The problem of the growing gap between the small group of haves and all other Americans is (as I noted a week ago) so bad even the International Monetary Fund is sounding the alarm.
Despite the ongoing expansion, the U.S. faces a confluence of forces that will weigh on the prospects for continued gains in economic well being. A rising share of the U.S. labor force is shifting into retirement, basic infrastructure is crumbling, productivity gains are scanty, and labor markets and businesses appear less adept at reallocating human and physical capital. These growing headwinds are overlaid by pernicious secular trends in income: labor’s share of income is around 5 percent lower today than it was 15 years ago, the middle class has shrunk to its smallest size in the last 30 years, the income and wealth distribution are increasingly polarized, and poverty has risen.
So, what’s going on? According to new research by the IMF, the United States is suffering from both increasing inequality and increasing polarization.
Inequality refers to the evolution of incomes (such as in Figure 1), revealing the fact that, since the 1970s, the real incomes of households in the low- to middle-income brackets have mostly stagnated, while real incomes of households in the highest brackets rose sharply (at least during the 1970–2000 period, though they have not changed considerably since 2000).
Polarization refers to something slightly different: the distributional changes of the households across different income brackets. Thus, for example (as in Figure 2), we can see that the population share of households whose incomes are within 50 to 150 percent of the median income—a proxy for the middle-class—has shrunk from about 58 percent of total in 1970 to 47 percent in 2014. This is the often-cited “hollowing out” of the middle-class.*
If we put them together, inequality and polarization, we end up with the chart at the top of this post (Figure 5). It shows that the income shares of the middle- and high-income classes were broadly similar, at levels slightly shy of 50 percent of total income, in the late 1970s. Since then, however, these shares have been diverging. Currently, the high-income class holds about 60 percent of total income, while the share of the middle-income class has fallen to only about 35 percent. The income share of the low-income class has been stable at about 5 percent of total for the entire sample of 1970 to 2014.
Clearly, the IMF is much more concerned about polarization (which focuses attention on the decline of the middle-class, especially the fall into the low-income class since 2000) than inequality (which highlights the runaway fortunes of those at the very top from the 1970s onward).
In my view, both inequality and polarization are important, since they are consequences of the same phenomenon: the accumulation of capital, that has worsened the lot of most workers (both middle- and low-income, and even many in the high-income bracket), and allowed a small group at the top (the uppermost portion of high-income earners) to capture a share of the increasing returns to capital.
The question right now is, has the combination of inequality and polarization become so extreme that it threatens the very survival of capitalism? The answer from the IMF is pretty clear:
If left unchecked, these forces will continue to drag down both potential and actual growth, diminish gains in living standards, and worsen poverty.
*The IMF divides this polarization into two periods: one (from 1970 to 2000), “when more of the middle-income households moved into high- rather than low-income ranks,” and the other (since 2000), during which “only a quarter of one percent of households have moved up to high income ranks, compared to an astonishing 3 1⁄4 percent of households who have moved down the income ladder (from middle to low income ranks).”
Globalization—or, more accurately, capitalist globalization—is currently being contested on both sides of the Atlantic. The Brexit vote represents many things but surely one of them is, as I tried to explain the day after the vote, a fundamental challenge to the profound inequalities that have characterized the United Kingdom within neoliberal Europe. And, in the United States, the campaigns of both Bernie Sanders and Donald Trump (each, of course, in their different ways) have called attention to the grotesque levels of inequality and the plight of those who have been losing out in recent decades during the most recent period of capitalist globalization.
In fact, just yesterday, Sanders renewed his criticism of the current configuration of the global economy:
Let’s be clear. The global economy is not working for the majority of people in our country and the world. This is an economic model developed by the economic elite to benefit the economic elite. We need real change.
But we do not need change based on the demagogy, bigotry and anti-immigrant sentiment that punctuated so much of the Leave campaign’s rhetoric — and is central to Donald J. Trump’s message.
We need a president who will vigorously support international cooperation that brings the people of the world closer together, reduces hypernationalism and decreases the possibility of war. We also need a president who respects the democratic rights of the people, and who will fight for an economy that protects the interests of working people, not just Wall Street, the drug companies and other powerful special interests.
We need to fundamentally reject our “free trade” policies and move to fair trade. Americans should not have to compete against workers in low-wage countries who earn pennies an hour. We must defeat the Trans-Pacific Partnership. We must help poor countries develop sustainable economic models.
Sanders’s critique is buttressed by the conclusion of the latest report from the Economic Policy Institute, that the gaps between the richest and poorest families have grown in every state in the country since the late 1970s, as well as Oxfam’s analysis of growing inequality across the globe, summarized in the fact that the richest 1 percent have now accumulated more wealth than the rest of the world put together.
The case against the unequalizing dynamic of capitalist globalization couldn’t be clearer.
Yet, many (Noah Smith is just the most recent example) have attempted to argue exactly the opposite: that globalization is a positive force based on the fact that the global distribution of income has in recent decades become more equal.
The argument in favor of globalization is based on data from Branko Milanovic, illustrated in the so-called “elephant graph” (on the right-hand side of the chart at the top of this post), according to which most of the world’s population (except the very poorest and the working-classes within rich countries) has been gaining.*
Smith takes Milanovic’s findings to represent a fundamental challenge to “some of the bedrock ideas of both the left and the right.” And, as usual, he gets a little bit right and a lot wrong.
On one hand, the fact that, on a global scale, both the world’s poorest people and the working-classes within rich countries have experienced little if any increase in their real incomes represents a fundamental challenge to the views—of both mainstream economists and neoliberal economic and political elites—that capitalist globalization benefits everyone. It doesn’t, and never has.
But, on the other hand, Smith is simply wrong to claim that the elephant-like changes in the global distribution of income invalidate left-wing claims that the global capitalist game is rigged. It is, and always has been.
What commentators like Smith miss is that global capitalism has changed over its history. At one time (especially in the nineteenth century), it meant industrialization in the global north and deindustrialization in the mostly noncapitalist global south (which were, in turn, transformed into providers of raw materials, which became cheap commodity inputs into northern capitalist production). Later, especially after decolonization (following World War II), we saw the beginnings of capitalist development in the south (under the aegis of the state, with a set of policies we often refer to as import-substitution industrialization), which involved a reindustrialization of the south (producing consumer goods that were previously imported) and a change in the kinds of industry prevalent in the north (which both exported consumer goods to the rest of the world, which after the first Great Depression and world war were once again growing, and often provided inputs into the production of consumer goods elsewhere). Later (especially from the 1980s onward), with the accumulation of capital in India, China, Brazil, and elsewhere, noncapitalist economies were disrupted and millions of peasants and rural workers (and their children) were forced to have the freedom to sell their ability to work in urban factories and offices. As a result, their monetary incomes rose (which is not to say their conditions of life necessarily improved), which is reflected in the growing elephant-body of the global distribution of income.
Does that mean global capitalism is not rigged? Of course not. It continues, as before, to be rigged both within and across countries. The top 1 percent across the globe continues to find itself in the position of capturing the surplus created by the world’s workers, does as they did when capitalist globalization began (because, we often forget, capitalism has been global from the very beginning). The only changes that have taken place are (a) the number of workers who are involved in producing that surplus (which has dramatically increased, especially in the global south), (b) the geographical location of the members of the 1 percent (many more now in India, China, Brazil, and elsewhere), and (c) the way the surplus is captured (either directly, from the production of capitalist commodities within the north and south, or indirectly, especially in the north, through finance, insurance, and other services).
Which brings us, finally, to the issue of imperialism (which, contra Smith, was never just about rich countries gaining at the expense of poor ones). The argument I made back in 2000 is that, while “‘formal empires’ no longer (or, better, hardly) exist—precisely because the thinkers and movements of anti-imperialism and national liberation (from Mariátegui and Gandhi to Fanon and Che, from Peru and India to Cuba and Vietnam) were successful, because imperialism was opposed both by broad alliances of subaltern, colonized peoples and by equally broad alliances within the imperial nations themselves”—what we’ve seen in recent decades is a new kind of imperialism, an attempt not to take over individual nations but to transform the world as a whole, “a project to recolonize the entire world, to remake it, with the zeal of a humanizing mission precisely reminiscent of the ‘Civilization, Christianity, and Commerce’ that, according to the legendary David Livingstone, was the basis of the European colonization of Africa.”
This encourages me, at least, to borrow from Gilles Deleuze and Félix Guattari and to think of imperialism as a machine—as against either a particular stage of capitalism (Lenin’s preference) or merely a political option (the choice of Lenin’s nemesis, Kautsky). Precisely the choices that are repeated today. In contrast, the machinelike quality of imperialism gives a sense of the ways in which it has various parts that (often but not always) work together, a set of energies, available identities and categories, that propels individuals and groups, institutions and structures, to enact designs and to civilize those who attempt to resist its apparent lessons, to make them succumb to the naturalized logic. Not a stage of capitalism but rather a machine that energizes and is energized by capitalism at various points in its history. Not an option, a political choice available to ruling governments and regimes, although it does include various options: military bombardment or invasion, economic carrots and sticks, cultural hegemony and worldwide news reach. . .
. . .And the knowledges produced by economists, especially (but not only) in the United States.
Today, the effects of the complex and changing assemblage of the capitalism and imperialism machines (and the mainstream economic knowledges that have supported them) are being contested by the discontents of capitalist globalization, the growing numbers of citizens on both sides of the Atlantic who have been treated as so much detritus in the opening up of global markets for their corporate employers and financial oligarchs.
The results of this contestation are, of course, messy but the message is clear: we need to imagine and create a new kind of global economy, one that benefits the majority of people both within and across countries.
*There’s nothing inconsistent between the Oxfam and Milanovic results: Oxfam is focusing on the global distribution of wealth, while Milanovic reports on the global distribution of income. Both, however, tell us something important about contemporary trends in global inequality—that, at one and the same time, the world’s top 1 percent has increased its accumulation of wealth (such that it now owns more than everyone else combined, most of whom have very little wealth), precisely because of its own soaring incomes, even as the world’s “middle-class” has seen its real income rise in recent decades.
According to Chris Dillow, there’s a direct link from the Tories’ austerity policies to the rise of racism in England and elsewhere in the United Kingdom.
His argument is that economic stagnation since the crash of 2008, which has been exacerbated by the economic policies of Britain’s Conservative Party (under Prime Minister David Cameron andChancellor of the Exchequer George Osborne), has led to stagnant or falling living standards for most working-class households. That deterioration, in turn, created a level of discontent that showed up in support for Brexit.
Now, Dillow makes clear, support for Brexit was not in and of itself a form of right-wing extremism. But the campaign against the European Union, and now its victory, have helped to generate anti-immigrant attacks and expressions of racism.
As he explains,
There’s a direct link from Osborne’s criminal economic mismanagement to hate crimes.
You might think I’m going too far here. I’m not. In fact, this is basic economics. Econ 101 says that people respond to incentives. And the incentive to express racist opinions rather than keep them bottled up has increased recently because when politicians express neo-racist ideas, people believe that the stigma attached to being racist has declined. In this sense, the cost of being a low-level racist has fallen – and a fall in costs generates increased supply.
Granted, Cameron and Osborne sincerely deplore such attacks. But that misses the point – that if you dump a pile of shit on your doorstep, you can’t disown the flies.
And, is turns out, that’s exactly what’s been happening in the United States in recent years—with an economic recovery that has only benefited those at the very top and a campaign by and within the Republican Party that culminated in the nomination of Donald Trump. The cost of being an American racist has definitely fallen.
In both cases, in the United Kingdom and the United States, what we’re witnessing then is the sorry spectacle of the creation of “climate in which migrants and ethnic minorities no longer feel safe.”
Mainstream economics has clearly had a great fall.
Just two days ago, I argued that—after the crash of 2007-08 and, now, Brexit—mainstream economists have had “nothing to offer, either in terms of insight or a path moving forward.” Also recently, Antonio Callari challenged Brad DeLong’s attempt to reduce economics to the mainstream debate between supply-siders and demand-siders and his argument that there’s no room for economists as public intellectuals.
Now, Mark Thoma has stepped forward to explain why it is that “in recent years the public has lost faith the in the economics profession.” And since by the “economics profession” Thoma is essentially referring to mainstream economists, he’s absolutely correct.
One reason for the lack of faith is the failure to predict the Great Recession, but the public’s dismissal of macroeconomists is based upon more than the failure to foresee the dangers the housing bubble posed for the economy. It is also due to false promises about the benefits to the working class from globalization, tax cuts for the wealthy, and trade agreements – promises that were often used to support ideological and political goals or to serve special interests.
Even more, mainstream economists simply don’t have “a solid understanding of the mechanisms that drive the economy.”*
Therefore, in Thoma’s view, economists need to exercise more humility and flexibility:
more humility about what we do and do not know, more willingness to change our minds when the evidence disagrees with our favorite theoretical model, and the willingness to acknowledge disagreement within the profession. But most of all we need to take a strong stand against those inside and outside the profession who misuse economic theory and empirical results for political and ideological purposes.
I’m all in favor of theoretical humility and flexibility. I certainly do not hold to the idea that our processes of producing knowledge can, or even should aim to, give us access to a complete or definitive model of the world. And I’m quite willing to admit—against the pretensions of most mainstream economists—that all we have (and can have) are partial and local and incomplete knowledges, which themselves are always changing.
But, while a good start (given the arrogance and rigidity with which much mainstream economics has been and continues to be produced and disseminated), that’s not enough. The real challenge, it seems to me, is to go beyond that and criticize both the theoretical models utilized by mainstream economists and their self-identified status as scientists who are somehow outside and independent of the world of politics and ideology.
There are, according to all three of us (Callari, Thoma, and myself), good reasons why mainstream economists have fallen in the eyes of the public. And try as they might, it’s doubtful “All the king’s horses and all the king’s men” can or should put mainstream economics back together again.
What’s needed is a fundamentally different way of doing economics and of thinking about the role of economists—economic theories that focus on issues of power and class (instead of relegating them to the margins) and a conception of economists as real public intellectuals (who play “a galvanizing role in the production of public knowledge and policy, where ‘public’ means not just ‘for’ the public, the people, but also ‘of’ and ‘by’ the people”).
I recognize that’s a radically different way of defining economics compared to the mainstream tradition. But, as it turns out, it’s a move Humpty Dumpty himself would have recognized.
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”
*Thoma’s list of issues on which mainstream economists simply don’t have answers includes the following:
Why has productivity fallen? Will it stay low in the future?
What has caused the decline in labor force participation?
How strong is the economy’s self-correction mechanism in recessions, and how does it work?
Is there a Phillips curve (i.e. a reliable relationship between inflation, inflation expectations, and unemployment)?
How are expectations formed, and do they converge to rational expectations over time?
What is more important in the determination of wage and capital shares of income, marginal products or bargaining power and other institutional features of labor markets?
What frictions should we focus on? Price and wage stickiness? Financial frictions? Both? How do these frictions vary over the business cycle?
How high can the minimum wage be raised before there are significant employment effects?
What is the cause of inequality? Is it baked into the capitalist system, or is it the result of political and institutional forces?
And, according to Thomas, “that’s nowhere near a complete list of the things we don’t fully understand. We don’t even agree about what caused the Great Recession.”
No, Uber is not a path to personal freedom and financial independence.
Far from it.
According to internal Uber calculations, provided to BuzzFeed News, based on data spanning more than a million rides and covering thousands of drivers in three major U.S. markets—Denver, Detroit, and Houston—drivers in each of the three markets overall earned less than an average of $13.25 an hour after expenses.
Uber says it doesn’t know how much drivers on its platform actually earn per hour, after expenses. Still, Uber’s internal pricing models, found in the spreadsheets provided to BuzzFeed News, do generate rough estimates of driver net pay. But in internal communications seen by BuzzFeed News, Uber explicitly discourages employees from comparing these estimates to the minimum wage.
A BuzzFeed News review of the rough internal net pay estimates contained in the leaked documents determined that the models Uber used are highly abstracted and oversimplify certain key calculations. Rather than relying on Uber’s figures, BuzzFeed News conducted an independent analysis of the raw trip data and driver data. Uber subsequently recalculated BuzzFeed’s estimates using a broader and more detailed set of internal data — which it declined to share directly with BuzzFeed News. The company did, however, conduct this recalculation according to BuzzFeed News’ methodology — which it said was “solid” — and did so in the presence of a BuzzFeed News editor and reporter.
Based on these calculations, it’s possible to estimate that Uber drivers in late 2015 earned approximately $13.17 per hour after expenses in the Denver market (which includes all of Colorado), $10.75 per hour after expenses in the Houston area, and $8.77 per hour after expenses in the Detroit market, less than any earnings figure previously released by the company.
What this means is that Uber drivers (at least in Denver, Houston, and Detroit) earn about the same as or less than the average for “taxi drivers and chauffeurs,” which in May 2015 (according to the Bureau of Labor Statistics) was $13 an hour.
And just so we understand how little drivers make—inside and outside the so-called sharing economy—the average hourly pay for production and nonsupervisory workers in May of last year was $20.99.
Or just compare that to the net worth of Travis Kalanick, the CEO of Uber Technologies: $6.2 billion.
Clearly, the only sharing going on in Uber is from the bottom up.
What is the Internal Revenue Service doing spending $10.71 million on the purchase of guns and ammunition from 2006 to 2014?
According to a new report from American Transparency (pdf) [ht: ja], those arms expenditures are just a small part of the “militarization of America,” which includes military spending by non-military federal agencies (like the IRS, the Environmental Protection Agency, and the Animal and Plant Health Inspection Service) and the militarization of traditional law-enforcement agencies (such as the Department of Homeland Security, U.S. Customs and Border Protection, and the Department of State).
All told, American Transparency estimates that 67 non-military federal agencies spent $1.48 billion on guns, ammunition, and military-style equipment from fiscal year 2006 to fiscal year 2014. There are also more than 200,000 non-military federal officers and security personnel not attached to the Pentagon, which is a force larger than the Marine Corps (with its 180,000 personnel).
According to Adam Andrzejewski, the author of the report, “The recent growth of the federal arsenal begs the question: Just who are the feds planning to battle?”
A former Chilean military official was finally found liable for killing Victor Jara.
A Florida jury on Monday found a former Chilean army officer liable for the 1973 torture and murder of the folk singer and political activist Victor Jara, awarding $28m in damages to his widow and daughters in one of the biggest and most significant legal human rights victories against a foreign war criminal in a US courtroom. . .
Kathy Roberts, legal director of the Center for Justice and Accountability, the California-based human rights group that brought the civil action on behalf of Jara’s British-born widow, Joan Turner Jara, and daughters Amanda Turner Jara and Manuela Bunster, believes the Florida jury’s ruling could now increase the pressure on the DoJ.
“It’s a step on the path towards justice for our clients and for Victor but also for the many other families who lost someone at Chile Stadium so many years ago,” she said after the verdict.
“We presented evidence that started to shed light on what happened there, and we hope that process will continue in Chile and we hope that the United States will extradite Mr Barrientos to face justice in the country where he committed these crimes.”
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