Archive for September, 2013

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Special mention

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help class

Most Americans (53 percent) think the government is doing more to help the rich at the expense of the poor and middle class, according to a new HuffPost/YouGov poll. And only two percent think it should do more to help the rich.

Given the policies that have been adopted (and, even when not adopted, proposed) in Washington, D.C. during the Second Great Depression, how could they think otherwise?

Note: if I had the time, I’d make the table into an actual chart.

Know this!

Posted: 27 September 2013 in Uncategorized
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WelcomeCreative.800
Richard Florida continues to peddle his story of knowledge workers, the creative class, and urban clustering (about which I have raised questions before, such as here and here).

But economic inequalities have become so glaring and obscene, even Florida has finally come to admit their existence:

The main threats to America’s growth model don’t come from other countries, but from domestic contradictions. The more talented people cluster, the greater the economic returns they produce. But as these clusters of highly educated people form and grow, they tend to push out the middle class, resulting in a ruthless sorting of people and places. As great as its potential may be, this new economic landscape is also notable for its widening fissures.

The cultural, political, and economic gulfs that separate advantaged and disadvantaged people and places go well beyond the wage gap. Knowledge workers benefit from living in neighborhoods with better schools, better amenities, and lower crime rates, while less advantaged groups are sometimes stuck in place, with limited prospects for climbing even one rung up the economic ladder, and insufficient resources to move out of stagnant areas.

And how creative can Florida get, now that he knows about all those poor people clustered into into depressed areas of cities? The best he can do is suggest that poor people get up and move to his “knowledge centers,” where their chances for moving up the ladder will be improved.

Here’s a not particularly creative alternative idea: end poverty!

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The pathologies in our society are becoming more and more apparent as economic inequality continues to grow.

Mark Thoma explains, as one example, how rising inequality is responsible for the current battle over the debt ceiling.

growing inequality has allowed one strata of society to be largely free of these risks while the other is very much exposed to them. As that has happened, as one group in society has had fewer and fewer worries about paying for college education, has first-rate health insurance, ample funds for retirement, and little or no chance of losing a home and ending up on the street if a job suddenly disappears in a recession, support among the politically powerful elite for the risk sharing that makes social insurance work has declined.

Rising inequality and differential exposure to economic risk has caused one group to see themselves as the “makers” in society who provide for the rest and pay most of the bills, and the other group as “takers” who get all the benefits. The upper strata wonders, “Why should we pay for social insurance when we get little or none of the benefits?” and this leads to an attack on these programs.

Even worse, this social stratification leads those at the top to begin imposing a virtue and vice story to justify their desire to stop paying the taxes needed to support social insurance programs. Those at the top did it all by themselves. They “built that” through their own effort and sacrifice with no help from anyone else.

Those at the bottom, on the other hand, are essentially burning down their own houses just to collect the fire insurance, i.e. making poor choices and sponging off of social insurance programs. It’s their behavior that’s the problem, and taking away the incentive to live off of the rest of society by constraining their ability to collect social insurance is the only way to ensure they get jobs and provide for themselves.

What this means, of course, is those at the top want to dismantle precisely those social programs that help those at the bottom—in the name of lowering deficits and debt.

Then, as a second example, there’s the ongoing spectacle of focusing on the “self-destructive habits” of poor people compared to everyone else. As Tina Rosenberg reports, behavioral economists are finding that people on the bottom “are less future-oriented than those with more money.”

According to these authors, one explanation for bad decisions is scarcity — not of money, but of what the authors call bandwidth: the portion of our mental capacity that we can employ to make decisions.

Worrying about money when it is tight captures our brains. It reduces our cognitive capacity — especially our abstract intelligence, which we use for problem-solving. It also reduces our executive control, which governs planning, impulses and willpower. The bad decisions of the poor, say the authors, are not a product of bad character or low native intelligence. They are a product of poverty itself. Your natural capability doesn’t decrease when you experience scarcity. But less of that capacity is available for use. If you put a middle-class person into a situation of scarcity, she will behave like a poor person.

Really? The explanation of growing poverty is based on the bad, “tunnel-vision” decision-making of poor people, which can be fixed by forcing people to save and providing better financial counseling?

Why not, instead, focus on the real problem—the tunnel-vision decisions of those at the top, to take as much as they could as quickly as they could, which created the conditions for the Second Great Depression in the first place—and then explore the kind of changes that would eliminate the obscene levels of inequality and the resulting poverty that exist today?

Not doing so is perhaps the real pathology of the existence of persistent and growing inequality in our society.

CashBash

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read-atlas-shrugged

Now I understand how so many of my students can, with a straight face, cite Atlas Shrugged as a source of serious economic ideas. Because major-party vice-presidential candidates (like Paul Ryan) and people who get published in major American publications (such as Forbes) do so, too.

And it’s not even a particularly serious argument, because, having started with the proposition that “all proper human interactions are win-win,” Harry Binswanger [ht: sm] then tries to convince us that it’s the “’the community’ that should give back to the wealth-creators” and to cite Any Rand’s novel in support of his case.

I expect even my students to do better than that.