The problem of inequality

Timothy Noah has one story about inequality. Mine, I think, is a bit different.

According to Noah’s story, while conservatives mostly deny the existence of inequality, liberals tend to focus on the gap between the 1 percent and everyone else and forget about the skills-based gap between those with a college education and those without.

I wonder what people he’s talking about. At least in the discipline of economics, while he’s mostly correct about conservatives (who spend a good bit of their time, when they address the issue of inequality at all, denying it’s a problem), liberal economists are the ones who have focused on the different rewards to different levels of education (which can then be solved by improving schools and encouraging higher levels of education). What conservative and liberal economists share is the idea that, in a market system, everyone gets what they deserve (at least when markets clear and there’s full employment).

As I see it, the idea that we needed to worry about the widening gap between the 99 percent and those at the very top actually came from outside the terms of that conservative-liberal debate—in the empirical work of Thomas Piketty and Emmanuel Saez and in the critique of current economic arrangements posed by the Occupy Wall Street movement. It has represented a challenge to both conservatives (based on the idea that inequality is a real problem) and liberals (since the 1 percent-99 percent gap simply can’t be accounted for by skill-based technical change).

Moreover, focusing on the top 1 percent (and, within that, the top .1 percent and top .01 percent) of the nation’s income distribution raises, in turn, the issue of class, which neither conservative nor liberal economists ever want to discuss.

Nor, as it turns out, does Noah. Until the end, when he finally mentions the divergence between the share of income going to capital (which has been rising) and that going to labor (which has been falling). But focusing on factor shares actually takes us away from skill-based inequality, even when connected to the demise of the union movement, and toward something more fundamental: the growing gap between the vast majority who produce the nation’s wealth and the tiny minority at the top who are able to appropriate a larger and larger share of that wealth.

And solving that problem means going beyond the terms of the conservative-liberal discussion of the problem of inequality and putting class itself on the table.

I guess, in the end, that’s where my story about the problem of inequality differs from the one Noah wants to tell.

Cartoon of the day

Special mention

 

How’s that austerity stuff workin’ out for ya?

Not so well, eh?

Not when, as Eurostat [pdf] announced earlier today, Gross Domestic Product fell by 0.2 percent in the euro area (EA17) and by 0.1 percent in the larger EU27 during the first quarter of 2013. Even the United States, four years into the “recovery,” grew by a paltry 0.6 percent compared with the previous quarter (and, when compared with the same quarter of the previous year, GDP rose by only 1.8 percent).

Not when, as Paul Krugman explains, the two major studies invoked by economists and politicians to justify austerity measures have been thoroughly discredited.

So, the question remains, why do many members of the elite in both the United States and in Western Europe continue to impose the Draconian measures that, together, represent economic austerity?

While the “psychology answer”—that deficits represent some kind of moral question—might work in terms of selling austerity (it certainly works on my students), it doesn’t explain why those at the top continue to believe in the need for austerity.* What we need, instead, is a class analysis of the different ways capitalism is configured and reconfigured according to both neoclassical austerity and Keynesian stimulus policies.

To his credit, Krugman does take some initial steps in that direction for the specific case of austerity:

As many observers have noted, the turn away from fiscal and monetary stimulus can be interpreted, if you like, as giving creditors priority over workers. Inflation and low interest rates are bad for creditors even if they promote job creation; slashing government deficits in the face of mass unemployment may deepen a depression, but it increases the certainty of bondholders that they’ll be repaid in full. I don’t think someone like Trichet was consciously, cynically serving class interests at the expense of overall welfare; but it certainly didn’t hurt that his sense of economic morality dovetailed so perfectly with the priorities of creditors.

But that’s just the beginning. We need to do much more in terms of analyzing the class effects of the policies on both sides of the mainstream debate.

And, of course, of what a class alternative looks like—since we know that that austerity stuff is certainly not working out for most of us.

 

*I also don’t buy the idea that the opposite of austerity, Keynesian stimulus, is any less a morality play. The idea that “your spending is my income,” and thus we’re all in this together, is no more technical an idea than cutting deficits as a path to economic growth. Both ideas represent a combination of technique and morality, of how “technical malfunctions” emerge and can be solved and what society can and should look like.

What do capitalists do?

Robert Venturi, Fire Station No. 4

I often invoke Columbus, Indiana in my lectures.

One reason is to suggest to my students that they might shed their prejudices about Indiana and explore some of what the state has to offer—instead of staying on campus and complaining there’s nothing to do except attend football games.

The other reason is to encourage them to question what it is that capitalists actually do. When I ask them, the usual response—consistent with the neoclassical theory that has been presented to them as the only economic theory worth considering—is: “capitalists maximize profits.” (That’s equivalent to the neoclassical rule concerning consumers, that they “maximize utility.”)*

Well, no: capitalists do lots of different things. They do make profits (at least sometimes, but over what timeframe are they supposedly maximizing those profits?). But they don’t follow any single rule. They also seek to grow their enterprises and destroy the competition and maintain good public relations and buy government officials and reward their CEOs and squeeze workers and lower costs and build factories that collapse and. . .well, you get the idea. In other words, they appropriate and distribute surplus-value in all kinds of ways depending on the particular conditions and struggles that take place over the shape and direction of their enterprises.

And Cummins Engine Company is a good example, since it has distributed a good chunk of the surplus it’s managed to appropriate over the years to subsidize the design of gems by a litany of important American architects: I. M. Pei, Harry Weese, Robert A. M. Stern, Richard Meier, Kevin Roche, Robert Venturi, Cesar Pelli and others. In Columbus, Indiana of all places!

My point to the students is not that Cummins is an example of a “good capitalist” as against other “bad capitalists.” No, the idea is that capitalists—whether in the United States or Bangladesh—do lots of different things, and presuming they follow a simple rule means missing out on the complex, contradictory dynamics of capitalist enterprises and therefore of capitalism itself.

 

*It’s also equivalent to what one hears from many so-called radical economists, that “capitalists accumulate capital.” Again, no. Accumulating capital (that is, purchasing new elements of constant and variable capital) is only one of the many possible forms in which capitalists distribute the surplus-value they appropriate from their workers. Sometimes they accumulate capital, and other times they don’t. The presumption that they always seek to accumulate capital is the heroic story proffered by classical economists (so that, in their view, capitalist growth would take place), much as neoclassical economists today presume that capitalists maximize profits (so that, in their view, an efficient allocation of resources will result). Marxists presume neither that capitalists maximize profits nor that they always and everywhere accumulate capital.

Chart of the day

source

The New York Fed reports that, for the first quarter of 2013, outstanding household debt decreased by $110 billion, or 1.0 percent, driven largely by declines in housing and credit card balances.

However, debt associated with auto loans and student loans continued to increase, by $11 billion and $20 billion, respectively.

Outstanding student loan balances, now the largest component of nonhousing debt, increased to a total of $986 billion as of 31 March 2013. That leaves an average of $24,810 of student debt per borrower in the United States.

Map of the day

source

In February of this year, 15 percent of the U.S. population—47.6 million people—were on food stamps.

Mississippi was the state with the largest share of its population relying on food stamps (22 percent), although the nation’s capital was even higher (at 23 percent). One in five residents in Oregon, New Mexico, Louisiana, Tennessee, Georgia, and Kentucky also was a food-stamp recipient.

Chart of the day

source

In 2007, at the start of the Second Great Depression, 26.3 million Americans—8.7 percent of the population—were on the Supplemental Nutrition Assistance Program (SNAP). Today, that number has risen to 47.6 million, which means that 15 percent of the U.S. population is receiving food-stamp benefits.

What’s that you say about a recovery?

Cartoon of the day

Special mention

Austerity—American style

More times than I can count, I have attempted to explain to students, colleagues, and friends that we’re not on the “road to Greece.”

That’s what they believe: that, because of fiscal deficits and growing public debt, the United States is quickly moving in the direction of Greece. And that disaster awaits.

Well, no, as I’ve explained on this blog many times before. The problem is not growing debt but, instead, the imposition of austerity policies. Austerity is a term we often use to describe the situation in Europe but rarely in the United States. And it’s not clear why. Perhaps because of the Obama administration’s half-hearted stimulus measures. Or because of the oft-cited but barely perceptible recovery.

In any case, there’s a quick and easy way to calculate the effects of austerity in the United States: figure out the average number of government jobs that were created after every recession in the United States going back to 1970 and then add to that the number of government jobs that have been destroyed during the current recovery.

That’s exactly what Michael Greenstone and Adam Looney do. The number they come up with is 2.2 million.

In the forty-six months following the end of the five other recent recessions, government employment increased by an average of 1.7 million. During the current recovery, however, government employment has decreased by more than 500,000. Put together, the policy differences have led to 2.2 million fewer jobs today. Such a large contraction of the public-sector during a recovery is unprecedented in recent American economic history.

Cutting jobs during a period of already high unemployment is austerity—American style.

Cartoon of the day

Special mention