Posts Tagged ‘class’

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Special mention

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Just about a year ago, I reported on the plan to build a mixed high-rise apartment building in New York City that would have separate—rich and poor—entrances.

Well, that plan has just been approved by the city.

The building, one of the last Riverside South towers, at 40 Riverside Boulevard, will be 33-stories with 219 luxury condo units and 55 affordable rental units. The affordable housing allowed Extell to increase the overall size of the project under the Inclusionary Housing Program, although a more accurate name, in this case, would probably be something along the lines of the Inclusionary, But Not That Inclusionary Housing Program. While the luxury condos face the water, the affordable units will be segregated into a street-facing “building segment,” with the separate entrance located in the back of the building. “This ‘separate but equal’ arrangement is abominable and has no place in the 21st century, let alone on the Upper West Side,” local Assembly member Linda B. Rosenthal said after the “poor door” plans came to light last August.

In addition, low-income residents will have separate elevators and will not be able to use some of the building’s facilities—such as gyms, storage units, rooftop space—which will be reserved for high-income residents.

According to the Real Deal, that’s just fine for other developers in the city.

“No one ever said that the goal was full integration of these populations,” said David Von Spreckelsen, Senior Vice President at Toll Brothers, told The Real Deal. Toll Brothers’ 1 Northside Piers in Williamsburg, Brooklyn, has separate entrances. “So now you have politicians talking about that, saying how horrible those back doors are. I think it’s unfair to expect very high-income homeowners who paid a fortune to live in their building to have to be in the same boat as low-income renters, who are very fortunate to live in a new building in a great neighborhood.”

Apparently, as corporations acquire legal personhood and new discriminatory rights, class segregation is becoming established as the law of the land.

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Special mention

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I’ve written more than a bit over the years about taxes, distribution (including predistribution), and Modern Monetary Theory.

But I’ve mostly treated them as separate issues (except here). Randall Wray [ht: br] has brought those issues together, building on Rick Wolff’s argument against raising taxes as the solution to inequality.

Rick is absolutely correct that when the public begins to see taxes as a payment for services rendered, then they start trying to calculate whether their own payment is “fair”.

That is a primrose path to hell so far as government services are concerned. Since around 1970 that is exactly what has happened to state and local government finances. In the economics literature it is called “devolution”—moving provision of most government services to the state and local government level, and forcing them to pay for it with taxes.

It encouraged the “donut holes” that devastated cities as the more affluent whites ran off to the suburbs.

With new infrastructure and higher income and wealth in the ‘burbs, relatively low tax rates could provide good services. The cities that were left behind had to raise tax rates on an ever-shrinking tax base to try to provide even basic services.

Witness Camden, NJ, which has essentially abandoned large swaths of its jurisdiction to “Escape from New York” dystopia.

This “stakeholder”, “taxes pay for the goodies I get” view has already reduced much of America to third world living standards. No wonder that Regressives pushed the devolution that wiped out cities.

Now the Progressives want to do the same at the Federal level.

The notion that you’ll significantly reduce inequality through taxes on the rich is a pipedream. How high would taxes have to be on the top few tenths of a percent? 50%? 75%? Forget it. They’d still be filthy rich and you’d be poor by comparison.

As I said in the first instalment [sic], we don’t need taxes for revenue. We can justify taxes on the rich not for revenue purposes but as sin taxes. Look at it this way. Let’s raise sin taxes on the rich to reduce the sin of ill-gotten gains.

How high? 100%? Nay, 1000%. Take everything: all their income, all their wealth, the house, the car, the dog. Don’t let crime pay.

Wray and Wolff agree there are far better and more effective ways to solve the problem of inequality in the United States today than to tinker with tax rates.*

 

*I’m pleased to see a first step toward an alliance between the views of Modern Monetary Theorists and Marxists (which apparently I was accused of back in 2011). But for that theoretical alliance to develop, we’re going to have to convince Marxist economists to give up their view that “taxes pay for government services” and MMTers to consider the significance of the processes whereby the surplus is produced and distributed.

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After learning that Joseph Stiglitz had been invited to give a lecture on inequality at the University of Oxford, I asked my friend Stephen Whitefield, Professor of Politics, University Lecturer in Politics, and Rhodes Pelczynski Tutorial Fellow in Politics, Pembroke College, to offer his sense of Stiglitz’s lecture. I am pleased to publish his comments here.

It was a huge pleasure for me and my college (Pembroke) and my Department (Politics and International Relations), with the support of the UK Fulbright Commission, to welcome Joseph Stiglitz back to the University of Oxford to deliver the 4th Annual Fulbright Distinguished Lecture. Stiglitz had been Drummond Professor of Political Economy in Oxford in the 1970s. Of course, he won the Nobel Prize for his work that shows, as I understand it, that when markets don’t function with perfect information—that is to say, almost always–then there is also always room for government intervention to improve welfare outcomes. That was a huge turn in the debate, even if many mainstream economists and their political allies/masters have yet to catch up.

Stiglitz was in Oxford to talk about “The Causes and Consequences of Inequality and What Can Be Done About It,” which topic marks another great turn in the debate about what kind of political economy we want, from thinking that inequality is irrelevant, since all boats are rising, to thinking that inequality matters, because it makes just about everything worse, at least when it is at very high levels. Stiglitz was of course also central to shifting the current of academic opinion on this topic. And he demonstrated in a brilliant talk—which everyone can link to here (as a podcast or video)—that he is not averse to turning that scholarship into powerful and persuasive accessible language. I have also to add that Stiglitz is a great person to talk to. As Ngaire Woods, his old friend, said in her introduction to his lecture, Stiglitz listens to people.

So, I know he will not be at all put out if he reads me to say that, while his dissection of the causes and consequences of inequality was outstanding, his discussion of what can be done about them was rather light. I told him that myself at dinner afterwards, as did others. I am sure that a lot of that would have been sorted out if he had had more time to talk. After all, he is not at all short of policy prescriptions, as are others like Thomas Piketty, who advocates a global wealth tax. But the problem is not that there is a lack of policies to put forward. In my view, the main problem is with the lack of a clear vision about how to build the political alliances that are necessary to enact those prescriptions. Maybe Stiglitz is right that things look better in places like Brazil and that we can learn things from its experience. Becoming Swedish, however, even if we thought that an attractive proposition—and I still have Per Wahloo in mind when thinking about Swedish Social-Democracy—is just not an option. So, how do we create a winning coalition against inequality that looks plausible and appropriate to our national conditions?

Well, I don’t know the answer to that right now. But here is a gesture in that direction. First, an irony—that he gave this talk in Oxford where we are of course constantly seeking the support of the 0.01-percenters, including to fund a chair to commemorate Senator Fulbright in my college and department. There were a number of such people in the lecture theatre. But note next something we all know (or strongly believe since Wilkinson and Pickett), that in highly unequal societies even the richest 1 percent appear to have worse health outcomes compared to their counterparts in more equal societies. Stiglitz did not offer a very convincing explanation as to why this is the case. He put it down to stress, which is possible but not very plausible on the face of it. Susan Kelly, who is a medical sociologist at the University of Exeter, puts a more likely hypothesis to my mind: over-treatment. There is apparently a negative correlation at the top end between numbers of physicians and health outcomes. But, who knows? A good question to research. . .

But, to return to my point about the political coalition to implement a reduction in levels of inequality, what we need to know is this: who are the political actors interested in doing this? This was not addressed in any explicit way by Stiglitz, and it seems to me a characteristic of even progressive policies presented by scholars that the questions of who will implement them and in whose political interests they are enacted are seldom on the table. There is talk—just—in analyses of inequality of class but not much about class interests or class actors. Now, there was an implicit answer in Stiglitz’s talk. Perhaps it is the enlightened rich who will use their massive power to reduce inequality, because they will come to see that it is harmful to their interests. Maybe. I have my doubts. Certainly I would not expect inequality to come down to the levels that I would find economically, socially, or politically appropriate if those were the political forces driving it.

But if not the rich, then who? By the admission of all involved in the analysis of inequality, the period from around 1930 to 1980 was one of declining inequality and of course in the post-WWII period of rapid economic growth as well. A time also, not coincidentally, of strong organised trade unions and a mobilised working class. All that is recognised. Less so is the counterpart in international relations, the existence of the Soviet Union and then the Communist bloc and the international communist movement, which presented an alternative to capitalism that many working-class people found attractive and the rich found terrifying enough to make significant concessions. I suspect it takes a stick as well as a carrot to make the rich see their self-interest differently.

Almost all of that historical moment is gone now, and not all for the bad. As a student of the Soviet system, I only lament it when thinking about the appalling kleptocracy that emerged from its womb, to use Marx’s kind of metaphor—a kleptocracy that aspired to be as rich as our own oligarchs. But we should remember that the creation of unions and left movements was the work of generations of intellectuals—I mean that in the broadest Gramscian terms—to create not just policies but first and foremost social and political actors. Perhaps that is what we now need to concentrate on imagining, not to mention doing.

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Capitalism, to be sure, comes in different—more or less unequal—forms.

For example, the less unequal form of U.S. capitalism in the three decades following World War II was different from the periods before the first and second Great Depressions, when capitalism in the United States became increasingly unequal. The same is true across countries—in the sense that the forms of capitalism in Scandinavia are less unequal that what we are living through in the United States.

But at the heart of all forms of capitalism is a fundamental inequality: between workers and owners, between those who produce the surplus and those who appropriate and receive distributed cuts of it. Those groups play different roles and engage in different kinds of economic behaviors. For example, workers sell their ability to work, most of their income takes the form of wages, and they’re able to save relatively little; owners and high-level corporate executives are able to capture what others produce, their incomes consist of both salaries and other returns on capital, and they can save and invest a large percentage of their incomes.

That basic inequality is mostly hidden or overlooked within mainstream economic theory. But, it seems, in the debate surrounding Thomas Piketty’s new book, at least some people are discovering or finding ways of articulating the fundamental links between capitalism and inequality.

As we saw yesterday, Seth Akerman gets it:

The statistical image that emerges from these numbers is neither Piketty’s vision of rising returns to “capital” as such, nor Krugman’s picture of an increase in returns to managerial “labor.” Rather, we see the burgeoning of a general surplus: an excess of national income over and above what’s needed to pay the nation’s non-managerial workers, appropriated broadly by all those who control capital — whether as shareholders, managers, or financiers.

So does Branko Milanovic, who, in challenging the latest attempt to undermine Piketty’s argument (by Debraj Ray), makes some rudimentary observations that most mainstream economists choose to ignore:

Let me now explain why I disagree with Debraj. While r>g (or r>=g) may be a feature of all growth models it is still a contradiction of capitalism for three reasons: because returns from capital are privately owned (appropriated), because they are more unequally distributed (meaning that the Gini coefficient of income from capital is greater than the Gini coefficient of income from labor), and finally and most importantly because recipients of capital incomes are generally higher up in the income pyramid that recipients of labor income. The last two conditions, translated in the language of inequality mean that the concentration curve of income from capital lies below (further from the 45 degree line) the concentration curve of income from labor, and also below the Lorenz curve. Less technically, it means that capital incomes are more unequally distributed and are positively correlated with overall income. Even less technically, it means that if share of capital incomes in total increases, inequality will go up. And this happens precisely when r exceeds g.

It is indeed a contradiction of capitalism because capitalism is not a system where both the poor and the rich have the same shares of capital and labor income. Indeed if that were the case, inequality would still exist, but r>g would not imply its increase. A poor guy with original capital income of $100 and labor income of $100 would gain next year $5 additional dollars from capital and $3 from labor; the rich guy with $1000 in capital and $1000 in labor with gain additional $50 from capital and $30 from labor. Their overall income ratios will remain unchanged. But the real world is such that the poor guy in our case is faced by a capitalist who has $2000 of capital income and  nothing in labor and his income accordingly will grow by $100, thus widening the income gap between the two individuals.

In their different ways, what Ackerman and Milanovic are arguing is that there is a fundamental class inequality at the heart of all forms of capitalism.

 

It’s clear we are in the midst of an acute period of inequality: not only of grotesque levels of economic inequality (which are now well documented) but also of a wide-ranging discussion of the conditions and consequences of that extreme inequality (which appears to be taking off).

There are, of course, the deniers, like my dear friend Deirdre McCloskey. What inequality, is her mantra. The only thing that matters is economic growth, such that the amount of stuff people have today is much more than they’ve had throughout much of human history. OK, but that doesn’t tell us much about how that growth took place (it’s the surplus, Deirdre) or what it’s consequences are (on the majority who actually produce the surplus versus the tiny minority who appropriate it).

And then there are those who are actually thinking seriously about inequality, some of whose work is published in the latest issue of Science (a lot of which, unfortunately, is behind a paywall). Leave aside the silly article on econophysics (really, the existing distribution of income is a kind of “natural inequality,” which is what you would get from entropy?), the article that focuses on the psychological pathologies of the poor (what about those of the rich?), and the fact that all the economics is narrowly confined to mainstream theories (which have done more to deflect attention from, as against the wide range of heterodox theories that have actually focused on, inequality over the course of the past three decades). Just the fact that a special issue of such a prestigious journal is devoted to the problem of inequality tells us something about how it has risen to the top of our agenda.

And it offers lots here to think about: the types of inequality that can be found in the archeological record (Heather Pringle), the absence of fundamental inequalities in hunter-gatherer societies (Elizabeth Pennisi), the devastating effects of inequality on health (Emily Underwood), growing inequality in developing countries (Mara Hvistendahl and Martin Ravallion), the intergenerational transmission of inequality via unequal maternal circumstances and health at birth (Anna Aizer and Janet Currie), and finally a dire warning about what will happen if current inequalities continue to grow (Angus Deaton):

The distribution of wealth is more unequal than the distribution of income, and very high incomes will eventually pupate into very large fortunes, ultimately leading to a hereditary dystopia of idle rich.

The pair of articles by economists—one by Thomas Piketty and Emmanuel Saez, the other by David Autor—tells us a great deal about how the issue of inequality is being framed within mainstream economics (since, as I wrote above, all the various types of nonmainstream economics are simply ignored in the issue). For Piketty and Saez, it’s all about the inequality (both income and wealth) that separates the top 1 percent (and, within that, the top .1 percent and .01 percent) from everyone else, while Autor’s piece focuses on the inequality of earnings within the bottom 99 percent. The debate comes down to seeing inequality as a result of high CEO incomes and returns on accumulated wealth (especially when the rate of return on wealth is greater than the overall growth rate, leading to more concentration of wealth) versus the inequality that derives from earnings based on different levels and kinds of skill (presuming that earnings are equal to marginal productivities). In other words, it’s a (mostly) classical approach—which focuses on scarce wealth concentrated in the hands of the already richversus a (thoroughly) neoclassical approach—according to which scarce skills attract higher earnings. The solution from the classical perspective is a global tax on wealth; from the neoclassical viewpoint, all we need is an increase in education and skills for those at the bottom.

Here’s what I find interesting about the debate, not only between the economists but throughout the entire special issue: it’s all about economic inequality—what it is (absolute or relative), how it can be measured (within and across nations, and over time), what its causes and consequences are (including not only the health of individuals but also of society as a whole), and so on—but there’s not a single mention of class.

Not literally. The word class doesn’t appear in any of the articles or reviews. But class is the specter that, in my view, haunts this entire debate. We saw it back in the First Great Depression. And now we’re seeing it rear its ugly head once again, in the midst of the Second Great Depression. We didn’t solve it then. Perhaps, now, we’re ready to tackle it.

And, if we don’t, we’ll be faced with even more inequality all the time.

Update

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As if on cue, the latest issue of the American Spectator focuses on what they consider to be the “new class warfare”—using as a threat the universal symbol of “off with their heads.”

For which Gavin Mueller offers the only appropriate response:

Remember this: no matter how many country clubbers flip through Piketty’s book, at bottom, the rich hate usThey disdain usThey mock us. And they fear us, even though the current balance of forces favors them overwhelmingly and sometimes “common ruin of the contending classes” seems like an optimistic outcome.

Yet I have to fall back on some advice I got as a kid: If the American Spectator wants to cry about class warfare, we should give them something to cry about.