Distracted by the Great Gatsby

Posted: 29 May 2015 in Uncategorized
Tags: , , , ,

untitled1

source

Stuart M. Butler thinks we’re being distracted by the Great Gatsby curve (which, remember, posits a positive relationship between income inequality and income immobility).

I agree—but for very different reasons.

Butler’s argument is that we’re focusing too much on inequality instead of mobility, that is, finding ways to move people at the bottom (characterized by “high school dropouts, pitiful savings rates, and the problem of children parenting children”) up the income ladder.

The problem, of course, is, even if some individuals succeed (within or between generations) in moving up the ladder, the existence of the ladder and the growing gap between rungs on the ladder mean we’re still faced with the fundamental problem of grotesque levels of inequality. The only change (if upward and, with it, downward mobility increase) is different people occupy those highly unequal positions, that is, a highly unequal society remains.

It’s a bit like the problem with Paul Samuelson’s famous statement (in “Wages and interest: a modern dissection of Marxian economics,” American Economic Review 47 [1957], 894): “Remember that in a perfectly competitive market, it really does not matter who hires whom; so have labor hire capital.”

The fact is, if labor and capital changed sides, and labor hired capital, it would still be the case that capital and labor occupy different positions in capitalist production: labor receives wages in exchange for their ability to work, while capital gets the profits produced by the laborers.

So, we can either focus on who occupies which rung in the distribution of income (or who hires whom in the capital-labor relationship) or we can focus instead on the obscenely and increasingly unequal distribution of income (and the fact that, in the existing capital-labor relationship, the capital share is growing while the labor share is declining).

If we don’t focus on the real problems of inequality and class, we’ll just continue to be distracted by the Great Gatsby curve.

Comments
  1. cardiffkook says:

    “…we’re still faced with the fundamental problem of grotesque levels of inequality. The only difference (if upward and, with it, downward mobility increase) is different people occupy those different positions.”

    Sorry, professor, but you snuck in an unsubstantiated and illogical opinion into this paragraph. Your assumption is that inequality is “grotesque” and is a “fundamental problem”. In a reasoned debate, I suggest you would not be able to substantiate this position to a jury of your peers (college educated people with experience in economics).

    Inequality of outcome is built into the nature of reality. Petting tigers leads to death, running and defending from tigers leads to life. Abandoning one’s child to a field leads to the death, educating her, raising her, and protecting her allows the child to prosper. The inequality of outcomes is extreme, as extreme as one can imagine and is built into the structure of reality.

    Last year, a relative of mine chose to spend the year hiking the Appalachian Trail. Power to him. But his earnings were zero. Millions of others chose to work by specializing and adding value to fellow humans. Some of them made millions for themselves by adding substantially to the welfare of those around them. Power to them. One made millions, one made zero.

    There is nothing grotesque about choosing not to work. It is not even a problem by definition, if the person can figure out how to meet their basic needs. My point is that inequality is not a fundamental problem. Poverty is. Unfairness is. Privilege and lack of opportunity is. But inequality isn’t, and I am not sure why you don’t see this.

    “The fact is, if labor and capital changed sides, and labor hired capital, it would still be the case that capital and labor occupy different positions in capitalist production: labor receives wages in exchange for their ability to work, while capital gets the profits produced by the laborers.”

    Let me correct you again. If you presented this statement to a peer group of educated people who understand economics you would be lucky not to be laughed out of the room. It is wrong on so many levels (Samuelson is of course correct).

    First, profits are not magically produced by labor — your simplistic model ignores all uncertainty, risk and competition. The point is that PRODUCERS do not know exactly how to meet consumers needs as efficiently and effectively as possible in a dynamic world. As such they experiment and take risks on what to produce, how to produce it, who to produce it for and so in. As such, markets attempt to solve the uncertainty in problem solving via specialization, property rights, and voluntary contracts. Some individuals specialize in entrepreneurial activities of coming up with the ideas and theories of how to produce what how for whom. Capitalists specialize in providing the capital which is risked in funding the endeavor, managers in coordinating the work process and labor in the human energy needed to make it work.

    None of these four specializations is more fundamental than the others. All are necessary, and in many cases they are all provided by the same person (a self employed person). Each has costs, risks, tradeoffs and benefits. Capitalists make profits (and risk losses), managers and labor make wages at the cost of effort.

    “…or we can focus instead on the obscenely and increasingly unequal distribution of income (and the fact that, in the existing capital-labor relationship, the capital share is growing while the labor share is declining).”

    Here your mistakes are factual in nature. Markets are global. Global inequality is declining. Read the prior statement again… Global inequality, and much more importantly, global poverty is declining. Indeed global poverty is decreasing at the highest rate in the history of the human race. This is an uncontested fact.

    The only way this can be spun as a problem rather than as possibly the greatest event in history is to ignore the benefits which are global and concentrate on the privileged world ramifications. Yes, competition of a billion workers has held down wage increases in the privileged world. Yes, inequality has increased as skilled labor and capital have increased in demand while figuring out productive uses of these new billion workers.

    Supply and demand are doing their job. Capital is being increasingly rewarded to find productive endeavors for these new workers. The market is solving the problem and driving prosperity and you treat it like it is the problem rather than the solution.

  2. Magpie says:

    Prof. Ruccio,

    Socrates is credited with saying “After thunder usually follows rain” or something to that effect.

    Just in case, keep an umbrella at hand. 🙂

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s