Perhaps you mean Jobs?
engels 12.11.15 at 3:10 pm 74
His father was a prominent lawyer, and his mother served on the board of directors for First Interstate BancSystem and the United Way. Gates's maternal grandfather was JW Maxwell, a national bank president. Gates has one elder sister, Kristi (Kristianne), and one younger sister, Libby. He was the fourth of his name in his family, but was known as William Gates III or "Trey" because his father had the "II" suffix.engels 12.11.15 at 3:25 pm 75
Apropos of nothing where does being called Miles Fraser V or whatever place you in American class system: 1% or merely upper-middle class?LFC 12.11.15 at 3:31 pm 76
js. @51
One never needs to justify why an inequality is unjust-one only ever needs to justify the inequality itself. Of course, one sees plenty of arguments for why some inequality is unjust and why we need to fix that, but I think these are really arguments for disrupting existing social arrangements so as to make them more egalitarian, rather than arguments for the justice of equality per se, which again is something that's rarely needed an argument, it seems to me.The main issue here though is not inequality in general but inequality of wealth and income. And no functioning economy in the real world can maintain a *completely* equal income distribution over time without a degree of micromanagement from someone that would be unworkable; probably not even a socialist utopia is going to have a *completely* equal distribution.
So there *will be* some inequalities of income and wealth. If you want to start from the position that all of those inequalities have to be justified on a case-by-case basis, so to speak, that's fine with me, I guess. But you're not going to end up w complete equality of income, empirically b.c is it's not sustainable over time in any kind of minimally dynamic economy, and normatively b.c there are always going to be "welfare-relevant differences between people" (JQ's phrase), e.g., those with particular disabilities, etc etc.
F Foundling @50
only some very specific reasons such as certain proof of the presence of what the author calls 'stigma' and 'oppression' might potentially convince the author to deign to care about wealth-induced unequal outcomes in a way roughly comparable to the way the author cares about gender-induced and race-induced unequal outcomes. Personally, I don't think convincing the author is worth the trouble.It depends partly on how broadly 'oppression' and 'stigma' are defined. If inherited wealth plays an ever-increasing role in an economy and if the result is a caste-like society which effectively stigmatizes those excluded from the top caste by denying them access to, e.g., anything like equal educational or employment opportunities, then on the OP's reasoning that would be grounds for restricting inheritances.
LFC 12.11.15 at 3:45 pm 78
@66, @77There's a simple explanation: it's a typographical error. "25%" at that point should read "75%". Pretty obviously, the top 10% in the U.S. today don't own a mere 25% of the 'capital'. It's a typo.
que_es 12.11.15 at 3:57 pm79
cassander at 15:>If r>g, then (wealth) inequality will grow over time.
"If this were true, every Kennedy alive today would be richer than Joe Kennedy was. This is not the case. It is not the case because people eventually die and fortunes get divided up. It's not a statement of how feudalism works under primogeniture, but it doesn't describe modern economies. Everything Pikety says is built on this fundamental mistake. "
Every Kennedy? Huh? A wealthy person today is perfectly free to leave all of his/her wealth to the eldest son. But wealthy families today are not stuck with primogeniture. They can design their own custom wealth preservation plans and impose restrictions on the use of family wealth for generations after the death of the patriarch/matriarch. Perhaps most importantly, they can and almost always do impose restrictions on the free alienability of that wealth that restricts the rights of third parties in ways that entrench the wealth within the family.
JimV 12.11.15 at 4:11 pm 80
A minor digressive point about Bill Gates (based on reading the unauthorized biography "Gates"): he came from a wealthy background and as a result went to a school which had a computer club which had access to a PDP-11 mini-computer, at a time when most high schools did not have computer clubs. He and Paul Allen (illegally) copied the Basic Interpreter program of that computer, received slaps on the wrist for it (not that I think it deserved much more, but kids of a different social class might have been treated more severely), and later used it as the basis for their first commercial success, a Basic Interpreter for the first home micro-computer.He and Paul Allen are very smart people, but there were probably at least 10,000 other kids as smart or smarter from poor or middle-class backgrounds in the USA at that time, but who did not have the same opportunities.
In conclusion, not a case of capital accumulation only, but it played a part – which I think is all that is necessary, just a a small fitness advance will raise a species to domination over time.
LFC 12.11.15 at 4:19 pm 81
Ze K @61…wealth, according to our worldview, can be legitimately acquired by luck. Inheriting wealth is one example of such luck.
Questioning these assumptions (again, in our current worldview) makes one a supporter of totalitarianism.
Rawls TOJ 1971, p.15, emphasis added: "Once we decide to look for a conception of justice that nullifies the accidents of natural endowment and the contingencies of social circumstance…, we are led to these principles [of justice]."
So Rawls was "a supporter of totalitarianism"? One could easily get the impression from reading certain things on the Internet and elsewhere that he was a squishy milquetoast liberal. My, my. Live and learn.
js. 12.11.15 at 4:20 pm 82
LFC @76 - Oh, I don't think each inequality needs to be justified on a case by case basis-something like the Difference Principle would do the trick.Maybe I'm not being clear, but I mean to make one specific point: Cudd is wrong to think that the equality presumption is false, or at any rate she hasn't given any argument that would convince me otherwise.
This isn't a blanket criticism of her post or anything like that. For example, I think a lot of the stuff about oppression is interesting and worth thinking about. I just picked the one thing I disagree with (as one does).
LFC 12.11.15 at 4:29 pm 84
js. @82:
I get it. Fair enough.Now we can get back to the burning question of whether people who support 80% inheritance/estate taxes and 70% top marginal tax rates are Stalinists or merely Trotskyites. ;)
Ze K 12.11.15 at 4:33 pm 85
"So Rawls was "a supporter of totalitarianism"? "Yeah, sounds like it, according to this excerpt, unless it's ripped out of context. "nullifies the accidents of natural endowment and the contingencies of social circumstance" sounds more radical than stalinism, it's practically pol-potian.
LFC 12.11.15 at 5:24 pm 86
@85
well, since the bk quoted from is 600 pp. long, it was necessarily out of context. (R's first principle protects/prioritizes "basic [political] liberties".) Anyway, the pt was I don't think challenging inherited wealth equals Pol-Potianism. But this is just a minor eddy here, so we can agree to forget it.LFC 12.11.15 at 5:40 pm 87
engels @75
where does being called Miles Fraser V or whatever place you in American class system: 1% or merely upper-middle class?My hunch/sense is that this is not a particularly reliable index of class position. There are probably some very non-affluent African-American families today with people w names like Jones III or Smith IV, etc.
On the other hand, when you see names with clear references to 17th or 18th cent. (hypothetically, something like "John Hancock V"), you pretty much know the person is from an old-line WASP family that's been in the U.S. a long time. Which doesn't *necessarily* mean wealthy, though it could well mean that
|
|
|
Dec 11, 2015 | Crooked Timber
on December 10, 2015
Thomas Piketty's Capital in the Twenty-First Century is an important and valuable contribution to political economy, both empirically and philosophically. Piketty grounds his theory in vast empirical data,rather than settling for elegant mathematical models. He courageously embraces the fact that economic theory is inevitably value laden, and proposes a theory of the historical dynamics of wealth accumulation in order to offer an updated moral critique of capitalism. Grounding his prediction in the historical data and profoundly simple mathematics, Piketty projects that economic inequality is likely to increase and to favor those who own inherited capital over time. He advances the normative judgment that rising inequality is unjust and must be contained. Although Piketty raises important concerns about the possibility of growing wealth inequality, he fails to normatively ground or argue for his presupposition that this inequality is unjust. Since relative poverty can coincide with high levels of objective or subjective well-being, this presupposition is brought into question. However, there are causes of inequality (including wealth inequality) that clearly can be shown to be unjust. By considering other forms and causes of inequality and oppression, we can distinguish between those forms of wealth inequality that are unjust and those that are normatively benign. In this way Piketty's concerns about growing wealth inequality from inheritance can be partly justified, though of course not empirically verified. Piketty's argument for the injustice of growing economic inequality has two parts. The first part is an empirical, economic argument for the claim that returns from inherited wealth will far outstrip income. This argument can be summarized as follows. Let r be the rate of return on capital, and g be the growth rate of the annual flow of national income.
- If r>g, then (wealth) inequality will grow over time.
- Individuals who own a greater amount of capital earn a larger r.
- Growth, g, is likely to be slower in future.
- If r is great enough and g is low enough, then there will be ever more capital from older, inherited wealth, than from wealth saved from income.
- Hence, (wealth) inequality will increase, and inherited wealth will make up the greatest amount of capital. [click to continue…]
T 12.10.15 at 4:24 pm
"To show that income inequalities are unjust, they also have to be shown to derive from injustice or to lead to injustice." First, thank you for taking the time to join the group blog. Second, it seems that high income and high wealth individuals have been very effective in tilting the tax, regulatory, and legal environment even more in their favor thereby increasing the inequality that you may argue was not originally unjust. Do you think those behaviors lead to unjust income inequality? Do you think those behaviors are a necessary consequence of increased wealth and income inequality?Rakesh Bhandari 12.10.15 at 4:29 pm 2
Interesting and challenging comment which will take several readings to understand and evaluate the many different arguments being made.Here is why Piketty thinks a rentier society contradicts the meritocratic worldview of democratic societies:
"…no ineluctable force standing in the way to extreme concentration of wealth…if growth slows and the return on capital increases [as] tax competition between nations heats up…Our democratic societies rest on a meritocratic worldview, or at any rate, a meritocratic hope, by whichI I mean a belief in a society in which inequality is based more on merit and effort than on kinship and rents. This belief and hope play a very crucial role in modern society, for a simple reason: in a democracy the professed equality of rights of all citizens contrasts sharply with the very real inequality of living conditions, and in order to overcome this contradiction it is vital to make sure that social inequalities derive from ration and universal principles rather than arbitrary contingencies. Inequalities must therefore be just and useful to all, at least in the realm of discourse and as far as possible in reality as well…Durkheim predicted that modern democratic society would not put for long with the existence of inherited wealth and would ultimately see to it that the ownership of property ended at death." p. 422I understand Cudd to be raising a neo-liberal point discussed in Raymond Plant's book on neo-liberalism -- that if a fortune has been made through no injustice to a concrete other and its gifting and bequeathing does no concrete injustice to another, then there is no coherent ideal of social justice (Hayek's idea that social justice is mirage) that would allow us to condemn the resulting distribution of wealth, as fantastically concentrated as it may be.
Yet a rentier society would actually undermine social utility by reducing the incentives for entrepreneurial exertion; the largest incomes also could not be justified in terms of meritocratic principles; and rentiers would be in a position to use the political process to extract not what Piketty calls rent in terms of the income of a rentier but what most economists mean by rents. The last would have no justification in terms of welfare economics (of which Cudd gives an eloquent defense in her book on capitalism). Piketty is correct that to the extent that citizens understood the nature of a rentier society they would rise in opposition to it.
Plus, the wealth concentration of a rentier society would not be accepted in a Rawlsian original position and to the extent that some wealth is needed to exercise one's capabilities would be unjustifiable from Sen's and Nussbaum's capabilities theory. Piketty expresses sympathy for both normative political theories.
Now Cudd also notes that Piketty argues that the astronomical pay of super-managers cannot be justified in meritocratic terms; his argument is more developed than she lets on–it involves cross-sectional comparison and econometric analysis, controlling for luck and other factors in company performance outside the control of a supermanager as well as the inapplicability of marginal productivity theory to the unique jobs that a CEO does. Plus, he gives an institutional analysis of the way in which CEO's can capture boards and how their incentive to do so rose with lower marginal tax rates. Of course that Piketty undermines this justification does not necessarily mean that such compensation is unjustified, but he does undermine the meritocratic justification that is given for it.
MPAVictoria 12.10.15 at 4:34 pm 3
"When wealth inequalities stem from unjust inheritances"Is there any inheritance anywhere in the world that is not an "unjust" inheritance? Serious question...
Bruce Wilder 12.10.15 at 4:34 pm 4
Piketty treats economic inequality stemming from return on capital . . . as a zero sum sort of situation, but that is clearly not true. Investment of capital creates improvements in standard of living for all."that is clearly not true" seems a bit emphatic for a proposition that should not be clear at all. It might be the case that an instance of capital investment improves the standard of living or it might be immiserating. A wealthy investor might invest in a payday loan operation with a remarkable return on investment. A corporation might invest in automation of a production process and bargain for a reduction of wages for the now less numerous and "less-skilled" workforce.
The emblematic condition of Piketty's work, r > g, ought to imply something about the balance at the margin. If the income share claimed by capital is rising faster than total income, it cannot be the case that all capital investment entails a positive-sum bargain in which the net gain is distributed.
We can certainly hope for the kind of capital investments that result in economic growth that exceeds the return to the owners of capital, but that's not the world Piketty is worried about.
Bruce Wilder 12.10.15 at 4:47 pm 5
Piketty argues that top managers today are paid unjustifiably large salaries because it is too difficult to assess the marginal productivity, and in the absence of any information they are able to manipulate their own and each other's wages. A market failure is not an injustice . . .Calling an exercise of power and authority in a bureaucratic hierarchy "a market failure" is an error of ideological obduracy, since hierarchies are not "markets". Hierarchies of authority make economic use of social domination, which is, at least, potentially problematic for justice.
Bruce Wilder 12.10.15 at 4:53 pm 6
A significant cause of income inequality is the differences in human capital developed through education. Piketty notes that the educational systems in Europe and especially the US tend to prevent rather than promote social mobility, and instead transmit privilege. 'Parents' income has become an almost perfect predictor of university access.' (p. 485) Piketty's explanation seems to be that it is because wealthy parents buy places for their children in universities, but I think this overestimates the corruption in university admissions and it underestimates the degree of stratification of the developed academic abilities of college age students. Wealthier families are better able to invest in developing children's abilities and talents to prepare them for college, and have better schools in their neighborhoods. Especially elite universities in the US compete very hard to find and attract low income and minority students, but the competition is stiff for qualified students who will not need remediation in order to succeed.Demand for low-cost tokens is outrunning supply.
Trader Joe 12.10.15 at 5:03 pm 7
I struggle a lot with the concept of inheritance and when/when not justified. Its easy to see how its unfair/unjustified when the amounts are signficant, far less so when they are not.If I'm a Rockefeller and hand over the emprire to my children, its easy to see an undeserved conferred advantage.
If I'm farmer Joe who has worked my farm all my life, own it outright through my labor and savings and then want to pass that to my children, who have also worked it all their life(s), so that it can sustain them the same way as it sustained me – it seems far more fair though it still confers on them an advantage of priveldged and if they successfully manage that advantage they should be able to make it grow. Over some number of generations, the differences would collapse.
I think its a very natural instinct for a parent to want to transmit advantage to their children. Teaching them and nurturing their character are never criticized though no less an asset than dollars or farms.
I can see how the provision of an elite education transmits priveledge, but I'malso hard pressed to suggest a child should be denied the best possible education that they can get. If a child has intellectual talent it should be developed regardless of whether they come from a rich or poor family.
One take away from Picketty could be the best possible biological strategy is to try to get as rich as you possibly can because that's the best possible insurance for perpetuating your DNA. Probably not the policy prescription being encouraged, but certainly supported by the data.
Paul 12.10.15 at 5:21 pm 8
All property rights are oppressive; they amount to the restriction of the freedom of the non-property owner. Unless one wants to go communist (and argue that it is possible to create a society without property rights) or libertarian (and argue that property rights somehow exist a priori of society), any society is necessarily oppressive and unjust. The goal is to minimise this injustice without creating others or destroying the ability if society to function.So I think the OP is wrong in asserting that any allocation of property rights should be assumed just in the absence if evidence that the distribution is "oppression". Property rights are (probably necessary) oppression, almost by definition.
notsneaky 12.10.15 at 5:43 pm 9
"Is there any inheritance anywhere in the world that is not an "unjust" inheritance?"So… if I work hard all my life, say three minimum wage jobs, to put my kid through college, their college education is "unjustified"?
MPAVictoria 12.10.15 at 5:55 pm 11
"So I think the OP is wrong in asserting that any allocation of property rights should be assumed just in the absence if evidence that the distribution is "oppression". Property rights are (probably necessary) oppression, almost by definition."Yep. Property is violence. Maybe beneficial violence in the utilitarian sense but violence all the same.
Ze K 12.10.15 at 6:34 pm 12
Nothing is a priori just or unjust; Thomas More had slaves in his Utopia. However, when a socio-economic arrangement reaches a phase where its fairness is commonly questioned, that's a sure sign that the dominant ideology fails to convince, and the system is in trouble. Doesn't mean it's going to collapse tomorrow, obviously.Rakesh Bhandari 12.10.15 at 6:45 pm 13
It could be argued that entrepreneurial behavior is already individually irrational -- see Kahneman and Tversky. But it is often motivated at least partially by the dream of creating dynastic wealth and glory. Otherwise, it would make little sense to do the hard labor of thinking of new ways of doing things, convincing financiers of the worthiness of the project and giving up more secure incomes. One could worry that Piketty has exaggerated the importance of inherited wealth even in the face of his own evidence (only a small fraction of the top 1% receive most of their income as rentier rent IIRC) and that he has under-estimated its importance as an economic incentive for entrepreneurial labor and that he has also underestimated the extent to which great fortunes dissipate over time due to the growth of heirs and reasonable taxation.MPAVictoria 12.10.15 at 6:51 pm14
"Nothing is a priori just or unjust"He said as he foreclosed on the poor family and cast them out to starve in the street.
cassander 12.10.15 at 6:51 pm 15
>If r>g, then (wealth) inequality will grow over time.If this were true, every Kennedy alive today would be richer than Joe Kennedy was. This is not the case. It is not the case because people eventually die and fortunes get divided up. It's not a statement of how feudalism works under primogeniture, but it doesn't describe modern economies. Everything Pikety says is built on this fundamental mistake.
> Wealthier families are better able to invest in developing children's abilities and talents to prepare them for college, and have better schools in their neighborhoods.
Large American urban school districts are not just the best funded in the country, they're the best funded in the world. And what Bruce says about market failure applies equally well here. people have voted massive amounts of money for urban schools, when those state run schools fail to perform well despite these resources, the failure cannot possibly be attributed to market forces.
> In the 19th century the top 10% most wealthy owned 90% of capital, the middle 40% owned 5% and the bottom 50% owned 5%.
In a perfectly equal society where no one inherited anything, everyone got exactly the same starting salary, saved the same amount, got the same raise every year and earned the same rate of return, the richest 1/5 would still control 66% of the wealth just due to cohort effects. This simple characterizations of wealth inequality by quintiles or deciles do more to conceal than to reveal. what matters is not snapshots, but lifetime expectations. These, however, are harder to calculate and make for much less snappy talking points
Paul 12.10.15 at 6:51 pm 16
This is an interesting paper about the dissipation of wealth: What is the True Rate of Social Mobility in Sweden? Suggests that the tendency of fortunes to fade away is generally underestimatedPaul 12.10.15 at 7:00 pm 17
My reading of r>g is that its piketty's attempt to put an overarching intellectual framework over his results and that its the least successful part of the work, although Brad Delong has made pretty good sense of it herehttp://www.econ.hit-u.ac.jp/~makoto/Piketty_readings/Delong_2015.pdf
But even if you consider it in error its the conclusion more than the foundation. The data speaks for itself.
Cassander @15: I read your comment as "even a pretty equal society would be pretty unequal". The definition if a " pretty equal" society us surely one where the richest 20% only control a little more than 20% of the wealth, surely? After all, the tallest 20% do not account for 66% of the total height in the population.
Layman 12.10.15 at 7:13 pm
If we are to complain that Piketty fails to demonstrate that income inequalities originate from or lead to injustices, can we not also complain that he fails to demonstrate that the sun rises in the east, or that night follows day, or that it is quite difficult to put the toothpaste back into the tube? While this is not as bad as complaining that he fails to discuss 20th- and 21st- century novels, it approaches that degree of badness.cassander 12.10.15 at 7:49 pm 21
@Paul>This is an interesting paper about the disspation of wealth:
I just skimmed it, but that the paper argues that there's a great deal of dissipation of wealth, just that it's well below 100% dissipation.
>The definition if a " pretty equal" society us surely one where the richest 20% only control a little more than 20% of the wealth, surely? After all, the tallest 20% do not account for 66% of the total height in the population.
If everyone was born 2 feet tall and got 10% taller a year, then the tallest 20% would have 80% of the height. the point of the math I laid out is precisely that "a society where everyone has the same amount of stuff" and "a society where everyone gets the same amount of stuff" are not the same, despite our basic instinct that they should be.
T 12.10.15 at 7:52 pm 22
@16This and other studies using unique surnames tends to suggest that mobility may be overstated.
http://faculty.econ.ucdavis.edu/faculty/gclark/papers/Sweden%202012%20AUG.pdfengels 12.10.15 at 7:53 pm 23
Apologies if I've misunderstood but does the OP really think that someone who affirm's Paine's maxim that'Social distinctions can be based only on common utility, must believe that someone's inviting different numbers of people to two different dinner parties is unjust?
Paul 12.10.15 at 8:02 pm, 24
@cassander
But a world where everyone is born poor and steadily becomes rich is also a pretty unequal world, is it not? And piketty's shows that 50% of people in most western societies own nothing, which suggests a lot of people are not accumulating.I can see your point that headline numbers can be misleading, but piketty also shows a clear trend, that wealth is becoming more concentrated. Unless the metrics are somehow a deteriorating representation if reality that's a real thing.
cassander 12.10.15 at 8:55 pm 25
@Paul>But a world where everyone is born poor and steadily becomes rich is also a pretty unequal world, is it not?
For some definitions of unequal, yes, but I say those framing are not particularly useful We are all born ignorant and spend a lifetime accumulating knowledge, but we do not lament the "knowledge gap" between old and young. A world where everyone made X dollars a year, except for their 20th year when they make 1000X would not have a Gini score of 0, but I would call that world equal.
> And piketty's shows that 50% of people in most western societies own nothing, which suggests a lot of people are not accumulating.
It shows that most people aren't accumulating YET. In the real world, people do not save X percent of their income a year, they they consume a larger share of their income when young (consume much more than their income, actually) and save more as they age, for obvious reasons. That's why you have to look at wealth over lifetimes, not in snapshots.
Peter K. 12.10.15 at 9:15 pm 26
@ 15 Cassander">If r>g, then (wealth) inequality will grow over time.
If this were true, every Kennedy alive today would be richer than Joe Kennedy was. This is not the case. It is not the case because people eventually die and fortunes get divided up. It's not a statement of how feudalism works under primogeniture, but it doesn't describe modern economies. Everything Pikety says is built on this fundamental mistake."
It's not saying that wealthy dynasties don't fall apart. They often do. But new dynasties are formed (often from well-off families, not the lower middle class).
Trump. Warren Buffet. George Soros. Bill Gates. Mark Zuckerberg. Oprah Winfrey.
These people need the financial sector to put their money to work. And as we've seen the last 100 years, the fiancial sector grows and grows as many of the newly rich are financiers.
Peter K. 12.10.15 at 9:21 pm 27
And the one percent also effect politics and policy through their generous campaign contributions (Koch brothers); sponsorship of think tanks; ownership of mass media (think Rupert Murdoch); etc. etc.Politics and policy can effect both *r* and *g.*
http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html
"Around the same time that Mr. Rauner began running for governor, a group of researchers based at Northwestern University published findings from the country's first-ever representative survey of the richest one percent of Americans. The study, known as the Survey of Economically Successful Americans and the Common Good, canvassed a sample of the wealthy from the Chicago area. Those canvassed were granted anonymity to discuss their views candidly.
Their replies were striking. Where merely affluent Americans are more likely to identify as Democrats than as Republicans, the ultrawealthy overwhelmingly leaned right. They are far more likely to raise money for politicians and to have access to them; nearly half had personally contacted one of Illinois's two United States senators.
Where the general public overwhelmingly supports a high minimum wage, the one percent are broadly opposed. A majority of Americans supported expanding safety-net and retirement programs, while most of the very wealthy opposed them. And while Americans are not enthusiastic about higher taxes generally, they feel strongly that the rich should pay more than they do, and more than everyone else pays.
"Probably the biggest single area of disconnect has to do with social welfare programs," said Benjamin I. Page, a political scientist at Northwestern University and a co-author of the study. "The other big area has to do with paying for those programs, particularly taxes on high-income and wealthy people.""
Soru 12.10.15 at 9:40 pm 28
One thing is that in reality, setting 'the wealth of a new born' as zero is rather arbitrary. In one country they might get , by right of citizenship, X dollars of security, legal, health and welfare services. In another, Y dollars..Both have no money, but if X >> Y, then they are going to have very different average expected life outcomes.
At a high zero point, you get cops and judges who uphold the law, at a low one you can hire some bodyguards. At high zero point you can go to a library, at a low one hire a hack to write your autobiography.
You can extend that to cases of active oppression by giving that a dollar equivalent and a minus sign. After all, even slavery could usually be escaped from, in theory, by buying yourself…
Thing is, the _potential_ floor of wealth in a modern society _could be_ as far above active oppression as room temperature is above absolute zero.
And raising it never stops being a good.
T 12.10.15 at 9:53 pm 29
@27
Exactly. Regardless of how how rich got that way there is no question that they are using their wealth to increase and capture economic rents and to take actions that diminish income and wealth mobility. To the extent the economy veers to increased rent seeking, it could very well lower future growth by diverting resources to non-productive activities. If this behavior is baked in as inequality reaches a certain threshold, then it is inherently unjust. To the extent its not always baked in, it has certainly had that effect in the US over the last 30 years. Consequently, we can conclude that current levels of US inequality are unjust.Mike Furlan 12.10.15 at 10:27 pm 30
An interesting snapshot of where we are.http://www.nakedcapitalism.com/2015/12/demise-of-the-us-middle-class-now-official.html
cassander 12.10.15 at 10:31 pm 31
@Peter K.>It's not saying that wealthy dynasties don't fall apart. They often do. But new dynasties are formed (often from well-off families, not the lower middle class).
That's explicitly the argument pikety makes with R>G, that the rich get richer by virtue of being rich, not that the moderately well off occasionally become rich by some other means. None of the people you mention got rich by sitting on accumulated capital, nor did any of the fortune 500.
>And as we've seen the last 100 years, the fiancial sector grows and grows as many of the newly rich are financiers.
getting rich by playing financier with other people's investments is not what pikety is talking about. Warren Buffet's fortune, and almost every other financial fortune I can think of, was made by taking a percentage of the profit he got from investing other people's money, not his own.
js. 12.10.15 at 10:50 pm 32
However, the equality presumption is false; it is a fallacy akin to the principle of insufficient reason, which assumes equiprobability of events where there is no reason to assign another probability. But there is also no reason to assign equal probability rather than any other, and thus rationality cannot demand that. By the same token, morality cannot demand equal shares of a good (or bad) in the absence of a reason for it. I take this to be a point of logic, not morality.
This is almost bizarrely unconvincing. You seem to be using "inequality" in a purely formal sense-a sense in which "4 > 2" counts as an inequality. In this sense of the word, it may well be true that there is no presumption of equality. But that fact has no bearing on whether or not a presumption of equality is plausible in the case of interest, namely social and economic inequalities. In this particular case, if there is a widespread moral intuition in favor of the presumption of equality (as I think there is), you can't simply hand-wave away the presumption as a "matter of logic". You need to either (a) show that there is in fact no such widespread intuition, or (b) provide some sort of error theory for this intuition. And until one of these arguments is forthcoming, I'll continue to think that the presumption of equality has quite a bit going for it.
Tabasco 12.10.15 at 11:05 pm 33
wealthy dynasties don't fall apart. They often do. But new dynasties are formed (often from well-off families, not the lower middle class). Trump. Warren Buffet. George Soros. Bill Gates. Mark Zuckerberg. Oprah WinfreyGates is giving his money away. Buffet and Zuckerberg say they are going to give away their money. So, no dynasties there.
T 12.10.15 at 11:32 pm 34
@33As for dynastic wealth, there are 4 Waltons, 3 Mars, and 2 Kochs among the top 18 richest Americans. That's 50%. Pinketty is forecasting a future of dynastic wealth, the Forbes 400 in 30 years. It's the kids of today's plutocrats that will be the beneficiaries.
UserGoogol 12.10.15 at 11:50 pm 35
Paul @ 8: I'd push against that in multiple directions. Even without property per se, some degree of excluding people from using resources is inevitable just from being an organism living in a world of limited resources. If I eat some food, I exclude others from eating that food. Property gives people rather extensive abilities to exclude others from using resources far beyond what is strictly necessary in a state of nature, but any existence involves curtailing the freedoms of others. The only way to have absolute freedom is to be God.But by the same token it seems kind of vacuous and silly to call that injustice. Minimizing the amount of suffering (or keeping the suffering within "reasonable" bounds) seems like a more sensible way of defining that word.
To get back to the actual point you were making instead of making vague philosophical rumbling, property certainly ipso facto causes some degree of restriction of freedom and this is something deserving of critical attention. But I don't think you can usefully say that they're oppressive by definition.
F. Foundling 12.10.15 at 11:52 pm 36
The OP's notion of justice is not explained in the text, but it seems to be different from mine, and, I think, from that of many others. I think most people would agree that a just distribution is a distribution in accordance with the merits and/or needs of the individuals. Any deviation from such a distribution, for whatever reason, is unjust (it 'harms others' in the sense that the same resource could have been allocated to others more deserving of it based on their merits/needs, and the fact that more wealth has been created doesn't change anything as long as that new wealth is not distributed according to the same principle). This means that inheritance-determined distribution is inevitably unjust, just as any other distribution that is not deliberately made to reflect the merits and/or needs of the individuals can be reasonably assumed to be unjust by default, for the same reason that any random lottery ticket can be assumed not to be winning the jackpot, and any random sequence of body movements can be assumed not to result in the making of a sandwitch.The equality presumption is basic to most people's sense of justice: most people, when asked to divide a loaf of bread 'justly' between two complete strangers of whom they know nothing, will split it into two equal parts unless there is an obvious criterion by which to differentiate (size, age, gender, caste, etc.). Indeed, even when the bread is distributed unequally in accordance with one or more of these characteristics, the very fact that the difference in share size is made proportionate to the difference in the chosen characteristic(s) shows that no other inequality is assumed apart from the one explicitly entailed by the characteristic – i.e. equality is assumed by default 'other things being equal'. Yes, it is very unlikely that these two random strangers really are *precisely* equally good and deserving; the point is that we have no *right* to assume otherwise, and as humans they have a *right* to be treated equally unless there is a specific reason for the contrary.
Bruce B. 12.11.15 at 12:26 am 37
It's worth noting that in a lot of cases where a particular family dynasty falls apart, a great deal of the money doesn't travel far. It goes to co-owners of shared enterprises, colleagues and rivals, and others in the same stratum. Cash can flow out quickly, but lots of assets hang around, and get used by someone close at hand.If the principle that "since I didn't set out to harm anyone, you have no right to tax my stuff" were taken seriously in general, we wouldn't have laws against pollution or having your car run over someone because you didn't set the parking break. The idea sounds appealing widely at first hearing, but it doesn't take much of a context to establish how incompatible it is with a bunch of other moral reasoning.
John Quiggin 12.11.15 at 12:41 am 38
The OP seems to be completely misconceived. As Cudd concedes, Piketty presents a positive analysis predicting that inherited wealth will become dominant, and doesn't spell out any theory of justice, though it's obvious that he thinks this is a bad thing.So, Cudd makes up a theory of justice, imputes it to Piketty and then says it hasn't been proven. What's more she writes as this topic is being addressed for the first time. She doesn't mention any of the vast number of people who've written on equality and whose arguments might be relevant here.
The closest actual engagement with Piketty is her reference to the epigraph 'Social distinctions can be based only on common utility,' which would most naturally be interpreted in utilitarian terms (that's the default assumption for an economist anyway). So, Piketty can be taken to say that a combination of slow growth and increasing inequality is unlikely to promote common (aggregate) utility. There are plenty of arguments that can be made for or against this, but Cudd doesn't even bother. Having cited the epigraph, she never again mentions utility.
js. 12.11.15 at 1:02 am 39
UserGoogol @35 - I'd make it even simpler: if you've got a conception of "justice" such that any possible social arrangement is unjust, i.e. justice is actually impossible, then whatever you've got is not a conception of justice.engels 12.11.15 at 1:05 am 41
I agree with other posters. The OP 'reconstructed' an argument Piketty never made about a topic he didn't address, and then complained about how bad it is (and for really unconvincing reasons). It's not often you see someone lose an argument so badly with a straw man of their own construction.Robb Lutton 12.11.15 at 1:16 am 42
…In the US today, top 10% own 25% and the next 40% own 25% of capital,…This cannot be true else there would be no inequality as it would mean the bottom 50% would have 50% of capital.
Markos Valaris 12.11.15 at 1:51 am 44
js, UserGoogol, I suspect Paul is after something somewhat different, which is the idea that using force to exclude others from some resources must *either* be backed by good reasons *or* count as oppressive/unjust. This doesn't seem crazy, and it would generate the kind of request for justification the OP puzzles about.LFC 12.11.15 at 2:06 am 45
I haven't read the comment thread with great care but I have the read the OP.It seems to be the basic argument of the OP is roughly this:
1) Absolute poverty (in today's world) is always unjust, but relative poverty resulting from economic inequalities is not necessarily always (or even presumptively) unjust. Some economic inequalities are unjust, others aren't, and one needs to make an argument about why particular inequalities (when we're talking about relative and not absolute poverty) are unjust. This point strikes me as fairly uncontroversial.
2) Economic inequalities resulting in or reflecting relative (not absolute) poverty are unjust when they are caused by (or transmit) oppression and/or discrimination, or when they 'stigmatize' and thereby cause psychological harm to an identifiable group. This point I think is more controversial but interesting and defensible, at least with a more elaborate account, which I take it the author of the OP has given elsewhere.
As for where the OP directly engages with and criticizes Piketty, I'm not well-placed to get into this, but ISTM the passage where the OP criticizes him for ignoring the factor of oppression, e.g. w/r/t women in particular time periods, can be taken as a reasonable criticism.
When read with some care, the OP seems not anywhere near as hostile to some kind of egalitarian position, istm, as some commenters here apparently think.
LFC 12.11.15 at 2:27 am 47
One last thing: the criterion of "stigma" is arguably not that far from the Rawlsian criterion of 'self-respect' (which came up in the thread on Chris B's post), or at least it might be related… If one feels stigmatized or is objectively stigmatized by a particular situation of ec. inequality, then the social bases of self-respect are not being met. The OP refers to "social psychology" as tool of empirical investigation here, whereas in the other thread we were talking about moral psychology, but obvs. there's a common element: psychology.LFC's reconstruction of the post strikes me as not only charitable, but pretty much obviously right. I'm pretty surprised, and sorry, to see the comments mostly get on the wrong foot and not address what's interesting in the post.John Quiggin 12.11.15 at 4:20 am 49
'Surely not the case for women'. This is far from obvious. 40 per cent of female headed families live in poverty. http://www.epi.org/publication/female-headed-families-children-poverty/This is an absolute poverty line set in the early 1960s, so the position of these families relative to the median household is considerably worse. Relative to the top 1 per cent of households, the gap has grown enormously. The poverty rate for female headed households has barely changed since the 1970s, but (I think) the proportion of such households has increased substantially. On the other side of that equation, the proportion of couple households with two high incomes has also risen. So, while it's certainly true that the wages of employed women have risen relative to those of employed men, that doesn't mean that gender based inequality and poverty have declined.
I haven't got a conclusive answer on this, but if it's going to be the central point of a critique it deserves more than a handwaving "surely".
F. Foundling 12.11.15 at 4:31 am 50
@js. 12.11.15 at 1:02 am> if you've got a conception of "justice" such that any possible social arrangement is unjust, i.e. justice is actually impossible … A banal point, probably, but AFAICS, everything is unjust compared to perfect justice, and perfect justice is impossible, because perfect anything is impossible. Not a reason not to keep 'perfecting' things. It's what humans do.
@LFC 12.11.15 at 2:06 am
> the OP seems not anywhere near as hostile to some kind of egalitarian position'Some' does a lot of work here.
>Some economic inequalities are unjust, others aren't, and one needs to make an argument about why particular inequalities (when we're talking about relative and not absolute poverty) are unjust. This point strikes me as fairly uncontroversial.
The problem is that the OP's idea of what it takes to prove an inequality to be unjust is highly restricted. Not only is inequality assumed to be just until the opposite is proven, but it is argued that even if an inequality demonstrably, as Piketty claims, lacks any basis in merit (a blatant example being the case of inheritance), this is still not sufficient to make it unjust. That inequality per se does not even need to be justified by merit, or in any way at all, is a position so radically and counterintuitively anti-egalitarian that even right-wingers usually won't take it openly (rather, they'll insist that there is, in fact, a merit that justifies it). You see, only some very specific reasons such as certain proof of the presence of what the author calls 'stigma' and 'oppression' might potentially convince the author to deign to care about wealth-induced unequal outcomes in a way roughly comparable to the way the author cares about gender-induced and race-induced unequal outcomes. Personally, I don't think convincing the author is worth the trouble.
js. 12.11.15 at 4:35 am 51
Hey Markos, it's Jamsheed. I think I see what you're saying-maybe. If that's what Paul was getting at, fair enough. But if I'm understanding you correctly, I think it still ends up turning on the "equality presumption" bit, on which see below.LFC - I agree with you that Cudd is sympathetic to egalitarianism in the post-and her points about gender inequality are well taken. I didn't mean to imply otherwise. It just seems to me that she's given up a good direct argument against inequality for a considerably more circuitous one-for reasons that remain utterly opaque to me. (For one thing, all those old homilies about the "gentler and fairer sex" can be taken as ways to defeat the equality presumption, which would militate against gender inequality; one could of course find more modern equivalents too.)
Anyway, this still seems wrong to me:
one needs to make an argument about why particular inequalities (when we're talking about relative and not absolute poverty) are unjust
I really think it's the other way around. One never needs to justify why an inequality is unjust-one only ever needs to justify the inequality itself. Of course, one sees plenty of arguments for why some inequality is unjust and why we need to fix that, but I think these are really arguments for disrupting existing social arrangements so as to make them more egalitarian, rather than arguments for the justice of equality per se, which again is something that's rarely needed an argument, it seems to me.
LFC 12.11.15 at 4:44 am 52
Matt @48
Thanks.
(Btw, in re-reading my comment @45, I see there are typos in the first two lines - sorry.)9JQ @49: I said that "could be" a reasonable pt of criticism of P., but I don't/didn't know the empirics, so wasn't endorsing.
A H 12.11.15 at 4:46 am 53
I read Piketty as being a reformist liberal similar to Keynes. The reason wealth inequality is bad is because it threatens meritocratic liberal capitalism with either a return to feudalism or political upheaval. So any normative critique of Piketty needs to start with meritocracy.Any distribution of income in a society requires the consumption of resources to maintain itself. That distribution which requires the least consumption of resources to maintain itself is the most 'natural.' It is the most efficient, as well as the most robust economy.A greatly unequal society requires a great amount of resources to maintain its inequality, and thus itself. (A perfectly equal society also requires a large amount of resources just to maintain equality.)
This consumption of resources, merely to maintain inequality, reduces the amount of resources available to actually operate the economy. That is, it reduces the efficiency of the economy. If the efficiency of the economy is sufficiently reduced, the economy cannot maintain itself.
But I suppose the survival of the economy is beside the point.Paul 12.11.15 at 6:51 am 57
UserGoogol @35: If you stop a hungry person picking an apple from a tree, it may be just (there may be a hungrier person who has planted and tended the tree, for example), but it's hard to argue that it isn't oppressive. But I concede this is a silly argument.The serious argument is that property is so deeply engrained in our society that it tends to get a free pass. I suspect that most people's conception of justice is based on the idea of "everyone has the right to their own stuff" ignoring completely how arbitrary our moral claims to owning anything as individuals actually are. What I dislike about the OP is that it effectively works from the position that existing claims on property are to be considered valid unless demonstrated otherwise; and doesn't make this argument directly, but instead makes it implicitly by making egalitarianism prove its case.
John Quiggin 12.11.15 at 7:12 am 58
Rather than imputing a theory of justice to Piketty based on hints from Capital in the 21st Century, it would have been more helpful to respond to the explicitly normative analysis in his work with Saez, which leads to a call for a top marginal tax rate of around 70 per cent.This gives a clear answer to the "burden of proof" question raised in the comments above. In the absence of welfare-relevant differences between people, the utility derived from a given aggregate income is maximized when that income is distributed equally. So, any inequality needs to be justified, either on the basis of welfare-relevant differences, or on the basis that it is needed to generate a larger aggregate income.
Again, the OP does none of this. There's no sign that the author is even aware of Piketty's large body of work leading up to Capital in the 21st Century
The article is poorly argued and based on irrelevant speculation.Bruce W 4: "The emblematic condition of Piketty's work, r > g, ought to imply something about the balance at the margin. If the income share claimed by capital is rising faster than total income, it cannot be the case that all capital investment entails a positive-sum bargain in which the net gain is distributed."
In the light of our discussion in the other thread, I am a bit surprised. You are now admitting that Piketty's argument is based on capital's share of total income rising but clearly, that share cannot rise indefinitely or else it would swallow up all of production. This is what I have argued and you, if I remember correctly, called that "idiotic". So which is it?
"a country that saves a lot and grows slowly will over the long run accumulate an enormous stock of capital (relative to its income)." (Piketty)This kind of argument really drives me to despair. If that stock of capital is productive capital, it is a good, not a bad thing for a society to have accumulated an "enormous stock" of it. As of ownership, a lot of our accumulated capital is actually publicly owned and actually makes people's lives better. Piketty makes no difference between productive capital and unproductive wealth and none between publicly and privately owned capital. Piketty makes it sound as if public investment in productive infrastructure is a bad policy because we really shouldn't be accumulating so much capital. Exasperating.
Ze K 12.11.15 at 10:52 am 61
The justice thing is tricky. In the current western worldview, as I understand it, the only 'just' way to distribute a loaf of bread is to negotiate and sell it.Capitalist inequality doesn't need to be justified, because it's not explicitly postulated (quite the opposite: 'all men are created equal'), but is merely a side-effect of a much more fundamental concept, the right to own property, also known as 'freedom', 'liberty'.
Social distinctions can be based only on common utility, but wealth, according to our worldview, can be legitimately acquired by luck. Inheriting wealth is one example of such luck.
Questioning these assumptions (again, in our current worldview) makes one a supporter of totalitarianism.
Richard M 12.11.15 at 11:45 am 62
> If that stock of capital is productive capital, it is a good, not a bad thing for a society to have accumulated an "enormous stock" of it.That seems a failure of charitable reading. You can't get publicly owned utilities as a consequence of private savings. So by 'capital', he clearly means money, i.e. ownership rights, not the things that money buys.
Some interesting back-of-envelope calculations from link below suggest that there is two-to-three times as much ' investable capital' as 'capital required to run the economy'. Which explains why so much of it is spent trying to play zero-sum-except-in-case-of-fraud financial games. And why every-time someone does come up with a semi-valid new thing, they end up a billionaire.
http://continuations.com/post/134920840275/capital-is-no-longer-scarce
"You can't get publicly owned utilities as a consequence of private savings."But Piketty ("a country that saves a lot" etc.) doesn't make any of these distinctions. Is it really uncharitable to take him literally?
reason 12.11.15 at 1:22 pm 64
There are some very controversial points raised in the OP.This "even though human capital can create great wealth in a single lifetime, as Bill Gates's example would attest." is clearly fallacious (Bill Gates great wealth came from Intellectual Property not human capital).
reason 12.11.15 at 1:27 pm 65
"It seems that Piketty treats economic inequality stemming from return on capital or income as a zero sum sort of situation, but that is clearly not true."I know Bruce W addressed this before @4, but to take another tack – it is also empirically not true since wage rates have been falling for 30 years at the same time as inequality has increased (not to mention that capital investment, at least since the invention of the joint stock company, is not an exclusive imperative of the wealthy).
reason 12.11.15 at 1:32 pm 66
Where do the figures from" In the 19th century the top 10% most wealthy owned 90% of capital, the middle 40% owned 5% and the bottom 50% owned 5%. In the US today, top 10% own 25% and the next 40% own 25% of capital, while in Europe the top 10% own 60% and the next 40% own 35% of capital. " come from (there is no source given).
The figure for the US today looks simply odd: http://inequality.org/wealth-inequality/ suggests the top 10% today own 75% of the wealth.
reason 12.11.15 at 1:45 pm 67
"Piketty claims that 'economics is a subdiscipline of the social sciences, alongside history, sociology, anthropology, and political science.'"I regard this as rather unfortunate. I think economics is much closer in content and style to ecology and should be seen as a subset of ecology. If it saw itself that way, it would be much better.
MPAVictoria 12.11.15 at 2:19 pm 68
Paul I think you may find this article by Matt Bruenig interesting as it relates to many of the points you have made here:http://www.demos.org/blog/6/3/14/lesson-grab-what-you-can
engels 12.11.15 at 2:27 pm 69
Lfc, speaking only for myself the problem with the OP of not that it's 'hostile to some kind of egalitarian position' but that it's making bad arguments against a set of made-up claims.LFC 12.11.15 at 2:49 pm 70
reason @64
This "even though human capital can create great wealth in a single lifetime, as Bill Gates's example would attest." is clearly fallacious (Bill Gates great wealth came from Intellectual Property not human capital).I think Cudd's point here in the context of the post is the fairly banal one that not all fortunes are inherited, even today: Gates did not inherit his wealth (though presumably he came from a middle or upper-middle class background) but made his fortune via inventing stuff in a garage etc and then turning it into a corporate empire, helped *greatly* of course by intellectual-property laws once the software etc hit the market. I agree the sentence should be tweaked, but the 'human capital' reference here is to the fact that he and others he worked with were able to come up w/ whatever they came up with in the first place. Anyway, it's sort of a side issue because the post is not about the legal, socioeconomic, and 'luck' conditions that allow some inventors to get wealthy and others not, and it was really a point just made in passing.
reason 12.11.15 at 2:54 pm 71
LFC @70
None the less the value of his human capital is what an employed programmer would have been paid to do what he did. And such a basic error, may not change the argument substantially, but along with some other errors (notably the incorrect wealth distribution figure quoted) gives the whole OP less authority than it otherwise might have had.LFC 12.11.15 at 3:07 pm 72
JQ @58
In the absence of welfare-relevant differences between people, the utility derived from a given aggregate income is maximized when that income is distributed equally. So, any inequality needs to be justified, either on the basis of welfare-relevant differences, or on the basis that it is needed to generate a larger aggregate income.But "welfare-relevant differences between people" frequently exist, so at this level of generality that mostly kicks the can down the road, so to speak. Piketty and Saez's call for a top marginal tax rate of around 70 percent is presumably based on a combination of their normative leanings and their empirical judgment that such a tax rate would not harm economic growth in a major way so as to offset its redistributive or other benefits. Assuming that judgment is correct, I'm still not sure it's reasonable to expect Cudd, who is a philosopher not an economist, to grapple with it. But I take the point that the OP as it's presented infers (or imputes) a normative analysis on P.'s part w/o noting what he had written in that vein before the book.
Layman 12.11.15 at 3:09 pm 73
"Gates did not inherit his wealth (though presumably he came from a middle or upper-middle class background) but made his fortune via inventing stuff in a garage etc"I think this is the wrong myth. Perhaps you mean Jobs?
engels 12.11.15 at 3:10 pm 74
His father was a prominent lawyer, and his mother served on the board of directors for First Interstate BancSystem and the United Way. Gates's maternal grandfather was JW Maxwell, a national bank president. Gates has one elder sister, Kristi (Kristianne), and one younger sister, Libby. He was the fourth of his name in his family, but was known as William Gates III or "Trey" because his father had the "II" suffix.engels 12.11.15 at 3:25 pm 75
Apropos of nothing where does being called Miles Fraser V or whatever place you in American class system: 1% or merely upper-middle class?LFC 12.11.15 at 3:31 pm 76
js. @51
One never needs to justify why an inequality is unjust-one only ever needs to justify the inequality itself. Of course, one sees plenty of arguments for why some inequality is unjust and why we need to fix that, but I think these are really arguments for disrupting existing social arrangements so as to make them more egalitarian, rather than arguments for the justice of equality per se, which again is something that's rarely needed an argument, it seems to me.The main issue here though is not inequality in general but inequality of wealth and income. And no functioning economy in the real world can maintain a *completely* equal income distribution over time without a degree of micromanagement from someone that would be unworkable; probably not even a socialist utopia is going to have a *completely* equal distribution.
So there *will be* some inequalities of income and wealth. If you want to start from the position that all of those inequalities have to be justified on a case-by-case basis, so to speak, that's fine with me, I guess. But you're not going to end up w complete equality of income, empirically b.c is it's not sustainable over time in any kind of minimally dynamic economy, and normatively b.c there are always going to be "welfare-relevant differences between people" (JQ's phrase), e.g., those with particular disabilities, etc etc.
F Foundling @50
only some very specific reasons such as certain proof of the presence of what the author calls 'stigma' and 'oppression' might potentially convince the author to deign to care about wealth-induced unequal outcomes in a way roughly comparable to the way the author cares about gender-induced and race-induced unequal outcomes. Personally, I don't think convincing the author is worth the trouble.It depends partly on how broadly 'oppression' and 'stigma' are defined. If inherited wealth plays an ever-increasing role in an economy and if the result is a caste-like society which effectively stigmatizes those excluded from the top caste by denying them access to, e.g., anything like equal educational or employment opportunities, then on the OP's reasoning that would be grounds for restricting inheritances.
LFC 12.11.15 at 3:45 pm 78
@66, @77There's a simple explanation: it's a typographical error. "25%" at that point should read "75%". Pretty obviously, the top 10% in the U.S. today don't own a mere 25% of the 'capital'. It's a typo.
que_es 12.11.15 at 3:57 pm79
cassander at 15:>If r>g, then (wealth) inequality will grow over time.
"If this were true, every Kennedy alive today would be richer than Joe Kennedy was. This is not the case. It is not the case because people eventually die and fortunes get divided up. It's not a statement of how feudalism works under primogeniture, but it doesn't describe modern economies. Everything Pikety says is built on this fundamental mistake. "
Every Kennedy? Huh? A wealthy person today is perfectly free to leave all of his/her wealth to the eldest son. But wealthy families today are not stuck with primogeniture. They can design their own custom wealth preservation plans and impose restrictions on the use of family wealth for generations after the death of the patriarch/matriarch. Perhaps most importantly, they can and almost always do impose restrictions on the free alienability of that wealth that restricts the rights of third parties in ways that entrench the wealth within the family.
JimV 12.11.15 at 4:11 pm 80
A minor digressive point about Bill Gates (based on reading the unauthorized biography "Gates"): he came from a wealthy background and as a result went to a school which had a computer club which had access to a PDP-11 mini-computer, at a time when most high schools did not have computer clubs. He and Paul Allen (illegally) copied the Basic Interpreter program of that computer, received slaps on the wrist for it (not that I think it deserved much more, but kids of a different social class might have been treated more severely), and later used it as the basis for their first commercial success, a Basic Interpreter for the first home micro-computer.He and Paul Allen are very smart people, but there were probably at least 10,000 other kids as smart or smarter from poor or middle-class backgrounds in the USA at that time, but who did not have the same opportunities.
In conclusion, not a case of capital accumulation only, but it played a part – which I think is all that is necessary, just a a small fitness advance will raise a species to domination over time.
LFC 12.11.15 at 4:19 pm 81
Ze K @61…wealth, according to our worldview, can be legitimately acquired by luck. Inheriting wealth is one example of such luck.
Questioning these assumptions (again, in our current worldview) makes one a supporter of totalitarianism.
Rawls TOJ 1971, p.15, emphasis added: "Once we decide to look for a conception of justice that nullifies the accidents of natural endowment and the contingencies of social circumstance…, we are led to these principles [of justice]."
So Rawls was "a supporter of totalitarianism"? One could easily get the impression from reading certain things on the Internet and elsewhere that he was a squishy milquetoast liberal. My, my. Live and learn.
js. 12.11.15 at 4:20 pm 82
LFC @76 - Oh, I don't think each inequality needs to be justified on a case by case basis-something like the Difference Principle would do the trick.Maybe I'm not being clear, but I mean to make one specific point: Cudd is wrong to think that the equality presumption is false, or at any rate she hasn't given any argument that would convince me otherwise.
This isn't a blanket criticism of her post or anything like that. For example, I think a lot of the stuff about oppression is interesting and worth thinking about. I just picked the one thing I disagree with (as one does).
LFC 12.11.15 at 4:29 pm 84
js. @82:
I get it. Fair enough.Now we can get back to the burning question of whether people who support 80% inheritance/estate taxes and 70% top marginal tax rates are Stalinists or merely Trotskyites. ;)
Ze K 12.11.15 at 4:33 pm 85
"So Rawls was "a supporter of totalitarianism"? "Yeah, sounds like it, according to this excerpt, unless it's ripped out of context. "nullifies the accidents of natural endowment and the contingencies of social circumstance" sounds more radical than stalinism, it's practically pol-potian.
LFC 12.11.15 at 5:24 pm 86
@85
well, since the bk quoted from is 600 pp. long, it was necessarily out of context. (R's first principle protects/prioritizes "basic [political] liberties".) Anyway, the pt was I don't think challenging inherited wealth equals Pol-Potianism. But this is just a minor eddy here, so we can agree to forget it.LFC 12.11.15 at 5:40 pm 87
engels @75
where does being called Miles Fraser V or whatever place you in American class system: 1% or merely upper-middle class?My hunch/sense is that this is not a particularly reliable index of class position. There are probably some very non-affluent African-American families today with people w names like Jones III or Smith IV, etc.
On the other hand, when you see names with clear references to 17th or 18th cent. (hypothetically, something like "John Hancock V"), you pretty much know the person is from an old-line WASP family that's been in the U.S. a long time. Which doesn't *necessarily* mean wealthy, though it could well mean that
|
|
|
Dec 10, 2015 | Economist's View
Throw the middle class a bone to get their vote, then take even more away later.The Tax Policy Center analyzed Jeb Bush's tax plan. Paul Krugman reacts:
Pandering to Plutocrats: ...Most of the headlines I've seen focus on the amazing price tag: $6.8 trillion of unfunded tax cuts in the first decade. But it's also important to realize the extent to which this is tax-cutting on the rich, by the rich, for the rich. Here's the change in after-tax income resulting from the plan:
Huge benefits for the super-elite. And if you are tempted to say that the middle class gets at least some tax cut, remember that the budget hole would force sharp cuts in spending..., this means sharp cuts in programs that benefit ordinary Americans, probably swamping any tax cuts.So, huge tax cuts that would massively increase debt, with the benefits going to the very highest-income Americans. And this is the "responsible", moderate candidate.> Dan Kervick said...Same as it ever was. Republicans pretend to be against deficits, but are really just against spending. So they propose tax cuts to raise deficits (which they sometimes initially pretend won't materialize because of supply side effects), and then they push for the spending cuts to counter the deficits they created. This is the old Norquist strategy, and it still has political legs.pgl -> Dan Kervick...Are they against spending? Reagan increased defense spending. Everyone of the current clowns want to do it again. Republicans are for shifting the tax base to the little people even as they slash their Social Security benefits. Take from the poor and give to the rich.likbez -> pgl..."Are they against spending? Reagan increased defense spending. "pgl -> likbez...Good point. They are against non-defense spending, so for them the role of the state is limited to military industrial complex support.
And I would not discard completely the value of defense spending (aka Military Keynesianism). It is probably one of the most powerful drivers of technological progress that mankind has outside wars.
So you agree with Christie and Trump? Declare war on China and all of the Middle East. That will work well. Ahem.likbez -> pgl...Don't be so simplistic. What I stated is "It is probably one of the most powerful drivers of technological progress that mankind has outside wars."anne said...My point is that wars, such as WWII or Vietnam, or Iraq war accelerate technical progress. That does not mean that I am warmonger like Hillary.
http://krugman.blogs.nytimes.com/2015/12/09/the-banality-of-trumpism/pgl said in reply to anne...December 9, 2015
The Banality of Trumpism
By Paul KrugmanBrian Beutler has a good piece about the liberal reaction to Trumpism * - which is that the phenomenon
"was neither unexpected nor the source of any new or profound lesson."
But I think he casts it a bit too narrowly. The basic liberal diagnosis of modern conservatism has long been that it was a plutocratic movement that won elections by appealing to the racism and general anger-at-the-other of whites; there's nothing too surprising about an election in which the establishment candidates continue to serve plutocracy ** while the base turns to candidates who drop the euphemisms while going straight to the racism and xenophobia.
Beutler says that:
"The only people who claim to be befuddled by the Trump phenomenon are officials on knife-edge in the party he leads."
But surely the people most taken by surprise, least able to handle the phenomenon, are the self-proclaimed centrists, the both-sides-do-it crowd, who denounced the plutocrats-and-racists diagnosis as "shrill," insisting that we are having a real debate with just a few fringe characters on either side. Some of those people are still trying to portray the parties as symmetric: Bernie Sanders calling for single-payer health insurance is just like Trump calling for mass deportations and a ban on Muslims.
That was always a silly position. And as Beutler says, those of us who were clear-headed about conservative politics are almost bored by the repeated revelations of what we already knew.
* https://newrepublic.com/article/125353/trump-proves-liberals-right-along
** http://krugman.blogs.nytimes.com/2015/12/09/pandering-to-plutocrats/
Nixon's Southern Strategy. Pretend to be racist so you get the votes of stupid white people. BTW - I grew up in Georgia so I lived this garbage as a kid. Trump is and always has been a disaster.likbez said in reply to pgl..."Nixon's Southern Strategy"anne said in reply to anne...Or may be Trump is sensing the shift to the right of population of Western countries that we also observed recently in France and before that in Hungary and Poland.
From my perspective, the person who should be read and properly considered and credited for describing the general politics experienced in Western Europe and the United States in the wake of recession is Naomi Klein.anne said in reply to anne...That economists so easily turn away from or unknowingly ridicule the "Shock Doctrine" ideas of Klein, ideas that are so sadly reasonable today, really troubles me. Joseph Stiglitz and Paul Krugman were respectful, but what other economists?
http://delong.typepad.com/sdj/2010/04/hoisted-from-the-archives-tyler-cowen-thinks-naomi-klein-believes-her-own-bulls------grasping-reality-with-tractor-beams.html#tpe-action-resize-122anne said in reply to anne...October 4, 2007
Tyler Cowen Thinks Naomi Klein Believes Her Own Bulls---
He reads her book. He doesn't think it meets minimum intellectual standards. I think he is right: now I can borrow Tyler's ideas and have an informed view:
"Shock Jock": *
* http://www.nysun.com/arts/shock-jock/63867/
-- Brad DeLong
http://delong.typepad.com/sdj/2010/04/hoisted-from-the-archives-tyler-cowen-thinks-naomi-klein-believes-her-own-bulls------grasping-reality-with-tractor-beams.htmlApril 8, 2010
Hoisted from the Archives: Tyler Cowen Thinks Naomi Klein Believes Her Own Bulls---
He reads her book. He doesn't think it meets minimum intellectual standards. I think he is right: now I can borrow Tyler's ideas and have an informed view.... *
* http://delong.typepad.com/sdj/2007/10/tyler-cowen-thi.html
October 4, 2007
-- Brad DeLong
anne -> anne...
http://krugman.blogs.nytimes.com/2013/05/16/the-smithkleinkalecki-theory-of-austerity/anne -> anne...May 16, 2013
The Smith/Klein/Kalecki Theory of Austerity
By Paul Krugman
Noah Smith recently offered an interesting take * on the real reasons austerity garners so much support from elites, no matter how badly it fails in practice. Elites, he argues, see economic distress as an opportunity to push through "reforms" - which basically means changes they want, which may or may not actually serve the interest of promoting economic growth - and oppose any policies that might mitigate crisis without the need for these changes:
"I conjecture that 'austerians' are concerned that anti-recessionary macro policy will allow a country to 'muddle through' a crisis without improving its institutions. In other words, they fear that a successful stimulus would be wasting a good crisis....
"If people really do think that the danger of stimulus is not that it might fail, but that it might succeed, they need to say so. Only then, I believe, can we have an optimal public discussion about costs and benefits."
As he notes, the day after he wrote that post, Steven Pearlstein ** of the Washington Post made exactly that argument for austerity.
What Smith didn't note, somewhat surprisingly, is that his argument is very close to Naomi Klein's "Shock Doctrine," with its argument that elites systematically exploit disasters to push through neoliberal policies even if these policies are essentially irrelevant to the sources of disaster. I have to admit that I was predisposed to dislike Klein's book when it came out, probably out of professional turf-defending and whatever - but her thesis really helps explain a lot about what's going on in Europe in particular.
And the lineage goes back even further. Two and a half years ago Mike Konczal *** reminded us of a classic 1943 (!) essay by Michal Kalecki, who suggested that business interests hate Keynesian economics because they fear that it might work - and in so doing mean that politicians would no longer have to abase themselves before businessmen in the name of preserving confidence. This is pretty close to the argument that we must have austerity, because stimulus might remove the incentive for structural reform that, you guessed it, gives businesses the confidence they need before deigning to produce recovery.
And sure enough, in my inbox this morning I see a piece more or less deploring the early signs of success for Abenomics: Abenomics is working - but it had better not work too well. **** Because if it works, how will we get structural reform?
So one way to see the drive for austerity is as an application of a sort of reverse Hippocratic oath: "First, do nothing to mitigate harm." For the people must suffer if neoliberal reforms are to prosper.
* http://noahpinionblog.blogspot.com/2013/05/why-do-people-support-austerity.html
** https://www.washingtonpost.com/news/wonk/wp/2013/05/14/the-case-for-austerity-isnt-dead-yet/
**** http://qz.com/85282/abenomics-is-working-but-it-had-better-not-work-too-well/
What Smith didn't note, somewhat surprisingly, is that his argument is very close to Naomi Klein's "Shock Doctrine," with its argument that elites systematically exploit disasters to push through neoliberal policies even if these policies are essentially irrelevant to the sources of disaster. I have to admit that I was predisposed to dislike Klein's book when it came out, probably out of professional turf-defending and whatever - but her thesis really helps explain a lot about what's going on in Europe in particular....ilsm-- Paul Krugman
GOP/thuggee appeal to the varied fears, hate and prejudice of poor people aka the base:likbez -> ilsm...http://krugman.blogs.nytimes.com/2015/12/09/the-banality-of-trumpism/?_r=0
The get the fearful bigots to vote for plutocrats' interests the GOP/thuggee promise to make sure [more of] "those" people have less than the base.
"GOP/thuggee appeal to the varied fears, hate and prejudice of poor people aka the base"Not only. Those tricks are just a small part of the strategy. The part which is typically called wedge issues politics. See for example "What's the matter with Kansas" https://en.wikipedia.org/wiki/What%27s_the_Matter_with_Kansas%3F)
=== quote ===
Frank says that the conservative coalition is the dominant coalition in American politics. There are two sides to this coalition, according to the author. Economic conservatives want business tax cuts and deregulation. Frank says that since the coalition formed in the late 1960s, the coalition has been "fantastically rewarding" for the economic conservatives. The policies of the Republicans in power have been exclusively economic, but the coalition has caused the social conservatives to be worse off, due to these very economic policies and because the social issues that this faction pushes never go anywhere after the election. According to Frank, "abortion is never outlawed, school prayer never returns, the culture industry is never forced to clean up its act."
He attributes this partly to conservatives "waging cultural battles where victory is impossible," such as a constitutional amendment banning gay marriage. He also argues that the very capitalist system the economic conservatives strive to strengthen and deregulate promotes and commercially markets the perceived assault on traditional values.
Frank applies his thesis to answer the question of why these social conservatives continue to vote for Republicans, even though they are voting against their best interests. He argues that politicians and pundits stir the "Cons" to action by evoking certain issues, such as abortion, immigration, and taxation. By portraying themselves as champions of the conservatives on these issues, the politicians can get "Cons" to vote them into office. However, once in office, these politicians turn their attention to more mundane economic issues, such as business tax reduction or deregulation. Frank's thesis goes thus: In order to explain to the "Cons" why no progress gets made on these issues, politicians and pundits point their fingers to a "liberal elite," a straw man representing everything that conservatism is not. When reasons are given, they eschew economic reasons in favor of accusing this elite of simply hating America, or having a desire to harm "average" Americans. This theme of victimization by these "elites" is pervasive in conservative literature, despite the fact that at the time conservatives controlled all three branches of government, was being served by an extensive media devoted only to conservative ideology, and conservatives had won 6 of the previous 9 presidential elections.
=== end of quote ===But the problem is much deeper. They dictate the rules, the rationality by which we live. This is a complete ideological victory and complete defeat of New Deal ideology by neoliberal ideology.
=== quote ===
- Under the guise of 'free' markets, what was created was an alternative set of rules and practices rigged to serve capital owners and executives at the expense of ordinary workers, retirees, and young people. Let us count the ways.
- IP monopolies have been strengthened worldwide. So-called 'free' trade deals have replaced labor-protecting tariffs with steeply increased capital-protecting IP regulations. Copyright terms have been extended far beyond any credible incentive effects.
- Central banks across the OECD have practiced austerity, or failed to make unemployment reduction a priority, thereby gratuitously increasing unemployment to serve capital interests. Fiscal policy, too, has kept demand for labor weak, even while profits have soared. That r>g is due in part to g-depressing monetary and fiscal policies.
- Laws and regulations regarding credit and bankruptcy have been rewritten to favor creditors. In the U.S., bankruptcy no longer fully discharges personal debts for many people. Millions of college students in the U.S. labor under mountains of undischargeable student debt. Usurious payday and title loans reinforce the cycle of poverty for more millions. Many creditors' business models are predatory, in which profits are generated by terms that trap people into spirals of debt, default, and accumulating fines and fees, and are deliberately designed to prevent people from paying off the loan, so they must pay interest and fees for a longer period. Regulators failed to reduce the principal owed on home loans after the financial crisis, gratuitously extending the length of the recession. In the EU, too, German-led monetary policy has strongly favored creditors over debtors, leading to recession and mass unemployment in the peripheral Eurozone countries.
Antitrust enforcement has weakened, increasing the dominance of big firms that exploit their market power, fattening profits and executive compensation.- Financial deregulation has driven capital away from growth-supporting investment, toward speculative trading that increases financial instability. It has also led to a diversion of talent and energy into negative value-added activities such as high-frequency trading, frontrunning, and LIBOR manipulation. The rise of banks 'too big to fail' has led to a culture of impunity and lawlessness in the financial industry. Notwithstanding massive fraud in the mortgage industry and serial criminality on the part of major banks such as J. P. Morgan, virtually no guilty bankers have been prosecuted for their roles in the financial crisis, and fines capture only a small fraction of profits from illegal dealings. All of this has increased inequality.
- On the labor side, in the U.S., basic employment laws are unenforced or carry penalties too low to deter, leading to massive wage and tip theft, forced work off the clock, and numerous other violations, especially at the low end of the wage scale. Employees are routinely misclassified as independent contractors, as a way to escape requirements to provide benefits, pay social insurance taxes, and fob business expenses onto workers. Young workers performing useful services for their employees are routinely misclassified as interns, so they don't have to be paid at all.
- The rise of contingent and temporary labor and labor subcontracting has also enabled corporations to shed responsibilities for providing decent pay, benefits, and working conditions–a pure shift of income from labor to capital (or, for nonprofits such as universities, a pure shift of income from contingent workers such as adjunct faculty to the pockets of top-level administrators). Franchising performs similar functions, whereby the franchisor imposes costs and pricing structures on individual franchisees that all-but-guarantee that the latter cannot clear a profit without violating labor laws. Outsourcing abroad, including to enterprises that exploit forced and defrauded workers, magnifies these problems. These practices are due to a failure of employment law to close loopholes that empower firms to pretend that their employees are someone else's responsibility.
- U.S. law has systematically failed to protect workers' contractual pension rights. During stock booms, firms are permitted to skim supposedly excess profits in their pension funds for distribution to shareholders. In the inevitable bear market that follows, they dump now severely underfunded pension funds as hopelessly insolvent. Public pensions, too, have been underfunded or raided for decades.
- The shift from defined-benefit pensions to defined-contribution retirement plans has put the onus on naive investors to invest their savings. Yet financial advisors are free to peddle high-fee low-return investments to them, pretending to act in their interests, leading to returns on 401(k) plans for the ordinary investor that are well below r. While regulations have been proposed to end this practice in the U.S., its prevalence represents a pure shift of income and wealth from labor to capital, and from ordinary workers to high-paid financiers.
- In the U.S., labor laws protecting the right to organize have been violated with impunity at least since the 1980s. The decline of labor unions, in turn, has led to a decline in labor's political influence for all policies affecting workers, whether they are unionized or not.
- In the U.S., the minimum wage has not kept up with inflation. Without the backstop of a minimum wage, much of the incidence of publicly provided benefits to low-wage workers, such as food stamps and the earned-income tax credit, accrues to major corporations, who don't have to pay as high wages to induce the same labor supply.
http://crookedtimber.org/2015/12/07/the-politics-behind-piketty/
=== end of quote ===
|
|
|
December 7, 2015 | Crooked Timber
Thomas Piketty traces widening inequality in rich countries since the early 1970s to increasing shares of income claimed by the top 1%. This trend is decomposed into the increasing share of income accruing to capital ownership, and the increasing share of labor income claimed by corporate executives and financiers. Piketty shows that the increasing share of labor income claimed by the top 1% is neither deserved nor economically useful, in the sense of stimulating better products and services, increasing economic growth, or providing other benefits to the 99%. Because he defines r, the return on capital, as the pure return to passive ownership (excluding returns to capital that could be traced to entrepreneurial activity or business judgment), it is evident that capital's share of income is also undeserved. But is it economically useful? Piketty misses an opportunity to connect his analysis to a critique of the ideology and associated politics that have driven increasing inequality since the early 1970s. While he rightly claims that the distribution of income and wealth is a deeply political matter, and connects increasing economic inequality to the increasing political clout of the top 1%, he does not identify political decisions, other than cuts in marginal tax rates on top incomes, that lie behind inequality trends. Filling in the ideological and political stories gives us some clues as to policy instruments, other than the tax code, needed to reverse the ominous trends he documents.On the ideological front, several theories served to rationalized policy shifts in favor of increasing capital shares and top labor incomes. The stagflation of the 1970s was successfully blamed on Keynesian economics, fiscal irresponsibility, a bloated welfare state, militant labor unions, state regulation of the economy, and supposedly incentive-destroying high marginal tax rates on capital incomes and the rich. At the same time, the ideology of maximizing shareholder value took hold. Corporate executives who formerly lived merely like an especially comfortable middle class, and who gained prestige from sharing rents widely among corporate stakeholders, narrowed their focus to serving capital interests exclusively, and obtained compensation packages that tied their fates to that goal alone.
All of this might have made sense were it true that the only way to increase profits is to do things that add net value to the economy in which everyone else claims shares. But that's the hard way to increase capital's share of income, and thereby the income of top executives. It's much easier for the top 1% to make money by creating and exploiting opportunities to gain at the expense of everyone else. Under the guise of 'free' markets, what was created was an alternative set of rules and practices rigged to serve capital owners and executives at the expense of ordinary workers, retirees, and young people. Let us count the ways.
- IP monopolies have been strengthened worldwide. So-called 'free' trade deals have replaced labor-protecting tariffs with steeply increased capital-protecting IP regulations. Copyright terms have been extended far beyond any credible incentive effects.
- Central banks across the OECD have practiced austerity, or failed to make unemployment reduction a priority, thereby gratuitously increasing unemployment to serve capital interests. Fiscal policy, too, has kept demand for labor weak, even while profits have soared. That r>g is due in part to g-depressing monetary and fiscal policies.
- Laws and regulations regarding credit and bankruptcy have been rewritten to favor creditors. In the U.S., bankruptcy no longer fully discharges personal debts for many people. Millions of college students in the U.S. labor under mountains of undischargeable student debt. Usurious payday and title loans reinforce the cycle of poverty for more millions. Many creditors' business models are predatory, in which profits are generated by terms that trap people into spirals of debt, default, and accumulating fines and fees, and are deliberately designed to prevent people from paying off the loan, so they must pay interest and fees for a longer period. Regulators failed to reduce the principal owed on home loans after the financial crisis, gratuitously extending the length of the recession. In the EU, too, German-led monetary policy has strongly favored creditors over debtors, leading to recession and mass unemployment in the peripheral Eurozone countries.
- Antitrust enforcement has weakened, increasing the dominance of big firms that exploit their market power, fattening profits and executive compensation.
- Financial deregulation has driven capital away from growth-supporting investment, toward speculative trading that increases financial instability. It has also led to a diversion of talent and energy into negative value-added activities such as high-frequency trading, frontrunning, and LIBOR manipulation. The rise of banks 'too big to fail' has led to a culture of impunity and lawlessness in the financial industry. Notwithstanding massive fraud in the mortgage industry and serial criminality on the part of major banks such as J. P. Morgan, virtually no guilty bankers have been prosecuted for their roles in the financial crisis, and fines capture only a small fraction of profits from illegal dealings. All of this has increased inequality.
- On the labor side, in the U.S., basic employment laws are unenforced or carry penalties too low to deter, leading to massive wage and tip theft, forced work off the clock, and numerous other violations, especially at the low end of the wage scale. Employees are routinely misclassified as independent contractors, as a way to escape requirements to provide benefits, pay social insurance taxes, and fob business expenses onto workers. Young workers performing useful services for their employees are routinely misclassified as interns, so they don't have to be paid at all.
- The rise of contingent and temporary labor and labor subcontracting has also enabled corporations to shed responsibilities for providing decent pay, benefits, and working conditions–a pure shift of income from labor to capital (or, for nonprofits such as universities, a pure shift of income from contingent workers such as adjunct faculty to the pockets of top-level administrators). Franchising performs similar functions, whereby the franchisor imposes costs and pricing structures on individual franchisees that all-but-guarantee that the latter cannot clear a profit without violating labor laws. Outsourcing abroad, including to enterprises that exploit forced and defrauded workers, magnifies these problems. These practices are due to a failure of employment law to close loopholes that empower firms to pretend that their employees are someone else's responsibility.
- U.S. law has systematically failed to protect workers' contractual pension rights. During stock booms, firms are permitted to skim supposedly excess profits in their pension funds for distribution to shareholders. In the inevitable bear market that follows, they dump now severely underfunded pension funds as hopelessly insolvent. Public pensions, too, have been underfunded or raided for decades.
- The shift from defined-benefit pensions to defined-contribution retirement plans has put the onus on naive investors to invest their savings. Yet financial advisors are free to peddle high-fee low-return investments to them, pretending to act in their interests, leading to returns on 401(k) plans for the ordinary investor that are well below r. While regulations have been proposed to end this practice in the U.S., its prevalence represents a pure shift of income and wealth from labor to capital, and from ordinary workers to high-paid financiers.
- In the U.S., labor laws protecting the right to organize have been violated with impunity at least since the 1980s. The decline of labor unions, in turn, has led to a decline in labor's political influence for all policies affecting workers, whether they are unionized or not.
- In the U.S., the minimum wage has not kept up with inflation. Without the backstop of a minimum wage, much of the incidence of publicly provided benefits to low-wage workers, such as food stamps and the earned-income tax credit, accrues to major corporations, who don't have to pay as high wages to induce the same labor supply.
From an ideological point of view, much of this can and has been peddled to the public as 'free' markets and 'deregulation.' The reality exposes the vacuity of these very ideas. In any advanced economy, the state must be involved in promulgating the constitutive rules of the economy. It can no more get out of the business of regulating the economy than the Commissioner of Baseball can get out of the business of promulgating the rules of Major League Baseball. The only real question is, in whose interests are the rules designed?
Ideology matters for politics. Once people have acquired income or wealth through the market, they feel strongly entitled to it. In the U.S. and increasingly in the rest of the OECD, the population at large, taken in by such representations, is reluctant to tax. Redistributing income and wealth by means of taxation, as Piketty proposes, becomes harder once people have it in their hands. We need to scrutinize the rules by which income and wealth get generated through the market, before it is taxed. They have been changing in a plutocratic direction for the past 45 years. The rule changes have not only increased r (at least for the top 1%), but also depressed g, by increasing monopoly power, shifting savings from real investment to speculation and scams, shifting top talent from production to value-extraction, and depressing aggregate demand.
Getting this story out is critical to changing politics. For plutocracy still must nod to what we might call 'weak' Rawlsianism: that inequality cannot be justified without showing that it delivers some benefits to the 99%. (It's not for nothing that one of the leading arms of plutocracy is called the Club for Growth.) Exposing the ways the game is rigged, as Elizabeth Warren has been doing, should open more levers to change than focusing on taxes alone–levers that should also help limit the pace of increasing inequality by raising g.
Rakesh Bhandari 12.07.15 at 5:50 pm
I think that this comments misses the force of Piketty's inequality r>g. Even if intellectual property laws were weaker (and rents thereby smaller) and and labor laws and Keynesian policies stronger (and thereby g higher) and even if small savers had a bit higher rate of return, the Piketty inequality would still be in operation (and big savers would still have much relative returns), giving us the uncanny return of a rentier society.
In short, this comments seems to me to miss the force of the r>g inequality.Dan Cole 12.07.15 at 6:12 pm
I don't think it's a case of either or. it's true that Piketty does not pay sufficient attention to institutions and institutional changes that have increased returns to capital and reduced intergenerational economic mobility (up or down the ladder). His model stands on its own, but of course the returns to investment depend heavily on the kinds of institutions Prof. Anderson discusses.I do think, however, she might add one to her list: the decline of the Rule Against Perpetuities (in the US) and the re-emergence of dynastic trusts, which lock in wealth across generations. This is still very much an institutional change in progress, state by state. Its probably will not begin to significantly affect social mobility statistics significantly for a generation.
Rakesh Bhandari 12.07.15 at 6:23 pm
I don't agree that Piketty ignores institutional changes or changes in property laws, e.g. the end of human chattel, the operation of war commissions, the evolution of minimum wage laws, the weakening of collective bargaining, and the "stakeholder" nature of Rhenish capitalism. Piketty is aware of all this, but he still reasons on the basis of his r>g inequality that the return of a rentier society is most likely except through a global tax on wealth. The principal reason: even if through institutional reforms r is reduced a bit, g is likely to revert to historical averages even with the right Keynesian policies. That gives us a r>g inequality great enough to yield an actual rentier society (not the petit rentier one we now have).An On 12.07.15 at 7:38 pm
I'm sympathetic to the direction of this argument, but does a list so focused on the US provide an adequate explanation of a global phenomenon?chris arnade 12.07.15 at 8:08 pmA wonderful list; which in many ways can be summarized (not to diminish the longer version) as various forms of, "The wealthy have been allowed to write rules that work best for them"This has meant diminished rules, and the enforcement of rules, for Wall Street and large corporations, sold under the free market notion that individual liberty is collectively beneficial.
Yet at the same time increased and aggressive regulation has been applied to poorer folks (Broken Windows policing and the War on Drugs) under the theory that individual liberty can collectively be corrosive.
The latter hasn't just been a moral outrage, it has also helped to devalue labor. It is harder to increase human capital when you are subjected to onerous rules and regulations.
T 12.07.15 at 8:32 pm
Hot off the presses, today's example of rent seeking in trillion dollar markets: http://www.nytimes.com/2015/12/07/business/a-revolving-door-helps-big-banks-quiet-campaign-to-muscle-out-fannie-and-freddie.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region®ion=top-news&WT.nav=top-newsRobert 12.07.15 at 9:15 pmRobert Reich's new book, Saving Capitalism, is basically a longer statement of the thesis of this post, albeit not as a comment on Piketty. Krugman has a review in The New York Review of Books.krippendorf 12.07.15 at 9:41 pm
see also work by Grusky and Weeden, who have been pushing the line that rents are ubiquitous throughout the labor market, and not just in the top 1%, for quite some time.But, they are sociologists, so they are easily ignored by Stiglitz, Reich, and other economists who are trying to make rent-based arguments for rising income inequality.
Peter K. 12.07.15 at 9:53 pm 10
I am excited about this seminar and discussion.What I believe Piketty has said is that *r* remains remarkably constant despite how one would think that the laws of supply and demand would mean that an oversupply of capital and slower growth would decrease *r* but it remains high because of a variety of factors.
Piketty discusses how Depression and Wars changed the dynamic so that inequality decreased in the post-war years. The list of policies here describe the many reasons why inequality has increased again and growth has slowed down.
As Jared Bernstein wrote "…since the late 1970s, we've been at full employment only 30 percent of the time (see the data note below for an explanation of how this is measured). For the three decades before that, the job market was at full employment 70 percent of the time."
I believe macro policy (monetary, fiscal, trade) explains a large part of why growth has slowed and inequality increased since the 1970s.
Deregulatory "free market" policies pushed by rich financiers and conservatives have made the economy more volatile and prone to the boom-bust cycle. During the boom, most of the gains accrue to the top, and after the bust, macro policy has been insufficient to bring about a swift recovery, again exacerbating inequality.
Tabasco 12.07.15 at 10:38 pm, 11
Central banks across the OECD have practiced austerityFor nearly a decade central banks across the OECD have kept their policy interest rates at or near zero. In a couple of countries they are less than zero.
Whatever this is, it is not austerity.
Rakesh Bhandari 12.07.15 at 10:57 pm 12
From the phone. Even if r on average falls from 6 to 4 pc. and growth goes from 1.5 to 2pc you will still get a rentier society. Remember also wealthy will have higher average return m, say in this ex 6 pc. Then you have wealth growing 3 x the rate of income. I earlier argued that we should distinguish P's critique of rentier society from the Reich/Stiglitz critique of monopoly rents. P's whole point is that rentier society arises out of even competitive capitalismRakesh Bhandari 12.07.15 at 11:01 pm 13
What piketty does not analyze is nature of ideological hegemony in a rentier society. I already pointed to Bukharin's critique of rentier ideology in the economic theory of the leisure class. It makes for a fascinating comparisonFrank Wilhoit 12.07.15 at 11:35 pm 14
Chris Arnade @ 6:A. "…the theory that individual liberty can collectively be corrosive…." is merely a cover for sadism.
B. "onerous rules and regulations" are only complained of by entities who do not wish to be held accountable.
bob mcmanus 12.07.15 at 11:44 pm 15
What piketty does not analyze is nature of ideological hegemony in a rentier societyAs I read him, he doesn't need to, because it's irrelevant.
What Piketty's numbers prove is that it wasn't ideology or politics or unions or social movements and programs that gave us the Great Compression and decreased inequality but revolution, depression, and catastrophic war. Certainly history shows that every catastrophic war etc did not necessarily led to greater equality, but there is very little evidence for increases in equality without radical social disorder. Piketty explicitly says toward the end that moderate tax increases or redistributive social programs have had little effect, that the lower baseline after WWII was determining.
What is taken from the above can be up for discussion, perhaps the best can be done during peacetime is ameliorative efforts within a context of rising inequality, and ideology can help with those besides preparing for the inevitable collapse. But effective demand management will quickly fail for political reasons, see Kalecki.
If the above looks like Marxian praxis, it's no coincidence. Piketty's recommendation, taxing global wealth at confiscatory rates, should be understood as a practical recommendation. I think we all understand what it would take to tax away 40-50% of gross Saudi or Brunei or American wealth to distribute to Africa and South America, and Piketty surely was not unaware.
bob mcmanus 12.07.15 at 11:52 pm 16
I apologize, Piketty only asks, although I think he says "initially," for a lower global wealth tax rate, perhaps a few percent to counter r>g. I will dig out my copy. I am not at all bothered if Piketty details no clear process to confiscating global wealth, he surely doesn't have to, and it would get in the way of his message: that paths to equality are radically limited.Peter T 12.07.15 at 11:54 pm 17
What struck me most about Piketty's data was the near constancy of r over centuries. This suggests to me that it is not a matter of balancing supply and demand for capital, but a structural feature (perhaps the return necessary to sustain the hierarchy of production?). So r, in itself, has little to do with the distribution of return: it could be spread across a large middling to wealthy class, or concentrated in the 0.1%, as political factors dictated.I will add that the underlying mental model in much of economics seems to be the gentleman's estate. There is land, income for investment or consumption as prudence and virtue dictate, the lump sum in consols…with the ideal the improving landlord. That categories such as "capital" or "labour" do not stretch to countries does not seem to cross the imagination.
Mike Furlan 12.08.15 at 12:13 am 18
N. Taleb criticizes Piketty on mathematical grounds:Rakesh Bhandari 12.08.15 at 12:27 am 19"What is worse, rejection of such theories also ignored the size effect, by countering with data of a different sample size, effectively making the dialogue on inequality uninformational statistically."
http://arxiv.org/pdf/1405.1791.pdfI thought Piketty addressed this issue, for instance in looking at countries with relatively constant populations over time like France, and admitting that less could be learned from looking at a United States that grew from 3 to 300 million. But I'm sure that I'm missing many important aspects of this question.
@18 If population is growing at a fast rate and therefore g as well, the fundamental inequality will be attenuated, and it will be difficult to see the long-term consequences of r>g in such a society. France gives us a better laboratory to see the likely effects of the fundamental inequality going forward than the US has hitherto provided.Rakesh Bhandari 12.08.15 at 12:29 am 20@15. I don't think this is quite right. Piketty thinks a fundamental problem with rentier society is in fact ideological, viz. that it cannot be squared with the meritocratic values that provide normative support for competitive markets. This raises the question of what the elements of a rentier ideology are. The only one I know to have provided an answer is Bukharin.Rakesh Bhandari 12.08.15 at 12:52 am 21
@17 raises difficult questions. Some economists have claimed that r>g is just what you would expect from dynamically efficient economy, but this needs to be spelled out. Piketty has a complex section which I have not yet fully understood on why r being positive, and greater than g, cannot be explained in terms of a psychological theory of time preference. Perhaps another way of thinking about this would be: what would happen if r were to fall below g? Would there be mechanisms to restore Piketty's fundamental inequality? Piketty, I think, is saying "yes". So I shall re-read that section to get a better understanding of his argument.John Quiggin 12.08.15 at 1:01 am 22
"Central banks across the OECD have practiced austerity"As Tabasco observes, this point is loosely phrased. Austerity is a fiscal policy, not a monetary policy. But central banks can enforce austerity by refusing to accommodate government budget deficits. The ECB has clearly done this (as it was set up to do). In other cases, governments and legislatures have imposed austerity, with the support of central banks.
The US Fed is one example where the central bank has been less supportive of austerity than the legislature.
ZM 12.08.15 at 1:25 am 23
A question for the more economically minded – Would one reason that r is reasonably stable over a considerable time frame be because it is determined not by the most wealthy holders of capital (who presumably could afford to take a lower rate of return on a long term basis), but by the less wealthy who depend on a higher rate of r as otherwise their smaller investments wouldn't be financially rewarding?For instance, in Australia workers have compulsory employer paid superannuation investments, and if the rate of return on these was lower I don't know that the policy of moving people to self-funded retirement by superannuation as opposed to government pensions would be feasible?
Peter K. 12.08.15 at 1:37 am 24
"Central banks across the OECD have practiced austerity"I think that is right. They've not supported quick recoveries and have been overly fearful of phantom inflation.
http://cepr.net/blogs/beat-the-press/paul-krugman-larry-summers-and-the-fed-s-unused-ammunition
Sebastian H 12.08.15 at 1:39 am 25
I'm very sympathetic to much of the list of bad policies. I have a question about this though: "On the ideological front, several theories served to rationalized policy shifts in favor of increasing capital shares and top labor incomes. The stagflation of the 1970s was successfully blamed on Keynesian economics, fiscal irresponsibility, a bloated welfare state, militant labor unions, state regulation of the economy, and supposedly incentive-destroying high marginal tax rates on capital incomes and the rich."What should it have been blamed on?
[I'm very open to the idea that the lessons of the 70s were overlearned–i.e. just because too much inflation is bad doesn't mean we should worry about it when it is below 5%. But this comment suggests that something else entirely was going on]
Rakesh Bhandari 12.08.15 at 1:56 am 26
@25 in regards to the quote from Anderson who, along with many others, is missing in my opinion Piketty's main thesis of how the normal operation of competitive or even social democratic capitalism or of course monopoly capitalism yields a rentier society in the absence of wealth and corporate taxation. Does not Piketty argue that the return to rentier society was underway before the Anglo-American neo-liberal turn (though it did obviously accelerate it) and has been happening even in societies not as neo-liberal as the Anglo-American ones? I read @5 as making this important point.jake the antisoshul soshulist 12.08.15 at 1:56 am 27
I am not an economist, but the source of the blame was political. I have heard that the primary causes of "stagflation" were "printing money" to cover the debts from the Vietnam War, increased oil prices and supply issues driving up costs, and economic competition from Japan reducing demand. The economic elites saw an opportunity to
take advantage of the crisis and blame it on policies they did not like. And push to replace them with policies that were advantageous to those elites. Ronald Reagan was a very successful salesman for this.Rakesh Bhandari 12.08.15 at 1:59 am 28
Maybe the American left is so focused on the critique of bad Republicans like Ronald Reagan and H.W. and W. Bush and so excited about Warren and Sanders–these political choices setting the limits of theoretical analysis – that it cannot countenance Piketty's deeper structural critique?Peter T 12.08.15 at 2:29 am 29
Piketty uses "capital" or "wealth" to refer to any asset which provides a stream of income. This is, in my view, correct. This is quite distinct from "capital" in the ordinary economic sense. Much – in fact most – economic capital does not yield income (roads, schools, food crops…) and so does not count. There is no reason to believe that wealth in the first sense does or should correspond to capital in the second sense. Our collective capital dwarfs wealth, while much wealth is simply extractive. To count a claim on tax revenues (a government bond) in the same class as a terraced field is a major mistake.From the late C19 on much private "capital" was withdrawn into the public spheres (eg private tolls or offices), a move that accelerated in the wars. Since 1980 this trend has reversed. Discussion of the amplitude or scarcity of capital should note that it is a legal and political category subject to large arbitrary changes.
Bruce Wilder 12.08.15 at 2:56 am 30
Piketty's deeper structural critiqueDoes Piketty have one? 'Cause then I missed it. It seems to me that Piketty is presenting the challenge of facts. He takes care to outline how the facts he documents are logically related, as in the analysis of how changes in the share distribution of income (between labor and capital) relates to economic growth and to the value of accumulated wealth as a stock. That's not "deep" or structural, though it is certainly necessary if we are to understand the facts as facts.
The first striking thing to me in Piketty's work is what Peter T discusses above at 2:29 am (@ 29): the distinction between wealth and capital, confusion about which powers the ideologies of more than a few economists and others. Just maintaining that distinction, while discussing the wild swings in the share of income going to capital over long periods of time forces attention to the politics. Is that "structure"?
notsneaky 12.08.15 at 4:06 am 31
@Rakesh – but the whole r vs. g thing in Piketty, while central to his book, is also the part that makes the least sense. It's made up, theoretically unsound, and with no evidence to back it up. It's junk. An accounting relationship is not a "law".And it's really Piketty's single minded focus, based presumably on his desire to provide a grand "one size fits all" explanation for the phenomenon he's discussing, which leads him to sideline all the possible institutional explanations, such as the ones enumerated above (not that I agree with all or even most of them)
notsneaky 12.08.15 at 4:18 am 32
In terms of r vs. gIn linear production model – r > or or or g always but capital's share in income is constant. Taxing capital doesn't matter for distribution.
In Ramsey model with endogenous saving and non-Cobb Douglas production – r > g but same criticisms as above imply.
The only one story about r vs. g out of the whole book which sort of makes sense is that if r > g then capital income can become more unevenly distributed (even as capital total's share stays constant). But even that is based on some sketchy assumptions and relaxing these even slightly can completely flip the result.
The Journal of Economic Perspectives V 29/ N 1, 2015 has a symposium on the topic and it pretty much consists of various polite ways of saying "good data, but the r vs. g thing is nonsense"
Omega Centauri 12.08.15 at 4:39 am 33
I've argued before that the conclusion that the simple inequality r>g leads to unlimited inequality is wrong -or at best incomplete. There are multiple ways that concentrations of capital can be, and are dissipated (i.e. broken up into smaller bits owned by more people). Taxes, and "death-taxes" is only one mechanism to accomplish this. Having on average more than one inheritor is another. Think for example of the Saudi Royal family, which controls great deal of the wealth of the Kingdom. It isn't all concentrated in one nuclear family, there are now thousands of princes, after not too many more generations a plurality of the country will be able to claim royal inheritance. Also there are other mechanisms, that can dissipate wealth concentrations, including luxury goods: Maserati is distributing some wealth from the super rich, to its shareholders and employees… Major donations to charity is any other. Still another comes from the application of the saying "a fool and his money are soon parted": some of the progeny, will be separated from their inheritances. One can't just use a simple theory of the evolution of the distribution of wealth and income, if you ignore wealth dissipation effects you will get a wildly wrong result.So in order to control or reverse the tendency towards ever increasing inequality, there could be deployed multiple strategies, all of which are aimed at increasing the dissipation of concentrations of wealth.
Omega Centauri 12.08.15 at 4:46 am 34
I also think there exist mechanisms in the economy which tend to stabilize R. The most obvious is that there are only so many profitable investments available at any given time, and supply/demand effects should lead to lower R if the amount of available capital gets too high or to increase it if there is less capital than investment opportunity. Also the tendency to spend wealth on immediate consumption versus investment changes as the expected return on investment changes. These effects should usually lead towards returning R towards some long term sustainable value.
|
|
|
www.counterpunch.org
... ... ...The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents "widespread and long-lasting academic fraud at the university." For years, employees of the university "knowingly steered about 1,5000 athletes toward no-show courses that never met and were not taught by any faculty members, and in which the only work required was a single research paper that received a high grade no matter what the content."
It isn't only athletes who get the benefit of such "no-show" courses. Small academic programs and departments struggling to survive occasionally come up with such courses as a way of boosting their numbers of majors. Even Harvard is now having to grapple with the question of whether their "General Education" program has had the effect of encouraging students to take easy courses.
Universities will bend over backwards not to fail a student–so long as he or she is actually paying tuition. I know of a case of a professor who was told by the director of the program in which the professor teaches to "take some responsibility" for the fact that some of this professor's students were failing a course. Apparently, the professor was expected to find a way to ensure that all the students passed the course. Fortunately, the professor is tenured, and hence had to freedom to refuse to do more than to try to help the students actually LEARN the material. Would an adjunct have felt free to do the same thing?
Students are increasingly perceived as customers and some administrators, and even some faculty, appear to conceive the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class.
Failing to pay tuition, however, is a different matter. Faculty are sometimes instructed not to allow students to attend courses if they have not paid their tuition by the beginning of the term (which, because of the glacial slowness of some financial aid programs, is frequently a problem).
There's been a lot of discussion recently about how all students need to be taught ethics in college. Of course you can't require everyone to take the standard ethics class that is taught in the philosophy department. That would be too much work. If you suddenly are going to require that everyone at your university take ethics, well, you'd better dumb it down, so students won't object.
Keep it rigorous, or dumb it down, requiring students to take an ethics course is unlikely to make them more ethical. The thing is, you rarely make people ethical by teaching them ethics. You can help them to better understand the complexities of some ethical dilemmas and you can arm them with theoretical language they can use to defend choices they probably would have made anyway, but that doesn't make them better people so much as it makes them happier people.
Moral character is largely formed by the time students enter college. It isn't entirely formed, of course, so what happens to students in college can affect their moral development. People are so profoundly social that they continue to develop their conceptions of what is acceptable behavior throughout their entire lives. Aristotle recognized that. That's why he asserted that ethics was a subset of politics. If you want people to behave well, you have to organize your society in such a way that it sends a clear message concerning the behavior it approves of and the behavior it condemns. If the leaders of a given society want people to be honest and responsible, then they have to exemplify these character traits themselves, and then reward citizens who emulate their example.
Universities would do a much better job of shaping students' characters in positive ways if instead of requiring students to take dumbed-down ethics classes, they gave a damn about ethics themselves, if they cared more about actually delivering the product they purport to be selling, rather than giving mere lip service to it. Many universities are now delivering degrees that are effectively equivalent to the indulgences sold by the Catholic church in the middle ages: expensive, but otherwise meaningless, pieces of paper.
Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. The message that, sadly, is all too often driven home to students today is that none of the traditional human values that educational institutions purport to preserve and foster, including learning in the broadest sense, really matter. The message they all to often receive now is that nothing really matters but money.
Now THAT is a nightmare!
M.G. Piety teaches philosophy at Drexel University. She is the editor and translator of Soren Kierkegaard's Repetition and Philosophical Crumbs. Her latest book is: Ways of Knowing: Kierkegaard's Pluralist Epistemology. She can be reached at: [email protected]
|
|
|
ftalphaville.ft.com
The social instability that comes alongside creative destruction - or 'disruption' - is often justified by the notion that unemployment effects are only temporary since in the long run a multitude of new jobs (many of which we can't even imagine yet) will inevitably be created.Well, a new Oxford Martin School study by Carl Benedikt Frey and Thor Berger has found…
- Only 0.5% of the US labor force is employed in industries that did not exist in 2000.
- Even in Silicon Valley, only 1.8% of workers are employed in new industries
- The majority of the 71 new 'tech' jobs relate to the emergence of digital technologies, (such as online auctions, video and audio streaming and web design) but also include renewable energy and biotech.
- New jobs cluster in skilled cities, making economic activity increasingly concentrated and contributing to growing regional inequalities.
This, in other words, is the reality of the new "zero to one" tech world, where moving fast and breaking things (including jobs), then not worrying about the consequences until you're a billionaire who can give his wealth away in one billion dollar tranches, is the acceptable norm. (Even though, arguably, the accumulation of those billions in the first place is often the job-destroying problem.)
Dr. Frey adds the valuable commentary that:
"Because digital businesses require only limited capital investment, employment opportunities created by technological change may continue to stagnate as economies become increasingly digitized. Major economies like the US need to think about the implications for lower-skilled workers, to ensure that vast swathes of people don't get left behind."
Very fair point.
Limited capital investment equals extremely low barriers to entry. This in turn equals absolutely ruthless competition, which - somewhat ironically - leads to the "why should I bother investing in anything at all since there's nothing in it for me in the long run" effect. The real-world equivalent, if you will, of the Grossman Stiglitz Paradox.
As a consequence, faddy network effects - a.k.a who's first to benefit from natural monopoly formation or old-fashioned populism by another name - increasingly mean everything, reducing successful entrepreneurial enterprise to a simple lottery/gambling game or (at best) a highly politicised popularity contest, wherein marketing spend stands equivalent to political campaigning outlay.
Except, whereas political campaigns pay off electorate loyalty with promises of better lives in material terms, the most successful technology campaigns tend to do the opposite: pay off users for network loyalty with the promises of better digital returns, at the same time as transferring a greater share of material wealth to a tiny platform owning elite.
Indeed, because tech firms are mainly focused on redistributing existing wealth rather than creating more of it, for them to profit, some share of real economy product must be snatched from those who actually worked to produce it. That's Schumpeterian creative destruction in action, albeit at the cost of producers who tend to share their profits with workforces through wages.
The lowest cost producer will always be the one with smallest human workforce.
All of which then sparks a dangerous race to the bottom focused on cutting out the most expensive material input: the human.
What's worse, once that race starts, there's little to no incentive for anyone to invest in any business which ever involves human capital again.
The irony is, without any beneficiary workforce within the new business structure, it's only capital owners (or lucky billionaire charity cases) who get to benefit from the dividends created by the system. Demand for products and services is destroyed. To wit, a vicious deflationary cycle begins, which shrinks the pie rather than grows it.
Regarding the labour-destroying digital/tech trend, Frey and Berger's paper says specifically:
Relative to major corporations of the early computer revolution, the companies leading the digital revolution have created few employment opportunities: while IBM and Dell still employed 431,212 and 108,800 workers respectively, Facebook's headcount reached only 7,185 in 2013.
To be blunt, that arguably means it's not looking good for three of the core Schumpeterian presumptions, namely:
It is, however, looking better for the Schumpeterian conclusion that eventually capitalism must give way to socialism if it's to create a widespread commonwealth.
- Technological disruption will eventually create jobs of equal merit elsewhere in the system (i.e. unemployment is temporary).
- Recessions lead to efficiency gains that create social well-being for all.
- Successful innovation must be rewarded with a temporary monopoly if it's to continue incentivising anyone to bear the risks of entrepreneurship.
Why? Because, whilst it's never been easier, cheaper or less risky to grab yourself a ticket for the 'monopoly reward' lottery - and thus more profitable when you do win - these cheap tickets are only available to businesses redistributing existing wealth that's focused on contracting consumer surplus as a whole.
In the digital tech era, that's at best an exercise in political-populism (marketing spend to get consumers to support this platform rather than another, for as low a consumer surplus cost as possible to the platform leader) and at worst an exercise in total utter randomness. Neither, consequently, really justifies outsized rewards to any winning party.
To the contrary, if you're in the business of creating new value utilising real human workforces or focused on creating new areas of demand, it's arguably never been more difficult, expensive or risky to take a punt on success - and thus less profitable if you do win. And that's because the very concept of rewarding a large workforce or consumer base with a steady, dependable and secure consumer surplus is considered to be a fundamental competitive disadvantage.
Related links:
- How information technology is shrinking the pie – FT Alphaville
- Disrupting FREEDOM! – FT Alphaville
Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.
|
|
|
www.nakedcapitalism.com
allan
|
|
|
Equitable Growth
The geography of student debt is very different than the geography of delinquency. Take the Washington, D.C. metro region. In zip codes with high average loan balances (western and central Washington, D.C.), delinquency rates are lower. Within the District of Columbia, median income is highest in these parts of the city. Similar results–low delinquency rates in high-debt areas–can be seen for Chicago, as well. (See Figure 1.)
...What explains this relationship? There appear to be two possible, and mutually consistent, theories. First, although graduate students take out the largest student loans, they are able to carry large debt burdens thanks to their higher salaries post-graduation. Second, the rise in the number of students borrowing relatively small amounts for for-profit colleges has augmented the cumulative debt load, but because these borrowers face poor labor market outcomes and lower earnings upon graduation (if they do in fact graduate), their delinquency rates are much higher. This is further complicated by the fact that these for-profit college attendees generally come from lower-income families who may not be able to help with loan repayments.
The inverse relationship between delinquency and income is not surprising, especially when considering that problems of credit access have disproportionately affected poor and minority populations in the past.
...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt." But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties, including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets.
...For user-friendliness, we assign each of these student debt scale variables a qualitative category. If average loan balance on the map is "somewhat high," for example, then it means that a zip code's average loan balance is between 25 and 35 percent higher than the national average of $24,271. Similarly, if the delinquency reads "very low," it corresponds to a scale level between 0.067 and 0.091.
Figure 6 summarizes the relationship between each of the scale variables' levels and their qualitative description.
|
|
|
Dec 02, 2015 | The Atlantic
Americans are, compared with populations of other countries, particularly enthusiastic about the idea of meritocracy, a system that rewards merit (ability + effort) with success. Americans are more likely to believe that people are rewarded for their intelligence and skills and are less likely to believe that family wealth plays a key role in getting ahead. And Americans' support for meritocratic principles has remained stable over the last two decades despite growing economic inequality, recessions, and the fact that there is less mobility in the United States than in most other industrialized countries.This strong commitment to meritocratic ideals can lead to suspicion of efforts that aim to support particular demographic groups. For example, initiatives designed to recruit or provide development opportunities to under-represented groups often come under attack as "reverse discrimination." Some companies even justify not having diversity policies by highlighting their commitment to meritocracy. If a company evaluates people on their skills, abilities, and merit, without consideration of their gender, race, sexuality etc., and managers are objective in their assessments then there is no need for diversity policies, the thinking goes.
But is this true? Do commitments to meritocracy and objectivity lead to more fair workplaces?
Emilio J. Castilla, a professor at MIT's Sloan School of Management, has explored how meritocratic ideals and HR practices like pay-for-performance play out in organizations, and he's come to some unexpected conclusions.
In one company study, Castilla examined almost 9,000 employees who worked as support-staff at a large service-sector company. The company was committed to diversity and had implemented a merit-driven compensation system intended to reward high-level performance and to reward all employees equitably.
But Castilla's analysis revealed some very non-meritocratic outcomes. Women, ethnic minorities, and non-U.S.-born employees received a smaller increase in compensation compared with white men, despite holding the same jobs, working in the same units, having the same supervisors, the same human capital, and importantly, receiving the same performance score. Despite stating that "performance is the primary bases for all salary increases," the reality was that women, minorities, and those born outside the U.S. needed "to work harder and obtain higher performance scores in order to receive similar salary increases to white men."
|
|
|
FT Alphaville
An essential read from Martin Wolf this Thursday on the manner in which corporate surpluses are contributing to the savings glut problem and causing all sorts of distributive chaos in the process.
So, whereas it used to be the sovereigns over-hoarding international claims and under-consuming/under-investing in their own infrastructure for the benefit of getting a leg up in the global hierarchal order, it's now corporates over-hoarding retained earnings for the sake of protecting their dominant positions instead (retaining earning piles being different to explicit cash piles, which can be generated with debt not just profit).
Says Wolf:
Why is corporate investment structurally so weak then? Wolf proposes a few reasons. One is the ageing of societies, which lowers the level of investment needed. The other is globalisation, which motivates relocation out of high-income countries. But the one we think might be most relevant is his proposition that technological innovation is quietly killing the incentive to invest. This is critical:The observation that a structural surplus of savings over investment appears to have emerged in the corporate sectors of the big high-income countries is highly significant. It is significant for the growth of potential supply, since it reflects relatively feeble investment, but it is also significant for the shape of aggregate demand.
If the corporate sector runs a structural surplus of savings over investment, other sectors must run offsetting structural deficits. If the government is to be in financial balance, either households or foreigners must run these deficits. In the eurozone, this logic has led to huge current-account surpluses (a financial deficit for foreigners). For the UK and US, it is likely to mean renewed household deficits - a perilously destabilising possibility.
Much investment today is in IT, whose price is collapsing: constant nominal investment finances rising real investment. Again, much innovation seems to reduce the need for capital: consider the substitution of warehouses for retail stores.We've taken for granted that "technology" is a force for good in the world. But perhaps the reality is a little different? Perhaps for every 'good' information tech creates, an equal and equivalent 'ungood' is created too? Or perhaps more so, the reason we're seeing the computer age everywhere but in the productivity statistics is precisely because information technology is and always has been another manifestation of a rent-extracting financial type of business.Here's a chart by way of Iren Levina at Kingston University to cement our argument that banks were the original network-based technology platform unicorns - with business models equally focused on gathering privileged data about customer behaviours for the purpose of influencing more profitable behaviours elsewhere:
It is with good reason, then, that banks dedicate the biggest chunk of operating expenses to personnel, algorithms, IT infrastructure and hardware equipment. Banks, like information tech firms today, are and always have been information processing businesses.
On which note, Diana Hancock, of the Fed, argued convincingly in the 1990s that the Financial Firm is a financial technology which takes input (data), processes said input, and then creates monetary goods which distribute existing capital to sectors which can draw returns more effectively than others, in exchange for a leasing fee for that matching service.
But as Hancock says, financial profits can only be assured only if the purchase cost of one unit of the capital good less the rental received during the period is equal to the discounted depreciated value of the capital good in the rental period.
That's another way of saying bank profits are only justifiable if the added value from redistributing leased capital more than compensates for its natural depreciation - something that's only possible if the total value add is over and above total lease fees charged by the intermediaries. If at the end of the rental period society has no more capital (or less!) than it had to begin with, fees charged on an ex-ante basis will have proven unjustified.
The parallels between banks and technology platforms are thus uncanny.
In the banking process, data input represents the process by which information about future consumption (or lack thereof) - as extrapolated from previous behaviour - is collected from user networks to facilitate more constructive consumption elsewhere. By the time capital is returned, enough new capital is supposed to have been created to ensure both the original investors can be paid back as well as the banking/intermediary layer compensated for. Banking crises emerge when it turns out investments have failed to compensate for the natural depreciation rate.
Shrinking the pie?
In the unicorn IT process, data input represents the process by which information about future consumption (or lack thereof) - as extrapolated from previous behaviour - is collected from user networks to facilitate less constructive consumption at source.
In other words, instead of using information about long-term non-consumption to benefit value-adding industries which grow the pie for all, tech firms are focused on using information about fleeting periods of non-consumption to draw down existing capital more efficiently.
The better tech firms are at predicting or shaping behaviours through their information processes, the less new capital investment is needed, because reduced consumer optionality allows for increased supplier predictability. To wit, those who can predict their customer's behaviours best or mould them, become the lowest cost marginal producers - deferring more risky capital investment (by way of retained earnings) to the moment they can be sure they're the last monopolists left standing.
The pie as a whole stops growing, with only information tech providers - the modern-day rentiers of the system - benefiting from the structure.
To conclude, some points from Hancock's book which incidentally highlight the parallels between financial firms and modern-day unicorns:
The amount of profit generated, depends upon the strength of the banking system's monopoly position.
And..:
The traditional reason given for deposit rate ceilings is that bank competition for deposits allegedly leads to a high rate of bank failures. According to this view, bank competition for deposits led individual banks in the 1920′s and early 1930′s to offer higher interest rates in order to maintain or increase individual share of the market. The banks were forced to rely on higher yielding riskier assets to offset incurred deposit costs. This placed the banks in a vulnerable position. Any adverse economic developments, either national or local, would be sufficient to make these risky assets uncollectible by the bank. Deposit rate ceilings affect consumers, since they receive less for deposits than would otherwise be the case, but the accompanying increased monopoly power of financial institutions makes them allegedly more sound.
The techies would argue they're just making the world more efficient.
We can't help wonder if solutions based on substituting new goods for pre-existing goods (or virtual ones) are somewhat different to solutions which grow the pie for everyone. There seems to us an inherent risk in creating monopolistic systems which overstretch themselves to the point they essentially run on empty.
Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.
Related links:
When a man cannot choose, is he still a consumer? - FT Alphaville
Assessing "Abenomics", again - FT Alphaville
|
|
|
Nov 14, 2015 | news.yahoo.com
Students held rallies on college campuses across the United States on Thursday to protest ballooning student loan debt for higher education and rally for tuition-free public colleges and a minimum wage hike for campus workers.
The demonstrations, dubbed the Million Student March, were planned just two days after thousands of fast-food workers took to the streets in a nationwide day of action pushing for a $15-an-hour minimum wage and union rights for the industry.
About 50 students from Boston-area colleges gathered at Northeastern University carrying signs that read "Degrees not receipts" and "Is this a school or a corporation?"
"The student debt crisis is awful. Change starts when people demand it in the street. Not in the White House," said Elan Axelbank, 20, a third year student at Northeastern, who said he was a co-founder of the national action.
... ... ...
"I want to graduate without debt," said Ashley Allison, a 22-year-old student at Boston's Bunker Hill Community College, at the Northeastern rally. "Community college has been kind to me, but if I want to go on, I have to take on debt."
Dealing with swiftly mounting student loan debt has been a focus of candidates vying for the White House in 2016. Democratic hopeful Bernie Sanders has vowed to make tuition free at public universities and colleges, and has pledged to cut interest rates for student loans.
... ... ...
Andrew Jackson
Free taxpayer supported public education means more college administrators earning $200,000 or more, more faculty earning $100,000 or more working 8 months a year and more $300 textbooks. Higher education costs are a direct correlation to Federal Student Loans subsiding college bureaucracies, exorbitant salaries for college administrators and faculty.
terrance
What fantasy world do these people live in. There is nothing for free and if you borrow tens of thousands of dollars you can't expect later that someone else will pick up your tab. Pucker up bucky, it is your responsibility.
Furthermore, a lot of this money didn't go to education. I have read where people went back to school so they could borrow money to pay their rent, or even their car payments. As for 15 dollars an hour to sling burgers, grow up.
sjc
Having been out of college for a few years, I am curious. I went to a State University. Tuition was high, I had to take loans, I drove a cheap 10 yr old vehicle, but it didn't kill me. My total debt was about the price of a decent new car back then.
Today, the average student loan debt after graduation is just under $30,000. Around the price of a new car. And these kids are trying to tell us that this is too much of a burden??? Look around any campus these days, and you will see lots of $30,000 cars in the parking lots.
I can see having a low, federally-subsidized interest rate on these loans....which I seem to recall having on some of my loans, but anyone wanting anything for free can take a hike, IMHO.
Meed
Careful what you wish for, kiddies. It's simple math and simple economics (things I learned in school while studying instead of protesting). Every university has a maximum number of students it can support, based on the number and capacity of dorms, classrooms, faculty, etc.
The tuition rates have always closely matched the amount of easily-accessed loans available - the easier the access to loans, the higher tuition is. The simple reason is that the universities raise tuition rates to manage the demand for their limited resources, and can always raise rates when there is more demand than there are openings for incoming students.
Thanks to the windfall from that high tuition, today's universities have student unions, recreation facilities, gyms, pools, and lots of amenities to attract students. Imagine what they will offer when they can't jack up the tuition. Ever visit a university in a country that has "free" college education for its' citizens? It's pretty austere. These kids need to think past the clever sound bytes and really consider the effect of what they are asking for.
matthew
Oddly enough, a majority of these students attend colleges who has sport teams sponsored by Nike, Under Armour, Adidas, or Reebok. So, should theses companies atop providing the uniforms and equipment free of charge and donate the money to make more scholarships available? Then the student athletes can purchase their own gear on their own dime. Where one group attains, another must lose. Let this be debated on college campuses and watch the students divide themselves. We will find out what is most important to them.
JB
What really needs to be addressed is the skyrocketing cost of college education PERIOD! At the rate it's going up pretty soon only the children of billionaires will be able to afford to go to college.
Some junk yard dog investigative journalist needs to dig into the rising cost of college education and identify the cause. Once the cause are understood then something can be done to make college more affordable. College tuition cannot be allowed to just continue to escalate.
just sayin'
Seriously how do we let our children out of high school without enough information to decide if going to college is actually a good investment? If a high school grad can't explain in detail how much cash is needed, and how spending all that cash and time for education is going to provide a positive return on investment, he or she should not be going to college. This should be near the top of things that teens learn in high school.
pcs
I get really cynical about all graduates claiming they had no idea how much their loans were going to cost them. I mean, they had enough math skills to be accepted, then graduate, from college. If you didn't bother to read your loan docs before signing, or research likely monthly payments for your loan, that's your fault!
E
College costs went up far faster than inflation, often because colleges built fancy sports and living facilities...because they figured out these same millennials pick colleges based on those things. If you tour colleges, and I toured many in the past few years with my kids, you don't see a classroom or lab unless you ask.
The standard tours take students through fancy facilities that have nothing to do with quality of education. Add declining teaching loads that have decreased from 12 class hours to 3 class hours per week for a professor in the past 25 years and the rise in overhead for non-academic administration overhead positions like "chief diversity and inclusion officer" and you have expensive college.
If students want a cheap education, go to the junior college for general ed classes then transfer to a four-year school. It is not glamorous but it yields a quality education without a fortune in debt.
Rich
Getting an education is obviously the biggest scam in history!!!! Look at who controls education. Look at all the Universities presidents last names then you will know what they are. I can't say it here on Yahoo because they will take my comments out for speaking the truth. These presidents make millions of $$$$$ a year off of students and parents who are slaves and work hard to pay those tuitions. Not only that but look at the owners last names of the Loan
50 CAL
Universities are money munching machines with no regard for how the students will repay the loans. Universities annually raise tuition rates(much of which is unnecessary) with no regard of how these young minds full of mush are going to repay the crushing debt, nor do they care. Locally one university just opened a 15 million dollar athletic center, which brings up the question, why did they need this? With that kind of cash to throw around, what wasn't at least some used to keep tuitions affordable?
Mike D
These 'loans' are now almost all, Pell Grant underwritten. Cannot Bankrupt on, co-signers and students can lose their Social Security money if defaulting. 1.5 trillion$ of these loans have been packaged, like Home Loans, derivative.
What happens to peoples retirement accounts when their Funds have investments in them, what happens to the Primary Dealers when the derivatives bubble bursts?
How are these loans to be made 'free' if existing loans bear interest? If the student of 'free education' defaults, doesn't graduate, will he owe money-will his parent, or will the 'free school' simply become a dumping ground for the youth without direction, simply housed in college's dorm rooms?
Lots of questions and two things to keep in mind, the Banks and Teaching institutes love the idea of 'free', the students are believing there might be a free ride.. ignoring schools and Banks don't, won't and never do anything for free.This is not going to turn out well for consumers. Sure, Household payments of Education may drop, but the Institution of Education cannot keep even its slim success rate it has now. I don't know how educators managed to turn education into a purely self gratifying industry, giving anything to purchasers they wished for that Education loan, but never ever ever, has underwriting by the Central improved the quality of business. Complete underwriting of the important system of education at the Fed level will be a disaster.
There will be almost zero accountability for institutes and students, we will have a more expensive system that turns out the worst grads.
Don't try believing that other countries abilities with free Ed can be duplicated here.. not without serious socialism, a condition where qualifying for Ed advancement is determined by the Central.
Where it is free, but only to the select, the performers, most American Students would not qualify in other countries for advanced Ed. Blanket quals are almost a condition here, American Students are in for a serious surprise. They will not be so able to buy/loan their way to college and have to excel to get into college.
The joke is on the American student.
Jim
i was one of seven children- i worked my way through four years of undergrad and three years of grad school with my parents only being able to pay health insurance and car insurance- i worked shelving books, busing tables, delivering pizzas and for the last five years as a parimutuel clerk at dog and horsetracks- i never got to go on spring break, do a semester at sea or take classes in europe- i graduated debt free from public universities- have no sympathy for a bunch of whiny brats who have to drive better cars than their professors and believe they are entitled to special treatment- get a job and quit acting like a bunch of welfare queens who feel they deserve entitlements
Linda
My son is in college. Because grandpa saved his money over the years, he volunteered to pay for college costs. We hope to continue the tradition with our grandchildren and carefully save our money as well. We don't live high or purchase new. He will graduate zero dollars in debt.
My son's college roommate comes from a very wealthy family. They own a plane - two houses - dad works on Wall Street - mom is a Doctor. He has to pay for his own education and gets loans for everything. His parents simply don't have the cash to pay for his education.
It's priorities people! If something is worth it, you'll make it happen.
|
|
|
Safehaven.com
U.S. labor force participation rate is at its lowest level in 38 years
Editor's note: You'll find a text version of the story below the video.
https://www.youtube.com/watch?v=B9qPHWirD9o
In truth, the real jobless rate would be 9.8% if those who have given up looking for work and part-timers who want a full-time job were included.
The labor force participation rate is at its lowest level in 38 years.
This Federal Reserve chart (November 6) shows that only 62.4% of working-age Americans are employed or looking for work:
A record 94,610,000 Americans were not in the workforce in September. But the questionable health of the U.S. labor market doesn't stop here.
Even those who are working are struggling to make headway.
And what about the 2.95 million new jobs that were created in 2014, and the slightly more than 2 million so far in 2015?The numbers sound impressive until you dig deeper. This is from the Atlantic magazine (September 4):
According to new research, between 2009 and 2014, wage loss across all jobs averaged 4 percent. But for those in the bottom quintile, those losses averaged 5.7 percent. ... The [jobs] where declines in real wages have been the most acute -- are also the jobs that have hired the highest share of new workers during the recovery.
It's true that average hourly earnings increased by nine cents in October. Even so, the point is that many of the new jobs in the U.S. have been at the lower end of the income brackets.
Also consider that in September, the U.S. Consumer Price Index fell 0.2% and that the Producer Price Index declined by 0.5%.
All told, our stance remains that deflation is knocking at the door.
Get the full picture of what we see as a worldwide deflationary trend in our new report, Deflation and the Devaluation Derby .
Here's what you will learn:
- Currency devaluation's role in the developing global crisis
- How the self-reinforcing aspect of deflation is already apparent in commodities trading
- Why the top 1% of earners are in for a rude awakening
- How Europe's biggest economies are screeching to a halt
- The hair-raising future for U.S. stocks
Just recall how swiftly the 2007-2009 financial crisis unfolded. We anticipate that the next global financial crisis could be even more sudden and severe.
|
|
|
Nov 06, 2015 | Economist's View
Health is a Key Component of Inequality
In terms of welfare (under standard assumptions on the welfare function), the elimination of the left tail of mortality would have a beneficial impact that is about 60 percent larger than full consumption equalization.
What are the policies that might eliminate the lower tail of the life-expectancy distribution? This remains a topic for further discussion. However, we observe that the increase in life expectancy that we need to achieve the elimination of the lower tail is not unprecedented. Over a span of twenty years, life expectancy increased on average by three years across U.S. counties, which would be sufficient to raise the lower tail substantially.
DrDick said...
Low life expectancies in the South have been widely documented for decades. I would note that most of the high mortality areas in Montana are associated with Indian reservations. The one in the NW corner is anti-government survivalists and libertarian whackaloons. Objectivist jerky indeed.
djb said...
methodology has advantages in that is it is doable, but limitations in that it was divided into quintiles solely by average income in the zipcode. Top quintile income group was 48000 average bottom quintile 22000. Of course the debt load was going down more for lower income zip codes compared to higher income zip codes, which goes counter to JohnH's assertions about monetary policy
|
|
|
Nov 01, 2015 | The Chronicle of Higher Education
Since the Victorian era, the labor market has been the arena in which the virtues and injuries of capitalism can been seen. Classical economic liberals look at the labor market and see a platform for social mobility, one in which individual effort is matched by monetary reward. The neoliberals of the 20th century took this optimism further still, adding the notion of human capital - that people could augment themselves through education or self-branding so as to increase their own value in the market.
The labor market is no less pivotal to Marxist analyses of capitalism. The treatment of labor as a commodity, to be bought and sold on a market, is what allows capitalists to acquire more value from workers than they actually pay for, which explains the accrual of profits. Without labor, there could be no value. Without labor markets, there could be no capitalism.
Marx liked to depict capital as a vampire that sucked the blood from living labor. But the fantasy of fully automated capitalism contains a different monstrosity altogether: the zombie that no longer needs us at all. As the economist Joan Robinson has written, if there is one thing worse than being exploited by capital, it is not being exploited by capital. The vision that Kaplan and Ford put before us is of a world in which machines don't even bother to extract value from us any longer - they're too busy trading with one another. What might capitalism look like if labor markets lose their political centrality? Would this even be capitalism?
This question lurks in Thomas Piketty's Capital, which highlights how the inheritance of capital is a far more effective route to riches than the exertion of effort in the workplace. Piketty's account forces us to pay attention to the family as a source of income - work is an increasingly unlikely path to acquiring wealth.
Theories of financialization, such as those of the economist Costas Lapavitsas or the sociologist Greta Krippner, point in a similar direction, showing how firms have deliberately sought to shift away from productive activities and toward balance-sheet manipulation and financial innovations as sources of profit. The vaudevillian horror show of machines broken free from human control is mirrored in the anxieties of contemporary political economy. The specter of autonomous machines is also the specter of autonomous capital, no longer anchored in society via the wage relation.
The neoliberal ploy that each individual be treated as a chunk of capital was present in the discourse of the 1990s "knowledge economy," and the answer to virtually any economic policy question was "education." This no longer feels adequate. As Kaplan and Ford point out, the market value of most qualifications is diminishing all the time. Given the possible scale of automation, Ford argues, the idea that education can achieve prosperity for all is like "believing that, in the wake of the mechanization of agriculture, the majority of displaced farmworkers would be able to find jobs driving tractors."
An economy in which capital has replaced labor may witness the rise of a few thousand well-paid YouTube stars, but it would also feature a promulgation of unpaid internships, adults living off their parents, and unpaid workfare contracts. As Ford points out, even where humans are cheaper than robots to employ, there are various reasons that automation may nevertheless be preferable. Robots bring less baggage than people. The prospects for inequality under these conditions are terrifying.
... ... ...
Ford advocates a basic income guarantee, an idea that is accumulating support right now. If the labor market will not provide the income that people need, some other institution will be required to take its place. He makes the case well, dismissing the simplistic policy narrative that people need to be cajoled and incentivized to work or else the economy will grind to a halt. On the contrary, neoliberal economies seem to be teeming with people wanting to do fulfilling and creative things but struggling to get paid for them.
The chance of such policy ideas being adopted is slim at best. As with Piketty's proposal for a global wealth tax, they require not only greater political coordination than seems available right now, but also a wholesale inversion of policy orthodoxy. Neoclassical economics, which provides the basis for so much policy, starts from the assumption that resources and time are scarce. Hence the curiosity that as our national productive capacity swells from year to year, political discourse seems ever more fixated on constraints and cuts.
... ... ...
...there is an unavoidable sense in which the robots can't understand what they're doing. Their inability to complain, which is precisely what makes them attractive to the likes of Uber and Amazon, is also what renders them somewhat stupid after all. They are locked into what Max Weber termed instrumental rationality. Endlessly performing, relentlessly producing, they are incapable of ever saying "enough's enough."
In this they hold up a daunting mirror for us to look in. They represent an impossible benchmark of success and efficiency, one that recedes so far into the distance ahead that the only sane response is to abandon the idea of humans as capital altogether.
... ... ...
William Davies is a senior lecturer in politics at Goldsmiths, University of London. He is the author of The Happiness Industry (Verso, 2015).
|
|
|
FT.com
Ex NHS Surgeon
The causes are multi factorial, but what is really disturbing is the wilful DENIAL inherent in U.S. Govt. analysis of the American Labour (Labor) market. 'Everything is awesome'. Repeat till it becomes fact.
To me, this is the central problem: the corruption and demise of American democracy, leading to paralysis of fair, efficient, effective government. Instead, government serves as the enactor or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists.
The discovery mechanisms in America's so called free markets are terminally broken.
The whole charade is necessary to keep the terrifying monster that circles the deep below the surface: debt. Irreconcilable, measured in numbers so stupendous it makes Zimbabwe's terminal hyperinflation seem tame by comparison.
There is only one way the monster of debt can be tamed: war.
E. Scrooge, 3 hours ago
The rise of the underground economy, pay cash and you can get sizable discounts on construction, repairs, all sorts of things. Many, but not all of those able, are providing products and mainly services as part of the underground economy. This was and I still believe is the fastest growing segment of the US economy. Mostly out of necessity, but will likely remain a very significant part of the overall economy for quite some time, as many of these workers are years away from Social Security eligible.
ceteris paribus
The irony of this title. The American labour force--the people who do real jobs in the real economy are working harder than ever, for less and less money to keep themselves afloat. So American labour does work while the American labour market is apparently on a permanent vacation.
Kevin Alexanderman
"America's labour market is not working"?
You mean "America's government is not working".
That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment of their government, not their labour market, especially when they ride the holier-than-thou-art horse of "greater transparency" for the private sector, and "we are the world's police" in their foreign policy.
They can't even competently establish metrics to adequately assess performance of their economy.
Mr. Martin, you say "In all, the proportion of the fall in the unemployment rate because of lower participation cannot be more than a quarter." Is that your best attempt at one-liner humour? Are you still mocking Greenspan-speak?
So I gather you are saying that a fall from 10% to 5% is more on the order of a fall from 10% to 6.25%.
That, of course, almost every US academic would question, and call you "nuts" if not worse for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about splitting hairs, or even splitting limbs, but more to the point-breaking families.
Astrophysicist111
Interesting that the author doesn't consider the possible role of the increased death rate among middle aged U.S. whites - as recently reported, e.g. in the NY Times - to be a factor in the low labor participation rate. As one economist who studied the data observed: "There are a half million people dead who shouldn't be". This is over the interval 1993-2014. Prior to 1993 the specific age demographic, 45-64 years old, had enjoyed a 2 percent improvement in life span - but no more. The reasons: death from drug overdoses, suicide, other addictions and diseases resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs in its money machine.
Legal Tender
For those interested, here is an NPR piece (and follow-up from The Atlantic) on the disability situation in the US. Note that an adult need not be disabled themselves to collect payments and leave the workforce. Children are eligible for disability payments in the US for learning disabilities (including ADD, ADHD, dyslexia, etc) with the income going to the parent (reducing the need for that parent to enter the workforce).
From 2009 to 2013, there were 2.5 million jobs created in the US while 5.9 million people were added to the disability system.
fmayer314
One thing I enjoy a great deal is good comedy. And as an American reader I find plenty of fabulous comedy in these "what's wrong with America" articles. Soaring rates of morbidity among white middle-aged Americans? How can that be? Pathologically low LFP rates? What could possibly explain that? Billionaire clowns near the top of opinion polls? Go figure!
After the first course, one then moves on to the comments, littered with the aromatic excretions of right-wing American idiots. The incredulous replies subsequently posted are often quite hilarious, because respondents find it so hard to believe the amazing levels of stupidity on display.
American newspapers are quite droll by comparison because frank discussions of on-the-ground realities in this country are strictly taboo. Much more important is the burning question of which bathroom should be used by trans students, or - as in the New York Times - what are the best recipes for your next dinner party.
Thanks FT!
TJG
Thank you Mr. Wolf for pointing out that the declining employment participation rate portends significant community and social problems. I would like to suggest that two issues play a significant role in this decline. The low minimum wage combined with the high cost of competent child care make it financially pointless for a spouse earning less than $10.00/hour to work. Secondly racially tinged mass incarceration has produced an ever growing number of unemployable people. The moment an applicant indicates he or she has been incarcerated it is pretty certain the application will be rejected. Until societal attitudes and public policies change the problems illuminated by Mr. Wolf's opinion piece will only continue to grow.
JMC22
The title of this piece -- that the US labour market is not working -- is way out of line with the content. A highly contentious issue regarding the fall in the measured participation rate is hardly an indication of a non-working labour market, especially given the huge increase in employment in recent years. One issue not discussed -- the fact of a very considerable increase in the employment in the grey markets. Self-employed persons, partly growing out of internet activities, are not properly measured. Nor are those who simply work outside the formal economy, including many illegal immigrants.
ciwp1
@JMC22 Good points. Worth bearing in mind also, wrt self-employed, there are large numbers 'officially' self-employed who are not doing much; similar irregular work patterns afflict temps, part-time works, zero hours...
Mark Feldman
Mr. Wolfe, the problem is a lack of education. And I don't mean a lack of degrees.
I'm not an economist (I'm a former math professor.), but it certainly seems to me that if an economy needs educated (Again, don't confuse that with "degreed".), workers, and they aren't readily available, then there will be more unemployment.
What I mean by "degreed but uneducated" should be obvious, but I do want to make one point with an example.
If you learn how to do calculus - just how to do it period - that will not make it easier to learn how to use a spreadsheet; but, if you really learn calculus, you will find it much easier to use a spreadsheet. That is because you will have trained your mind to think quantitatively. It's that simple.
In the 60's students who took calculus learned it. Now, they mainly just get certified in it. (If you doubt me, just compare today's AP Calculus with the one from 1970.)
This same phenomena is true across all disciplines. It is because the American higher educational system, as a whole, is corrupt. (In a recent issue,The Economist has done an excellent job reporting and analyzing the system. Thank you.)
But here is what is even worse.
The effect of this corruption has seeped down to America's K-12 system. To see how, just ask yourself where high school teachers go to learn, and within what system do "professors" at regional state schools get their "credentials", and why it might be in the interest of more "elite" schools to credential them.
For anyone who wants to know more, I have a blog inside-higher-ed that has convincing examples and documentation.
Veiled One
Wolf has a point. I'm in the U.S., in my prime at 52, and have stopped looking for for work after losing a job for no fault of my own. My undergraduate and graduate education was at elite universities in technical disciplines, and I have much experience. I'm also very physically fit and energetic. But after more than a year of hearing that I was "well-qualified but too senior," I stopped looking.
Now, I'm a rentier with 100% free time, and read the FT every morning. I suppose I should be happy to enjoy the guerdons of a career when very young.
Kevin Alexanderman
@Veiled One ,
Sounds like you are a victim of age-racism. The leftist journalist crowd know the money is with the older people. Just as they slander the banks, (who have the money), and as the German national socialists slandered the Jews (who had the money), today's socialists slander older people.
The leftists are preparing some kind of way to swindle more experienced people out of their money, just haven't figured out how yet.
Gail Johnson
This is a political problem. Ordinary Americans are no longer represented by the national government. In other major industrialized democracies, the equivalent of US congressional districts include about 100,000 people. For example, in the UK there are 650 members of the House of Commons representing about 64 million people. In a district with 100,000 people it is possible to contest an election without a $1 million war chest.
In the US congressional districts average over 700,000 people. There are 435 representatives for over 310 million people. Congress has an approval rating on the low teens, and yet in the last election 95% of incumbents got reelected. Why? Their demonstrated willingness to vote the way big money tells them to in return for the funds needed to stay in office.
Thus, ordinary people who rely on jobs to supply life's necessities - food, clothing and shelter - get short shrift when economic priorities are being set.
LJH
The US is focused on Austerity. Cultural, Economic and Political Austerity. The right wing drive to kill everything for everyone ( save for the elite that are rapidly accumulating it all) has destroyed the infrastructure and the fabric of the country. The US is the laggard in the 'leading developed countries' of the world and is certainly vectored in the wrong direction.
Michael Moran
I wonder how much of this can be explained by furtive self-employment. The ridiculous tax system provides every reason for a smart person to try and avoid formal employment through LLCs or other dodges. The LLC structure and their tax status is unique to the US, after all. It could be part of the explanation.
RDRAVID
@Michael MoranIf someone is self-employed they would be counted as actively participating in the Labour market. Rather than self-employment, I think the issue is a growth in informal activity in the US. Its becoming more common there for people to do undeclared work, whether of the handyman, domestic helper or running a mobile food shack.
The bottom 20% in the US are effectively living a third world style life.
Isaias
I always said that if US unemployment was measured by Spain unemployment standards ( the strictest in the EU ), it would probably be around 12 % if not more.
What free market?
While Martin Wolf explains a deeply worrying trend, particularly for those who have given up the struggle to find work, there is another bar to job creation.
Small businesses find the bureaucratic hassle of taking on staff a nightmare: the intrusion of form filling, record keeping, the tax authorities, local authorities etc, all of which have their own, separate agendas, is sufficient deterrent to employing anyone except on a casual basis - which the very young and old are happy to engage with the process.
The only common strategy for bureaucrats and tax men is job creation - theirs and those of the ilk - their role is job destructive in the real economy.
gkjames
@What free market? Really? How so? What "bureaucratic hassle"? Are standard record-keeping and accounting practices an "intrusion" or, more likely, a useful mechanism by which shareholders can track the health of the enterprise? In most US states, by the way, it takes all of a single form and a modest fee to incorporate. As for the alleged "common strategy for bureaucrats and tax men," you do realize, presumably, that it is elected legislatures who write the tax laws, laws that reflect extensive (and, not infrequently, exclusive) input from the business community.
What free market?
Yes, it is BIG business that controls the output of legislatures, small business does not get a look in - those running them are too busy running their businesses and coping with bureaucracy. It is often overlooked that rules and regulations that are imposed universally suit big business but place a disproportionate burden on small business who have to comply with the same dictats but without the administrative cohort and infrastructure that large firms can justify.
What free market?
Indeed, without sounding too conspiratorial, I would say there is an unwritten pact between big business and legislators that allows big business to comply with onshore rules and forces competing small business to do the same.
Meanwhile offshore, big business can engage in tax evasion on a massive scale using offshore tax havens, transfer pricing and the freedom from jurisdictional control that obviates their need to remit revenues that would be taxable (viz Apple) . Small businesses are captive, they have to be 100% complient and that suits big business as the administrative burden crushes incipient competition from small business.
Anon2
Maybe it has something to do with the breakdown of the lower middle class family in the US and the subsequent poor performance in school, crime, prison etc. I guarantee those not participating exhibit a higher percentage of having had no father in the home as a child.
LJH
@Anon2 Yes, we don't like poor people in the US, or minorities - including women. The problem is the ruling class of white rich men is morally and intellectually bankrupt.
Those that create the problems are usually not the first to suffer the consequences. That comes later as the empire crumbles.
M_T
@Hell No -- Given the minimal welfare in the US, and that it seems implausible that one in eight American working age men are starving, my personal assumption would be that a large proportion of the remainder are working in the unregistered economy. That includes crime but would also include casual work where the employer doesn't pay proper taxes etc.
RiskAdjustedReturn
@M_T @Hell No --
"... casual work where the employer doesn't pay proper taxes etc."
In my local bank, on a Saturday morning, one will see lines of middle-aged white guys standing in line to take out thousands of dollars each in cash, which I'm assuming is meant to pay their workers
Adam Bartlett
An issue that's only going to get more severe and widespread as technological unemployment continues its advance.
In light of studies showing that low quality jobs are worse for folk's mental health than staying unemployed, further deregulation is only an answer to be entertained by sadists.
The choice facing us is probably between the statist solution of a massive increase in public sector employment, or the relatively libertarian option of a generous universal basic income. Let's pray it won't be too many years before such options get to the table.
pangloss
Surely an American (or any other) worker is worth no more than say a Chinese worker + some translation factor. The translation factor includes the presence of infrastructure and human capital on both sides. The low skill worker suffers first because of an early and easy shift in the translation factors. Sooner or later the high-end designers of Silicon Valley will suffer the same fate. Excluding nuclear war there is likely to be a flattening of wages across the developed world. This is especially bad news for those at the lower end of the ability scale, no credible amount of education or training will make enough difference. There are limits to human capital. Start thinking about redistribution and the niches that are immune from this effect.
nonuthin
The question that bothered me through this is what do they actually do if they're not "working". Clearly not all sustained by welfare, does this indicate a significant increase in either the black economy, the criminal economy or both. E.g. it would be statistically fascinating ( if politically unachievable) to see the impact of a legally licenced drugs trade on the employment participation rates.
Adam Bartlett
@nonuthin Some in single earner households, having to accept a lower material quality of life than they would if both adults could earn. Others drawing down savings and living frugally. Many dependent on food banks and other forms of charity. Others subsisting in the informal economy, but activity one would call 'grey' at worst, not the black or criminal economy.
Big Dipper
There is more to life's responsibilities than your "men and women whose responsibilities should make earning a good income". Perhaps you could consider high-quality child raising, other care activity, community and education. The ratio is dangerous.
cg12348
Every week Martin Wolf reminds me why the self proclaimed experts are really idiots - you can make stats sing if you know what you are doing........but the reality is easy to see. Americans have a work force that is seeing its jobs exported - notice he does not give the stats on companies moving out of the US over the past 30 years. Again the experts say we could not stop It - NO they cant stop it that is true - but there is a way to stop it.
They would further tell you that the 11 million immigrant workers have little to no effect because they take jobs that we don't want - wrong again. As you age your are happy to be employed even if the job does not hold the allure of your previous job. What immigrant workers do is they take less money because they are willing to live at a lower standard. They will live many families to one home etc. In fact if they were not here to take the job the job would get done when the pay increased to attract a willing worker - FACT. Finally what stats do not capture is the moral of a work force.
There is nothing "decent" about our unemployment stats. We are not a nation of any one race we are a nation of opportunity with one of the most powerful economies and plenty of natural resources and demand and opportunity for innovation - so what sickness has befallen the US - large government - corporate taxation - political mediocrity - the same thing that has recently become apparent in Germany and France - idiots who give away what we worked hard for and expect us to pay more for those they choose to support.
Todays social programs breed a generation that no longer asks what they can do for their nation - but what their nation can do for them. Obama and his ilk have handed the world to those who were unwilling to fight to fix their own countries - instead they want to come here for opportunity that did not exist at home and then in a great act of irony turn our land into theirs - we do not want to be Europe - nor do we want to be Mexico and we certainly do not want to be the middle east - instead what we want those who love our opportunity to come here and become American - but in numbers and within a legal process that does not exacerbate or marginalize those who were born here and should have the right to the first jobs here.
Profitsee
@cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing: US imports educated foreign naturals more than exported "low level" jobs. Even as a Democrat, I confess, you provide a lucid argument.
Tiger II
The employment numbers are a political fiction as with all developed economies. Unemployment is much higher than reported. Sclerotic labor laws and regulations make it impossible to create many jobs that can produce more than they cost, especially given the dumbing down of the work force by public monopoly schools. Regulated labor markets are one of the biggest drivers of unemployment on both sides of the Atlantic and should be abolished.
Brian Reading
While not disputing in any way Martin Wolf's analysis, the devil may still be in the detail. Population estimates by age cohorts come from ten-yearly census data - the denominator for participation rates. These estimates are interpolated between censuses from births, deaths and migration data. The numerator, the number in each age cohort at work or seeking work, comes from regular household sample surveys. Using one source for denominator and another for numerator, which cannot be avoided, entails a margin of error. In looking into this, I was amazed to discover that legal immigration averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged, are included in population estimates but do not appear in household surveys.
DougInCalifornia
What I am seeing where I live is the emergence of a part-time, informal service economy. You might call it the Craigslist/Ebay/PayPal economy. I think that a lot of people make a (minimal) living this way. And my guess is that most of it doesn't get picked up in official statistics. I think that "employment" will need to be measured differently in the post-internet era.
RiskAdjustedReturn
@cg12348 @Boston1
"Show me a middle class kid that expects to work his way up and willing to start at the bottom and I will show you..."
...a recent immigrant.WL - Minneapolis
One clue into the declining labor force participation rate may have been discovered in a study reported in the NY Times today, that may account for a substantial portion. The death rate among middle-aged (45-54) whites with high school education or less has increased in recent years, reversing a long-term trend. The cause appears to be poor health/chronic pain/mental health issues that result in death by drug/alcohol abuse and/or suicide.
Clearly unskilled and low-skilled workers have more trouble finding well paying jobs, and the wages for those jobs have fallen around 19% since 2000 in real, inflation-adjusted terms. But an increase in health problems of one sort or another may also be the cause of the lower participation rate as well.
Paul A. Myers
Excellent article on education difficulties in the US by Edouardo Porter in today's NYT. One problem is that children living in poverty in the US struggle to learn in the education system partially because overall public support for impoverished families is so poor in the US.
KKB
If we think the current labor market is not working, wait till the Trans Pacific Partnership (TPP) trade deal passes the US Congress & signed into law .
Capital ($), aided by misguided policies of the US economic elites, will prevail over (skilled) Labor.Paul A. Myers
A major contributor to lack of hiring men age 25-54 is the massive underinvestment in infrastructure in the U.S. This is a prime age for construction employment and this industry provides a ladder of advancement from low and semi-skilled labor up to more skilled labor. My experience with construction contractors in Southern California is that they are interested in individuals who can get to the job site and do the work and are often willing to overlook criminal records. A dollar of public spending on construction puts American workers to work, not someone in Korea. You can't import a highway or a building from the Far East.
The other major failure is the large urban school district. These "too big to succeed" institutions have a record for over a half a century of failure to turn out skilled young people. In the massive Los Angeles Unified School District, they shut down skill-based vocational education during the period 1970-1990 with the lame excuse of everyone is going to college. The duopoly of a wooden-headed educational establishment fostered by graduate schools of education and powerful job-protecting, mediocrity-fostering teachers unions have created the largest statist failure since the collapse of East Germany. (And you can remember how much Germany paid to clean up that mess!)
There are recent reports that there are 4-5 million unfilled jobs in the US due to lack of skilled applicants.
A crummy labor market is almost always the creation of bad public policy. And today's America swims in bad public policies.
beforethecollapse.com
@Paul A. Myers As an educator, I wonder what role poor nutrition plays in the US?
beforethecollapse.com
Also, I must say that the family unit is far more influential and important to the youth than any teacher. The teacher can operate as a third parent, or second parent if the family breaks down, but a youth needs a stable environment for healthy emotional and instinctual development. Excellent diet, physical exercise and regimented sleep patterns are essential. It's easy for parents to blame teachers but I have noted that such complaints arise from personalities that resent strong authority figures and duty enforces. As such, they are incapable of disciplining their own child.
In China, society encourages the family to be unconditionally supportive to the child, this is balanced by the teacher who is a strict disciplinarian, often by way of corporeal punishment.
Philip Verleger
@Paul A. Myers A crummy labor market can also be the result of increased monopsonistic power of employers. Trucking companies cannot find drivers and regional airlines cannot find pilots. There are plenty available - but many will not accept the low wages offered. The employers cannot offer more because their customers - the large airlines and the big shippers will not pay more. The trained workers are there. They just will not accept the scarps.
The public policy mistake was allowing the creation of such large monopolies/monopsonies.
Look outside your silo!
Paul A. Myers
@Philip Verleger @Paul A. Myers Good points. The FT published my letter to the editor in about 2010 that economic concentration in virtually every economic sector of the US had reached unprecedented levels and represented a major threat to the US economy. (I think I was seriously outside my silo and I think the FT editors were very receptive to this argument--then and now.)
Oligopolies (the only kind of major corporations and markets in the US today) produce lower volumes, at higher prices, and with fewer employees than a more competitive economic sector would employ, produce, price.
In virtually every industrial sector of the US economy, the top competitors are way too big and way too dominant. In the 1950s and 60s, it used to be the Big Three in most sectors; today is at most the Big Two.
The Progressives understood the economic concentration argument; the Democratic Leadership Council generation embraces concentration's contributory support.
Philip Verleger
@Paul A. Myers @Philip Verleger
Could not agree more. I am on the board of a family firm. We cannot find truck drivers although we pay well and train (to move gasoline - it takes an extra license). There is just little interest in joining the profession because the large companies keep wages down.
The FTC and Justice Department unfortunately failed to do their jobs.
BelCan
Mr Wolf seems to have missed the fact that the FT already covered this issue on 16 October.
nb
No cause for concern. The decline in the LFP rate is simply a social readjustment
https://www.stlouisfed.org/publications/regional-economist/october-2013/a-closer-look-at-the-decline-in-the-labor-force-participation-rate
The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s).
The main factors that keep the aggregate LFP rate from falling further are the increase of the LFP rate of those 55 and older and the strong attachment to the labor force of Hispanic and Asian people, who constitute the main share of the immigrant population.
Henry C
@nb Your good post is reinforced plenty by the more recent talk by Bullard. He notes:
"If you know only one aspect of the data on labor force participation, it should be this: Labor force participation used to be relativelylow, it rose during the 1970s, 1980s and 1990s,peaking in 2000, and it has generally been declining since 2000.From 1948 to 1966, the labor force participation rate was relatively low and relatively stable, averaging 59.1 percent. That's substantially lower than today's value of 63 percent. It is important to note that we normally consider the U.S. economy to have performed relatively well during this period, especially during the long expansion of the 1960s.
Evidently, low labor force participation does not equate with weak economic growth. Surely this is because the factors driving economic growth are different from the factors driving labor force participation."
beforethecollapse.com
Why are you surprised? You genuflected to my employer.. The People's Republic of China.
Where slavery is a tool for political control. Perhaps you should have thought harder and better when you and your friends were nattering on about The Great Moderation. What was your long game? Did you think there would be a revolution or revolt that you could manipulate? Or were you a true believer in The Circular Theory of Income?
Action? What action? How are you going to move production back to the West? How can you undo what you are responsible for?
Henry C
I'm not sure I want to worry about the US LFPR, and whether it's it's indicative of Americans' feelings that they can't support a family.
The literature on US LFPR is pretty consensual on the main effect being demographic (ageing) and virtually nothing else. The St. Louis Fed's Bullard's recent talk is illustrative: see https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard_ExchequerClub_19Feb2014_final.pdf .As to family support, the other aspect one might look at is whether US household disposable income growth has been deficient relative to other G7 countries (which all have higher LFPR). But that's not the case: see
https://data.oecd.org/hha/household-disposable-income.htm
So on the face of it, it seems to take a higher LFPR in other G7 countries to match the same approximate growth in US disposable income in the long run.
L'anziano
"What might explain the extent to which prime-aged men and women have been withdrawing from the labour market in the US over a long period?"
Heartless as this sounds (and I am sure I will not gain any friends for this on this page) the reason on the male side of the equation is that it is much easier to fire ineffective, unproductive, middle-aged, male dinosaurs in the US than it is in the UK, France or Japan. At least this has always been the case in every global firm in which I have worked. I am acutely aware of this as a middle aged man myself.
lennerd
Perhaps Mr Wolf should follow up this article with one about the abysmal record on male and household median earnings since 1970. Male median earnings are now lower than in 1973, more than 4 decades agao and household median earnings are back to the late 1980s, a generation ago.
This, of course, is the evisceration of the middle class by globalisation and other factors that has progressed further and faster in the US than elsewhere, resulting in the proceeds of growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per cent. His views on why and what should be done would be interesting.
Olaf von Rein
@lennerd Those income statistics right? Frightening.
Legal Tender
@lennerd If you want to look at the data you need to realise the US imported 10-15 million low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very bottom of the income distribution (note that their income is understated as a good portion of the earnings is "off the books") the results look better. You cannot make an "apples to apples" comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s and 2000s. The demographics are very different.
If Europe admits millions of refugees over the next few years, I can assure you it will depress average male household earnings. But you always need to look at what has changed in the composition of the data before drawing conclusions about the data. The fact that there might be millions of Middle Eastern and African arrivals earning very little (officially) would impact the overall data for wages but may not accurately describe the experience of the pre-existing labour force.
You might even say that the US has employed its native population AND created jobs for millions of unskilled, non-English speaking workers who are now earning two or three times what they were in their home countries and sending tens of billions annually back to those countries to increase wealth there. That sounds like a success story (well, I would not classify the current economy or labour market as a success story, but on par it does describe much of the 1990-2006 period).
Cuibono
As somebody who has worked in both Europe and the US I would add to the list of underlying causes mentioned. First employee rights in the US are abysmal. Poor conditions, no training or upward mobility, little or no personal privacy, cult like "motivation" exercises, passive aggressive annual reviews, drug testing, binding non-compete contracts that disallow moving to competitors for long periods of time and now declining benefits. The list goes on and on.
The employer gets everything and gives nothing more than an "at-will" commitment to continue employment.
It gets to a point where it's not profitable to bother.
Raver
@Cuibono Yes it's gotten pretty bad. The benefit packages are barely cheaper than what you can buy in the health insurance marketplace, maybe $20 less a month if you're lucky.
Banker
@Cuibono yea but salaries are 2-3x as much as in the UK.
Cuibono
@Banker @Cuibono Right, until you factor in the cost of health care and college tuition for your kids.
Banker
@Cuibono @Banker @Cuibono Ahm? Most ivies have $0 fees for families under $60k and a lot of support. Health insurance also provided from employer covers everything. Have you even got any idea how expensive private healthcare is in the UK? Unless you want to use 3rd world NHS ofcourse.
All public universities also charge minimum £9k/year fees here.
Learn your facts before you post.
Cuibono
Well I believe I know facts. I also have manners, and you apparently don't. So get off your high horse before you post!
Having experienced both the NHS and the private US system, I promise you the NHS wins hands down in every department, most especially in quality of care. I do know the UK private system, but if you want third world care with chaotic service delivery and outrageous hidden costs, please feel free to come to the US and pay over of thousand per month (for a family) with co-pays for it.
You 9k per year number is, frankly hilarious to any middle class US parent. Try 60k per year for fees and board for a good university.
And if you are earning 60k per year how are you going to afford the basic second level education, complete with top SAT scores and cultural experiences that will get you selected to the mythical ivy.- especially if you are white and without legacy connections? You should take your own advice and read up on US colleges and their outrageous manipulation of statistics to hide the fact that they are little more than vehicles that allow the elite to transfer status across generations.
You are upset about an opinion I expressed based on my own experiences and you set yourself up as the comment police to challenge that opinion without.
Something to think about. . .
US corporations have the developed world's highest remuneration scale to executives and the lowest benefits to other employees. How else can these corporate executive maintain their life style without hiring from the two employee pools (young and old) that work for such low wages? Young are beginning and old augmenting income.
ForgottenHistory
I recall how in the Netherlands and in Germany (and i think to a lesser degree also in France but haven't got a clue on the UK in this matter) policymakers and governments were very concerned for just this: an increase in the longer -and ultimately eternally- unemployed. Therefore people weren't just been laid off but held on and send on courses or only half-employed(=50% or so) and the government added some funds to that.
This way people retained and even improved their skills, in stead of losing skills and become unemployable and ultimately end up being a costly burden for society.
It doesn't surprise me at all this didn't happen in the US, as the US has equal opportunities(supposed to) but no proper sense of community in the sense of a government with a long term-planning; US has been doing the opposite, e.g. cutting-off anything which would help the unemployed, poor, or disadvantaged -that's equal opportunities in reality.
Smyrna Cracker
I suspect that declining levels of health, especially for those lacking a college degree may account for some of the falling work-force participation rates. Recent studies have uncovered a rise in death rates with this same population that may be part of the same phenomena. Rural populations seem especially venerable with declining access to mental health services and rising levels of substance abuse. Red America may have outsized political power but its leadership has no interest in serving the population it represents.
Mr Passive
Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs. There are going to be so many people over 60 in the UK working in the future now that final salary schemes have been reducing in number.
Is it another function of very low bond yields & therefore pension rates, the side-effects of QE we may call it.
Time for the CBs to hold up their hands and admit they've done all they can and at the margin further extra-ordinary measures will be counter productive.
Massachusetts
@Mr Passive In the US the only age group that has seen incomes increase consistently is the 65-74 decile. I cannot speak to the UK.
http://www.nytimes.com/2014/09/13/business/economy/young-households-are-losing-ground-in-income-despite-education.html
http://www.nytimes.com/2015/06/15/business/economy/american-seniors-enjoy-the-middle-class-life.html
|
|
|
October 28, 2015 | Peak Prosperity
We are damned to fail when we avoid hard truthsWednesday, October 28, 2015, 9:10
I wrote the article below in January 2013, but never published it. The strong response to last week's post on the hubris and hype of Silicon Valley, as well as this recent interview, jogged my memory and inspired me to dig this out of the mothballs. I was pleased to see how relevant it remains 2.5 years later.
My old employer, Yahoo!, has been in the news again of late.
Its latest CEO (and former Googler), Marissa Meyer, is currently at the World Economic Forum in Davos, Switzerland, where she has just given her first televised interview detailing her strategy for the beleaguered web giant.
I wish her and the current team at Yahoo! well with their plans, I really do. The saga of Yahoo!'s descent over the past decade was heartbreaking to watch and experience from the inside. I'd love to see the company find a way to become a leader again.
But I don't have faith.
In my opinion, the company can't be "fixed." At least not the way the tech pundits and the past parade of Yahoo! CEOs have touted it can.
Why? Because of a congenital failure to define its identity, paired with a chronic refusal to be honest with itself.
I get asked a lot for my opinion regarding Yahoo!'s fall from grace. I believe the seeds of its failure were sown from the beginning, and I've come up with the following analogy to make it as intuitive as possible. It all starts at the very formation of the company.
The Importance of Clear VisionFirst, look at Google. When the founders Sergey Brin and Larry Page first started collaborating, the Internet had been around for a while and they were insightful enough to realize that the data on the Web was growing exponentially. They reasoned that the company who made it possible to sift through all this data and find the most useful content, when needed, would create immense value.
So, they designed the Google platform from Day 1 to optimize around their core goal: "to organize the world's information and make it universally accessible and useful." This gave them a maniacal focus that enabled them to target talent, refine strategy, and prioritize resources. To this day, while there are many other businesses that Google has become involved in (from alternative energy to self-driving cars), everything revolves around first making sure that the central mission is protected and enhanced, and then leveraging the core platform to do ever more innovative things.
In this way, you can think of Google as the Borg of the Internet, following their mission of technical perfection with a methodical, measured dedication; unwavering in its focus.
Now, look at Yahoo!. Yahoo! is the Internet's Jedd Clampett.
If you don't know the story, the founders Jerry Yang and David Filo shared a trailer while graduate students at Stanford in the early 1990s. (It was literally a trailer. Stanford's graduate campus housing has improved much since then.) The graphical pages of the World Wide Web were just emerging, and as interested computer science students, David and Jerry spent a lot of time exploring them. As the number of Web sites multiplied, they created a simple directory – really nothing more than a page of bookmarked links – to help them keep track of the growing number.
This was the Internet's equivalent of Jedd Clampett missing a varmint with his shotgun, only to find "a-bubblin' crude" spilling out of the earth.
As simple as this directory was, nothing like it existed yet. So word got out, and people started flocking to it in ever-greater numbers. Pretty soon, the founders realized they had a phenomenon happening before their eyes, and they were savvy enough to enlist some seasoned help in structuring a business around it and monetizing it through advertising.
Well, the rest is history. Yahoo! experienced mind-boggling, stratospheric growth over the next several years. For a period of time for most people,Yahoo! WAS the Internet. For everyone else, it was the Internet's front door: occupying the best real estate within the new virtual universe of the World Wide Web.
But the key element to note here is that there was no fundamental vision or guiding mission that preceded Yahoo!'s creation. The company simply sprang into existence; a "happening" created by an unforeseen, rapid and gargantuan transmogrification of the world's analog audience base into digital 'users'.
And it's because of this lack of central identity that Yahoo! has floundered. What is Yahoo!? is a question that has plagued its executives since before I walked in the door in 2001. You would not believe the amount of manpower, brain cycles, and advertising agency dollars that have been thrown at answering this – and yet no enduring answer has emerged.
The Cost of Willful BlindnessWithout knowing what its "core" is, Yahoo! hasn't known where to put its focus. It has tried to do everything, and as a result, its diluted efforts allowed pure-play competitors to claim the dominant position in each of the important verticals that it wanted to win. Google became the dominant player in search (helped along in its early days, ironically, by Yahoo!'s patronage). Ebay won auctions. Amazon won online retail. Facebook dominates social media. YouTube cornered the online video space. The list goes on...
As the early 800-lb gorilla, Yahoo! could easily have claimed any or all of these industries. But it didn't. And I know why: Unrealistic expectations.
I personally was involved in several of the never-ending attempts to resolve this need to define Yahoo!. Each one ended up devolving into inaction – or worse, producing some declarative statement of vague pablum that only made folks even more confused. (Examples: Yahoo! is a "life engine," Yahoo! is "the premier digital media company," Yahoo is "you.")
The main reason for the failure to craft a clear vision is that the executive staff was unable to imagine giving up on major existing lines of business, even if there was no clear strategy for why they existed. Because there were so many directions Yahoo! could go in, you could make a compelling reason for why Yahoo! should retain its foothold in any multi-billion-dollar market segment. So again and again, after all the pontificating, theYahoo! executive team would convince itself it could indeed be all things to everyone.
Of course, having a clear identity means you know what you are and you know what you AREN'T. That second part is easily as important as the first. It's what gives you the discipline to say "no." To look at alluring market opportunities and pass on them, knowing that your core competencies aren't a good enough fit. To avoid wasting time and treasure chasing a losing game.
Without this clarity and discipline, Yahoo!s diluted and aimless efforts have resulted in its services becoming less and less relevant as the Web has evolved and matured.
I used to believe very passionately that the company could be turned around. But as time went on, I lost that hope, for two reasons.
First, I witnessed enough changings of the executive guard to conclude that the courage and ruthlessness required is simply not likely to happen. There are business lines at Yahoo! that are like Tolkien's Ring of Power. Every new CEO thinks they can withstand their allure as they unsheathe their cutting sword, and then soon finds themselves jealously protecting their "precious".
The second is that too much time and damage has occurred. Yahoo! has been rotting for years, resulting in unwieldy infrastructure, underperforming talent, poor partner relations, and consumer apathy. If the new CEO was suddenly bestowed from above with the "next big idea" for the Internet, why would you possibly want to saddle that gift with all of the albatrosses around Yahoo!'s neck? She'd be much better off starting a new company from scratch, with the right talent, the right culture, the right platform, and a clean shot at defining the brand.
The Hard TruthSo why am I going on so much about a struggling tech company?
Because I read this today from Robert Reich:Brace yourself. In coming weeks you'll hear there's no serious alternative to cutting Social Security and Medicare, raising taxes on middle class, and decimating what's left of the federal government's discretionary spending on everything from education and job training to highways and basic research.
"We" must make these sacrifices, it will be said, in order to deal with our mushrooming budget deficit and cumulative debt.
But most of the people who are making this argument are very wealthy or are sponsored by the very wealthy: Wall Street moguls like Pete Peterson and his "Fix the Debt" brigade, the Business Roundtable, well-appointed think tanks and policy centers along the Potomac, members of the Simpson-Bowles commission.
These regressive sentiments are packaged in a mythology that Americans have been living beyond our means: We've been unwilling to pay for what we want government to do for us, and we are now reaching the day of reckoning.
The truth is most Americans have not been living beyond their means. The problem is their means haven't been keeping up with the growth of the economy - which is why most of us need better education, infrastructure, and healthcare, and stronger safety nets.
He goes on to make the argument for a wealth tax on the richest Americans to pay for that education, infrastructure, and healthcare.
I'm not going to tackle the wealth tax concept here (though I have strong opinions). But I want to point out that I see the same blindness to reality, the same unrealistic expectations, in Reich's commentary as I did in Yahoo!.
Reich mentions but then dismisses the only point that matters: America does not have the wealth to meet the entitlements it has promised. Nor can it sustainably meet its operating costs.
Why is that? Because we, as a society, have very much indeed lived beyond our means. By building up such a tremendous amount of debt through our profligacy that a small rise in interest rates would be catastrophic. That our children and children's children will be "paying backwards" for our largess, unless some debt-clearing event transpires (which I think will).
Being unwilling to acknowledge this unpleasant but fundamental truth dooms any attempts to avoid it, via wealth redistribution or any other means. It's the same flavor of willful ignorance that caused Yahoo! to convince itself it could claim all mountaintops until it eventually begrudgingly realized it wasn't summitting any.
There were many times in my years at Yahoo! where I would listen to the "rah rah" all-hands presentations by the executives and walk away disconcerted. Despite the assurances of the great talent within the company and the wonderful ideas currently on the drawing board, it increasingly appeared that they were not admitting the obvious: The strategy was flawed, the company was failing, and radical change was needed if we wanted to succeed again.
That's exactly how I feel when reading Reich's piece. If this is the logic that our country's leaders are using in their decision-making, then Houston, we indeed have a problem. Having seen this movie play out in the smaller Yahoo! microcosm, I have no appetite for watching a sequel at the national level. But I fear that's what we're in store for.
I don't know how much influence Reich has these days, as he's not working in the current Administration as he did for three other Presidents (Ford, Carter and Clinton). But from the current fiscal and monetary policy we're pursuing, it sure seems like his mindset is not that far from those currently in DC.
So I find myself reflecting on how I reacted when I decided Yahoo! wasn't going to change course. I decided I was going to need to change mine, instead.
I invested in self-discovery to identify work that was meaningful for me. Fulfilling work that I'd be happy doing no matter the compensation. I cut the cord, resigning before I knew what I would do next. Staying on would only delay the hard work I'd need to do to create my future. I started developing the skills I'd need for my new chosen profession. And I began to tap the power and goodwill of other people who could help me (and whom, in turn, I could help back).
Seems to me this is good advice for our national predicament.
The ride from here is likely to get bumpy as reality punctures our leaders' unrealistic expectations. But if we, as individuals, invest in living authentically, working hard, and fostering supportive community, we'll enjoy the benefits of a resilient life regardless of what transpires.
Adam,
Understanding Reich
I, for one, am ecstatic that both you and Chris realized "something" was off kilter with our present situation and have done us a tremendous service by escaping the corporate treadmill and then running this site.
You are 100% correct for pointing out that people have unrealistic expectations about future financial directions.
However, I think you need to see another side of this. Reich is representing the lower class vision of the economy. In this regard he is acting as a politician, more than as an economist.
IMHO we are looking at the death throes of a debt backed, paper money system and it is very similar to playing musical chairs. Reich is fighting for the slower and less coordinated people to get access to some of the chairs. Otherwise, the Predator class naturally ends up with every chair. There is always more money for "Defense", more money for Israel, more money for "Homeland Security", and if there is another bank issue, there will be more money for that-again. There will always be more money for the well connected and well represented until we hit the wall.
My point is Reich is providing a little bit of balance in the political spectrum, probably knowing full well that one day this will all end up really ugly. No politician would dare tell people the economic truth, as we see it. If such a politician appeared on the scene, and was taken seriously, he or she would be dealt with as a severe threat to the status quo.
gillbilly
Frankenstein Capitalism
Found this article on Yahoo's finance page. It dovetails nicely with this article.
Happy Halloween!
davefairtex
wealth redistribution
why would anyone be against wealth re-distribution?
Ok, I'll bite. Let's pretend we live in a society that is run by sociopaths, whose entire apparent goal is to redirect a good chunk of the tax loot they collect to their friends that run various cartels - let's call them the military industrial complex, TBTF banking, big pharma, big tobacco, industrial sugar & fatty food production, captive media, big energy ... have I missed anything? Yeah anyhow, lets pretend the mechanism of governance is completely captured by this group: sociopaths & cartels.
Only, we don't really need to pretend, do we? Because that's pretty much where we live.
So if you are advocating raising taxes on - pretty much anyone - and handing the money to the sociopaths, I'm going to say that's a bad idea.
Here's the thing. Under your plan, wealth will DEFINITELY be redistributed. I just don't think it will end up in the place you hope it will end up.
If we can arrange to have a system that isn't run by sociopaths - somehow - then I'd be for some amount of redistribution. That, of course, is the trick. Those pesky sociopaths always seem to float into positions of power. Communism had that issue, if I recall correctly...
|
|
|
Nov 04, 2015 | naked capitalism
... ... ...
Despite Wolf's bloodless language, he clearly regards the issue as serious. He describes this withdrawal from work as a "dysfunction" and says it demands not just study but action as well.
The underlying pathology is not hard to describe: employers (enabled by the Fed which has since the 1980s been only too wiling to provide for higher levels of unemployment so as to curb labor bargaining power to keep inflation tame) have succeeded in eliminating labor bargaining power. That program has been aided and abetted by the popularization of libertarian ideologies, which encourage many to see themselves as more in charge of their destiny than they are and thus see success and failure as the result of talent and work, as opposed to circumstance. For instance, one group that could have disproportionate power if they chose to use it, tech workers (particularly systems administrators and key support personnel in large systems deployments) have never seemed inclined to find a way to use it.
And as we saw in the widely reported story yesterday, on rising death and morbidity rates in less-educated white men and women aged 45 to 54, the scarcity of jobs in some parts of the country and the erosion of low-end work conditions and pay is now doing damage on a societal level. And some of this is, as Wolf suggests, not just because candidates can't find jobs, but in many cases, the jobs just aren't good enough (or more accurately, the pay is not good enough; the fundamental rule of neoliberalism is that everything can be solved by prices, and higher pay makes a crappy job more bearable).
This is not just armchair theorizing. In 2014, the New York Times reported on the issue of how labor force participation had fallen among prime working age men since the 1960s and have been accompanied by a decline in the participation of women since 2000. The article focused on how some middle aged men were remaining unemployed even though there were jobs they could take because they felt the work didn't pay enough. From the story:Frank Walsh still pays dues to the International Brotherhood of Electrical Workers, but more than four years have passed since his name was called at the union hall where the few available jobs are distributed. Mr. Walsh, his wife and two children live on her part-time income and a small inheritance from his mother, which is running out…
"I'd work for them, but they're only willing to pay $10 an hour," he said, pointing at a Chick-fil-A that probably pays most of its workers less than that. "I'm 49 with two kids - $10 just isn't going to cut it."
The article relied on a poll by the Times, CBS News, and the Kaiser Foundation. From its findings:
Many men, in particular, have decided that low-wage work will not improve their lives, in part because deep changes in American society have made it easier for them to live without working. These changes include the availability of federal disability benefits; the decline of marriage, which means fewer men provide for children; and the rise of the Internet, which has reduced the isolation of unemployment.
At the same time, it has become harder for men to find higher-paying jobs. Foreign competition and technological advances have eliminated many of the jobs in which high school graduates like Mr. Walsh once could earn $40 an hour, or more. The poll found that 85 percent of prime-age men without jobs do not have bachelor's degrees. And 34 percent said they had criminal records, making it hard to find any work.
This ties into the widely-reported story yesterday, of rising death rates among less-educated whites aged 45 to 54. Recall that the rising mortality and morbidity afflicted both men and women. And remember that work is important not just to provide income, and in the old days, health insurance, but as a way to organize one's time and to see people during the day, some of whom generally become at least social acquaintances. So the "oh I can busy myself on the Internet" may be true short-term, but over the long haul, it's not a substitute for seeing real people.
And these men recognize that they are paying a price for not taking work, yet a significant portion could take a job but can't stomach the pay and other terms of offer:
For most unemployed men, life without work is not easy. In follow-up interviews, about two dozen men described days spent mostly at home, chewing through dwindling resources, relying on friends, strangers and the federal government. The poll found that 30 percent had used food stamps, while 33 percent said they had taken food from a nonprofit or religious group.
They are unhappy to be out of work and eager to find new jobs. They are struggling both with the loss of income and a loss of dignity. Their mental and physical health is suffering.
Yet 44 percent of men in the survey said there were jobs in their area they could get but were not willing to take.
jonboinAR, November 4, 2015 at 8:25 am
It's just unconscionable to pay people less than it takes to live. I understand that a wage minimum might put some kind of distortion or other on the "labor market" (I don't know what, but that's what will be argued by someone of a libertarian bent who chimes in), but so be it!
griffen, November 4, 2015 at 8:25 am
Profit margins. And short term obsessed managers or executives ( who can be accused of lacking vision past 12 months ).
jonboinAR, November 4, 2015 at 8:27 am
Note: I know we have wage minimums already. I'm talking about having meaningful ones like $18/hr or something.
ChrisFromGeorgia, November 4, 2015 at 9:38 am
i think the employers "wet" dream is no employees/slaves whatsoever – just "virtual" ones. Robots, small shell scripts and AI to replace us all. How awesome – no pesky unemployment insurance or health care benefits to pay! But as you point out, there is a fly in the ointment – who's left to buy their crapified products?
Ivy, November 4, 2015 at 9:48 am
Job crapification ... has been underway for decades. When consumers have their demand curves probed continuously through targeted pricing (monetary or otherwise), there is a wear-and-tear effect as lives are worsened.
Extrapolate that probing across all consumers and you see a decline in the societal goodwill that took generations to nurture. The trend is toward an atomization of life, where each interaction (monetary or otherwise) is targeted at extraction of the last ounce of available assets, or of potential for greater debt. Welcome back to the jungle.
Jetfixr in Flyover, November 4, 2015 at 10:21 am
Carla"Non college educated" includes me, an aircraft mechanic with 30 years plus experience, and a page long list of technical training on airframes, engines, and avionics.
My discussion with the CFO of the company I work for is illuminating.
(As the chief mechanic/technician in the flight department, I'm a direct report to the CFO)
Laid off, out of work for almost a year in 2009 (when the SHTF, the first people thrown under the bus are the company airplanes). Hired in as a contractor, which turned into a full time position, at 40% below what various salary surveys say I should be making. Brought this disparity up at my performance review, provided print copies of the various surveys, etc. In the end, I was told "It is what it is, and if you don't like it, feel happy to pursue employment elsewhere"
The suits screw employees "because they can" and much like the fable about the turtle and the scorpion, its in their nature.
And this is supposedly a job where there is a "shortage of qualified people".. Which there is. Mainly due to the fact that they are throwing old, expensive guys under the bus as fast as they can, and replacing them with newbies who are making a lot less money
In my case, I've become a part time contractor that enables me to pull down another $10-20k/ year. But its not lucrative or steady enough work to live on. It did save my azz when I was out of work for almost a year in 2009.
@Jetfxr: your experience is a perfect description of job crapification: you actually do work that is ESSENTIAL to the safety and well-being of the public (not only the flying public, BTW, but all of us on the ground whom you and your colleagues save from being crushed by falling airplanes). And the thanks you receive is to be mis-treated and ill-paid so that some suit who never did a lick of essential work in his life can sneer "It is what it is, and if you don't like it, go elsewhere."
Well, I would like to say "Thank you" to you, and to all the millions of Americans who perform the essential tasks everyday that keep so many of us safe and relatively comfortable. I wish you were fairly compensated and decently treated, and I wish my current level of safety and comfort extended to everyone else. And I do not take it for granted for a second.
And not once will it ever occur to the suit that the 100K bonus he receives (or gives himself) for "keeping costs down" is carved directly out of the salaries of people like this gentleman.
I wonder if the newbies can be brought in because at least one old guy is left to do the training and the quality control. Amazing that this is done for aircraft maintenance! If only more CEOs and CFOs directly experienced the downside of their actions. My experience has been that employers have taken advantage of employee good will. Good, talented employees have taken on more responsibility without added pay and do most of the training for new employees. But, the mood is different now that the abuse has continued for so long. While not directly refusing the employer demands, saying no can cost you your job, the task is just done poorly.
He keeps paying union dues to preserve his shot at a pension, but that also means he can't get nonunion work as an electrician. He says he would like a desk job instead. He used email for the first time last month, and he plans to return to community college in the spring to learn computer skills.
Wait, I thought that people like Frank Walsh were supposed to wake up and realize their reliance on the quasi-nanny state of unions and pensions is what is really holding him back. Isn't he supposed to become an entrepreneur? It's almost as if the guy hasn't read Atlas Shrugged.
However, that trip back to community college sounds like a great plan. Lifelong skills developed in one area that are no longer "economically viable," a few classes in computer technology and boom, problem solved! Wonder who gave him such a great idea. Good luck getting rid of that student loan debt!
The trend seems to be "rewarding" the "creative people" in the "profit centers", while squeezing the turnips who are considered "overhead". This includes everyone who keeps the house of cards infrastructure in this country running
I find it interesting that the monkey in the video who is shortchanged with the cucumber reward throws the cucumber at the researcher on the second go. Also, shakes the cage a bit.
For some time I've been mystified by my fellow citizens reaction to the wealthy elite who have been steeling and lying to them for years. There is a form of respect and reverence that is always extended to them that I just don't get. At the very least, looting elites should be shunned by working class people. Respect is a two way street, and the wealthy do not respect working class people at all. Why should our limited resources and energy be extended to them- in any form. Being forced into an exploitive situation is one thing, willful participation is another.
The larger issue is that the current economic system is rewarding corruption at the cost of long term stability of both businesses and society as a whole. Rebuilding that system from the bottom up based on fairness is the only way to go. When more people turn off their TVs, embrace their poverty with dignity, and dedicate themselves to helping and creatively working with others, maybe there is a chance for a future.
The new frontier is turning ones back, once and for all on the elite worldview of greed and corruption.
Not taking crappy jobs is good thing if you are doing so to rebuild your life in a more dignified manner. Honest employers can hire workers at living wages. Not buying products or services from corporations working on the model of slave labor would send a strong message. Power of the boycott.Like banks that are too big to fail, jail or hang, businesses that should have failed for not supplying jobs with a living wage are being supported to viable status by handouts from the government directly to the CEO's or to their workers so the workers can continue to work at less than livable wages and the CEO's can claim higher and higher bonuses. This corporate welfare state is crapifying everything and people should be horrified – but they're not. We're surrounded by zombies, zombie banks, zombie corporations of nearly every ilk and, like a mad scientist, a government that insists on keeping them alive through direct transfusions from every American citizen – this is the zombie apocalypse.
"DIE QUICKLY!" The Democratic answer to suppressed wages, industrial decline and a stagnant labor market. Older white working class people offing themselves with pills and alcohol – what's not to like? That counts as an all-upside no-downside policy for Blue Team.
Great post. Thank you.
Reading this and yesterday's post on declining life expectancy I wonder who in the EU thinks it a good idea to join the TTIP ? Serious question. If EU countries think joining TTIP will be great because they'll get access to the supposedly rich US consumer market, these to posts ought to wake them up to the fact that the US consumer market has been hollowed out to nothing by neoliberal policies of both parties.
What is has happened in the US would shock even Dickens.
The Greek concept of themis is in play here. As social order and fairness falls by the wayside, increasing numbers recognize that playing by the rules is a fools errand. This is what drove Hercules berserk and we see it played out regularly now in mass murder events.
Classic reaction. Millenia old. Mass media promulgates the oligarchic narrative.
I went to the funeral of a 50-ish former co-worker about a year ago. Died of a "accidental drug overdose". Was demoted from his mid-tier management job for cost cutting reasons, then terminated by his new boss, for drinking. Was a licensed mechanic, but that work was demeaning/regressive, eventually fired from several jobs. Last job before he went to the halfway house was wearing a blue vest at Lowe's.
He always acted like manual work was below his station, I suspect his ego would not accept the fall from the rarified heights. There's no such thing as "second chances" anymore, if you are among the "wretched refuse"
|
|
|
www.voltairenet.org
The ego of Janet Yellen has broken into a thousand pieces. The new data published some days ago by the US Department of Labor confirms the hypothesis of the economist Ariel Noyola Rodríguez, who had maintained since last year that the United States' labour market was much more fragile than was presumed by the head of the Federal Reserve. If the situation of the North American economy continues to get worse it is probable that in coming weeks new measures will be taken to mitigate structural unemployment.
In her public discourses, the president of the Federal Reserve, Janet Yellen, has avoided the serious problems that the United States economy suffers. When in mid-September the Federal Open Market Committee (FOMC) took the decision to maintain the federal funds rate between zero and 0.25% the target of Yellen's worries was directed to China [1] and the debts of emerging economies [2].
In accord with the President of the Federal Reserve, the process of recovery of the North American economy has been strengthening for considerable time. And, because of this, if the FOMC has not raised the cost of credit is due, above all, to a high rate of "obligation" and "responsibility" with the rest of the world.
Nevertheless, the truth is that the United States economy is not exactly in good health. The labour market data published during the 12 months before March of 2015 is not as robust as was presumed by the Federal Reserve: the Department of Labor recognized recently that it had overestimated the jobs created by the private sector by at least 255,000 [3].
On the other hand, during the month of September the non-agricultural employment reached 143,000, much less than the 200,000 hoped for [4]. The greatest reversals were in sectors tied to external trade and energy. The rise of the dollar, and the fall in prices of commodities and the extreme weakness of global demand with the rest of the world precipitated the structural deterioration of the US economy.
The bad news does not end here: the numbers of the jobs generated in July and August were also lower [5]. Now we know that in August only 136,000 jobs were created, rather than the 176,000 originally reported: while in the month of July there were created 21,000 fewer jobs than those counted in the previous revision.
Hence with the data actualized by the Department of Labor, in the United States there were registered an average of 167,000 new jobs between July and September, an amount that represents less than 65% of the 260,000 (average per month) that were created during the previous year.
The policies of the Federal Reserve are not capable of increasing the economy by their own efforts [6]. Yellen bet everything on a reduction of the unemployed, hence businesses would be pressured to increase wages, so that the acquisitive power of families and price levels would increase (inflation).
This has not happened. While the rate of unemployment fell from 5.7 to 5.1% between January and September of this year, hourly wages hardly increased 2.2% in annual terms the past month, still far from the levels reached before the crisis, when increases above 4% were noted. Inflation has not succeeded in passing 2% in more than 3 years, the objective of the US central bank [7].
Hence it is now clear that the fall of the unemployment rates in recent months depends more on the reduction of the rate of participation in the labour market - as a consequence of the despair of thousands of US citizens - and less on the creation of quality long range jobs: on Friday October 2 it was announced that in September 350,000 persons abandoned the search for work [8]. There is no turning around, in the United States job growth has been submerged in stagnation.
|
|
|
www.nakedcapitalism.com
Level since 2010, Even Share Buybacks Don't Work Anymore
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.
Financial Engineering bites back
When IBM announced earnings last week, it talked about all the great things it was accomplishing to compensate for the fact that revenues had plunged 14% from a year ago to $19.28 billion, and that even "revenues from continuing operations," after accounting for operations it had shed, dropped 1%. It was the 14th quarterly revenue decline in a row. Three-and-a-half years!
It's not the only American tech company with declining revenues. There are a whole slew of them, mired in the great American revenue recession, including Microsoft, whose revenues plunged 12%. So they – big tech – are in this together.
But turns out, IBM's revenues, as bad as they have been, might have been subject a little more financial engineering than normally allowed.
Today, IBM disclosed that the Securities and Exchange Commission is investigating how it has accounted for these lousy revenues. The one-sentence disclosure was tucked away in a footnote on page 45 of its SEC Form 10-Q, which it filed today:
In August 2015, IBM learned that the SEC is conducting an investigation relating to revenue recognition with respect to the accounting treatment of certain transactions in the U.S., U.K. and Ireland. The company is cooperating with the SEC in this matter.
"A company spokesperson wasn't immediately available to elaborate on the probe," according to the Wall Street Journal.
As I'm writing this, IBM is down 4% to $138, a new 52-week low:
Chris in Paris October 28, 2015 at 3:23 amClive October 28, 2015 at 4:41 amThey've been up to the same behavior (the stock buybacks) for 15 years. Gutting the internal employee knowledge base, especially accounting teams, which were impeccable in the past, made a mistake inevitable. Sad.
sam s smith October 28, 2015 at 12:57 pmIt isn't the first software company to have been tempted by the siren call of financial engineering in an attempt to solve a revenue decline problem and I don't suppose for one singe second it will turn out to be the last. There's one biggie already which is well known for its, ah-hem, "aggressive" culture which already seems particularly stinky to me.
As Chris in Paris rightly notes above, if you prod the zombie a little and analysed the reasons why revenue has declined, the reason is that what has now reinvented itself as a Professional Services enterprise lacks the skills and competencies which are essential to actually deliver - IBM is neither professional (amateurish is more like it) nor does it provide much of a service (unless you think the ability to gibber inanely in a heavy and largely incomprehensible Asian/Indian/East European accent is the same thing as providing a service).
Even the stupidest of corporate CIOs (and they are pretty stupid, as a whole, it's only taken them about 10 years to have spotted this decline) eventually realises that people get fired all the time for buying IBM because of the, well, general crapness.
This isn't even the first time IBM has done something like this.
Back in the late 80's, IBM leased the majority of its mainframes. Someone came up with the bright idea of converting those leases to sales. Income jumped and bonuses were paid for the next 5 years. At that time, there were no more leases to convert and sales plummeted.
Jim Haygood October 28, 2015 at 6:55 am
cnchal October 28, 2015 at 8:20 am'Instead of blowing tens of billions of dollars on stock buybacks … IBM should have invested those funds in actual engineering and in people, which might have helped it become great again.'
Stock buybacks aren't necessarily bad. Whether IBM should invest in growth depends on its investment opportunities.
If (as it appears) IBM is basically in long-term liquidation (a la Xerox) as its 20th century mainframe technology fades from the scene, then stock buybacks are a more tax efficient way than dividends to return capital to the shareholders, until it's all gone.
cdub October 28, 2015 at 8:45 am. . . then stock buybacks are a more tax efficient way than dividends to return capital to the shareholders, until it's all gone.
Would it be more or less tax efficient if IBM just gave up the ghost, and had a fire sale auction of it's assets instead of waiting till it's all gone?
Jim Haygood October 28, 2015 at 8:46 amBut no management team has ever elected to go that course. If just the Board would take action. Snap, back to reality.
cnchal October 28, 2015 at 9:37 amIt's still a $140 billion company in market cap, so the number of potential buyers is limited.
IBM's corporate culture would be a good fit with Microsoft, I reckon.
Jim Haygood October 28, 2015 at 10:24 amI was thinking more along the lines of say having Ritchie Bros Auctioneers come in and sell the physical assets. There must be some interesting machine tools that IBM is misusing that would be more "productive" in someone else's hands, no?
The service side of the business could be sold off piece by piece. IBM looks like the individual parts are worth more than the whole.
I completely discount the $140 billion market cap as a pure Fed enabled fiction.
This just in -
IBM Corp. on Wednesday confirmed the purchase of The Weather Company, which includes the Weather Channel and its related technology platforms and sensors, to enhance its cloud ecosystem.
IBM said the purchase adds to the $3 billion investment IBM committed earlier this year to build out products and services in the Internet of Things.
It's all too likely that a simple semantic error - confusing white puffy clouds with high-tech electronic ones - has led to a tragic misallocation of capital.
Arizona Slim October 28, 2015 at 11:49 am
Jason October 28, 2015 at 4:38 pmIBM buying The Weather Company reminds me of AOL and Time Warner merging. Can't put my finger on why, but …
Once again, life imitates The Onion imitating life…
http://www.theonion.com/video/hp-offers-that-cloud-thing-everyone-is-talking-abo-28789
sam s smith October 28, 2015 at 12:54 pm
Tata or Wipro would be a better suitor. IBM already has a large number of its employees outside the US.
MikeNY October 28, 2015 at 10:33 am
Lil'D October 28, 2015 at 11:27 amI remember an academic paper from some years ago demonstrating a negative correlation between share buy-backs and future stock prices. The obvious explanation is that such financial engineering is attractive to management only when all other options (organic growth, attractive acquisitions) have either been tried, and/or are unappealing. In other words, it's usually sick companies that resort to it.
MikeNY October 28, 2015 at 11:39 amAlthough the empirical evidence actually show that shares of companies with share buybacks have price return greater than that of the general market. Basis behind TTFS and PKW ETFs. Trim Tabs (which really sounds like a diet pill company) keeps track of float. Of course share price increasing is not the same thing as company value increasing
Well, it probably depends on the time frame and the cohort. If I can dig up that old study I'll post it.
Jim Haygood October 28, 2015 at 1:04 pm
MLS October 28, 2015 at 1:36 pmFrom Bloomberg:
The S&P 500 Buyback Index is up 7.5 percent this year through Oct. 3 compared with the 6.5 percent advance in the S&P 500, after beating it by an average of 9.5 percentage points every year since 2009.
Buybacks increase leverage. It's not surprising that companies shrinking their equity base (often while simultaneously enlarging their debt) outperform in a bull market.
Presumably these same companies will get smashed harder when we finally (like Thelma and Louise) drive off the edge of the Permanently High Plateau.
And the index:
http://us.spindices.com/indices/strategy/sp-500-buyback-index
As S&P points out, there's an ETF for that. Two of em, in fact.
MikeNY October 28, 2015 at 5:19 pmBuybacks increase leverage. It's not surprising that companies shrinking their equity base (often while simultaneously enlarging their debt) outperform in a bull market.
Presumably these same companies will get smashed harder when we finally (like Thelma and Louise) drive off the edge of the Permanently High Plateau.
Correct. Buybacks increase the risk of the equity by changing the capital structure. They are helpful to a certain extent to eliminate the dilutive effect of employee stock options, but beyond that they add no long-term value of the company.
Yes, I agree with you on the effect of shrinking the equity base. It increases equity vol.
participant-observer-observed October 28, 2015 at 12:52 pm
Arizona Slim October 28, 2015 at 12:53 pmEspecially if you are going to live happily ever after on the MIC boondoggle:
Drones, IBM, and the Big Data of Death
IBM could also return to selling CD ROMs of installable SPSS instead of looking for subscription junkies.
I'm typing this comment on a pre-Lenovo IBM ThinkPad. And I'm remembering the days when IBM actually made things that were good to own. Y'know, like this laptop.
participant-observer-observed October 28, 2015 at 12:55 pm
They seem to be in the banality of evil business, keeping the homeland in freedom, etc etc, when not supplying social scientists with data analysis software:
Chauncey Gardiner October 28, 2015 at 12:22 pm
MLS October 28, 2015 at 1:34 pmConsidering the numbahs, Wolf Richter is much too charitable in this piece IMO. Where are the debt rating agencies?… back in the same bars they hung out in back in the day? And does the SEC have authority to investigate beyond accounting treatment of matters like revenue recognition? IBM is far from the only major corporation where this behavior, which also serves to maximize gains under executive stock options, has been occurring.
Negative $19 billion tangible net worth and very high debt leverage after massive stock repurchases and high dividend payouts over a period of years. Wonder what will happen if interest rates ever rise?
… Oh, but Look!!… The stock is up this morning! "The Market" has spoken. All is well, people!… Move along.
Howard Beale IV October 28, 2015 at 8:04 pmI'm a little confused – on one hand the author is saying that IBM has been "pulling a bag over investor's heads" by tricking them with faulty per-share metrics. One the other hand there's a chart of IBM that shows that the stock is flat since the end of 2010 – a period where the broad market is up over 60%. There was certainly a period where IBM did well in that time, but that was largely on the expectation that they were actually turning the business around and taking steps to, you know, try and grow the thing. When that failed to materialize, the stock rolled over.
I don't disagree with the author that financial engineering in general is hardly the panacea Wall Street makes it out to be, but I think investors as a group deserve more credit for figuring out what's really going on.
Some of the smaller iSeries shops are more at risk of getting converted over to more modern systems as well as some of the smaller zSeries boxes-but the bigger the systems the higher the risk and cost to do so-IBM released the z13 family earlier this year and got billions in orders and sales. They're still the backbone of just about every major financial corporation in the world (we just got done upgrading all of our boxes last month.)
The real problem is that colleges and universities stopped teaching mainframe technology two decades ago-so now we have to do the education ourselves
|
|
|
JAN. 25, 2015 | The New York Times
The middle class that President Obama identified in his State of the Union speech last week as the foundation of the American economy has been shrinking for almost half a century.
In the late 1960s, more than half of the households in the United States were squarely in the middle, earning, in today's dollars, $35,000 to $100,000 a year. Few people noticed or cared as the size of that group began to fall, because the shift was primarily caused by more Americans climbing the economic ladder into upper-income brackets.
But since 2000, the middle-class share of households has continued to narrow, the main reason being that more people have fallen to the bottom. At the same time, fewer of those in this group fit the traditional image of a married couple with children at home, a gap increasingly filled by the elderly.
This social upheaval helps explain why the president focused on reviving the middle class, offering a raft of proposals squarely aimed at concerns like paying for a college education, taking parental leave, affording child care and buying a home.
"Middle-class economics means helping working families feel more secure in a world of constant change," Mr. Obama told Congress and the public on Tuesday.
Still, regardless of their income, most Americans identify as middle class. The term itself is so amorphous that politicians often cite the group in introducing proposals to engender wide appeal.
The definition here starts at $35,000 - which is about 50 percent higher than the official poverty level for a family of four - and ends at the six-figure mark. Although many Americans in households making more than $100,000 consider themselves middle class, particularly those living in expensive regions like the Northeast and Pacific Coast, they have substantially more money than most people.
"I would consider middle class to be people who can live comfortably on what they earn, can pay their bills, can set aside something to save for retirement and for kids in college and can have vacations and entertainment," said Christine L. Owens, executive director of the National Employment Law Project, a left-leaning research and advocacy group.
... ... ...
In recent years, the fastest-growing component of the new middle class has been households headed by people 65 and older. Today's seniors have better retirement benefits than previous generations. Also, older Americans are increasingly working past traditional retirement age. More than eight million, or 19 percent, were in the labor force in 2013, nearly twice as many as in 2000.
As a result, while median household income, on average, has fallen 9 percent since the turn of the century, it has jumped 14 percent among households headed by older adults.
|
|
|
Jul 26, 2013 | The New York Times
For those over 50 and unemployed, the statistics are grim. While unemployment rates for Americans nearing retirement are lower than for young people who are recently out of school, once out of a job, older workers have a much harder time finding work. Over the last year, according to the Labor Department, the average duration of unemployment for older people was 53 weeks, compared with 19 weeks for teenagers.
There are numerous reasons - older workers have been hit both by the recession and globalization. They're more likely to have been laid off from industries that are downsizing, and since their salaries tend to be higher than those of younger workers, they're attractive targets if layoffs are needed.
Even as they do all the things they're told to do - network, improve those computer skills, find a new passion and turn it into a job - many struggle with the question of whether their working life as they once knew it is essentially over.
This is something professionals who work with and research the older unemployed say needs to be addressed better than it is now. Helping people figure out how to cope with a future that may not include work, while at the same time encouraging them in their job searches, is a difficult balance, said Nadya Fouad, a professor of educational psychology at the University of Wisconsin-Milwaukee.
... ... ...
Sometimes simply changing the way you look at your situation can help. My friend Shelley's husband, Neal, who also asked that I use his middle name, said the best advice he received from a friend was "don't tell people you're unemployed. Tell them you're semiretired. It changed my self-identity. I still look for jobs, but I feel better about myself."
He also has friends facing the same issues, who understand his situation. Such support groups, whether formal or informal, are very helpful, said Jane Goodman, past president of the American Counseling Association and professor emerita of counseling at Oakland University in Rochester, Mich.
"Legitimizing the fact that this stinks also helps," she said. "I find that when I say this, clients are so relieved. They thought I was going to say, 'buck up.' "
And even more, "they should know the problem is not with them but with a system that has treated them like a commodity that can be discarded," said David L. Blustein, a professor of counseling, developmental and educational psychology at the Lynch School of Education at Boston College, who works with the older unemployed in suburb of Boston. "I try to help clients get in touch with their anger about that. They shouldn't blame themselves."
Which, of course, is easy to say and hard to do. "I know not to take it personally," Neal said, "but sure, I wonder at times, what's wrong with me? Is there something I should be doing differently?"
It is too easy to sink into endless rumination, to wonder if he is somehow standing in his own way, like a cancer patient who is told that her attitude is her problem, he said.
Susan Sipprelle, producer of the Web site overfiftyandoutofwork.com and the documentary "Set for Life" about the older jobless, said she stopped posting articles like "Five Easy Steps to get a New Job." "People are so frustrated," she said. "They don't want to hear, 'Get a new wardrobe, get on LinkedIn.' "
As one commenter on the Facebook page for Over Fifty and Out of Work said, "I've been told to redo my résumé twice now. The first 'expert' tells me to do it one way, the next 'expert' tells me to put it back the way I had it."
Some do land a coveted position in their old fields or turn a hobby into a business. Neal, although he believes he'll never make as much money as in the past, recently has reason to be optimistic about some consulting jobs.
But the reality is that the problem of the older unemployed "was acute during the Great Recession, and is now chronic," Ms. Sipprelle said. "People's lives have been upended by the great forces of history in a way that's never happened before, and there's no other example for older workers to look at. Some can't recoup, though not through their own fault. They're the wrong age at the wrong time. It's cold comfort, but better than suggesting that if you just dye your hair, you'll get that job."
Flatlander, August 5, 2013Age discrimination is a sad reality today and always has been. It is also very difficult to prove in a legal action. From what I have heard,...
Jay, August 5, 2013
Ok, I took some knocks on this, one that I deserve. I really do feel badly for the guys that didn't make it. I was wrong on that one. Yes,...
Walter, August 5, 2013
This is a great article. I'm in this situation but worse. Trying to entice myself to nowadays corporations I went and enrolled in a MBA program and got myself into a $40K student loan debt. I had already paid my previous loans long time ago so I figure, if I update myself educational-wise and prove these people that my mind is still fresh and sharp at a high level that I could raise my chances.
Now, I am 56 and I still cant get a job. Taking a minimum wage position is out of the question for me since all my salary would actually go to pay my debt and I would not have money even for transportation back and forth to work.
What I find amazing is that employer are failing to understand that old folks like us would really appreciate the opportunity and work harder to try to excel than probably any of nowadays young kids, that, like the article mentioned, are more prone to leave the company to get promotions. I keep telling my friends that I would even sign a contract guaranteeing that I would work for them until the day I die or retire.
I like the idea presented by one of the readers here that the government should provide some kind of economic incentive in the way of lower taxation for businesses that hire people over 50. They do it for career criminals. Why not for qualified and educated/trained people.
This is totally age discrimination and it is a federal offense. However, I try that channel also and I got no response from the Labor Dept. I thank the NYT for bringing this up.
Jovality, Las Vegas, NV. August 5, 2013I'm 57 and have or had been employed in the high tech industry for over 25 years with never a period of more than two weeks unemployment until now. During that time I rose from a software developer to product manager, to VP of Sales and Marketing. I was laid off from that position at the end of 2012, but luckily I was able to reach out to an old colleague who was able to sneak me into a marketing position in his company at less than half my previous salary.
I was surprised by the younger people's reaction to me. They said things to me I had to take as compliments such as, "You're really cool for an older guy." "I would never expect someone your age would know so much or be so talented".
Unfortunately the company had a major layoff which I was caught in. Now I am like many of the others who have posted her, "A ghost with a resume". Since being laid off in June of 2013 I have sent out 100's of resumes with only a very limited response.
More and more I have to accept this is the "Third Act in Life" and working for a traditional company in a traditional job is no longer a reality. It's time to take the vast experience and talents I've built up or an entire career and use them to open my own business. It's a frighten challenge to be sure.
But as someone once told me there is only one real form of security in life, when life knocks you down you must have the drive and self-confidence to get up handle the situation and both survive and succeed.
Jon K. Polis, East Greenwich, Rhode Island August 3, 2013
Bohemienne: In answer to your question; look up the movie " Soylent Green " from 1973, that starred Charlton Heston and Edward G. Robinson....and see what fate be-fell Mr. Robinson's character....if our government today offered me the same options/opportunities to me that they offered to him; I would take advantage of them in a heartbeat...
Glenn, Cary, NC July 31, 2013
"People's lives have been upended by the great forces of history...."
Nonsense. People's lives have been upended by soulless capitalists and their lackeys in Congress (read Republicans). There are no great forces of history at work here, just good, old-fashioned GREED.
Rhea Goldman, Sylmar, CA July 31, 2013
I find it strange, very strange indeed, that all of us have so easily accepted our plight of hardship. Have we been so cowed that collectively we take no action to put a stop to this harsh treatment from employers? Re-read Dickens' Christmas Carol.....we are allowing the economics of the United States to make Bob Cratchets of us all.
J. Campbell, Chicago, IL July 31, 2013
I'm amazed that an article from the NYT (to which I subscribe) actually suggests that people in their 50's who are unemployed can somehow just "accept that they may *never* work again". How could we live? What legal source of income could we obtain that would bridge us to Social Security (even for those of us eventually eligible for SS retirement)? What are the people responsible for this article (including the NYT editors who released it) thinking? What if someone suggested that *they* accept a future where they never worked again, and had no income?
If there were several major American riots, that involved hundreds of thousands of unemployed people (a fraction of the millions of current long-term unemployed in the US), the NYT would be out front in demanding that order be restored *at any cost*. Where is the mainstream press demand that *economic stability for the working class* be restored at any cost?
Or do you think, because of our current corporate/NSA state, such riots are impossible? If so, look at Europe--right now.
Sam, Florida July 31, 2013
My husband was just laid off due to company merger. His entire department was eliminated. The only good news, is that we've been expecting the lay off for about a year or so, as such we had time to prepare. We also, have worked very hard to get our finances in order since we got married. We killed all our unsecured debt in 2007, $55,000+, and we have saved a good chunk every year since then. I'm still working on our lay off budget, but I hope that we will be able to cover our regular monthly expenses on my salary.
Glenn, Cary, NC August 3, 2013
Been there. Done that. It didn't work. The money disappeared - slowly but surely. Without real income, you eventually become another victim of our perverse, experience-averse corporate economy.
MJ, New York City August 5, 2013
Actually, it is possible to live on one salary. Best way is to start early on in the marriage, keeping your first home rather than moving "up." Even if you have moved "up" it is possible and no shame at all to move "down." It is a brave journey and takes real guts, but in many cases it can be done.
Sam, Florida July 31, 2013
In addition to the costs to the individual and the families, their is a cost to society. Obviously there is a cost to support many of these people in their later years, but there is also an uncalculated cost to workers in their peak earning years, the height of their careers falling out of the job market.
There is a cost to society to lose this knowledge, to losing their mentoring and training skills for the next generation, to losing their consumer spending power, etc.
Melanie Dukas, Saugus, mass July 31, 2013
I am 59 years old, and I lost my job during the high tech bust in 2002 as marketing communications manager at a fiber optic start-up. In Massachusetts, this was for many of us worse than the Great Recession. At the height of my career at 48 years old, I was determined to get a job and interviewed for 5 years. I drove a taxi and limo 6 days a week, but still couldn't make ends meet, so I moved in with my parents 5 years ago and started my own business developing websites and marketing. I just couldn't take interviewing anymore! It was like heartbreaking, kind of like dating - I would go on the interview and get so excited and they never called.
It's been a long road, but at I am happy to be working in my field and making a living. Luckily, I had done this before and although I would have preferred to work at a company full time, at my age in marketing the jobs are few are far between and I need to work for the rest of my life because I have no retirement. Even if I get a job, it is unlikely to last and then I would be back in the same boat. Now I am in.
Henry, New York July 31, 2013
I think people must understand that the nature of WORK is changing. - In the past you worked from 9-5 for a Company and as long you performed adequately you continued on your Job...
Well, welcome to the New Economy ...
Companies can no longer afford to Hire all the people they need "full time" people. The cost is becoming prohibitive, especially if you add on the benefits costs ( avg. est. 30 % above salary).
In the future, I believe most people will become Independent Contractors and/or work on a Part-time basis - to be utilized when needed and working Jobs or "Gigs" for many different employers- with periods of " downtime."
This type of flexible Work will, soon become the mainstay. Therefore the "grayling" workforce must adapt and think and plan accordingly. - In fact, there are many Employment Firms or " Headhunters" who are already adapting this model. - and as the Baby Boomers retire en masse, they will be looking for people since, in my opinion, there will not be enough "younger" to fill all the jobs needed.
Splenetix, Muskegon August 3, 2013
The conversion of full-time workers into freelancers is an exploitation of capitalism, forcing you to waste your time self-marketing and administering. You won't have any of the scales of economy that larger businesses enjoy so you won't be competitive.You won't succeed, you won't be able to manage and get the work done. It's all about worker repression.
|
|
|
Feb. 26, 2013 | money.cnn.com
On one hand, they're too young to retire. They may also be too old to get re-hired.Call them the "new unemployables," say researchers at Boston College.
Older workers were less likely to lose their jobs during the recession, but those who were laid off are facing far tougher conditions than their younger colleagues. Workers in their fifties are about 20% less likely than workers ages 25 to 34 to become re-employed, according to an Urban Institute study published last year.
"Once you leave the job market, trying to get back in it is a monster," said Mary Matthews, 57, who has teetered between bouts of unemployment and short temp jobs for the last five years. She applies for jobs every week, but most of the time, her applications hit a brick wall.
Employers rarely get back to her, and when they do she's often told she is "overqualified" for the position. Sometimes she wonders: Is that just a euphemism for too old?
Her resume shows she has more than 30 years of experience working as a teacher, librarian, academic administrator and fundraiser for non-profits.
"I've thought about taking 10 years off my resume," she said. "It's not like we're senile. The average age of Congress is something like 57. Joe Biden is 70. Ronald Reagan was in his 70s when he was president. So what's the problem?"
... ... ...
About 23,000 age discrimination complaints were filed with the Equal Employment Opportunity Commission in fiscal 2012, 20% more than in 2007.
Proving discrimination is next to impossible, though, unless it's blatant.
"It's very difficult to prove hiring discrimination, because unless somebody says, 'you're too old for this job,' you don't know why you weren't hired," said Michael Harper, a law professor at Boston University.
Related: Am I too old to be hired?
EconomistNC, May 5, 2015
As a former public servant teaching University Level Econometrics for nearly 15 years and possessing numerous 'Excellence' awards, this development is nothing short of shameful. I have had dozens of recruiters and HR 'specialists' debase my public service as not being 'Real World' experience despite the fact that without my commitment to 'Real World Applications' education, many of those with whom I apply for employment would not hold a college degree. Indeed, I find many of the hiring managers with whom I speak regarding positions for which I have both technical and applications experience, there is impenetrable discrimination once they meet me in person.
The point made in several articles of this nature revolve around lack of knowledge and experience with newer technologies. In an effort to address this issue, I went back to school (again) to obtain expertise in IT Networking and Security, PMP Path Project Management and ITIL. Now I am being told that my education is of no value since I do not have the requisite 'Real World' experience using these newly acquired skills.
Indeed, to meet the criteria for many positions I find open requires that I be a 'recent college graduate.' When I point out that I have been continually retraining and taking online courses to keep my IT skills current, I am once again met with the lack of 'Real World' experience requirement. For a society that purports itself to value education and hard work, for those among us that have worked very hard for substandard pay and benefits to be so casually cast aside is absolutely inexcusable.
Paul Stukin, Apr 24, 2015
This is nothing new, especially if you are in IT. I was laid off from IBM in August 2001, then 9/11, and the bottom fell out of the jobs market. I have not worked in IT since. I truncated my resume to show the last 10 years of "relevant" experience and then got interviews, but never the job.
DJM22, Apr 24, 2015
@Richard Thwaites
Where does this group turn; what is this demographic to do. For instance in my case based on the type of work I've done for a lifetime I've been laid off a total of 5 times. The monies you've had saved during these periods had to be used for survival and take care of family. No it wasn't wasted.
But now boomers are going into that area where as they are tooyoung to retire in order to just obtain social security. And then this won't be a whole bunch.
Are we suppose to give up everything we've worked for and live a less than mediocre livelihood? That's a good 10/15 years away. Then they will say next how the boomers are becoming more of a problem and mooching in order to survive. I'm not suggesting hand outs, but if ageism is going to be the problem for boomers then boomers need to press somewhere, someone, something so we don't end up with problems that will become even more major problems. What a way to end your career and what a legacy to leave your children.
Look at all the characters in our government. None of them worked, simply kept chairs warmed and signed papers they were told to sign and as stated they're up in their 70's + and have enough money to aid their next 10 generations and the normal joe can't even complete his generation.
|
|
|
May 15, 2013 | MarketWatch.com
When the most recent employment report was released, PBS NewsHour presented a segment on a group of people over 50 who had been out of work. The participants said that employers had little interest in even talking to them. Sometimes, when applying for jobs, these older applicants deleted up to 15 years of experience from their resumes to get through the door, but as soon as the interviewers saw how old the applicants were, their faces dropped and they cut the interview short.
... ... ...
Add to this mix the results of a recent study that explored the relationship between the number of weeks of unemployment and the likelihood of receiving a callback after submitting an application. The researchers submitted fictitious resumes to real online job postings in each of the largest U.S. metropolitan areas. They sent roughly 12,000 resumes to roughly 3,000 job postings in sales, customer service, administrative support and clerical job categories. They tried to make their fictitious resumes look as close as possible to real resumes posted on job boards. In some cases, the resumes showed the applicant as currently employed, in other cases as unemployed for spells of between one and 36 months. They found that the callback rate sharply declined during the first eight months of unemployment – from 7% to 4% – and then stabilized. This 45% decline compares to the results of another study where black-sounding names received 33% fewer callbacks than white-sounding names.
... ... ...
The problem is that when the stigma of being unemployed is added to the stigma of being old, the chance of getting a job becomes very, very small. This outcome is not only unfair, but also wasteful from a national perspective as a substantial amount of experience and talent goes unused. Extended periods of unemployment also destroy the lives of the individuals affected. They use up their savings, they tap their 401(k)s, they sell their homes, and then they are left with nothing. And the number of older unemployed workers is large. As of 2012, almost 2 million people over 50 had been unemployed for more than six months; 1.3 million for a year or more. We need a jobs corps for these individuals and we need it fast.
Robert E. Pin, May 15, 2013
I applied for one of the numerous jobs online and they asked point blank - what year did you graduate HS? OMG! It was a required field so it was either lie, or put 1979. I felt it was good Karma to say the truth.
So hard to prove age discrimination in this case but boy would I love to give them a piece of my mind.
Doc y, May 15, 2013
@Brady White What would it do to your karma if you told them you were a child prodigy and graduated at six years old? Also, for the math challenged, I often give my age as 28 years old, when counting in base 20.
Sort of like there are 10 types of people: Those who understand binary and those who don't.
Wayne MacNeil, May 15, 2013
Bravo Alicia. Finally someone who understands what is going on. Only the numbers are probably much higher. Age discrimination is supposed to be against the law. This needs to be enforced just as strongly as discrimination against women or religion. There is a crisis in unemployment for those over 50. Many of these people are the best educated and would be among the most capable workers in the country. Someone has to pave a path requiring companies to employ older capable workers. This is criminal and as mentioned by the author is destroying people, families, retirements. People who have been productive for 30 years are losing everything. And younger workers dont seem to get it. If they dont stand up to this - their time is coming too.
People think they will need to work until they are 70 to pay their debts. The shock comes when the system wont let the majority work after they are about 50.
Rainier Rollo, May 15, 2013
Wayne -- I once asked a friend in her late 50s who was lamenting her long term unemployment how many people over the age of 40 she hired when she was in a position to hire --- the answer was ZERO. So don't just say that today's young people are afflicted with this way of looking at people. Most of those now unemployed 50+ in poisitons of hiring also passed over older candidates.
Lois Land, May 15, 2013
In that PBS segment, it was amazing to watch that university woman (clearly over 60) talk about how people become less productive after the age of 40.
Then doesn't she owe it to the university to resign/retire? Or does she think she's special/different?
I might be special/different too. I'm 64 and I've never been sharper or more productive.
Doc y, May 15, 2013
@Lois Land I hate to admit it, but something that has enhanced my productivity now that I am 50+ is I no longer have to leave work to attend kids' events, or take them to their appointments, etc. I miss my children very much, but they are grown and on their own. I loved doing stuff with them, and I made their activities my number one priority while they were growing up. Being laid off three years after the youngest left home was never in the financial plan, and like others on this site, employers have not been breaking my door down to come work for them.
The NC Employment Security agent told a bunch of us to try to conceal our age when interviewing. When asked if age discrimination wasn't against the law, he said very candidly it is, but there is no penalty for it in these times.
richard harris, May 15, 2013
The root cause of massive unemployment in the over 50 crowd is legal immigration. The 2010 census reported 40 million legal immigrants were residing in the US. These 40 million immigrants translate to about 24 million potential workers. The real unemployment level is 23 million people. Thus the real unemployment level of 23 million people is approximately equal to the work force inflation caused by legal immigration.
Thus the only hope for the over 50 chronically unemployed is to ban all further legal immigration.
|
|
|
Oct 02, 2015 | economistsview.typepad.com
Economist's View
Dean Baker:
Job Growth Weakens in September:... ... ...
The average hourly wage dropped slightly in September, bringing the annual rate of growth over the last three months compared with the prior three to 2.2 percent, the same as its rate over the last year. The drop in the hourly wage, combined with the fall in hours, led to a 0.3 percent drop in the average weekly wage.
... ... ...
On the whole this report suggests the labor market is considerably weaker than had been generally believed. The plunge in oil prices is taking a large toll on the formerly booming mining sector. In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011. The strong growth in government jobs is not likely to continue with budgets still tight. With GDP growth hovering near 2.0 percent, weaker job growth is to be expected, but it will make it much more difficult for the Federal Reserve Board to raise rates this year.
Mike Sparrow:
This looks like a adjustment to the ADP's 2015 mean more than anything else. That is the trouble with the birth/death model. It misses turning points and this mid-cycle correction started in January. Yet, they kept NFP elevated in many of the next 7 months outside March which was another mess(created by the weather that time). ADP was much more tamed and consistent.
The good news is, it looks like the global economy may have bottomed in September and China's move to more consumption balance is panning out a bit, which will help growth there. Though the multi-national boom is over as investment driven growth necessarily reduces in these countries. Monthly wages also accelerated.
anne said in reply to Mike Sparrow...
I think the ADPs are better than the NFPs, though on a wet field field hockey in tricky and who knows which school will win. Anyway, Go ADPs! I was a midfielder.
am said...
Correct take off by DB that this weak report makes rate rises this year difficult to justify. Chair Yellen identified weakness in the labour market in her last report. This latest monthly labour report shows that that weakness continues.
DB concentrates on the weak stats for the prime age groups of men and women and states that it is clearly not retirement related. If he has any analysis on older cohorts continuing in employment longer than normal and impacting on the 25-54 cohort employment rates then I would appreciate a link.
anne said in reply to am...http://data.bls.gov/pdq/querytool.jsp?survey=ln
January 4, 2015
Employment-Population Ratio, 2000-2015
2000 ( 81.5) *
2001 ( 80.2) Bush
2002 ( 78.8)
2003 ( 77.9)
2004 ( 78.1)2005 ( 78.5)
2006 ( 79.2)
2007 ( 79.5)
2008 ( 78.5)
2009 ( 74.5) Obama2010 ( 73.9)
2011 ( 73.8)
2012 ( 74.9)
2013 ( 75.2)
2014 ( 75.9)September
2015 ( 76.5)
* Employment age 25-34
am said in reply to anne...
Thanks again.
It is clear that there is a structural change in employment. It may also be partly demographic but it is more than that hence I say structural.
cm said in reply to JohnH...
You can only offshore jobs that can actually be performed offshore. Not to deny offshoring which has been rampant in tech and various industries where services/labor can be delivered over the internet, but the probably more significant factors overall have probably been automation and computer/IT enabled "self service" i.e. pushing work off to the customer/client or just cutting the service level - e.g. "self help" web FAQs instead of printed manuals and phone support, or phone support (offshore or not) who basically read from the same documents/scripts you can search on the internet for yourself.
cawley said in reply to JohnH...
While I want to be cautious in thinking that I speak for anyone else, I would guess most of the QE supporters on this blog fully recognize that there are other factors besides interest rate/fed policy.
In fact, I would hazard (tho I may be wrong) that most of them would have preferred stronger fiscal policy.
Maybe I'm just projecting my own view which is that fiscal policy would have been preferable. Unfortunately, it was not happening. Clearly the republicans weren't in the mood - at least as long as there was a non white muslim atheist socialist communist dictator from the other party in the House f/k/a White. To me, it doesn't seem like Obama had a sufficient appetite either - altho some argue that didn't matter.
That being the case, monetary policy was pretty much the only game in town. Is it a panacea? Hell no. Has it been enough to get the economy back to full employment? Obviously not. Is it possible there are/will be some pernicious unintended consequences? Maybe, but I would argue they are second order concerns compared to employment and probably manageable.
But I've got no reason to think that withholding QE would have resulted in better fiscal policy - or any other change that would have improved employment. And I tend to think that the counterfactual consistent with no QE and the same fiscal policy would have been even worse employment.
Peter K. said in reply to JohnH...
"Strong dollar, weak dollar. It doesn't seem to matter. "
You're just a nihilist. Facts and theory don't matter. Dean Baker:
"In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011."
New Deal democrat said in reply to pgl...
Fred C. Dobbs said...This downshifting in the employment numbers was foreseeable, and foreseen:
http://bonddad.blogspot.com/2015/10/told-you-so-weakening-job-growth-edition.html
It is party strong US$, partly oil patch collapse, and part pass-through from last year's stall in housing starts.
What the Terrible September Jobs Report Means for theFred C. Dobbs said in reply to Fred C. Dobbs...
Economy http://nyti.ms/1Vsx2rO via @UpshotNYT
NYT - Neil Irwin - Oct 2The September jobs numbers are easily the worst of 2015 so far. They offer an unpleasant combination of a bad overall headline, bad details and bad timing, amid a volatile and unsettling time in global markets.
The weak numbers offer some vindication for those Federal Reserve officials who preferred to hold off on interest rate increases last month to ensure the economy was on sound footing before tightening the money supply. They also give reason to worry that those wild market swings in August were less random fluctuations and more an indication that something deeper is wrong with the global economy - not so much that the stock market drop in August caused weak September jobs numbers, but that there is an underlying economic fragility causing both.
The question now is whether it means anything - whether the United States economic expansion, which seemed set to roar into 2015, is slowing in some meaningful way. We don't know that yet, and it would be a mistake to leap to that conclusion. But that possibility became quite a bit more plausible after the September numbers popped onto economists' computer screens.
As always, it is a useful exercise on jobs report Fridays to take a deep breath and remember that this is but one set of indicators, with a large margin of statistical error, that will be revised repeatedly. But the fact that the latest jobs numbers are consistent with another report, from the Institute of Supply Management, earlier this week that suggested United States manufacturing slowed to a standstill in September doesn't do anything to help an economy-watcher maintain that zen perspective.
The new numbers are poor on pretty much every level. American employers added a mere 142,000 jobs last month, far below the analyst forecast of 201,000 or the average over the last year of 229,000. Revisions pushed July and August numbers down substantially. The unemployment rate was unchanged at 5.1 percent.
This is usually the point in one of these stories where we would list the silver linings - the countervailing details that suggest it isn't as bad as all that. This report doesn't really offer any. Average weekly hours fell. Average hourly pay was unchanged. The number of people in the labor force fell by 350,000, and the number of people who reported having a job fell by 236,000.
We don't even have a major snowstorm or other weird weather event to blame, nor a strike in a major industry, nor some outsize shift in the results from one category of employer that might suggest an aberration.
The most positive angle I could come up with, with credit to the anonymous Twitter user @modestproposal1, is the possibility that with the unemployment rate scraping relatively low numbers, we should expect the rate of job creation to slow simply because the pool of potential workers is dwindling.
That said, that theory doesn't match up with the stagnant hourly pay and data in the survey of households suggesting people may be leaving the work force. ...
modest proposal @modestproposal1
Remain cognizant that job growth may naturally slow as we approach full employment and will instead be interpreted as economy slowingThe pool of skilled/trained
workers dwindles; those who remain
are simply not worth hiring?
|
|
|
Sep 30, 2015 | Economist's View
Education is not the only cause of inequality, but it's part of the problem:
Are American schools making inequality worse?, American Educational Research Association: The answer appears to be yes. Schooling plays a surprisingly large role in short-changing the nation's most economically disadvantaged students of critical math skills, according to a study published today in Educational Researcher, a peer-reviewed journal of the American Educational Research Association.Anonymous -> Anonymous...Findings from the study indicate that unequal access to rigorous mathematics content is widening the gap in performance on a prominent international math literacy test between low- and high-income students, not only in the United States but in countries worldwide.
Using data from the 2012..., researchers from Michigan State University and OECD confirmed not only that low-income students are more likely to be exposed to weaker math content in schools, but also that a substantial share of the gap in math performance between economically advantaged and disadvantaged students is related to those curricular inequalities. ...
"Our findings support previous research by showing that affluent students are consistently provided with greater opportunity to learn more rigorous content, and that students who are exposed to higher-level math have a better ability to apply it to addressing real-world situations of contemporary adult life, such as calculating interest, discounts, and estimating the required amount of carpeting for a room," said Schmidt, a University Distinguished Professor of Statistics and Education at Michigan State University. "But now we know just how important content inequality is in contributing to performance gaps between privileged and underprivileged students."
In the United States, over one-third of the social class-related gap in student performance on the math literacy test was associated with unequal access to rigorous content. The other two-thirds was associated directly with students' family and community background. ...
"Because of differences in content exposure for low- and high-income students in this country, the rich are getting richer and the poor are getting poorer," said Schmidt. "The belief that schools are the great equalizer, helping students overcome the inequalities of poverty, is a myth."
Burroughs, a senior research associate at Michigan State University, noted that the findings have major implications for school officials, given that content exposure is far more subject to school policies than are broader socioeconomic conditions.
do you think schools in China/India have funding on the level you are implicitly arguing for? As Eva Maskovich is showing in NYC - it takes better teachers, not more money.pgl -> Anonymous...
I live in NYC
"According to Success Academy Charter Schools founder and President Eva Moskowitz".
Ah yes - the charter school crowd. As in Mayor Bloomberg's push for privatizing our public education system. They have a lot of really dishonest ads attacking our new mayor. So you are with these privatization freaks? Go figure!
Anonymous -> kthomas...I am an Asian immigrant who came to the US to pursue the American dream. My education allowed me to run circles around most students at the university. I ended up with triple major and a post grad degree. So, go ahead. call the rigorous schooling horrifying all you want. It is silly to raise kids in an ultra sheltered environment. The jobs are going to go where qualified highly productive people who want less money are. Then they will have to face reality anyway. We can sit here and argue about it all we want. The truth is that kids in Asia can do the job I started with sitting there better for a fraction of the cost here. And this is a job requiring advanced degrees.
Anonymous -> Anonymous...
And you can add Eastern Europe to Asia. The competition is going to degrade our standard of living as it has whether we like it or not.
DrDick -> Anonymous...Sorry, but this is pure BS. We are talking about the presence of AP, foreign language, and advanced math classes. Having new textbooks and enough textbooks for all students, class sizes, laboratory equipment for science classes, and building maintenance, among many other very significant differences.
https://edtrust.org/press_release/funding-gap-states-shortchange-poor-minority-students-of-education-dollars-2/
https://www.washingtonpost.com/news/local/wp/2015/03/12/in-23-states-richer-school-districts-get-more-local-funding-than-poorer-districts/
Anonymous -> DrDick...
yes. they spend on things that count. instead of hockey rinks and olympics standard gyms for toddlers.
DrDick -> Anonymous...
None of which are characteristic of public schools. Have you ever even visited reality? Charter schools suck up a much greater share of available public resources and further starve the schools serving the poor and minorities, as happened in Chicago. Unlike you, I believe in fact based decision making.
EMichael -> Tom aka Rusty...
few anecdotes
geez
" The new school year has been marred for many students all over the country by severe budget cuts, shuttered schools, and decimated staff. Philadelphia, where students went back to school Monday, is seeing some of the most extreme effects of these budget cuts.
Nine thousand students will attend 53 different schools today than they did last fall after 24 were closed down. Class sizes have ballooned in many schools, with parents reporting as many as 48 students in one classroom. Meanwhile, the district laid off 3,859 employees over the summer.
A new policy also eliminates guidance counselors from schools with fewer than 600 students, which is about 60 percent of Philadelphia schools. Now one counselor will be responsible for five or six schools at once. Arts and sports programs have also been sacrificed.
Philly's new barebones regime was implemented after Gov. Tom Corbett (R) and the Republican-dominated legislature cut $961 million from the basic education budget, or 12 percent overall. Federal stimulus funds cushioned schools from state cuts for a couple of years, but they are now dwindling.
The district is struggling to fill a $304 million deficit. In order to open schools on time, the state gave an extra $2 million in funding and the city borrowed $50 million. Corbett is also withholding a $45 million state grant until teachers unions agree to concessions of about $133 million in a new labor pact. The district plans to sell 31 shuttered school properties. "
http://thinkprogress.org/education/2013/09/09/2588691/philly-schools-budget-cuts/
pgl -> Anonymous...
I love how the Aussies do the terminology:
"All Australian private schools receive some commonwealth government funding. So they are technically all "Charter" schools although the term is not used in Australia."
Charter schools are precisely what Milton Friedman recommended. He has the integrity to call this privatization. Anonymous does not. Funded by taxpayers but these schools are for profit entities.
Anonymous - have the courage to admit your agenda next time.
ilsm -> pgl...
Charter schools are like privatized arsenals, all cost cutting, profit and no performance.
US privatized the arsenals starting after WW I when a lot of "qui tammers" got to send arms to the Brits.
How long before the charter industry complex has enough unwarranted influence to ruin education?
djb -> Anonymous...
the charter schools cherry pick the best students and they don't deal with problem kids
this I known, they do poorly especially in new York city
as pgl said it is the fact that schools are fund locally that is the problem
to use a favorite right wing phrase
public education is an "unfunded mandate"
it should be paid for by the federal government
then all the mostly right wing politician could use property tax for divide and conquer politics
and funding can go where it is needed
djb -> djb...
then all the mostly right wing politician could NO LONGER use property tax for divide and conquer politics
DrDick -> pgl...
I think this is the primary issue. The schools in my hometown of 30K, national headquarters for Phillips Petroleum with a major research facility at the time, were excellent and most students went to college. Elsewhere in Oklahoma, students from similar sized towns were barely literate when they graduated. The primary reliance on local funding guarantees perpetuation of inequalities and the failure of the poor. This is exacerbated in larger communities by differential funding and resources allocated to schools within the district. When I lived in Chicago, Lincoln Park High School, in an affluent neighborhood, had world class programs. Meanwhile, schools on the predominately black west side and south side were literally falling apart with peeling lead paint and asbestos insulation falling on the students (along with occasional pieces of the cielings).
|
|
|
Sep 25, 2015 | www.gatesnotes.com
October 13, 2014 | gatesnotes.com
A 700-page treatise on economics translated from French is not exactly a light summer read-even for someone with an admittedly high geek quotient. But this past July, I felt compelled to read Thomas Piketty's Capital in the Twenty-First Century after reading several reviews and hearing about it from friends.
I'm glad I did. I encourage you to read it too, or at least a good summary, like this one from The Economist. Piketty was nice enough to talk with me about his work on a Skype call last month. As I told him, I agree with his most important conclusions, and I hope his work will draw more smart people into the study of wealth and income inequality-because the more we understand about the causes and cures, the better. I also said I have concerns about some elements of his analysis, which I'll share below.
I very much agree with Piketty that:
- High levels of inequality are a problem-messing up economic incentives, tilting democracies in favor of powerful interests, and undercutting the ideal that all people are created equal.
- Capitalism does not self-correct toward greater equality-that is, excess wealth concentration can have a snowball effect if left unchecked.
- Governments can play a constructive role in offsetting the snowballing tendencies if and when they choose to do so.
To be clear, when I say that high levels of inequality are a problem, I don't want to imply that the world is getting worse. In fact, thanks to the rise of the middle class in countries like China, Mexico, Colombia, Brazil, and Thailand, the world as a whole is actually becoming more egalitarian, and that positive global trend is likely to continue.
But extreme inequality should not be ignored-or worse, celebrated as a sign that we have a high-performing economy and healthy society. Yes, some level of inequality is built in to capitalism. As Piketty argues, it is inherent to the system. The question is, what level of inequality is acceptable? And when does inequality start doing more harm than good? That's something we should have a public discussion about, and it's great that Piketty helped advance that discussion in such a serious way.
However, Piketty's book has some important flaws that I hope he and other economists will address in the coming years.
For all of Piketty's data on historical trends, he does not give a full picture of how wealth is created and how it decays. At the core of his book is a simple equation: r > g, where r stands for the average rate of return on capital and g stands for the rate of growth of the economy. The idea is that when the returns on capital outpace the returns on labor, over time the wealth gap will widen between people who have a lot of capital and those who rely on their labor. The equation is so central to Piketty's arguments that he says it represents "the fundamental force for divergence" and "sums up the overall logic of my conclusions."
Other economists have assembled large historical datasets and cast doubt on the value of r > g for understanding whether inequality will widen or narrow. I'm not an expert on that question. What I do know is that Piketty's r > g doesn't adequately differentiate among different kinds of capital with different social utility.
Imagine three types of wealthy people. One guy is putting his capital into building his business. Then there's a woman who's giving most of her wealth to charity. A third person is mostly consuming, spending a lot of money on things like a yacht and plane. While it's true that the wealth of all three people is contributing to inequality, I would argue that the first two are delivering more value to society than the third. I wish Piketty had made this distinction, because it has important policy implications, which I'll get to below.
More important, I believe Piketty's r > g analysis doesn't account for powerful forces that counteract the accumulation of wealth from one generation to the next. I fully agree that we don't want to live in an aristocratic society in which already-wealthy families get richer simply by sitting on their laurels and collecting what Piketty calls "rentier income"-that is, the returns people earn when they let others use their money, land, or other property. But I don't think America is anything close to that.
Take a look at the Forbes 400 list of the wealthiest Americans. About half the people on the list are entrepreneurs whose companies did very well (thanks to hard work as well as a lot of luck). Contrary to Piketty's rentier hypothesis, I don't see anyone on the list whose ancestors bought a great parcel of land in 1780 and have been accumulating family wealth by collecting rents ever since. In America, that old money is long gone - through instability, inflation, taxes, philanthropy, and spending.
You can see one wealth-decaying dynamic in the history of successful industries. In the early part of the 20th century, Henry Ford and a small number of other entrepreneurs did very well in the automobile industry. They owned a huge amount of the stock of car companies that achieved a scale advantage and massive profitability. These successful entrepreneurs were the outliers. Far more people - including many rentiers who invested their family wealth in the auto industry - saw their investments go bust in the period from 1910 to 1940, when the American auto industry shrank from 224 manufacturers down to 21. So instead of a transfer of wealth toward rentiers and other passive investors, you often get the opposite. I have seen the same phenomenon at work in technology and other fields.
Piketty is right that there are forces that can lead to snowballing wealth (including the fact that the children of wealthy people often get access to networks that can help them land internships, jobs, etc.). However, there are also forces that contribute to the decay of wealth, and Capital doesn't give enough weight to them.
I am also disappointed that Piketty focused heavily on data on wealth and income while neglecting consumption altogether. Consumption data represent the goods and services that people buy - including food, clothing, housing, education, and health - and can add a lot of depth to our understanding of how people actually live. Particularly in rich societies, the income lens really doesn't give you the sense of what needs to be fixed.
There are many reasons why income data, in particular, can be misleading. For example, a medical student with no income and lots of student loans would look in the official statistics like she's in a dire situation but may well have a very high income in the future. Or a more extreme example: Some very wealthy people who are not actively working show up below the poverty line in years when they don't sell any stock or receive other forms of income.
It's not that we should ignore the wealth and income data. But consumption data may be even more important for understanding human welfare. At a minimum, it shows a different-and generally rosier-picture from the one that Piketty paints. Ideally, I'd like to see studies that draw from wealth, income, and consumption data together.
Even if we don't have a perfect picture today, we certainly know enough about the challenges that we can take action.
Piketty's favorite solution is a progressive annual tax on capital, rather than income. He argues that this kind of tax "will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation."
I agree that taxation should shift away from taxing labor. It doesn't make any sense that labor in the United States is taxed so heavily relative to capital. It will make even less sense in the coming years, as robots and other forms of automation come to perform more and more of the skills that human laborers do today.
But rather than move to a progressive tax on capital, as Piketty would like, I think we'd be best off with a progressive tax on consumption. Think about the three wealthy people I described earlier: One investing in companies, one in philanthropy, and one in a lavish lifestyle. There's nothing wrong with the last guy, but I think he should pay more taxes than the others. As Piketty pointed out when we spoke, it's hard to measure consumption (for example, should political donations count?). But then, almost every tax system-including a wealth tax-has similar challenges.
Like Piketty, I'm also a big believer in the estate tax. Letting inheritors consume or allocate capital disproportionately simply based on the lottery of birth is not a smart or fair way to allocate resources. As Warren Buffett likes to say, that's like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics." I believe we should maintain the estate tax and invest the proceeds in education and research-the best way to strengthen our country for the future.
Philanthropy also can be an important part of the solution set. It's too bad that Piketty devotes so little space to it. A century and a quarter ago, Andrew Carnegie was a lonely voice encouraging his wealthy peers to give back substantial portions of their wealth. Today, a growing number of very wealthy people are pledging to do just that. Philanthropy done well not only produces direct benefits for society, it also reduces dynastic wealth. Melinda and I are strong believers that dynastic wealth is bad for both society and the children involved. We want our children to make their own way in the world. They'll have all sorts of advantages, but it will be up to them to create their lives and careers.
The debate over wealth and inequality has generated a lot of partisan heat. I don't have a magic solution for that. But I do know that, even with its flaws, Piketty's work contributes at least as much light as heat. And now I'm eager to see research that brings more light to this important topic.
|
|
|
Sep 09, 2015 | Economist's View
From the last of several points on disability claims from Teresa Tritch at the NY Times:Busting the Myths About Disability Fraud: ... Disability claims are not skyrocketing. Rather, the population most likely to go on disability, those aged 50 to 64, is growing. The potential disability population is also larger now than in the past because today's older women are more likely to have worked enough to qualify for disability than in earlier generations. In any event, demographic pressures have already begun to subside. Adjusted for demographic factors, the share of workers on disability has gone from slightly below 4 percent in 2000 to slightly above 4 percent in 2014.The solution to fraud in the disability system is not to make it more difficult to qualify for disability or to question the usefulness of the system itself. The United States already has stricter eligibility requirements and stingier benefits than in almost all other advanced economies, according to the Organization for Economic Cooperation and Development.The solution to fraud is to prevent and detect it. So what has Congress done? It has refused to give the Social Security Administration the money it needs to keep up with fraud detection and maintain customer service. Since 2010, the agency's resources have declined in real terms, even as claims have increased due to the aging of the population. ...likbez
This is a powerful neoliberal wedge issue. Divide and conquer strategy in action directed toward instilling hostility in middle class toward lower class people. Which I would say is very successful (as a part of larger -- "they are leaches living at our expense" company.) Which strategists like Karl "Turd Blossom" Rove very skillfully exploit in elections.
Such things also serve for an important purpose of decimation of union power, which is a key part of neoliberal strategy of domination.
See What's the Matter with Kansas? for details.
|
|
|
Sep 19, 2015 | Economist's View
Some preliminary results from a working paper by Alisdair Mckay and Ricardo Reis:
Optimal Automatic Stabilizers, by Alisdair McKay and Ricardo Reis: 1 Introduction How generous should the unemployment insurance system be? How progressive should the tax system be? These questions have been studied extensively and there are well-known trade-offs between social insurance and incentives. Typically these issues are explored in the context of a stationary economy. These policies, however, also serve as automatic stabilizers that alter the dynamics of the business cycle. The purpose of this paper is to ask how and when aggregate stabilization objectives call for, say, more generous unemployment benefits or a more progressive tax system than would be desirable in a stationary economy. ...We consider two classic automatic stabilizers: unemployment benefits and progressive taxation. Both of these policies have roles in redistributing income and in providing social insurance. Redistribution affects aggregate demand in our model because households differ in their marginal propensities to consume. Social insurance affects aggregate demand through precautionary savings decisions because markets are incomplete. In addition to unemployment insurance and progressive taxation, we also consider a fiscal rule that makes government spending respond automatically to the state of the economy.Our focus is on the manner in which the optimal fiscal structure of the economy is altered by aggregate stabilization concerns. Increasing the scope of the automatic stabilizers can lead to welfare gains if they raise equilibrium output when it would otherwise be inefficiently low and vice versa. Therefore, it is not stabilization per se that is the objective but rather eliminating inefficient fluctuations. An important aspect of the model specification is therefore the extent of inefficient business cycle fluctuations. Our model generates inefficient fluctuations because prices are sticky and monetary policy cannot fully eliminate the distortions. We show that in a reasonable calibration, more generous unemployment benefits and more progressive taxation are helpful in reducing these inefficiencies. Simply put, if unemployment is high when there is a negative output gap, a larger unemployment benefit will stimulate aggregate demand when it is inefficiently low thereby raising welfare. Similarly, if idiosyncratic risk is high when there is a negative output gap,1 providing social insurance through more progressive taxation will also increase welfare....
Posted by Mark Thoma on Saturday, September 19, 2015 at 12:23 AM in Academic Papers, Economics, Fiscal Policy, Social Insurance | Permalink Comments (15)
|
|
|
More on income stagnation and inequality:The typical male U.S. worker earned less in 2014 than in 1973: The median male worker who was employed year-round and full time earned less in 2014 than a similarly situated worker earned four decades ago. And those are the ones who had jobs. ...What about women? Well, they haven't closed the pay gap with men, but the inflation-adjusted earnings of the median female worker increased more than 30% between 1973 and 2014... But back to men. Why are wages for the typical male worker stagnating? ... I contacted Larry Katz, the Harvard University labor economist. He identified three factors to explain the stagnation of men's wages:
1. Although this is not the major factor, workers have been getting more of their compensation in benefits as opposed to the cash wages that the Census tallies. ...
2. Labor's share of national income has been declining since 2000 and capital's share has been rising. Labor's compensation (wages and benefits) has not been keeping pace with productivity growth. ...EPI's Josh Bivens and Larry Mishel argue, " This decoupling coincided with the passage of many policies that explicitly aimed to erode the bargaining power of low- and moderate-wage workers in the labor market."
3. The "most important factor," Mr. Katz says, is the rise in wage inequality, the gap between the earnings of the best-paid workers and the ones at the middle and the bottom that has been widening steadily since about 1980. Economists differ over how much of this is the result of globalization, technological change, changing social mores, and government policies, but there is no longer much dispute about the fact that inequality is increasing.
... It's not hard to understand why so many voters ... are drawn to candidates who acknowledge this reality, lambast incumbents for not doing more to address it, and style themselves as outsiders with fresh approaches to one of the nation's most alarming economic problems.
To me, it's interesting how much the explanation for inequality has shifted away from the "skill-biased technical change" and technological based arguments and towards "changing social mores, and government policies." Even so, I think these types of arguments -- those that explain the decline in bargaining power in wage negotiations -- have more explanatory power than many people acknowledge. But even if we acknowledge that we aren't sure about the degree to which inequality can be explained by market-based versus institutional structure arguments, what seems clear to me is that the market won't solve this problem by itself. There do not appear to be forces within capitalism that necessarily push us toward an equal distribution of income. Thus, there is no assurance that heeding calls for government to get out of the way would help to reduce inequality, and it could make it worse. To me, policies that increase the ability of workers to bargain for a fair share of what they produce holds the most promise for solving the inequality problem (in a way that avoids direct redistribution). How to actually accomplish this is a difficult problem, unions have less power in a world where the threat of moving production to another country is very real (or a region within the US where the laws are more favorable), but at the very least we ought to ensure that new legislation does not make the highly unequal wage bargaining problem any worse (see Scott Walker).
Posted by Mark Thoma on Friday, September 18, 2015 at 12:32 PM in Economics, Income Distribution | Permalink Comments (51)
|
|
|
The inflation-adjusted household income for half the US population is back at 1989 levels. Meanwhile the S&P500, which impacts the net worth of about 10% of the US population is six times higher than where it was in 1989. America has a problem.
|
|
|
Sep 16, 2015 | Asia Times
... ... ...While the US imported 45.62 million barrels of oil every month from Saudi Arabia in 2005, the figure dropped to as low as 25.42 million in January 2015. In June 2015, the import figure went slightly high again, reaching 32.32 million barrels of oil per month...
The US' overall production jumped by 1.2 million barrels per day in 2014, to 8.7 million barrels per day...
... ... ...
...For instance, the kingdom earned almost 1.05 trillion riyals in 2014. ...Saudi Arabia's budget deficit may rise this year to 20% of GDP, or $140 billion. Highly reduced oil revenues have already forced the Saudi authorities to issue two series of government bonds in a row this summer.
The Saudis were forced to tighten down to make up for the reserves they had used to the tune of $65 billion. These two series of bonds would help the Saudis earn $27 billion by year's. But this is far from adequately recovering their monetary loses.
... ... ...
Due to Saudi Arabia's direct and indirect involvement in various wars across the Middle East and beyond (funding right wing religious parties in Pakistan, for instance), it's defense spending is also reaching an all-time high. Saudi Arabia is now the world's largest importer of defense equipment. Its spending is expected to reach $9.8 billion in 2015.
... ... ...
Salman Rafi Sheikh is a freelance journalist and research analyst of international relations and Pakistan affairs. His area of interest is South and West Asian politics, the foreign policies of major powers, and Pakistani politics.
Lambert Strether, December 3, 2015 at 3:17 pm
jrs, December 3, 2015 at 5:40 pm
cwaltz, December 3, 2015 at 6:16 pm
Bob Haugen, December 3, 2015 at 8:06 pm
likbez, December 3, 2015 at 10:47 pm