Posts Tagged ‘inequality’

Income-Inequality02

Tyler Cowen may just be right about one thing: people’s views of inequality seem to be changing.

“I view opinion as in flux,” Mr. Cowen said. “I find that fewer and fewer people, especially outside of academia, accept the skill-biased technical change story and more and more look to politics, privilege, rent-seeking and the like.”

Even while mainstream economists (like Cowen and Gregory Mankiw) are sticking with their story of just deserts—such that those at the very top continue to benefit from rewards to better skills, technical change, and globalization—and the only feasible solution is more education, lots of others—including heterodox economists and the general public—are looking elsewhere for both explanations of and solutions to the problem of growing inequality in the United States.

And that’s why the Cowens and Mankiws of the world want to change the topic: to worry about the global distribution of income and/or to argue that little can be done about inequality without undermining economic growth.

But they’re wrong. And people seem to be catching on to what’s happening behind the curtain. . .

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According to the Federal Reserve Bank of St. Louis,

The median net worth of the top 10 percent of the income distribution ($1.194 million) divided by the median net worth of the bottom 10 percent ($3,100) yields a wealth inequality ratio of 385, notably higher than the ratio of 21 for income inequality.

Using net worth distribution to define the population groups changes the statistics even more dramatically, as the bottom 20 percent of the distribution has a negative median net worth. The ratio of the median for the top 10 percent ($1.9 million) divided by the median for the bottom 30 percent ($700) yields a ratio of 2,714.

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One way of dealing with the problem of growing inequality is to establish a maximum wage. That’s what Franklin Delano Roosevelt proposed back in the early 1940s—a 100 percent marginal tax rate on incomes over$25,000 a year (roughly $350,000 in today’s dollars)—in order to “provide for greater equality in contributing to the war effort.”

Infuriated conservatives saw red, literally. The “only logical stopping place for this movement,” fumed Princeton economist Harley Lutz, would be “a completely communistic equalization of incomes.”

Simon Wren-Lewis reports his own recent suggestion for a maximum wage was greeted in much the same manner.

Well, if mainstream economists are going to howl about tinkering with tax rates, why not make them howl about a real change in the system whereby incomes are distributed? Like Filip Spagnoli’s suggestion to get rid of wage-labor entirely.

Spagnoli’s proposal is to combine a universal basic income (“to cover the costs of the necessities of life”) with an outright prohibition on wage-labor (in order to promote more cooperative, democratic forms of economic organization).

Would a UBI not be sufficient to allow people to pursue their goals? Why also prohibit wage labor? A UBI indeed loosens us from the system of wage labor – it provides a financial cushion that removes the risks inherent in abandoning a job and pursuing our “true destiny” – but it doesn’t go far enough. It gives us the freedom to turn down unattractive work but the pursuit of life’s goals often requires cooperation. Only the prohibition on wage labor makes cooperative ventures more common. A UBI by itself only pushes us towards more satisfying jobs and leaves some of the drawbacks of wage labor intact.

Makes sense to me. Guarantee a basic income for everyone and then, on top of that, encourage the formation of new kinds of enterprises, based on the idea that those who work in the enterprises decide how they should be organized (including, of course, how much they should be paid, what should be done with the surplus, and so on).

One of Spagnoli’s concerns is, “If people can’t work for a wage, many of the ‘dirty jobs’ may not get done anymore.” The fact is, we already have Cooperative Home Care Associates in New York City, which is the largest worker-owned cooperative in the country. It’s relatively easy then to imagine a system of such cooperatives, in which democratically organized workers do everything from toilet cleaning, waste disposal, and mining to teaching, healthcare, and software design.

The time is ripe to open up the debate about proposals like establishing a maximum wage, guaranteeing a basic income, and prohibiting any and all forms of wage-labor. The only price of admission is to listen to the howling of mainstream economists.

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In an essay that’s been getting come attention (e.g., from the BBC), William Deresiewicz argues that elite private (and, increasingly, public) colleges and universities are reproducing a homogeneous class of entitled “zombies” trapped in a bubble of privilege.

Let’s not kid ourselves: The college admissions game is not primarily about the lower and middle classes seeking to rise, or even about the upper-middle class attempting to maintain its position. It is about determining the exact hierarchy of status within the upper-middle class itself. In the affluent suburbs and well-heeled urban enclaves where this game is principally played, it is not about whether you go to an elite school. It’s about which one you go to. It is Penn versus Tufts, not Penn versus Penn State. It doesn’t matter that a bright young person can go to Ohio State, become a doctor, settle in Dayton, and make a very good living. Such an outcome is simply too horrible to contemplate.

This system is exacerbating inequality, retarding social mobility, perpetuating privilege, and creating an elite that is isolated from the society that it’s supposed to lead. The numbers are undeniable. In 1985, 46 percent of incoming freshmen at the 250 most selective colleges came from the top quarter of the income distribution. By 2000, it was 55 percent. As of 2006, only about 15 percent of students at the most competitive schools came from the bottom half. The more prestigious the school, the more unequal its student body is apt to be. And public institutions are not much better than private ones. As of 2004, 40 percent of first-year students at the most selective state campuses came from families with incomes of more than $100,000, up from 32 percent just five years earlier.

The major reason for the trend is clear. Not increasing tuition, though that is a factor, but the ever-growing cost of manufacturing children who are fit to compete in the college admissions game. The more hurdles there are, the more expensive it is to catapult your kid across them. Wealthy families start buying their children’s way into elite colleges almost from the moment they are born: music lessons, sports equipment, foreign travel (“enrichment” programs, to use the all-too-perfect term)most important, of course, private-school tuition or the costs of living in a place with top-tier public schools. The SAT is supposed to measure aptitude, but what it actually measures is parental income, which it tracks quite closely. Today, fewer than half of high-scoring students from low-income families even enroll at four-year schools.

And this is news?!

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The OECD [pdf] has just come in with its latest long-term economic projection. And the results ain’t pretty: they forecast slower growth for the global economy and even slower growth for the developed countries (both under relatively rosy predictions about productivity growth and rising immigration requirements), and even those lower growth rates will be challenged and potentially undermined by the effects of climate change.

Perhaps even more important, they expect the existing trend of growing inequality (as seen in the chart above) to continue through 2060 (as see in the charts below).

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The bottom-line message: the best capitalism has to offer is probably over. It’s certainly over for the richest countries, and during the next 50 years it will probably end for the other countries that make up the world economy. Even if the existing institutions hang on (under the suggested policy regime of more globalization, more privatization, more austerity, and more migration), the result will be rising inequality within countries.

How long, then, before we decide an alternative set of economic institutions is necessary?

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According to a new study by Fabian T. Pfeffer, Sheldon Danziger, and Robert F. Schoeni,

Through at least 2013, there are very few signs of significant recovery from the losses in wealth experienced by American families during the Great Recession. Declines in net worth from 2007 to 2009 were large, and the declines continued through 2013. These wealth losses, however, were not distributed equally. While large absolute amounts of wealth were destroyed at the top of the wealth distribution, households at the bottom of the wealth distribution lost the largest share of their wealth. As a result, wealth inequality increased significantly from 2003 through 2013; by some metrics inequality roughly doubled.

 

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The gap between the growth of productivity (now at 11.4 percent above January 2007) and that of wages (only 1.5 percent higher) continues to widen (according to Reuters).

Is it any wonder, then, that income inequality continues to rise?