Archive for February, 2014

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The rags-to-riches, Horatio Alger story (which, lest we forget, actually represented the rise to middle-class respectability not through a Protestant ethic of hard work but, instead, an act that rescues a ragamuffin boy from his fate through contact with a wealthy elder gentleman who takes the boy in as his ward) is a myth that endures to this day—more than a hundred years after Andrew Carnegie. We persist with the myth—by focusing almost exclusively on education and other ways of increasing economic opportunity—even though we know that class mobility in the United States today and throughout the postwar period has been and continues to be extremely low.

As Andrew Surowiecki explains,

Increasing economic opportunity is a noble goal, and worth investing in. But we shouldn’t delude ourselves into thinking that more social mobility will cure what ails the U.S. economy. For a start, even societies that are held to have “high” mobility aren’t all that mobile. In San Jose, just thirteen per cent of people in the bottom quintile make it to the top. Sweden has one of the highest rates of social mobility in the world, but a 2012 study found that the top of the income spectrum is dominated by people whose parents were rich. A new book, “The Son Also Rises,” by the economic historian Gregory Clark, suggests that dramatic social mobility has always been the exception rather than the rule. Clark examines a host of societies over the past seven hundred years and finds that the makeup of a given country’s economic élite has remained surprisingly stable.

More important, in any capitalist society most people are bound to be part of the middle and working classes; public policy should focus on raising their standard of living, instead of raising their chances of getting rich. What made the U.S. economy so remarkable for most of the twentieth century was the fact that, even if working people never moved into a different class, over time they saw their standard of living rise sharply. Between the late nineteen-forties and the early nineteen-seventies, median household income in the U.S. doubled. That’s what has really changed in the past forty years. The economy is growing more slowly than it did in the postwar era, and average workers’ share of the pie has been shrinking. It’s no surprise that people in Washington prefer to talk about mobility rather than about this basic reality. Raising living standards for ordinary workers is hard: you need to either get wages growing or talk about things that scare politicians, like “redistribution” and “taxes.” But making it easier for some Americans to move up the economic ladder is no great triumph if most can barely hold on.

 

What is it about the music industry when it comes to discussing the grotesque levels of inequality that prevail today?

Last year, Alan Krueger used it to explain the “winner-take-all economy,” as a way of introducing the Great Gatsby curve at the Rock and Roll Hall of Fame.

The music industry is a microcosm of what is happening in the U.S. economy at large. We are increasingly becoming a “winner-take-all economy,” a phenomenon that the music industry has long experienced. Over recent decades, technological change, globalization and an erosion of the institutions and practices that support shared prosperity in the U.S. have put the middle class under increasing stress. The lucky and the talented – and it is often hard to tell the difference – have been doing better and better, while the vast majority has struggled to keep up.

And now we have Robert Frank doing much the same, using the example of his two sons, who “comprise two-thirds of the Nepotist, a band in the hypercompetitive indie music scene of New York City” (nepotism in the free national publicity, you say?) to discuss the difference between winner-take-all and long-tail economics.

No doubt, I’m biased, but I think that my sons are good enough to break out in today’s music market. Yet a stark reality persists: Because there are thousands of talented bands today, their odds of stardom are vanishingly small.

The fact is, the music industry is not at all a good example of winner-take-all economics. Sure, there are a few winners and lots of folks who struggle to get by at the bottom—and a long history of artists’ complaints about being ripped off by the recording industry.

But that’s not the story told by economists like Krueger and Frank. Their analysis is all about technology and market share, and the few artists who manage at any point in time to dominate the charts, perform in gigantic concert venues, and rake in the money. It’s as if being a winner is all about getting rents.

The problem is, musicians and other “stars” (authors, artists, athletes, and celebrities) make up only a tiny fraction of the winners, the members of the top 1 percent. The rest, the majority of the minority, get their incomes from elsewhere.

What Krueger and Frank don’t want to talk about is the real winner-take-all economy, in which lots of people produce the surplus that is then appropriated by a tiny minority at the top. A large and growing surplus that either shows up as corporate retained earnings or is distributed to others, both inside and outside those corporations, who manage to “share in the booty.” In that economy, the use of new production technologies means that corporate profits and the percentage of income captured by the top 1 percent are both soaring, while the wage share and the incomes of the other 99 percent continue to decline.

Workers and the other members of the 99 percent are, like Frank’s sons, not short on talent. It’s just that their talents are always at the service of their employers, who continue to be the real winners in the current economy.

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Special mention

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The surplus-value that is created by workers and appropriated by capitalists is mostly realized as profits by U.S. corporations. But some of it is distributed to individuals, many of them members of the 1 percent.

That’s one way of reading the information about the jobs occupied by members of households in the top 1 percent gathered by the New York Times [ht: eh]. No, not all of their incomes represent cuts of the surplus. As it turns out, lots of school teachers live in households whose incomes place them in the top 1 percent but their salaries don’t (for the most part) represent distributed shares of the surplus.

But lots of others in the top 1 percent do “share in the booty”: managers, lawyers, physicians, chief executives, and those who work in sales and finance. They don’t create the surplus but they do provide conditions of existence whereby the surplus continues to be produced and appropriated. And, in return, they get a cut of the surplus—and, often, membership in the 1 percent.

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We’re all betting on the success of Obamacare to expand people’s access to decent, affordable healthcare. Apparently, for quite different reasons, so are investors [ht: sm].

“A new online broker, Motif Investing, is offering Obamacare’s friends and foes alike a chance to put their money where their mouth is. Co-founded by a former Microsoft executive, Hardeep Walia, and backed by Goldman Sachs and other investors, Motif allows customers to bet on narrowly tailored concepts.”

“Two of the hottest motifs right now are Obamacare and repeal Obamacare.”

“What’s most striking isn’t the performance of the two funds, but where investors are choosing to place their money … One is clearly more popular: … Motif investors have bet 45 times more money on Obamacare’s success than on its failure.”

 

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Special mention

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Chart of the day

Posted: 22 February 2014 in Uncategorized
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United States

As Jon Queally explains,

  • In four states (Nevada, Wyoming, Michigan, and Alaska), only the top 1 percent experienced rising incomes between 1979 and 2007, and the average income of the bottom 99 percent fell.
  • In another 15 states the top 1 percent captured between half and 84 percent of all income growth between 1979 and 2007. Those states are Arizona (where 84.2 percent of all income growth was captured by the top 1 percent), Oregon (81.8 percent), New Mexico (72.6 percent), Hawaii (70.9 percent), Florida (68.9 percent), New York (67.6 percent), Illinois (64.9 percent), Connecticut (63.9 percent), California (62.4 percent), Washington (59.1 percent), Texas (55.3 percent), Montana (55.2 percent), Utah (54.1 percent), South Carolina (54.0 percent), and West Virginia (53.3 percent).
  • In the 10 states in which the top 1 percent captured the smallest share of income growth, the top 1 percent captured between about a quarter and just over a third of all income growth. Those states are Louisiana (where 25.6 percent of all income growth was captured by the top 1 percent), Virginia (29.5 percent), Iowa (29.8 percent), Mississippi (29.8 percent), Maine (30.5 percent), Rhode Island (32.6 percent), Nebraska (33.5 percent), Maryland (33.6 percent), Arkansas (34.0 percent), and North Dakota (34.2 percent).