By Sir Angus Stewart Deaton FBA, a British-American economist and academic. Deaton is currently a Senior Scholar and the Dwight D. Eisenhower Professor of Economics and International Affairs Emeritus at the Woodrow Wilson School of Public and International Affairs and the Economics Department at Princeton University. Twitter: @DeatonAngus. Originally published at ProMarket and The Institute for Fiscal Studies
At the launch of the IFS Deaton Review, a 5-year review of rising inequalities in the UK, Sir Angus Deaton decried extreme inequality and the system that allows it. “As it is, capitalism is not delivering to large fractions of the population.”
We are about to embark on a large, ambitious, and open-ended review of inequalities. We are bringing together a distinguished group of scholars and writers from different disciplines. Each thinks about inequality differently, and together they encompass a wide range of methodological, political, and philosophical perspectives. At a first stage, currently underway, the guiding panel is asking each member of this larger group to write about one or other aspect of the topic; this collective effort will be one of our main products. At the second stage, the panel will write a synthetic volume. We will think about inequalities broadly—note my use of “inequalities” rather than “inequality”—and will not be confined to the traditional economic concerns with measures of the distribution of income and wealth, important although those are. Our main focus is the United Kingdom, but there is a great deal of recent thinking and evidence from other countries, particularly the United States, Scandinavia, and other European countries, and we shall repeatedly have to assess its relevance, and are often asking authors or combinations of authors to make the links.
As at no other time in my lifetime, people are troubled by inequality. In 2016, Theresa May, in her first speech as Prime Minister, said “we believe in a union not just between the nations of the United Kingdom but between all of our citizens, every one of us, whoever we are and wherever we’re from. That means fighting against the burning injustice that, if you’re born poor, you will die on average 9 years earlier than others.” Jeremy Corbyn has called for a new economics to address what he called “Britain’s grotesque inequality.” President Obama said that he believed that the defining challenge of our time is to make sure that the US economy works for every American. Across the rich world, not only in America, large groups of people are currently questioning whether their economies are working for them. The same can be said of politics. Two-thirds of Americans without a college degree believe that there is no point in voting, because elections are rigged in favor of big business and the rich. Britain is divided as never before and, once again, many believe that their voice doesn’t count either in Brussels or in Westminster. And one of the greatest miracles of the 20th century, the miracle of falling mortality and rising lifespans, is no longer delivering for everyone, and is now faltering or reversing.
Yet when people say that they are worried about inequality, it is frequently unclear what they mean or why they care. Economists think they know what they mean when they talk about inequality, and they produce charts of Gini coefficients of income and of wealth, and when other social scientists say that they have wider concerns, economists—among whom I count myself—have often been too ready to tell them that they don’t know what they are talking about. What we would like to do in this review, even with its large quota of economists, is to get a better understanding of exactly what it is that bothers people about inequality.
We will also think about how we might address concerns about inequality and which concerns need to be addressed. If the concern with inequality is simply envy—as is often claimed by the right—it is perhaps better to address the concern than the inequality. If the inequality comes from incentives that work for a few but benefit many, then we may want to do a better job of documenting the need for incentives and what they do for the economy as a whole. If working people are losing out because corporate governance is set up to favor shareholders over workers, or because the decline in unions has favored capital over labor and is undermining the wages of workers at the expense of shareholders and corporate executives, then we need to change the rules. Why are the myriad differences between men and women so persistent and so difficult to erase?
Given that we are just starting, it is perhaps presumptuous of me to say anything substantive at this point. But what I am going to say is what I myself think, or at least what I think today, and I look forward to changing my mind as we go; I wouldn’t be chairing this review if I didn’t expect that to happen. I am also perhaps too much influenced by my own work—particularly my recent work with Anne Case—and this work is primarily about the United States, though we have been doing quite a bit of thinking about how it applies to Britain.
At the risk of grandiosity, I think that today’s inequalities are signs that democratic capitalism is under threat, not only in the US, where the storm clouds are darkest, but in much of the rich world, where one or more of politics, economics, and health are changing in worrisome ways. I do not believe that democratic capitalism is beyond repair nor that it should be replaced; I am a great believer in what capitalism has done, not only to the oft-cited billions who have been pulled out of poverty in the last half-century, but to all the rest of us who have also escaped poverty and deprivation over the last two and a half centuries. It also provides our jobs and the cornucopia of goods and services that we take for granted. And Milton Friedman, whose starry-eyed view of capitalism has much to answer for, was not entirely wrong when he extolled the freedom that free markets can bring. Though history has not been kind to his view that equality would be guaranteed by using markets to pursue freedom.
But we need to think about repairs for democratic capitalism, either by fixing what is broken, or by making changes to head off the threats; indeed, I believe that those of us who believe in social democratic capitalism should be leading the charge to make repairs. As it is, capitalism is not delivering to large fractions of the population; in the US, where the inequalities are clearest, real wages for men without a four-year college degree have fallen for half a century, even at a time when per capita GDP has robustly risen. Mortality rates are rising for the less-educated group at ages 25 through 64, and by enough that life expectancy for the entire population has fallen for three years in a row, the first time such a reversal has happened since the end of the first world war and the great influenza epidemic. Less educated Americans are dying by their own hands, from suicide, from alcoholic liver disease, and from overdoses of drugs. Morbidity is rising too, and they are also suffering from an epidemic of chronic pain that, for many, makes a misery of daily life.
In Britain, these inequalities are not so stark, at least not yet. But median real wages in Britain have not risen for more than a decade. One decade is much better than five decades, but we surely do not want to wait to find out whether the American experience will be replicated here. There have also been prolonged periods of real wage stagnation in recent years in Italy and in Germany. In those countries too, increasing overall prosperity is not reaching everyone. And as I noted above, democracy too does not seem to be working for everyone. The sense of being left behind, of not being represented at Westminster, is much the same as the sense of not being represented in Washington.
In Clement Attlee’s 1945 cabinet—the cabinet that implemented the Beveridge Report and built the first modern welfare state—there were seven men who had begun their working lives at the coal face. When labor MPs from Glasgow set off to London, local bands and choirs came to the station to see them off as if they were going to war, which indeed they were. Only three percent of MPs elected in 2015 were ever manual workers, compared with sixteen percent as recently as 1979. The union movement, which once produced talents like those in Attlee’s cabinet, has been gutted by the success of postwar meritocracy. Attlee’s warriors would today have gone to university and become professionals; they would never have been down the pit, nor in a union hall. Meritocracy has many virtues, but, as predicted by Michael Young in 1958, it has deprived those who didn’t pass the exams, not only of social status and of the higher incomes that degrees bring, but even of the kind of political representation that comes from having people like themselves in parliament. Young wrote, “The bargaining over the distribution of national expenditure is a battle of wits, and defeat is bound to go to those who lost their clever children to the enemy.” He referred to the less educated group as “the populists” who, in turn, refer to the elite as “the hypocrisy.”
What does history tell us? Not surprisingly, we have been here before. There have been several episodes where capitalism seemed broken, but was repaired, either on its own, or by deliberate policy, or by a combination of the two.
In Britain at the beginning of the 19th century, inequality was vast compared with today. The hereditary landowners not only were rich, but also controlled parliament through a severely limited franchise. After 1815, the notorious Corn Laws prohibited imports of wheat until the local price was so high that people were at risk of starving; high prices of wheat, even if they hurt ordinary people, were very much in the interests of the land-owning aristocracy, who lived off the rents supported by the restriction on imports. The Industrial Revolution had begun, there was a ferment of innovation and invention, and national income was rising. Yet working people were not benefitting. Mortality rates rose as people moved from the relatively healthy countryside to stinking, unsanitary cities. Each generation of military recruits was shorter than the last as their childhood nutrition worsened, from not getting enough to eat and from the nutritional insults of unsanitary conditions. Churchgoing fell, removing a major source of community and support for working people, if only because churches were in the countryside, not in the new industrial cities. Wages were stagnant and would remain so for half a century. Profits were rising, and the share of profits in national income rose at the expense of labor. It would have been hard to predict a positive outcome of this process.
Yet by century’s end, the Corn Laws were gone, the rents and fortunes of the aristocrats had fallen along with the world price of wheat. Reform Acts had extended the franchise, from one in ten males at the beginning of the century to more than a half by its end, though the enfranchisement of women would wait until 1918. Wages had begun to rise in 1850, and the more than century-long decline in mortality had begun. All of this happened without a collapse of the state, without a war, or a pandemic, through a gradual change in institutions that slowly gave way to the demands of those who had been left behind.
America’s first Gilded Age is another case. It also shows that the fundamental rules of the game can be changed. In the Progressive Era, four constitutional amendments were passed, all designed to limit inequality of one form or another. One instituted the income tax, one gave women the vote, one prohibited alcohol—strongly supported by women, who believed that alcohol abuse was an instrument of their oppression—and one an electoral reform that instituted the direct election of senators, as opposed to their previous appointment by state legislatures that were often dominated by business.
I have already mentioned the case that is most on my mind, the construction of the modern welfare state by Attlee’s government after the Second World War. The Great Depression, like the stagnation of wages in the early 1800s, spawned a large literature on how to modify or abolish capitalism, and according to one version of the story, it was Attlee’s government that tamed the beast and that made it possible for the tamed beast to deliver the unprecedented shared growth that many of us grew up on. Joe Stiglitz has recently written that he grew up in the golden age of capitalism though, as he wryly notes, it was only later that he discovered that it was the golden age. And, of course, it wasn’t a golden age—at least in terms of material living standards or in terms of health—but perhaps it was such in terms of the rules of the game that allowed growing prosperity to be widely shared. I don’t think that anyone would argue that the late 1940s was a golden age in Britain— there was bread rationing, petrol rationing, and to a young Angus Deaton, the terrible deprivation of sweet rationing, but the safety net that was built in those years played a role in fairly sharing, and perhaps even in helping generate, the prosperity that was to come.
That safety net is needed just as much today. Globalization and automation are challenging us today just as they did in the early 19th century. Safety nets are most needed when change is rapid, and it is one of the reasons why America is doing so much worse—most obviously in deaths of despair—than are wealthy European countries. But what is happening today is also a real threat to Britain and to Europe.
The argument that Anne Case and I are making in our new book is that less-educated white men and women in America have had their lives progressively undermined, starting in the 1970s, and showing up, since 1990, in rising numbers of deaths from suicide, alcoholic liver disease, and drug overdoses. African Americans experienced a similar disaster thirty years earlier and the improvements in their lives since then have protected them to an extent. In the face of globalization and innovation, many of us would argue that American policy, instead of cushioning working people, has instead contributed to making their lives worse, by allowing more rent-seeking, reducing the share of labor, undermining pay and working conditions, and changing the legal framework in ways that favor business over workers. Inequality has risen not only due to wealth generation from innovation or creation, but also through upward transfers from workers. It is not inequality itself that is hurting people, but the mechanisms of enrichment.
How much is this a threat in Britain? Some of the mechanisms of enrichment are not operative here. The US wastes about a trillion dollars a year on a healthcare system that is very good at enriching providers, hospitals, device manufacturers, and pharmaceutical companies, but very bad at delivering health. You do not have that problem. The US has licensed pharma companies to sell opioids to the general public, including for chronic pain, which ignited an epidemic of addiction and death with a cumulative death toll larger than all Americans lost in both World Wars. You too use opioids, but usually in hospitals, not in the general population. Yet the opioid manufacturers are following the model of tobacco manufacturers, and working hard, when blocked in the US, to expand elsewhere. Purdue Pharma has a subsidiary, Mundipharma, that agitates on behalf of the greater pain relief that they argue opioids can bring. As I write this, Matt Hancock, the Minister of Health, noted that “things are not as bad here as in America, but we must act now to protect people from the darker side of painkillers.” The BBC news report on this carries a chart showing the extraordinary geographical inequality in opioid prescriptions in England, with prescription rates five times larger in Cumbria and the North East than in London. As the briefing note for this launch shows, deaths of despair are rising in Britain, particularly in less successful parts of Britain, just as they are in other English-speaking countries, though the numbers (and death rates) are small compared with the US.
What about wages? The US has extensive business lobbying, which the UK does not have, or at least not in the same overt form. (The US also had very little prior to 1970, so it could happen here too.) As in the US, unions have become much less powerful in Britain, a decline that many have welcomed, but their countervailing power in boardroom decisions may have protected wages and working conditions. Unions provided social life and political power for many people who have less of both today. The replacement of stakeholder capitalism by shareholder value maximization is widespread in the US and has been remarked on here, too. Paul Collier has noted that Imperial Chemical Industries, once the crown jewel of British industry, used to boast “we aim to be the finest chemical company in the world,” but that, before it was lost to takeovers and mergers in 2006, it had changed its slogan to “we aim to maximize shareholder valuation.”
In Britain, as in America, some cities and towns are doing much better than other cities and towns, and the easy mobility that tended to keep these differences in check seems to have been much reduced. America has no city that is as dominant or as uniquely prosperous as is London.
Political dysfunction in Britain is different, but there is a common thread that many voters believe that they are not well represented. And there are sharp differences across groups, with age, education, ethnicity, gender and geography important in both countries.
I think that people getting rich is a good thing, especially when it brings prosperity to others. But the other kind of getting rich, “taking” rather than “making,” rent-seeking rather than creating, enriching the few at the expense of the many, taking the free out of free markets, is making a mockery of democracy. In that world, inequality and misery are intimate companions.
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Very good piece!
I hope your work will address Rodrik’s Trilemma – is it correct?
If it is, and recent events seem to support it, then democracy will indeed weaken because of the persistence of globalization and nation states.
If Deaton has no problem with people getting rich, then he has no problem with democracy being undermined. As Rodrik suggests, there is no way to truly regulate or restrict the power of concentrated wealth, especially in what passes today as a democracy. Over time, wealth will always win out — as we’ve seen with the gradual destruction of unions and the growth of privatization and globalization — and so-called golden ages under capitalism always tend to be exceptional and fleeting while misery and precariousness are the enduring rule.
What we really need is an upper limit on wealth and income. A 3-to-1 ratio would leave plenty of room for incentive.
And let’s not overstate the beneficence of capitalism. True, it produces a lot of stuff. But to judge by what the science tells us, the planet cannot sustain this pace of consumer wastage. It appears that some actual intelligence must be applied to how we as a species produce and consume if we hope to keep our earthly home. Who knew?
This was the problem when it all started.
The old land owning aristocracy had nearly all the capital and land.
Ricardo was part of the new capitalist class and the old landowning class were a huge problem with their rents that had to be paid both directly and through wages.
“The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist
What does our man on free trade mean?
Disposable income = wages – (taxes + the cost of living)
Employees get less disposable income after the landlords rent has gone.
Employers have to cover the landlord’s rents in wages reducing profit.
Ricardo is just talking about housing costs, employees all rented in those days.
Low housing costs work best for employers and employees.
We have forgotten how capitalism works.
The Classical Economists soon noticed those at the top didn’t do anything economically productive, but maintained themselves in luxury and leisure through the hard work of everyone else. They couldn’t miss it as the European aristocracy never did a stroke of real work.
“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.” Adam Smith
Economics was a big problem for the powerful vested interests of the 19th century.
How can we protect those powerful vested interests at the top of society?
The early neoclassical economists hid the problems of rentier activity in the economy by removing the difference between “earned” and “unearned” income and they conflated “land” with “capital”.
They took the focus off the cost of living that had been so important to the Classical Economists to hide
the effects of rentier activity in the economy.
The landowners, landlords and usurers were now just productive members of society again.
The initial battles of capitalism were against the old money, idle rich who did so little and took so much.
By the end of the 19th century they wanted to use banks to create the money (capital) for investment in business and industry, so they weren’t reliant on the parasitic, rentier class for investment capital. (Michael Hudson knows this too, which is where I got it from)
Capitalism then becomes a mutually beneficial arrangement for the two productive classes.
The employees do the work to generate the profits for employers.
The employers pay the wages to allow employees to live a reasonable life.
The parasitic, rentier class is relegated into obscurity.
This is actually the very successful Asian Tiger model that was used in Japan and copied by other Asian countries and it was all working so well until they discovered financial liberalisation.
Bank credit (lending) creates money.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
What was Keynes really doing?
Creating a low cost, internationally competitive economy.
Keynes’s ideas were a solution to the problems of the Great Depression, but we forgot why he did, what he did.
They tried running an economy on debt in the 1920s.
The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics.
Keynes looked at the problems of the debt based economy and came up with redistribution through taxation to keep the system running in a sustainable way and he dealt with the inherent inequality capitalism produced.
The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of living
Disposable income = wages – (taxes + the cost of living)
High progressive taxation funded a low cost economy with subsidised housing, healthcare, education and other services to give more disposable income on lower wages.
Employers and employees both win with a low cost of living.
Keynesian ideas went wrong in the 1970s and everyone had forgotten the problems of neoclassical economics that he originally solved.
The harsh and un-relenting existence before Capitalism:
https://libcom.org/files/timeworkandindustrialcapitalism.pdf
“This general irregularity must be placed within the irregular cycle of the working week (and indeed of the working year) which provoked so much lament from moralists and mercantilists in the seventeenth and eighteenth centuries.
A rhyme printed in 1639 gives us a satirical version:
You know that Munday is Sundayes brother;
Tuesday is such another;
Wednesday you must go to Church and pray;
Thursday is half-holiday;
On Friday it is too late to begin to spin;
The Saturday is half-holiday agen.
John Houghton, in 1681, gives us the indignant version:
“When the framework knitters or makers of silk stockings had a great price for their work, they have been observed seldom to work on Mondays and Tuesdays but to spend most of their time at the ale-house or nine-pins . . .
The weavers, ’tis common with them to be drunk on Monday, have their head-ache on Tuesday, and their tools out of order on Wednesday. As for the shoemakers, they’ll rather be hanged than not remember St. Crispin on Monday . . . and it commonly holds as long as they have a penny of money or pennyworth of credit.”
Merrie England gave way to the dark satanic mills.
It’s progress?
What went wrong?
My 2 cents. It is not that what is said here is not true, but I think Peter Turchin in his work on elite overproduction is closer to the core truth. I am probably going to mangle it a bit here, but the idea is that if the elites outgrow societies production, there is very likely going to be infighting between those elites.
In post-WW2 America, the blue collar workers (which have now morphed into white collar service work to some degree) were elevated to an elite position in the sense that they had a reasonable call on the benefits of production over bare sustenance. As this position has been put into stress starting in the 1970s or 1980s (choose your metric), various ways have been found to keep that tier’s advantages. Debt being one of the obvious solutions,but there are others.
It should be noted that as the blue collar wages get pressured, the higher up elites take advantage and get wealthier. This should make people particularly skeptical of policies that look like they are being “nice” , but are actually supporting the positions of those toward the upper end.
Right On! Peter Turchin’s work on the rise and fall of empires tells us a lot about our current situation. We are in the phase where “asabiya” (collective solidarity) is falling, as the ruling elites run into headwinds and overextend themselves. But this time it will likely be at least a partial collapse of global civilization, matching our global economy.
Key “headwinds” are escalating climate catastrophes and dwindling reserves of cheap fossil fuels. And we’re already well into the early phases of the “energy trap”: When the ruling elites finally realize that we’ll need to rebuild much of our infrastructure, we’ll no longer have the cheap energy and other resources available to do it without a lot of deprivation, hardship, and political turmoil.
Well, just a teeny bit of disconnect in a piece decrying the various types of ‘inequality,’ written by Sir Angus. Whatever happened to “Comrade?”
That said, I am a big fan of Case and Deaton, first for unearthing the data supporting ‘deaths of despair’ in the US, and then for relentlessly pushing those conclusions into the public eye.
It is rarely recognized that the top tier of the multi-tiered US economy is not capitalism. The main customers for stock are companies buying back their own stock, hedge funds, university endowments, and, foreign money being driven in by the appreciation of the dollar this causes. All of these are tax favored. In the care of endowments, the largest donor is Wall Street. That is odd, because Wall Street is not known for altruism. This is a tax write off, and, a circular loop, whereby the tax laundered money is invested back, often directly. Money generation is done under tax favored circumstances. Traditional roles of a company, like developing better products, detract from this model and have fallen by the wayside. This is about money, not wealth.
The main customers for stock are companies buying back their own stock,
A segue on this point. The companies are borrowing to buy back their own stock; they are taking on debt to buy back their own stock. They are not taking on debt to expand production capacity for future profits. Why is debt injection without expanding capacity – or taking on larger amounts debt both public and private – now one one of the main economic drivers in the US?
At a guess; the wages once paid in the US were a large driver of the US economy, but so many good jobs were outsourced to other countries over the past 30 years that left US wages too shrunken to drive the US economy as they once did. Debt is filling the economic gap that wages once provided. That can’t go on forever in capitalism, unless you setup a washing machine economy (as you describe)… but that’s not really capitalism, imo.
Just my uneducated-in-finance guess.
This brings up a point I have wondered about – which is more “profitable” (as in producing a higher profit margin)?
General Motors manufacturing vehicles or GMAC financing the purchase of vehicles?
Home builders constructing houses or mortgage co’s financing the purchase?
I have my own inklings as to the answer but am not well enough informed to round up the actual stat’s.
It was definitely the case that GE’s capital arm was more profitable than its manufacturing arm at one point. Of course, it later went belly up due to bad loans.
For GM, it is hard to disentangle the two. You may notice that you can often lower the purchase price of a vehicle by using the mfr’s financing co. That shifts profit from manufacturing to finance but it all goes to the same place. (That’s why every car company has a finance arm.) So I’m not sure if higher margin is the right metric.
Because housing doesn’t depreciate the way cars do, it supports a network of retailers (real estate agents) and (mortgage) lenders vastly larger than manufacturing.
GMAC financing the purchase of vehicles does not significantly change the ability of consumers to purchase vehicles but the jobs in making a vehicle creates income in people’s pockets that can buy lots of things.
Focusing on corporate earnings and money in the pockets for the wealthy limits how much money is circulating in the economy to generate economic activity. The fallacy of the tax cut for the wealthy and corporation arguments is that the economy is driven by money available to invest. That is true when tax rates are at punitive levels, but those are probably above 50% and possibly as high as 70%.
However, the biggest complaint of corporations these days appears to be the lack of top line revenue growth. That would come from people buying goods and services. If the bottom 90% do not have more money to buy goods and services, then they won’t. For a couple of decades, consumer debt rose but it appears to have reached a tipping point where it can’t go up much more, so the growth potential is largely wage and salary income.
To me the biggest problem with excessive inequality is that the money goes to the top of the pyramid where it gets saved instead of spent. so earnings growth for corporations needs to come from cost savings and financial games like reducing the number of shares on the market. Asset prices have skyrocketed since the top 1% is awash with money and nothing to do with it. But increasing P/E multiples on stocks is not the same as increasing revenue and jobs. It is not a surprise that economic growth has lagged on an annual percentage basis – giving more money to billionaires won’t change how much is circulating in the economy buying goods and services that will create more jobs. Bidding up the prices of artwork and Manhattan penthouses is not the same as a healthy economy.
The Atlantic has a very good article in their August 2019 issue about The Great Stock-Buyback Swindle, including brief summaries of a few of the many damaging examples:
https://www.theatlantic.com/magazine/archive/2019/08/the-stock-buyback-swindle/592774/?
Thanks for this link.
After reading yesterday’s WC link to “Fighting for the Right to Repair Our Stuff” [The American Conservative] and then reading this article, I think all of us in the Main Street economy (most of us) – whether GOP or Dem or unaffiliated – have economic outlooks that have much in common.
The solution is very simple. Tax wealth not income. Period.
There are many ways to collect revenue. Taxing wealth would be an alternative to income tax. We might cease focusing on wages or profits and tax turnover or number of employees or size of business premises, number of vehicles used. There must be almost endless ways of raising revenue if we were serious about it.
Good article on Europe’s wealth taxes and alternative solutions:
https://www.npr.org/sections/money/2019/02/26/698057356/if-a-wealth-tax-is-such-a-good-idea-why-did-europe-kill-theirs
What is not said is that starting with the onset of the Great Depression in 1929 (no, not 1924, thank you very much), the rate of immigration into the United States dropped and was held to very low levels for decades, until around 1970 (give or take). That was a period when the working class went from destitution to the greatest burst of prosperity the world had ever seen. Starting around 1970 the elites have progressively opened the borders to the overpopulated third world, and that marks the inflection point where the fraction of the economy going to profits takes off, and the fraction going to wages falls. Because supply and demand. But if we can’t talk about this, we are just wringing our hands and crying crocodile tears. Certainly the traditional progressives where not shy about this.
Amateurs talk politics, and professionals talk demographics.
That is because the global economy collapsed and war driven changes stopped immigration from europe. It still follows capital flows TB. That point you refuse to get.
And then there is the whole consumption thing, bound tightly within the concept of modern capitalism.
And consumption seems to be unhealthy for our 2019 earth ecosystem.
Maybe that will get addresssed.
Marx pointed out that production precedes consumption, supply compels demand. The message for the poor is always buy buy buy, for the rich invest invest invest.
adding: if companies offshore their work force they create a shrinking domestic wage pool with which to buy products (services, fees, etc.), unless more debt is taken on by an ever less financially secure public. In an effort to increase the profits to management and investors by shrinking the wages pool, the companies have undermined a significant source of money for buying products and for savings and reinvestment into production. imo.
Short term, this ‘shrink the wage pool’ looks like it works wonderfully if one assumes Wall St.= the economy. Long term, it reminds me of the South Pacific island Nauru. imo.
No, they won’t reinvest. Take a good look at Boeing, for example. What Corporate America has been doing to increase both cash dividends and stock buybacks while cutting corners as much as they can year after year. As long as they can realize short-term profit, they are eager to obliterate their competiveness.
Thanks very much for this post.
Yes, thank you for the introduction to the work of Angus Deaton, and for his twitter link. Looking forward to reading about the work of this cross-disciplinary group and how it might influence policy shifts.
Simple, straightforward answer to American economic inequality — and perfectly saleable too for the Democrats:
[cut and paste]
Collective bargaining: is there any other way for the 40/50/60% to recoup their long lost living wages? 40% today earn less hourly than what the minimum wage should be — $15 — most substantially less.
https://content.fortune.com/wp-content/uploads/2015/04/workers-by-demographic-group.png
If, early in American labor history, we laid down truly efficacious federal protections for collective bargaining rights, then, starting a couple of generations ago, it would have been much tougher for ownership to begin (illegally) dismantling, door jam by door jam, our former labor union superstructure (down to -7% private union density).
Too late for such laws now. Institute card check, fines that are more than the cost of doing business, Canadian seriousness implementation NLRB orders — and in ten years American labor unions might crawl back to 15% density — never know. Think of those interchangeable workers at Target and Walgreen’s: think most are ready and eager to hit the picket lines? The testosterone premium (ask my old, 1970, 804 Teamsters or today’s CTU) is not universally on tap. We need more like 50-75% unions to take our country back from the billionaire state — same total campaign finance and most of the votes (plus lobbying critical mass to tackle every issue from drug prices to student loans).
Two inequality-menders management cannot disrupt or discombobulate — two laws: minimum wage laws and regularly scheduled, by law, union cert/re-cert/de-cert elections.
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 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://www.congress.gov/bill/115th-congress/house-bill/2723/text
https://onlabor.org/why-not-hold-union-representation-elections-on-a-regular-schedule/
What kills me: Andy Strom’s proposal could potentially leave every other campaign topic in its center-of-attention dust and serve up Democrats a guaranteed 2020 big win — but nobody even takes a poll. Ask the 40/50/60%.
there is no Nobel prize in economics
https://www.alternet.org/2012/10/there-no-nobel-prize-economics/
Very true. This is an interesting and important article. But the headline should not give the false impression that the author has received a non-existent prize. Doing so simply reinforces a spurious claim to authority by allowing economists to bathe in the sura of the real Nobel prizes. Although the Peace prize is pretty damn tarnished already.
With all due respect to Sir Angus and his wonderful work on surfacing the horrible effects of economic inequality … ;-)
The inequality created by capitalism is a feature, not a bug … so I’m highly suspicious of the term “democratic capitalism”.
He might as well go on about benevolent billionaires (see Biden’s “[they] aren’t bad guys”).
We begin to address concerns when people like Sir Angus start leading with the following:
* Privatization of public goods/services – healthcare, utilities, housing. There needs to be a retaking of the public good from the hands of capitalists.
* The global currency hegemony imposed by the Euro Dollar – my pet peeve, #OriginalSin
* The criminogenic environment endemic to high finance – without regulation and severe penalties, nothing stops the white collar gangsters
* Kleptocracy, Plutocracy – the usurping of political power by the Capital class.
Sir Angus makes some allusions, but they only scratch the surface. You’re not going to get better wages or be rid of political dysfunction if you believe that capitalists are interested in “democracy”.
Have Deaton and Hudson ever gone out for coffee?
If not, they should … ;-)
To get rid of inequality we must:
1. take money out of politics–political parties are each assigned money from the government in order to run elections. Elections must be closely monitored and infractions treated harshly.
2. get rid of the revolving door where politicians becomes financiers after they leave politics and where financiers become the politicians we don’t need or want.
3. create parties that are gender equal where just as many women are elected as men.
4. use anti-trust laws to break up large corporations that make billions of dollars by various means–mergers and acquisitions, private equity, monopoly, etc.
5. where the large corporations are multi-nationals, create democratic laws that make sure they pay full taxes and pay employees living wages with benefits. Allow unions wherever they are needed or wanted.
6. tax real estate and prevent rentier profits.
7. make sure that those who run for election are not all lawyers or financiers: those elected should reflect the nature of the democratic population of the country.
8. make sure that certain systems are never run by private investment: water supply, transportation, communication, healthcare, education, and any other groups that create the public good. Private companies need to have lots and lots of rules governing them otherwise they become monstrous.
9. do away with tax havens by publicly naming and shaming (via e.g., The Taxcast Network).
10. create a public and private sphere that is vibrant and mutually accessible which can deal with the major problems of our time: i.e., climate change, pollution of rivers and land, deforestation, ocean pollution, decline of other species, poverty, homelessness.
11. protect the Commons.
Sound of the Suburbs is correct – the massive propaganda today (the airwaves are land in the economic sense) justifying unearned wealth is a huge tell. MMT, a misnomer by the way, is correct and would allow for a much needed, albeit short term, injection for all who are cash poor. In the long run though, rents will rise and ultimately will be absorbed back to the ‘un-earners’. MMT punts on long term, systemic inequality. Wray, Kelton, Keen, Mitchell …to my knowledge have not addressed this.
An interesting aside, Abba Lerner of functional finance was influenced by Henry George, one of the greatest American economists shapers of history love to forget…
What claptrap! I met Angus Deaton in Berlin a few years ago when my publisher, Klett Cotta, was publishing his book and one by David Graeber, and we addressed the audience.
Angus went first: He described entrepreneurs as much like the movie The Great Escape, escaping from public regulation with wonderful free markets. I almost got up and said that the escapees were all killed, and was that his point? But I only talked about my book, Der Sector (Killing the Host auf deutsch).
Later, we three were to have had a press conference, but Angus said he refused to appear with someone who did not believe in capitalism. I don’t know if he meant David Graeber or me.Note that the wealthy oligarchs were willing to tolerate taxation – of land, in order to make money by industry and finance. But NONE of these progressive changes of the 19th and even 20th centuries have been strong enough to confront the need for debt cancellation and full taxation of land rent and kindred unearned income.
Mr. Deaton says nothing about the debt overhead. He talks of a “safety net, not debt cancellation. He describes the RESULT of debt-ridden economies, but cannot bring himself to analyze the causes of the FIRE sector’s devastation.
“Later, we three were to have had a press conference, but Angus said he refused to appear with someone who did not believe in capitalism.”
Incredible. As one ‘believes in God,’ one must ‘believe in capitalism.’ And if one does not, one is to be shunned. This man is a symptom not a solution.
Capitalism is like a faith, isn’t it. The great heroes who grow the economic base for exploitation are saints; the public lapses of integrity are the martyrs, and the walled estate with guard dogs, alarms and watchmen is Heaven.
Years ago I acquired a book by Martin Prechtel: “Secrets of the Talking Jaguar.” Of Native American ancestry, Prechtel joined a small Mayan tribe in Guatamala. He describes the tribe’s yearly festival, where the prosperous members of the tribe were expected to share their wealth with the less fortunate members, thus ensuring that everyone had food and blankets for the winter. Then the missionaries arrived. They were aghast at the practice and convinced the wealthy members to stop sharing. Of course the tribe rapidly ended up with just a few people with everything and the rest with almost nothing. To me, this is a much more apt description of capitalism. Also, what the report leaves out as a reaction was the French Revolution, which, as you know by now, is the one I favor.
That’s the message that Michael Hudson has been propagating with his book “…. and forgive them their debts.” The check on debt forgiveness was greatly progressed by the Rabbi Hillel at the time of Jesus and the Roman occupation by drafting a clause to add to every debt contract requiring the debtor to forego the benefit of debt relief. This was the major defeat of Jesus’s program in his life. Had it not been so the world might today be a better place. Unfortunately successive Popes to the present day have all liked the money more than the pastoral work.
A similarly shameful process took place on Canada’s west coast when authorities stamped out the potlatch culture.
can i curse, mildly?
what the HELL is “democratic capitalism”? much less, is that what we have ever actually had? if this ever actually applied, it was possibly only during the late 19th/early 20th centuries, yes?
those words suggest nothing but public ownership and/or co-ops to me. and that is NOT what we have. for all of its vaunted “upswelling from the bottom”, capitalism is thoroughly planned by a small group of people, to mostly benefit an even smaller group of people.
Thanks for joining in Michael!!! Good to hear you!!
“The hand that gives is among the hand that takes. Money has no fatherland, financiers are without patriotism and without decency, their sole object is gain.” — Napoleon Bonaparte