In graduate school, a professor casually commented that unemployment is a privilege of the rich. The poor simply cannot afford to be unemployed, he argued.
I had a question right then but did not ask. I was way too self-conscious about my accent and I worried that I might have to repeat the question in order to be understood. I stayed quiet. The question was this: What if people are working but the returns are next to nothing. You know, like slaves. Like hamsters running forever but not really going anywhere.
That question continues to bug me. I have forever worried that the automation means that owners of those digital abstractions will get to hoard way more money than ever before. This, in a political environment that discourages redistribution of income, will lead to workers working away but ...
The NY Times adds more to my worries, via this chart:
The message is straightforward. Only a few decades ago, the middle class and the poor weren’t just receiving healthy raises. Their take-home pay was rising even more rapidly, in percentage terms, than the pay of the rich. ... In recent decades, by contrast, only very affluent families — those in roughly the top 1/40th of the income distribution — have received such large raises. Yes, the upper-middle class has done better than the middle class or the poor, but the huge gaps are between the super-rich and everyone else.
Megan McArdle, who is by no means left of the political-economic center, writes about the slow wage growth even though unemployment rate is at a low, low 4.3 percent:
So this slow wage growth may simply be what the labor market now looks like. Earlier eras of tight labor markets produced big increases in wages, but those increases were matched by rising worker productivity. Today, employers striving for productivity may replace the worker altogether, either by outsourcing to a lower-wage country or by giving that job to a machine. So the biggest mystery is not why U.S. wage growth seems stuck even as unemployment falls. The biggest mystery is how we’re going to adjust our economy, our culture and our politics to the new normal.
It is no mystery to me--I have forever blogged about the need for a new social contract. If only this president and his minions, and the likes of Paul Ryan and Mitch McConnell who manically advocate tax-cuts for the wealthy, will honestly respond to these real trends, instead of inventing their own alternative facts!
In one of my many favorites of George Carlin's routines, he makes fun, in his trademark manner, the arrogance that we humans have when interacting with nature. Carlin mocks how we build homes next to volcanoes and wonder why there is lava in the living room.
But, even George Carlin couldn't force people to think and act sensibly. What chance do I have then, right?
Of course, my Quixotic pursuits mean that I have yelled and written about that kind of madness too.
Back on March 3, 1997--yes, almost 17 years ago--the Bakersfield Californian published my op-ed in which I questioned the sanity behind "locating a home or a business in a flood plain in the first place." To me, this is simply asking for trouble. And when homes get flooded, we immediately demand that government bail out the homeowners.
Instead of asking such "real" questions, we insist on playing Russian Roulette with the chaotic forces of nature. The result is that it has become quite common for every natural happening to be labeled a disaster.
If we were rational, then we would not build homes in flood plains and by the coastlines. We would keep a safe distance between those natural boundaries and our built environment. But, irrational we are. And worse than being irrational, we are irrationally arrogant!
Here is the irony: in poor countries--think Bangladesh, for instance--it is the poor folk who live in those dangerous lowlands. Because they cannot afford any better. Here in a mighty rich society, it is the other way around--the richer one is, the closer they want to have their buildings near the pounding waves and the flowing waters.
So, ask yourself this: when we bail out these rich folks, does it not mean that poor in inner cities or rural hinterlands are being shortchanged?
But, who ever listens to me!
Which is why I nearly fell off the chair when I read a Wall Street Journaleditorial that came out swinging with this opening sentence:
Federal flood insurance is a classic example of powerful government
aiding the powerful, encouraging the affluent to build mansions near the
shore
Say what?
Congress finally had the gumption to reform the program in 2012, but now
the beachfront homeowner and housing lobbies are trying to reverse this
progress.
Imagine that! Thanks to a bipartisan reform signed into law by President Obama, "the federal insurer is slowly raising its rates to actuarially sound levels" and that is being opposed by lobbies, when the beneficiaries are the rich. How insane is that?
When Republicans hear such good sense from
the Obama Administration, they ought to embrace it. They should not
endorse another taxpayer subsidy for those who want to live next to the
ocean while sticking others with the costs of their lifestyle.
My failure to influence any action is easily understandable. You, dear reader, are as powerless as I am.
You think the mighty Wall Street Journal and its allies will be able to fight those lobbies that are active on behalf of the one-percent?
I doubt it. "We the people" will always get screwed over and over.
Maybe my problem is that I don't dream enough to be in the one percent ;)
One of the serious essays that I read after the Costa Rica trip was this essay by Greg Mankiw, in which he lays out his defense of the one-percent. I am surprised not with his wanting to defend the one-percent--after all, he has always been in the Bush and Romney camps--but with the approach that he took. Mankiw seemed to offering a kind of unsophisticated moral and political philosophy interpretation that might be expected only from half-baked pseudo-intellectuals like this blogger!
I wouldn't be as harsh as Jonathan Chait, but I am on his side when he writes:
Mankiw — perhaps admirably, or at least bravely — ventures completely outside his area of expertise, economics, into moral philosophy. The result is — well, there’s no other way to put it. It’s an embarrassing piece of ignorant tripe.
Yet, I admire Mankiw for admitting, for acknowledging, that debates and discussions on income distribution in society cannot be simply resolved via econometrics:
fundamentally normative conclusions cannot rest on positive economics alone.
If only economists would make this clear to the public every single time they convey their research findings. If only they would stop claiming that economics is a science that can help in public policy decisionmaking! If only Mankiw himself would recite it every time.
And, yes to Mankiw when he makes clear up front:
At the outset, it is worth noting that addressing the issue of rising inequality necessarily involves not just economics but also a healthy dose of political philosophy. We economists must recognize not only the limits of what we know about inequality’s causes, but also the limits on the ability of our discipline to prescribe policy responses. Economists who discuss policy responses to increasing inequality are often playing the role of amateur political philosopher (and, 3 admittedly, I will do so in this essay). Given the topic, that is perhaps inevitable. But it is useful to keep in mind when we are writing as economists and when we are venturing beyond the boundaries of our professional expertise.
Give the man his due, I say, for stating that loudly and clearly. We can then at least agree that income distribution discussions come down to how much we are able to persuade the audience. Can we convince them that our way of thinking about it is correct? Econometrics is only as good or as bad a tool as simple rhetoric can be. Yes, I am channeling D. McKloskey here.
Anyway, in that essay, Mankiw writes:
Some of the largest income disparities are observed between nations. If a national system of taxes and transfers is designed to move resources from Palm Beach, Florida, to Detroit, Michigan, shouldn’t a similar international system move resources from the United States and Western Europe to sub-Saharan Africa? Many economists do support increased foreign aid, but as far as I know, no one has proposed marginal tax rates on rich nations as high as the marginal tax rates imposed on rich individuals. Our reluctance to apply utilitarianism at the global level should give us pause when applying it at the national level.
Exactly. We are ok with California and New York sending in more dollars to DC in taxes than they get back from Congress. Alabama or Mississippi are examples at the other end--they get more from DC than they remit as taxes. Such national-level redistribution is considered acceptable, but not if we extend the courtesy to Ethiopia. Even though Ethiopians are immensely poorer than the poorest in Alabama.
The tribal behaviors of the past, when humans helped out only their group are understandable. But, we now live in a world in which people effortlessly seem to take on new identities. I am an American citizen who came from elsewhere. This entire country is full of such narratives; if not first-hand, then one only needs to go back a few generations to find out where the people came from--with the exception of the Native Americans, who are now a minority in their original lands. Yet, we so easily defend not caring about the rest of the world even when we are ok with massive internal income distribution, to individuals and geographic areas alike.
It is so arbitrary a line that we draw, a political boundary. We then defend it with words and with guns. We then even claim that Indians and Chinese are taking away "our" jobs, as if "we" are the only ones entitled to those jobs and incomes. But, really, do "they" not bleed when pricked? If tickled, do they not laugh? If poisoned, do they not die?
So, yes, income inequality and redistributing incomes and wealth really does come down to our own versions of moral philosophy and how we justify them.
We use our own yardsticks to continue to define and re-define the tribes to which we belong and we want to make clear the us-versus-them distinctions. Income inequality is merely one such example in which we demonstrate this tribalism.
We humans are a very strange life form on this planet.
As a starving graduate student--ok, "starving" is an exaggeration--every once in a while I played the lottery. I typically bought a quickpick lotto ticket for a dollar--this was back in California. It was always a disappointment that I never had even two numbers that matched with the winning ones. I comforted myself with "unlucky with money, but lucky in love."
And then I won.
Five dollars!
And those five dollars is all I have won all my life in playing the lottery. I was excited that I finally won something. So elated I was, I immediately spent it all on, yep, five lottery tickets. And, yep, no more wins.
The "starving" graduate student!
As life picked up, it seemed like I had gotten to be lucky with love and with money.
But ... it then became a stereotypical country music song that I live: dog died, wife gone, and no money :)
Of course, "no money" is one heck of an exaggeration.
What I earn now will place me in the global top one percent. Yep, I am one of those awful one-percent.
But, I don't feel like I am in that kind of an economic stratosphere because I don't get to see the more than six and a half billion whose lives are nowhere even close to my level of material affluence. I can, however, and pretty much on a daily basis, see those who are even more affluent.
But, I am almost always content and happy. One student, "D," who every once in a while pokes his head into my office, comments variations of "we shouldn't pay you because you look happy all the time." "D" is not wrong at all; I am sure my contentment shows.
Is there a relationship at all between material affluence and contentment and happiness? I would think that the longest stretch of not at ease within were during the days--years actually--from the final phase of high school until I came to the US. That was one long stretch of about seven years. But, it wasn't because I was penniless and thrown into the gutters. It was simply because of angst within. The wonderful food that my mother cooked or the pleasing music or anything else were comforting, yes, but that angst triggered unhappiness was always there.
It is not without reason, I suppose, that we mouth that old wisdom that happiness comes from within. It is true, dammit. Money certainly helps, but I guess money is neither a necessary condition, nor a sufficient condition, to make one happy. Could I be happier with a tad more money? You betcha! But, do I do anything at all with a goal of increasing my material affluence? Hell no. My life isn't about making more money for myself.
My interest in economic development, which led me to graduate school, meant that I read up about this happiness aspect of economic development as well. A mere maximization of the GDP didn't appeal to me as the be all and end all of how to think about poverty in the developing countries. After all, I had seen plenty of poor in India who seemed to be having fun in life. They seemed happy from what I observed. Many with money seemed nowhere that happy from what I observed.
One of the articles I read was by Richard Easterlin. Interestingly enough, Easterlin was on the faculty at USC at that time, and two graduate students from India, who were friends of mine, were working with him on their doctoral dissertations. Anyway, the article was about the "Easterlin Paradox"--happiness across countries did not seem to relate to per capita incomes. Simply put, more money doesn't mean more happiness.
That paradox, as one can imagine, appealed to me right away. It was consistent with my own life experiences, though I hadn't had all that experience when I was barely 25! It made intuitive sense that money alone does not get happiness.
But, I would think that if one is literally starving for food because of poverty, then money could bring in immense relief and happiness. One could then theoretically argue that as we climb up those economic levels then the happiness brought in by the additional dollar is not as much as the happiness brought in by the first dollar.
Ronald Bailey writes in Reasonthat, well, I am wrong--more money is more happiness:
Two economists at the University of Michigan, Betsey Stevenson and Justin Wolfers, reject the Easterlin Paradox. Their new article, published in the May American Economic Review—argues that more money does buy more happiness. As evidence, the two compare happiness measures between rich and poor countries and between rich and poor people within countries.
After discussing the research findings, Bailey winds down to this:
There is no income threshold when it comes to procuring more of this kind of happiness. It is certainly wonderful and valuable to enjoy the moment, but real and lasting pleasure comes from a life well-lived. More money can’t guarantee a satisfying life, but research shows that it sure does help.
My point exactly. Money is neither a necessary nor a sufficient condition for happiness. But, having money does help.
We have reached a point in discussions on income inequality in the US where there is practically an unanimous agreement that inequality has widened. The disagreement is in the "so what?"
One tempting question then is always this: in a democracy where every voter has the same number of votes--one--irrespective of the millions they own or the thousands they owe, then how come the ballot is not used effectively to trigger a greater redistribution?
Once again, Nicholas Lemann provides an insightful book-review essay, in which he concludes:
[That] ninety-nine per cent of Americans are being left behind economically isn’t of much use politically. The ninety-nine per cent is too big a category to be an effective political force. For all that, inequality already is a political cause, though in strange and unexpected ways. ... But if we are to go further—and get the political system to try seriously to reverse the trends of the past thirty years—somebody will have to figure out how to stitch together a coalition of distinct, smaller interest groups that, in their different ways, care deeply about inequality, and, together, can pressure Washington in favor of specific policies. It’s an unlovely business, but if you believe that government is the best instrument with which to address the problem it’s also a morally urgent one.
In other words, it is all a restatement of that classic argument offered by Mancur Olson in The Logic of Collective Action. I wish Lemann had highlighted Olson's arguments in this context.
Doesn't the following chart tell one heck of a story:
[The] take of the very rich peaking in the late
nineteen-twenties, at close to twenty per cent of total income, then
falling sharply for forty years, only to turn back up in the late
nineteen-seventies, and peak again in 2007.
Cassidy links to this paper, where the authors provide a similar looking chart for changes in the top income decile:
The question is always the same, right: why bother about income distribution? Among other reasons, we want to understand how much of the national income goes to the top one and ten percent because of:
their impact on overall growth and resources, their impact on overall inequality, and their global significance.
Yes, without thirty years of rising inequality, and with the same overall national income, income of the middle class would have been greater. People with middling incomes have many more priority needs to satisfy before they become preoccupied with the best investment opportunities for their excess money. Thus, the structure of consumption would have been different: probably more money would have been spent on home-cooked meals than on restaurants, on near-home vacations than on exotic destinations, on kids’ clothes than on designer apparel. More equitable development would have removed the need for the politicians to look around in order to find palliatives with which to assuage the anger of the middle-class constituents. In other words, there would have been more equitable and stable development which would have spared the United States, and increasingly the world, an unnecessary crisis.
The government’s social safety net, which has long existed to catch those who are down and help them get back up, is now being used as a hammock by some millionaires, some who are paying less taxes than average middle class families.
After reading that, one might be tempted to think it came from one of the Occupy Wall Street people, or The Nation magazine, or any one of the left-leaning faculty.
Guess again.
It is from a report titled The Subsidies of the Rich and Famous from, get this, Senator Coburn, who has solid conservative credentials and a strong conservative voting record. On this issue, I suppose he will be in good company with Ralph Nader, which, I would have assumed, will never ever happen :)
Americans are generous and do not want to see their fellow citizens go without basic necessities. Likewise, we expect everyone to contribute and to demonstrate personal responsibility. Government policies intended to mainstream wealth redistribution are undermining these principles. The tragic irony is the wealth in these cases is trickling up rather than down the economic ladder. The cost of this largess will thus be shared by those struggling today and the next generation who will inherit $15 trillion of debt that threatens the future of the American Dream. These consequences are the results of shortsighted spending and tax policies like those outlined in this report that should be eliminated.
When even Coburn worries that wealth is trickling up, hey, there ought to be something seriously wrong here.
Whenever I read anything that Raghuram Rajan writes, I find that I have nothing to disagree with him. Of course, the extra affinity for the shared cultural background is a bonus :)
While eliminating inefficient spending, especially inefficient tax subsidies, can generate some of these funds, more tax revenues may be needed. The rich can certainly afford to pay more, but if governments increase taxes on the wealthy, they should do it with the aim of improving opportunities for all, rather than as a punitive measure to rectify an imagined wrong.
This is the distinction that the populist leaders and the OWS people do not make--they come across as angry people who want to punish the one-percent and seem to channel the old revolutionary and anarchist argument that all property is theft. As Rajan points out:
It ignores, for example, the fact that many of the truly rich are entrepreneurs. It likewise ignores the fact that many of the wealthy are sports stars and entertainers, and that their ranks include professionals such as doctors, lawyers, consultants, and even some of our favorite progressive economists. In other words, the rich today are more likely to be working than idle.
But then such sit-down discussions won't help, right, in the contemporary atmosphere of loud, knee-jerk, talk whether it is from the left or the right!
Full disclosure: I am nowhere near the one-percent :)
As Rajan also notes, education will be key, yes. But, not the kind we do now. In fact, students seem to be systematically avoiding the kind of education that will be needed for our collective prosperity--the sciences. Students avoid the harder subjects and swing to easier majors, like geography (!):
Although the number of college graduates increased about 29% between 2001 and 2009, the number graduating with engineering degrees only increased 19%, according to the most recent statistics from the U.S. Dept. of Education. The number with computer and information-sciences degrees decreased 14%.
And then we import students into these very fields! (not that I am complaining about that in particular.) One of the many reasons why students avoid these potentially remunerative fields:
Science classes may also require more time—something U.S. college students may not be willing to commit. In a recent study, sociologists Richard Arum of New York University and Josipa Roksa of the University of Virginia found that the average U.S. student in their sample spent only about 12 to 13 hours a week studying, about half the time spent by students in 1960. They found that math and science—though not engineering—students study on average about three hours more per week than their non-science-major counterparts.
The more I think about all these, the more I wonder why I even bother to get all worked up about these issues.
Instead, I can go about my life disconnected from these, show up at my classes, grade their work, collect my paycheck and say thanks.
Bank of America should be renamed Bank of Jerkmerica
A simple "We're sorry"
Corporations should be handing out more free promo items if their profits exceed $1 billion, even if it's just hats or those stupid foam cup-holder things
Arcade Fire to play one set for them or, if they're unavailable, Spoon
European-style socialist state so we can enjoy the same economic prosperity they do
Lower tuition at the private universities in the Northeast they chose to attend instead of in-state public colleges
Cheaper Odwallas
Holding senior executives accountable for the massive wealth lost and the millions of families they destroyed and making them feel really, really guilty about it
I don't want students to #OccupyWallStreet,. I want them to occupy college public spaces and protest about how they are getting screwed
So, naturally, it didn't surprise me one bit when I read the following:
The 99 Percenters who fell into the college loan trap are not evil or stupid to want someone to blame when the mantra they’ve heard since kindergarten—get A’s, stay involved, get a degree—ends up being useless (or in the case of those deep in debt with no tangible skills, worse than useless). But where the protestors get it wrong is that they’re occupying Wall Street instead of the real culprit—State U.
The same piece adds:
The sad truth is that a college education is oversold. There are too many graduates with too many degrees chasing too few jobs. More than half of the fastest growing jobs—contrary to popular belief—are not in fields requiring a 4-year degree. And none of the fastest growing sectors require an unspecified degree in liberal studies or the arts—they require specific skills like nursing, engineering, or plumbing.
A college education, just like an investment made by Wall Street stockbrokers, is a risk. Students, like the investors, have a responsibility to themselves ignore the hype and read the fine print before gambling their time or money. And colleges should stop marketing junk bond-level degrees as blue-chip investments.
None of those arguments is new in this blog. The plight of students saddens me a lot. I am angry and frustrated to see the system giving them a Hobson's Choice when it comes to college. I am utterly disappointed that the pursuit of knowledge and intellectual activities have been reduced to such levels of ponzi schemes.
I don't expect the kids to understand basic economics any better than their leftist profs, who are about as well-schooled in economics as the anti-capitalist crazies who have been occupying Cesar Chavez park a couple blocks from my office. These university folks are using our kids as pawns for their greed.
As much as I appreciate the catchy slogan that is, I am annoyed by the usage "99 percent" to describe the population seriously affected by the ongoing economic crisis. This is more serious than my irritation with the phrase "buy local" when it ought to be "buy locally." At least that is a grammar issue, unlike this one which is completely messed up.
American households right at the 99th percentile (that is, the cut-off for the top 1 percent) will earn about $506,553 in cash income this year, according to a Tax Policy Center analysis.
That is right; by chanting "99 percent" the mob is including in the same category those corporate lawyers and Wall Street investment bankers too, when these are, along with a few others, the very people the "99 percent" chanters oppose and detest.
If the definition is based not on incomes but on wealth, then the story is no easier:
The cutoff for the 99th percentile in net worth was $19,167,600 as of 2007, based on this research.
That means, of course, that the bottom 99 percent of Americans includes an awful lot of millionaires.
Surely the protesters are not fighting for more cakes and wine for the millionaires, are they?
And because we don't get a handle on this--emotionally and rationally--we then walk around with mistaken notions of where we are along this economic continuum:
Poor people consistently overestimated their rank, and rich people consistently underestimated their rank:
The authors suggest that this misperception may be related to the types of people respondents interact with, and therefore use as a reference point. If you’re mostly exposed to people earning about as much as you, you’re likely to think your earnings are average.
Now, this is within the United States. What about our individual standing in the world?
The Global Rich List can help you out: at this site, you can type in your annual income and it will tell you where you rank in the world. For all the awfully low salary I earn as a college professor at Podunk U., it turns out that I am in the richest 0.9 percent of the world!
Meanwhile, there is this poster going around to describe this global 99 percent perspective:
So, what is my point? Drop the damn slogans and discuss the problems. The biggest problem of all, here in the US, is the nasty level of unemployment, with seemingly no end in sight.
