We’ve embedded the slides from a presentation by economist Lance Taylor on the rise in inequality in the US and why it will be difficult to reverse. Taylor has done considerable work on the drivers of income inequality. He focuses, as some others have, on the way the implicit deal in the economy changed in the mid-1970s. Before, the benefits of productivity gains were split between workers and businesses. After that, they went increasingly to companies.
Several forces worked together to undercut labor. First was that the 1970 stagflation was widely attributed to the way worker formally and informally had their pay increased to reflect higher costs of living. This meant that inflation became self-reinforcing once it got going. Second was that the Keynesian economists (not to be confused with what Keynes actually wrote; American Keynesianism was neoclassical economics with Keynes treated as a special case; see ECONNED for details) who had devised the economic policies of the Kennedy and Johnson administrations were discredited for treating stagflation as theoretically impossible. That gave a big boost to the Chicago School of Economics, whose Milton Friedman had warned that the Johnson Administration needed to raise taxes to choke off inflationary tendencies (so too had Democratic party economist Walter Heller, but that didn’t seem to count). Third was that a far right wing effort, with John Birchers and the Koch Brothers as prominent members, coalesced to roll back New Deal reforms and move the values of the country to the right. Their campaign was codified in the 1971 Powell memo, written by Nixon Supreme Court justice Lewis Powell which set forth the vision for an open-ended campaign. Finally, an increasingly powerful faction in the Democratic party was unsympathetic to organized labor, seeing it as retrograde, and wanted the party to embrace young professionals and minorities as the wave of the future.
In an earlier analysis, Taylor debunked the idea that monopolies were the big culprit in the rise in inequality:
Output, employment, and income flows in the American economy fell apart over recent decades. Peter Temin of MIT and Servaas Storm of the Technical University of Delft point out that a “dual economy” emerged, signaled by divergence between “stagnant” and “dynamic” sectors in the structure of production, growing employment in stagnant industries, and rapidly rising inequality in the functional and size distributions of income. These imbalances affected the middle class and, much more strongly, poorer households at the bottom of the size distribution of income. Households in the top one percent and higher were insulated because they get most of their income from steadily rising profits, distributed to a significant extent through the financial system as bonuses, equity options, share buybacks, and capital gains….
In our new paper, Özlem Ömer and I break down 16 “industries” or producing sectors to look in more detail at these structural changes. Compared to the others, seven sectors—construction, education and health, other services, entertainment, accommodation and food, business services, and transportation and warehousing—have low levels of productivity. For all seven, it is easy to come up with examples of low-pay, dead-end jobs that they create.
Their growth rates of productivity and real wages lagged the rest. Their share of total employment rose from 47% in 1990 to 61% in 2016 while their share of wages went from 57% to 56% of the total. The big increase in employment relative to payments to labor demonstrates visible wage retardation. The real output share of the stagnant sectors fell from 48% to 41%. Despite their high employment and output, they generated only 30% of total profits at the beginning of the period and 23% at the end. Except for construction and transport, the shares of their own profits in output declined.
We estimate that households in the bottom 60% of the income distribution working in the stagnant zone have wage incomes 30% below those of their counterparts in dynamic sectors (though of course some high paying jobs exist in all sectors). Real wage growth between 1990 and 2016 in all sectors was less than two-thirds as fast as productivity growth.
Debate rages about whether the payment lag is due to business “monopoly” power pushing prices up against wages or suppression of wages resulting from labor’s failing bargaining power. Decreasing profit shares suggest that monopoly is not rampant in stagnating sectors. Among the dynamic sectors real estate rental and leasing accounts for a stable 30% of total profits. Property owners no doubt wield market power, but it does not appear to have strengthened over time. Manufacturing and information together account for a quarter of profits and wholesale and retail trade for another one-eighth. These large profits flow mostly to high income households, leading to rising income inequality as noted above.
Productivity increases may have gone along with monopoly power in parts of the dynamic sectors. Productivity growth did notaccelerate, however, suggesting that increased monopoly did not play a role. In the stagnant zone, higher employment for workers forced out of dynamic sectors provides a better explanation than monopoly for slow or negative productivity growth and the wage lag.
Taylor’s talk last week focused on the drivers of the rise in inequality, which came about via a rise in profit share of GDP, something we first noted in 2005 in a Conference Board Review article. That has enabled the top 1% to pull away from everyone else. Investment as a proportion of GDP has also dropped while consumption has increased.
The paper has more detail, but Taylor estimates it would take 40 years to reduce inequality to 1980 levels. He also warns that wealth concentration could increase from 40% held by the top 1% to 60%.
However, there have been other important levelers of the rich and poor. Wars and financial crises wipe out a lot of wealth. Perversely, disasters can help the surviving workers. An extreme case is that in the period after the Black Death, the reduction in the size of the population led to higher pay for laborers and craftsmen. And revolutions are designed to take from the rich or take out the rich.
But advocates of workers have failed to take up the task of determining what a reasonable level of profit is. We’ve mentioned before that in the early 2000s, Warren Buffett deemed a profit share of 6% to be unsustainably high. Yet for the past three years, the profit share has been nearly twice this high.
Oddly, the left and labor supporters have not engaged with the question of what a fair profit might be. Modern cultures have deeply internalized the idea that the result of market forces is somehow virtuous, when markets sit both in a legal system and in a set of societal norms that play a large role in what supply and demand looks like. For instance, most advanced economies make child labor illegal. Those rules, formal and informal, that we tend not to think about are some of the reasons that the idea that markets are “free” or virtuous or automagically self correcting is a bunch of hooey.
The dynamic of the labor movement has been for it to fight for standards like decent workplace hours and conditions, minimum wages, and later, for broader contracts that included seniority, pensions, grievances, and a host of other matters. Another way of thinking about the equation is to argue that a business is entitled to a fair level of profit and profits should not exceed that level at the expense of worker paid. But expecting businessmen to limit their incomes for the benefit of workers was a medieval idea, occasionally taken up by modern religious leaders like Pope Francis.
The closest response in economics was Classical economist’ antipathy for activities which were undeniably remunerative but bad for productive enterprise, such as usurious lending, which tended to go to wealthy gamblers. They also opposed rentierism and favored land taxes and opposed businessmen colluding to exploit workers and customers. In other words, the Classicals didn’t think profits were ever and always desirable, and thought some forms of profit-seeking needed to be restricted or prohibited.
The fact that CEOs are having to give lip service to the idea of more community-minded capitalism and billionaires are building panic rooms in case the revolution starts says they recognize some economic concessions might keep the rabble at bay. But with people like Jeff Bezos holding such powerful positions in Corporate America, I would not give self-reform much hope.
00 A_Great_Deformation_inequlity
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The Revolution can’t come soon enough!
Revolutions, like many other wars, tend to slip loose from the control of everyone, with very unpleasant results for all. I am afraid that we are going to have some sort of civil war soon because of the massive stupidity of the elites, but I do not welcome it even though I am a socialist. Hopefully it will be on the level of the American Revolution, and not the French Revolution and the Napoleonic Wars.
There is also the fact that the wealthy in various military-related industries and positions of government are also the ones that own all of the military capital like drones, armored vehicles and missiles and would probably not hesitate to use them on the populace. The “middle class” 10% would probably try and ally with the 1% hoping to get a better deal from them, only to find themselves stabbed in the back in the aftermath of the war, ala the Iron Heel by Jack London.
Sanctuary cities want to ignore federal law re. immigration.
Sanctuary counties want to ignore federal law re. gun control.
Yup, that’s a recipe for social harmony. just saying.
Why no mention of the tripling of oil prices and the end of the Vietnam war as contributors to stagflation?
The oil price increased costs across the board.
The end o the Vietnam war, including the “Vietnamization” started in about 1993 cut Government money creation.
1973?
Is Taylor saying there is no way monopolies can produce decreasing profit margins?
Has no monopoly gone BK?
Just had a professional engineer yesterday on oil and gas shale note that the industry subsidies to keep renewables off the table have expended over $275 billion to subsidize the pricing structure. Myself I also believe the wash on it is by military contracts overcharging millions to uncle sammy
As has been mentioned at NC before, historian Walter Scheidel did not find prior eras when lessening income equality occurred peacefully.
I find it noteworthy that Scheidel is an historian, not an economist or political science professor, so he is somewhat outside the normally viewed expert classes quoted in op-eds/media.
Scheidel sees violent transformations and demographic contractions as, historically, the only drivers to lessen inequality.
see http://tuvalu.santafe.edu/~bowles/Scheidel.pdf
From slide 9 of the above:
“Summary of the argument”
“Development tends to increase resource inequality (Agrarianism; Industrialism)”
“Violent shocks are the only factors capable of significantly reducing resource inequality (for a while)”
“Violence: Mass-mobilization wars, Transformative revolutions, State collapse”
“Demographic contraction: Pandemics”
“Other factors are exotic or ineffective (abolition of slavery, migration, financial crises)”
Sheidel has that financial crises CAN lessen inequality, at least temporarily.
In the USA, in 2008 crisis, the political class prevented this from happening as they “avoided a new great depression”
When one looks at the current political system and control of the media in the USA, it can be postulated that the small rays of hope (such as Bernie, AOC or liberal economists) may be tolerated by those in control because they offer some cheap palliative “hope” to the masses.
Yves closing comment ” I would not give self-reform much hope.” may be an excellent prediction.
I believe the extremely wealthy are looking to game the system, keeping the rabble at bay as inexpensively as possible, using the top 10% as buffers.
And I wait for the Democrats to blame Russia…
Arguably, the post WW2 income inequality drop in the US was peaceful in the sense that the American labour did not fight against American capital (well, at least not directly, anyways). Same goes for the post-robber baron era of late 19th/early 20th century to post WW1 boom. I do not count strikes and the lik (even the violent ones) e, because the measuring yard is say bolshevik revolution, rise of Hitler etc. I.e. a regime change (which the US and the UK avoided, along with arguably Sweden and Swiss).
I’ve been watching what’s happening in Europe, Scandinavia and the Baltic countries. Revolution is already in progress.
“You don’t need a weatherman to know which way the wind blows.”
. .. . .. — ….
What’s the idea?
Maximising profit.
Maximising profit requires minimising labour costs, i.e. wages.
That’s the downward pressure on wages.
What pushes wages up?
Labour shortages and collective action.
Let’s create an open globalised world adding 2 billion to the global workforce from China and India alone.
Let’s smash the unions.
What will happen?
Economists assume wages will rise with productivity.
http://www.industryweek.com/sites/industryweek.com/files/uploads/2016/11/29/Declining-Wages.jpg
It hasn’t been true since the Keynesian era in the US.
Companies are now maximising profit which requires minimising labour costs; i.e. wages.
Should the labour market tighten here, they can always off-shore to keep wages down.
But what about the “Lump of labor” fallacy espoused by economists for more than 100 years?
https://en.wikipedia.org/wiki/Lump_of_labour_fallacy
“The term is also commonly used to describe the belief that increasing labour productivity, immigration, or automation causes an increase in unemployment. Whereas some argue immigrants displace a country’s workers, others believe this to be a fallacy by arguing that the number of jobs in the economy is not fixed and that immigration increases the size of the economy, thus creating more jobs.”
This seems to argue that labor creates its own demand.
Following this to the logical extreme, workers in the USA and elsewhere simply need to be patient and wait for the workplace situation to improve as the “lump of labor” fallacy eventually shows that it, and the economics profession, describe the world’s employment market well.
But the wait period may be such that we are reminded of another famous economist’s statement, “In the long run we are all dead”.
Thank you Yves. That was very interesting. Your introduction most interesting. I scanned the doc for familiar phrases, only found Picketty mentioned in the discussion of how to value capital. That was amusing. If Picketty actually thinks it is effective to use financial asset values to impute the value of capital he isn’t interested in maintaining a sustainable economic balance bec. collateral is routinely rehypothecated hand over fist, no? I only understood the bullet points at a rookie level, but it was almost too much info. Productivity plays an important part in Lance Taylor’s view of inequality mediation. But I think even productivity needs to be re-evaluated these days because pushing for productivity and growth as a balancing act will throw off conservation of the environment and resources for the sake of growth and that’s a non-starter. Besides which productivity implies pretty stiff competition that is already beginning to crapify everything (Boeing, VW, etc) And in terms of the genesis of this neoliberal push for profit share gone haywire and politics gone missing in action in deference to an “automagic” market, I would say that it was cold war hysteria that set it off. JFK agonized that the USSR was economically “unstoppable” and of course that fact panicked all liberal economists. So for the last 50 years we have been blindly spiraling down to the far right. I can see that this lecture is refreshingly logical. I wish I were more fluent in the jargon. But I’ve got the concepts almost bred in the bone. Really good post.
or maybe it’s more that at a certain point competition impedes productivity. So competition needs to be regulated in terms of productivity, not profit. And productivity itself needs to be regulated in terms of equality, social equity. I don’t think that is impossible. In fact, it might be welcomed at this point. Our corporations need an intervention. They are stuck in their old mindset and they’re making themselves sick too.
Have to say I don’t buy into the underlying methodology, I suppose it’s ok to start with a theory and go see if reality supports it, but I don’t think the data they site can be rolled up in the manner they wish to support the conclusions they want – too much of what is classified into what groups is pretty artificial and the attributes they use to differentiate seem descriptive. There’s an idea there but I’m not buying their argument.
Taxes taxes taxes taxes more taxes and once again, taxes.
Then Fed ZIRP/inflation, credit/debt creation, NAFTA/trade deals, worker rights/union erosion.
This article mentions small esoteric areas which were byproducts of tax legislation, and holds them as if they were the driving cause. Not impressed. Misses the forest for the trees.
I agree with your assessment of these slides — “Misses forest for the trees.”
The 65 pages of slides seem to argue “on the one hand — but on the other hand” albeit not using those words. Maybe I’m tired and its late but the lines of this argument are difficult to parse. I saw only one slide [slide 55] that mentioned the globalization and outsourcing — and that was strictly a mention, no more. [I skipped over the slides whose points escaped me.] As zer0 notes there are a few other things missing from these slides. — And So …
slide 1 The rich are getting richer [I knew that.]
slide 3 “Profits increased but Rate of investment fell”
slide 49 “Buybacks don’t appear to cut into business investment” … just wages. [That is a little surprising.]
“Workers pushed into low wage, low productivity sectors leading to productivity slowdown” [Does the transfer of the high wage jobs far far away supply the missing actor who gave workers the push?]
slide 4 Jobs “trickle down” to low-wage low-productivity education-health, “business service”, accommodation-food sectors. [Strange that these ‘low-productivity’ jobs appear to coincide with jobs not easily outsourced — although more H1-B Visas can be handy if wages start to get out of hand.]
Conclude “naturally” — “slow productivity growth becomes endogenous [inside or contained in the economic system] as a means to absorb surplus labor” [Is that a nice way of saying why invest in capital if labor is cheap? or do the low-wage workers maintain low-productivity to assure job growth — how thoughtful! Just out of curiosity how do you measure the productivity of a school teacher?]
side 6 Low interest rates were made possible by the lid on labor bargaining
Because low interest rates were possible there was financialization and inflated asset prices thereby increases in wealth at the top [Didn’t we have low interest rates and deflated asset prices in the Great Depression? How did the low interest rates cause financialization and inflated asset prices now?]
slide 9 Share buybacks, “really a tax-avoiding equity-for-debt swap between business and households, financed by new business debt which ends up held by households. [whose households? the top 10%?]
[This is a terribly polite description for what looks to me more like the legal looting of Corporate wealth and income streams by their ‘management’]
slide 12 Static “monopoly” of business to push up prices vs wages or “monopsony” power to hold down wages are less significant — because they do not cumulate over time”
That assertion doesn’t make sense to me. The power to push may not accrue but the larger share of the pie retained by business most certainly does.
slide 17 Business is keeping more of the profit gains than labor [I think that’s a fair translation.]
slide 25 The rich get profits-income; the middle get labor-income; the poor get wages and “transfers” [a nice way to say ‘handout’?]
slide 33 Overall growth results from move of employment toward 7 low wage, low productivity sectors
you don’t need more productivity to hold down labor costs
slide 36 “Education-health is a major drag on productivity.” [I guess we need to cut back on education and health.]
slide 39 productivity growth holds down demand for labor in manufacturing, wholesale, retail trade, finance-insurance, and “information” BUT strangely — aside from retail, all have high wages.
[Why isn’t that a mystery of sorts?]
slide 59 Real-estate is not a big source of rising profit inequality? [reason is “discussed above” — WHERE?]
Is it because “rents” are a trope? Doesn’t asset inflation play some part in increasing rents?
slide 60 The mystery of high executive pay — “social tolerance for extremely high pay?” [really?]
remainder — models and simulations prove … what? Income inequality has become intractable?
After scanning through the slides a few times I missed something — what is they’re point?
Very interesting: have to read in detail when I have more time. What I would add is the creation of an entirely new class of business interests out of the privatization of what used to be public services, something that has an effect even if standard measures of firm concentration aren’t especially high. (I have to look back to profit share: if these aren’t high for health and education in the US, I have to think there’s a measurement problem.) I keep going back to this short blog post about inequality in Chile that contained the following observation about the difficulty of reversing the inequality ushered in during the Pinochet years
Pensions aside (thanks to Monica Lewinsky), this is startlingly recognizable.
Pinochet’s Inequality Miracle
Lance Taylor is a macro-economist and takes a decidedly macro-oriented perspective as he takes on the job of organizing a descriptive analysis using highly abstract macro-level statistics. This approach makes his analysis very weak theoretically, as the mechanisms of increasing inequality can not be resolved or even identified.
He asserts that “low interest rates were made possible by the absence of labor bargaining power” and “thus low inflationary pressure from wage costs“, but if there is a full explanation of the logic behind this critical assertion, I was not able to find it. And, laying out the logic of the reasoning behind that assertion is necessary if his argument is to be exposed to critical examination of mechanisms and implications.
Taylor is openly hostile to the conventional round-up of the usual suspects — the “monopoly” / market power explanations that are commonly offered, normally without much in the way of quantitative estimation. I cannot say I blame him. Scorn is all many of the more trivial hand-waving explanations deserve — “star” power and Hollywoodization is one explanation he dismisses quite rightly, imho.
” ‘Rents’ are another mainstream trope (Stiglitz)” is offered by Taylor in the same scornful spirit, and I do not think it does him credit. “Highly paid executives are said to receive their high incomes due to ‘rents’ ” Taylor asks with incredulousness made apparent with the following questions: “Rents from what source of demand? What is the institutional basis?” Taylor’s understanding of the concept of “economic rent” is apparently tied intimately to some notion that “rent” derives from “demand for a service or asset controlled by some economic actor” This struck me as exceedingly odd. “Economic rent” is often used as a pejorative with only minimal conceptual integrity — a legacy of reactionary public choice economics — and may be defined in obscurely abstract terms in the textbooks following Pareto’s definition, but everywhere it is used, the core implication is that “economic rent” derives from an exercise of political power (e.g. authority grounded in institutional rules of the game and property rights). Corporate executive incomes are composed in large part of “economic rent” because they have the political power to divert such incomes to their own lovely selves. The “institutional basis” is their political role in the political structure of the corporate bureaucracy: the chief executive is in charge, in command in a social and technical structure of command-and-control. (Duh.) I am mystified regarding why Taylor would seem to take the tact he does here.
In Piketty-Saez, the huge growth of income share going to top executives of large business corporations is a featured part of the story. It is what is different in the struggle between capital and labor after 1930 and especially after 1970. Taylor is making a big deal about the ratio of top incomes to median incomes in general. Lots of people have looked on with horror at the rising ratio of top executive “compensation” to ordinary income wages.
And, of course, there are mechanisms in the political power of top executives both to direct the operations of business “internally” and to structure strategically and “externally” the industries and business networks in which they are embedded. If you think about the ways an Angelo Mozilo — among others but he very prominently — went about deliberately re-structuring the mortgage lending business in order to make a sizeable personal fortune, you have to wonder how that kind of business executive activity may be driving income inequality. Does Taylor want to think about that?
Falsely attributing motive to Taylor doesn’t cut it. Taylor presented an analysis across 16 sectors and described what he found regarding whether monopoly power could be argued to play a role in wage determination and the degree of inequality. You have no substantive response but you don’t like his findings. so you make nasty personal attack. You’re the one who is showing bias.
And your take is off elsewhere too. Executives overpaying themselves has squat to do with politics. It has to do with principal/agent problems resulting from public companies having transient shareholders who find it far more cost-effective to sell than try to discipline the executives. See the classic “Efficient Markets, Deficient Governance” by Amar Bhide in the Harvard Business Review. Political influence had nothing to do with the rise of the “maximize shareholder value” theory of corporate governance.
“Rents” as Taylor uses it in this paper = returns to real estate and he explains longer form elsewhere why returns to real estate aren’t big culprits in the rise in inequality. But even the somewhat broader use of the term “rents” in classical economics isn’t at all comparable to what you seem to want the word to mean.
You are also wrong re about the role Angelo Mozilo played in the growth of the subprime mortgage business. Countrywide was not a regulatory path-breaker and in any event, Mozilo was the promoter. I’m not about to do the digging, but Mozilo had an equal at Countrywide who was the risk/ops guy. That guy died of cancer and Countrywide really started doing crazy deals after that. It did become the biggest but even some of the products that some stories treat as if Countrywide invented were well established long before there was even such a thing as a private label securitization. Option ARMs were a perfectly normal product as of the early 1980s, as were used regularly by people with erratic incomes but on average high, like A list actors and investment bankers. But they are highly unsuitable for ordinary people on a paycheck.
Better trolls, please.
> . . . Corporate executive incomes are composed in large part of “economic rent” because they have the political power to divert such incomes to their own lovely selves.
When I first read that sentence, the furthest thing from my mind was that it related to retail politics and I understood it as a reference to shop or office politics. After reading it a few more times, my mind hasn’t changed on that point.
I’d argue that the top management being able to direct a significant portion of company’s income to themselves is political – not society political, but definitely company (and board political).
But the fact is that company/board politics existed way before huge executive packages, so what changed is the perception of having to retain “talent”, which IMO is tied to the problem we have as a (wider western) society that our pecking order is more and more equated with the amount of stuff we own, not who we are. Human reality is that we always want to have a pecking order (we are herd and social animals, who need it) – but there’s no law of nature which would say how it should be established, and it changed number of times during our development.
So, if someone’s coming with a new societal model, they better come up with a way that can work (be accepted by the society), and would produce a stable pecking order.
Good comment, as usual, Mr. wilder. You hit on a couple of things I found unusual as well. Must be the PowerPoint format!
The rents issue is definitely something that shouldn’t be dismissed. But since economists don’t seem to agree on what rent means, I’m not sure the answer will be clear anytime soon.
The executives get lumped in with households as a macro category, it seems. Yet obviously most households are wage-earners, not combo wage-capital gains-dividend-interest-earners like execs. Somehow I feel that this ties in with Taylor’s (and others’) seemingly contradictory position that both wage gains and a bigger share of wealth (ownership of capital?) are necessary to remedy inequality. But perhaps this is not contradictory at all (there is no need to identify the one true villain/cause).
I’d also really like to know what Taylor means when he calls some trends static or non-cumulative and therefore not a significant contributor to worsening inequality.
Scheidel sees violent transformations and demographic contractions as, historically, the only drivers to lessen inequality.
The industrial revolution did a fine job of lessening inequality with neither much violence nor demographic contraction. See Clark’s A Farewell To Alms, or even just look at the abandoned Stately Homes all over the British countryside.
The industrial revolution(s) were embedded in several long waves of economic development worldwide. It seems to me there was plenty of violence and even demographic contraction in various places geographically and at various points along successive waves.
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The first two-thirds of the 17th century in Britain when the modern political economy was displacing a spent feudalism were pretty unpleasant, especially for ordinary working people. The British Agricultural Revolution of the 18th century was of surprisingly small magnitude, though it was enough to feed a growing, urbanizing population, though often only barely. France at the same time was repeatedly facing famine, as bourgeois opinion insisted on floating the price of grain and tax farming built a wall around Paris. When the Industrial Revolution of steam and rail took off after 1815, the British working class saw its wage income and nutritional standards decline. The revolutions of 1848 were as much about famine or near-famine as liberal ideals. Even in the U.S., the huge economic mobilisation of the Civil War barely held wages steady as capital pressed down a heavy hand. Deflations were brutal in the British Long Depression and in the two great depressions in the U.S. 1873-78 (still the longest on record) and 1893-96. Mass emigration from various European regions speaks to demographic crisis. Scandinavia teetered on the edge of famine for two generations as a third of the population left for North America. Eastern Europe and Italy present their own stories. And, then there was Leopold in the Congo. At the time of the American Civil War — a particularly violent remedy for extreme inequality driven to scale by cotton manufacturing — China was undergoing the bloodiest war of the 19th century.
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British “free trade” policy combined with falling transportation costs and opening vast areas globally to agriculture did have the consequence that agricultural land rents fell steadily, losing their dominance in income distribution in advanced European countries as Piketty demonstrated. Land ownership in Britain, it should be noted, remains highly concentrated. Across Germany, there are Princes still sitting in palaces that would be public properties in any other democratic republic.
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Clark’s reactionary naïve storytelling is tendentious at best.
That’s a very metropolitan view.
Almost the entire sequence of world wars between 1770 and 1945 encapsulate the various stages of industrial revolution from it’s incipient stages and need for primary resources outside of the greater London area up to the uprising of the resources regions as the industrial wave final hit them forcing a realignment of the British imperial system under the US (and USSR and Germany).
Indians (of various sorts and ethnicities) are people too. Without violence against them and demographic contraction, the changes in inequality “inside” the system in central zones of England and the N.A. East Coast wouldn’t have been possible without some severe violence. Violence between A & B can be minimized with a common front against C & D.
See also the US Civil War.
And pseudo-Darwinism: anyone who doesn’t have experience in high-dimensional, parallel parameter optimization and it’s finickyness, should really be eliminated from talking human evolution of complex phenomena (intelligence, varieties of moral reasoning).
Evolutionary theory is hard, and the mathematics of of high-dimensional and particularly gradient free parameter searches is hard. It’s not to be dabbled in by dilettantes except in the practice of propaganda production. Particularly from people trained in field where unitless “graphs” made up from first-derivatives “by argument” is actually publishable.
See Clarke’s “Genetically Capitalist”. My dear lord — 60 pages of blah, paintings, pictures, made up nonsense graphs and not a single analytical or simulation investigation of under what selective conditions high-dimensional genotypic onto phenotypic mapping under conditions of low penetrance and high random variability could lead to differential reproduction into the proper attractor.
The evolution of “capitalist attitudes”. Dear lord — any clue how big a space that is, without some very strong restraints? Ever try to search with genetic algorithms for high dimensional optimization without having carefully specified inter-dimensional constraints or regions of exclusion or digitization?
May I say that dear Clark has not, but is quite used to having fellows in his field accept hand-waving as a scientific method?
I’d really rather just go ahead and read postmodern philosophy. It at least has the moral courage to openly carry it’s bs nature openly, rather than try to pretend that it is empirically based on a mathematical footing.
a massive debt jubilee, student debt, housing, medical debt, credit card, would go a long way to restore the middle class.
How far back?
I’ll start charging now depending….
He doesn’t mention the end of Bretton Woods when Nixon closed the gold window in August 1971 as a lead up to stagflation.
The causality largely runs the other way. Inflation was building up, leading to the US repeatedly devaluing the dollar in gold terms before the US formally went off the gold standard.
All I keep thinking is that labor sees whatever gains made going into rent. Rent keeps rising no matter what. It is the main drag on Americans inability to compete with international labor. Rising rents & the inability to stop ever thinking about rent is a source of unrest amongst the people.
Michael Hudson is whom I would look to for civil ways to stop the slavery that rent causes.
Sanders is trying hard to prevent violent revolution & may well have to address the issue of the slavery of rent by calling for national rent controls.
This is a problem for most middle class (the people near the median household income).. every year your health insurance goes up, the cost of housing goes up, and the costs of education goes up… And you get a 2% raise.
Sanders doesn’t have to implement rent controls.. you have to force the Fed to raise interest rates. The inflation in housing prices could be killed by raising rates. Housing prices will crash if mortages were 7% again.
The Medical industry has to be tamed.. which I am not sure is possible without destroying it. People fear getting an ambulance ride to the hospital. What crazy world would allow that? Most of the country would go for any other model in the world that values it’s people’s health at this point.
The important thing is:
employment with living wages with health, retirement benefits and K-12 education for children for each and every willing and able person.
Income or wealth inequality is secondary. It really does not matter. The wealth is mostly made up of paper profits, which will just evaporate with higher interest rates.
Income and wealth inequality DOES matter, it is not secondary.
Having fungible assets (money/wealth) makes it easier to make money. While higher interests rates are beneficial to middle class Savers, they also will make it harder for Millennials to buy homes while the wealthy simply move out of equities (stocks) as interest rates rise. Wealth allows you to “play” both sides of the financial game.
“Intractable” inequality, my Irish toenails. Here’s a plan (not my idea) that should get overwhelming support at the polls and could turn America into Germany overnight.
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Scenario: Bottom 40% earners double wages (on average) through collective bargaining (some 50% more, most 100%, some 150%). Bottom 40% labor averages 15% of production costs. Doubling wages adds 15% to consumer prices – which bites off 15% of sales – before we factor in new sales from the newly flush 40%.
Common sense dictates that bottom 40ers spend proportionately more of their income buying bottom 40er made products – and (what I call) the mid 59% spend proportionately less on 40er prods. Let’s make that spread 20/10%. (We won’t concern ourselves with the top 1% here.)
85% of previous sales retained. Extra 10% sales from the doubled half of wages (with 15% fewer jobs) adds 8.5%. Sales retained = 93.5%. (Sales actually cascade up a bit from there as added jobs add jobs – but just a bit of eighth-grade math mind candy.)
To make sure we are not picking a sweet spot scenario:
— 10% sales lost to higher prices – 20/10% spending spread – 90% + 9% = 99% sales retained.
— 15% sales lost to higher prices – 40/20% spending spread – 85% + 17% = 102% sales retained.
— 10% sales lost to higher prices – 40/20% spending spread – 90% + 18% = 108% sales retained. (Thinking Card and Krueger anyone?)
Most of American labor can no longer reach their sweet spots. The bottom 40% is never going to reach them by being interchangeable workers in interchangeable jobs.
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There’s all ways to do things.
In Mexico — you cannot hire scabs: “when a union officially declares a strike, ‘a workplace cannot be opened.’”
https://onlabor.org/todays-news-commentary-march-4-2019/ (last item)
Interesting article on the ways Japanese labor law differentiates between employees and independent contractors – more by income level.
https://onlabor.org/employees-or-independent-contractors-insights-from-japan/
In continental Europe, French Canada, Argentina and Indonesia, everybody doing the same kind of work in the same geographic locale may work under a single (sector wide) labor contract – union and non union employees together – thwarting the race-to-the-bottom before it starts.
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The only sure way to restore American labor union density to a healthy level – from today’s pathologically depressed 7% in private (non-gov) employment:
Why Not Hold Union Representation Elections on a Regular Schedule? Andrew Strom — November 1st, 2017
“Republicans in Congress have already proposed a bill[*] that would require a new election in each [private] unionized bargaining unit whenever, through turnover, expansion, or merger, a unit experiences at least 50 percent turnover. While no union would be happy about expending limited resources on regular retention elections, I think it would be hard to turn down a trade that would allow the 93% of workers who are unrepresented to have a chance to opt for unionization on a regular schedule.”
https://onlabor.org/why-not-hold-union-representation-elections-on-a-regular-schedule/
[*] https://www.congress.gov/bill/115th-congress/house-bill/2723/text
When you have a flat tire, you fix it; when you have four flats you need a new set of tires. Forty-plus years of busting American unions under the unwatchful eye of the National Labor Relations Act demands a radically new return path to collective bargaining: skip organizing in private workplaces altogether; go straight to regularly scheduled union certification elections. Nothing less looks plausibly workable. Ask the 40%.
Stop being ludicrous. This is the US when we have corporate free speech and no limits on campaign spending, particularly costly TV advertising. Go see Tom Ferguson’s work on money in politics. Success in elections has for decades been highly correlated with election spending. We can barely get a $15 minimum wage passed by 2020 or 2022 or 2025 and you act as massive-by-comparison changes are easy peasy?
Unicorn-land is in the UK over Brexit, not here.
I fear that even if progressives like Sanders make massive changes within the next few years, it is probably too late to alleviate the economic suffering and poverty being experienced by people at the moment as it will probably take decades to undo the damage that neoliberalism has wrought since the late-1970’s. This is even if any reforms that are made through 2020-2028 are not immediately rolled back by vengeful neoliberals after Sander’s term or terms as we had better find somebody to fill his shoes after his political career. Otherwise, we will be right back to square one.
Depends what those changes are. One of the things I notice in our society is certain lack not only imagination but also of caring about things in general or even in particular. Americans are, in short, dispirited and need a new sense of meaning, a purpose other than war and imperialism. The great virtue of neoconservatives was that they noticed (in the 90s) that American society was in trouble and would either disintegrate into regionalism and/or hedonism and lose any sense of meaning, i.e., enter into a time of nihilism. The neocons thought war would provide the answer to meaning but the fact is that in certain parts of the population it did have that effect after 9/11 (the new Pearl Harbor they all hoped for) but after Bush II told people that the patriotic thing to do was to go shopping that idea kind of petered out. So here we are in a kind of nihilist situation.
If we go through some version of the Green New Deal as both a form of economic planning and a framework to find meaning (dealing with the overwhelming environmental threats we face) this would revive, in my view, the spirit of people that there is something beyond private life, tribalism, and hedonism the neocons rightly warned us about. Or, if we go through Yang’s UBI that should lift spirits considerably and give people room to imagine at least a different future than asshole bosses (I hear this so often) and a fundamentally depressing and predatory economic system.
I don’t know where you get your timeline from, but neoliberalism was implemented when Paul Volcker announced “there will be blood on the floor.” By 1981 Al From had found an inner corps of like-minded Democratic politicians who believed we needed more police and less safety net and especially more money and less labor. The New Deal was outdated, they said. By 1983 they had established the Democratic Leadership council and a couple years later had found the perfect leader, Bill Clinton. The [family blog] New Democrats /Blue Dogs are still with us, and the [family blog] DCCC got quite a lot of them elected, much to the detriment of the Democratic Party. Reagan Democrats are neoliberals.
@3:25pm: To whom is this reprimand addressed? Also, please proofread.
I approved and replied to a comment in moderation, and the approved comment didn’t launch. This is the second time this has happened in 2 days, and now I can’t renest the sequence. But I found the comment and time stamped it so it now appears right above my response.
And “easy peasy” is a recognized expression.
There is no way such a clear and clean divergence in the distribution of productivity gains at a specific point in time can be a result of such a bunch of complicated factors as this paper makes it out to be.
I’d expect a much more singular causation, such as restraint of some inequality mechanism while on the the gold standard, and subsequent removal of that restraint, when going off of the gold standard, which happened at the exact time the divergence started. That seems much more plausible. IF it is the root cause, what does that say about potential for MMT abuse with our current power structures? Democracy needs to take back control from the Kleptocracy before MMT goes fully mainstream or we are doomed.
A year or two ago, I was reading an article about employers who complained they couldn’t find workers. The author suggested to one (a general contractor, I think) that she might try raising wages, and she replied she offered wages according to a data base maintained IIRC by the Bureau Labor Statistics which showed median wages for different occupations in the current year. She insisted that if she tried to pay more than that she wouldn’t have any profit at all. I’ve never seen mention of that database since then and wonder if any economists have investigated a mechanism like that for the very widespread refusal by employers to offer higher wages until they’re really, really desperate. That would be an interesting coordination mechanism for creating a virtual cartel without communication between members.
there’s a lot of insincere signalling by people with power.
They claim they can;t find people. But when the good candidates show up suddenly they start finding faults.
There is a problem of expectations now. The people with power want “passionate 24/7 rock start workers” on minimum wage.
All unreasonable pricing power eventually comes from the govt. That is why it is so hard to fix. The govt is very hard to fix. Whoever you put there starts to behave very differently after getting the power.
So much of interest here, it’s hard to know where to start!
On the investment point, there’s public investment too. Check out this stat from a Varoufakis article today: “‘Advanced’ capitalist countries today are literally falling apart. In the US, net public investment has fallen below half of one per cent of GDP. Across the eurozone, net public investment has remained below zero for nearly a decade.”
Then there’s the stock buyback point, which seems controversial. It reminds me of an argument Dean Baker made the other day; see Myth 6. I’m not sure he’s right.
Maybe this is part of the problem with high-level analyses: why is behaviour that has no macro impact occurring? Seems like something is missing. Consider all the passive voice in the early slides of this presentation. Who is behind these trends, and why are they making them happen?
Another point is Taylor’s lack of focus on taxes. The right has been pushing tax cuts for the rich and businesses for 40 years. Is this not a major reason for higher inequality? Does the revenue decline flow through to the public investment stat above?
Finally, I love the dynamic/static industries dichotomy. I don’t think anyone could argue with it. We are awash in busy work that has no social value other than that it keeps the internal gearing of a deeply deranged corporatocracy going. It’s mind-boggling how much needs to change!
FYI Re “Their campaign was codified in the 1971 Powell memo, written by Nixon Supreme Court justice Lewis Powell which set forth the vision for an open-ended campaign.” The Memo was not written when Powell sat on the court. It was written in 1971, Powell was “elevated” (partially because of the Memo?) in January of 1972.
I do not think the “problem” of inequality is intractable, I think the people responsible for it are. Most people comment as if the unions lost credibility with workers because of some natural trend rather than the concerted efforts of the rich and powerful to disembowel them. The overall campaign (in part outlined by Powell) included the expungement of terms unfavorable to the rich, such as “unearned income,” on the small side along with the massive anti-union and anti-governmental regulation on the large side. If unions and government regulators are de-fanged, what controls over the behavior of the oligarchs is available? Answer: slim to none.
The unions lost credibility because they sided with the (very well to do) govt workers, forgot about the poor minimum wage worker.
This statement is nonsensical. There is no “the unions”. There are various unions. There is not one union movement and that is its weakness. Except for SEIU, which has some units that represent government workers, private sector and government worker unions are different unions. There is the Teamsters and the member unions of the AFL-CIO, and there are various state and even local unions for teachers, policemen, firefighters, non-teacher school workers, etc.
“the unions” means the unions as a plural.
by your logic it would be incorrect to say “the banks”, “the newspapers”, ahem, “the american people”.
bringing in the grammar police to question the depth of a comment means you don’t have any answer to the point being raised.
i humbly stand by my comment.
I call bullshit. Please provide evidence that private sector unions put the interest of public sector unions over their own.
Overpopulation didn’t help. It was a good way to make the economy expand but when it approached unsustainability it suddenly became difficult to define the value of everything. If you have a certain supply of money and the economy is balanced and the population is growing you’ve got a huge problem. When the population goes from 4 billion to 7 billion you have no control whatsoever over the former “value” money, or anything else. You don’t even know what it is anymore. When the population expands, say doubles, the value of money doesn’t just double, it goes off exponentially in every direction to accommodate every person. It’s a supernova. That’s gotta be the biggest part of our destabilization. Economically and environmentally. To try to keep things in balance we could have been clairvoyant and as the population grew rationed everything and made houses ever smaller, but that was clearly impossible. I think it’s time for the world to acknowledge that every person alive requires a million digits for a lifetime and then calculate the total and work back to a viable long term budget. Otherwise we’ll haggle ourselves to death and probably do irrational things like drop nuclear bombs. Because we are basically nuts.
I agree with Bruce on this 1000%