Posts Tagged ‘capitalism’

unequal_soup_business_desk

I find myself thinking more these days about the fairness of Social Security and other government retirement benefits.

One reason, of course, is because I’m getting close to retirement age—and, as I discover each time I raise the issue with students, young people don’t think about it much.* Another reason is because Social Security (in addition to Medicare, Disability, and other programs) is the way the United States creates a collective bond between current and former workers, by using a portion of the surplus produced by current workers to provide a safety net for workers who have retired.

That represents a kind of social fairness—that people who have spent a large portion of their lives working (most people need 40 credits, based on years of work and earnings, to qualify for full Social Security benefits) are eligible for government retirement benefits provided by current workers. Another aspect of that fairness is the system should and does redistribute from those with high lifetime incomes to those with lower lifetime incomes. While that makes the actual “rates of return” unequal across groups, it’s designed to provide a floor for the poorest workers in society.

Many people consider the U.S. Social Security system fair on those two grounds. That’s true even though some people, by random draw, may live longer than others. However, as Alan J. Auerbach et al. (pdf [ht: lw]) report, that fairness may be put into question if there are identifiable groups that vary in life expectancy, “as this introduces a non-random aspect to the inequality.”

Here’s the problem: retirement benefits in the United States are increasingly unequally distributed on a non-random basis. As I’ve written about many different times (e.g., here, here, and here), there’s a gap in life expectancies between those at the bottom and top of the distribution of income. And the gap has been growing over time.

Fig1

That result is confirmed by Alan J. Auerbach et al.: for the male birth cohort of 1930, life expectancy at age 50 rises from 26.6 to 31.7—a difference of 5.1 years. For the 1960 cohort, the lowest quintile has a slightly lower life expectancy than the 1930 cohort but then rises a level of 12.7 years higher for the top quintile, “indicating a very large increase in the dispersion.”

Fig2

Not surprisingly (since benefits rise with earnings), Social Security benefits also rise with income quintiles. Thus, for example, for men in the 1930 cohort, workers in the lowest quintile can expect to receive, on average, $126 thousand in benefits over the rest of their lives (discounted to age 50), while workers in the top quintile can expect to receive $229 thousand, or 82 percent more than the lowest income workers.

What is particularly troubling is how the results change when we move to the 1960 cohort. The additional 6-8 years of life expectancy for the top three quintiles lead to large increases in expected Social Security benefits, with benefits for the top quintile reaching $295 thousand. The difference between the highest and lowest quintiles is then expected to be $173 thousand, or 142 percent of the lowest income workers’ benefit.

According to the authors of the study,

These results suggest that Social Security is becoming significantly less progressive over time due to the widening gap in life expectancy.

Not only does the growing gap in life expectancies undermine the basic fairness of the Social Security system. It calls into question capitalism itself.

 

*For understandable reasons. I certainly didn’t think about retirement at that age. (I barely thought about getting a job. I just presumed I would—and would be able to—at some point.) However, when students are induced to do think about retirement, as I’ve written before, most take it for granted that Social Security is doomed. While they expect to pay into Social Security, they don’t expect to receive any Social Security benefits when they retire. Then, of course, I explain to them that making only one change—raising the taxable earnings base—would eliminate the projected deficit and keep Social Security solvent forever.

_95746033_sciencesydney

Today, thousands of scientists, science educators, and others are protesting in hundreds of cities around the world against what they see as a global political assault on science.

According to Lucky Tran, who serves on the steering committee of the March for Science,

We need another scientific revolution. The first scientific revolution transformed our understanding the natural world and changed civilization as we know it, making us healthier, happier and more productive. Today, we have huge scientific challenges ahead such as climate change, genetic engineering and automation. And yet we are stuck with the hand brake on and unable to act effectively as a society, because a few privileged people are blocking progress at the expense of the rest of us.

Tran might also have invoked Albert Einstein, the most famous scientist of the twentieth century, who in 1949 expressed his support for socialism in the name of social values but with a perhaps more humble view of the role of science.

we should be on our guard not to overestimate science and scientific methods when it is a question of human problems; and we should not assume that experts are the only ones who have a right to express themselves on questions affecting the organization of society.

And the problem?

Production is carried on for profit, not for use. There is no provision that all those able and willing to work will always be in a position to find employment; an “army of unemployed” almost always exists. The worker is constantly in fear of losing his job. Since unemployed and poorly paid workers do not provide a profitable market, the production of consumers’ goods is restricted, and great hardship is the consequence. Technological progress frequently results in more unemployment rather than in an easing of the burden of work for all. The profit motive, in conjunction with competition among capitalists, is responsible for an instability in the accumulation and utilization of capital which leads to increasingly severe depressions. Unlimited competition leads to a huge waste of labor, and to that crippling of the social consciousness of individuals which I mentioned before.

This crippling of individuals I consider the worst evil of capitalism. Our whole educational system suffers from this evil. An exaggerated competitive attitude is inculcated into the student, who is trained to worship acquisitive success as a preparation for his future career.

To which Einstein offered a solution:

I am convinced there is only one way to eliminate these grave evils, namely through the establishment of a socialist economy, accompanied by an educational system which would be oriented toward social goals. In such an economy, the means of production are owned by society itself and are utilized in a planned fashion. A planned economy, which adjusts production to the needs of the community, would distribute the work to be done among all those able to work and would guarantee a livelihood to every man, woman, and child. The education of the individual, in addition to promoting his own innate abilities, would attempt to develop in him a sense of responsibility for his fellow men in place of the glorification of power and success in our present society.

I wonder if today, in addition to defending science, scientists are willing to criticize the existing economic and social institutions and participate in the project of imagining and creating an alternative.

fearless-girl-hed-2017

Apparently, Arturo Di Modica, the sculptor who created Charging Bull nearly 30 years ago, considers Fearless Girl to be an insult to his work and wants it taken away.

Here’s the problem: artists (or, in the case of the opposing sculpture, the corporate sponsors) don’t get to claim the final interpretation of their work. They can attempt to control the interpretation, often with the addition of a title, but that’s it. The rest is up to the viewing public, the conversations they have about the works, and of course the way the images circulate in and through other discourses.

Thus, for example, Di Modica wants us to believe the bull’s meaning is “freedom in the world, peace, strength, power and love.” But that’s not how we see it. For us, his bull has come to represent Wall Street—hard-charging, run-over-everything-in-its-path financial capital.

And the girl? State Street Global Advisors put her there as a marketing stunt, to symbolize the idea that women have finally taken their place in the nation’s financial district. However, as Ginia Bellafante argues, that would be a “false feminism”: “really, how inspiring is a symbol of financial-world gender inequity to a cashier at CVS?”

But what if the girl has a different meaning—of people, both men and women, young and old, represented by a young fearless girl who is standing up to the hard-charging bull of Wall Street?

The late John Berger once wrote that, in the history of art, “men act and women appear.” But the Fearless Girl challenges that history. She doesn’t just appear, she acts—she stands there in an act of defiance against the marauding power of finance, the highest symbol of capitalism itself.

No wonder Di Modica, representing the powers behind him, wants her removed.

2879457068_45cc8b3d7c_b

Is it any surprise, as Christina Starman, Mark Sheskin, and Paul Bloom argue, that fairness is not the same thing as equality?

There is immense concern about economic inequality, both among the scholarly community and in the general public, and many insist that equality is an important social goal. However, when people are asked about the ideal distribution of wealth in their country, they actually prefer unequal societies. We suggest that these two phenomena can be reconciled by noticing that, despite appearances to the contrary, there is no evidence that people are bothered by economic inequality itself. Rather, they are bothered by something that is often confounded with inequality: economic unfairness.

Still, I think, many people today are bothered by both—economic unfairness and grotesque levels of economic inequality.

Let me explain. As I have written before, I’m not particularly convinced of the idea being promoted by Starman et al. and by other evolutionary psychologists that fairness is part of humans’ biological inheritance. Instead, I’m more inclined to look in the direction of history and society.

Fairness is, I think, a concept that is part of bourgeois society, which is created and disseminated in a wide variety of discourses and sites, including economics. (To be clear, there may be other notions of fairness in human history, outside and beyond bourgeois society. My point is only that capitalism has its own particular notions of fairness, and they’re the ones that motivate our current “fairness instinct.”)

Fairness is an important part of the self-justification of bourgeois society. For example, market outcomes are considered fair because sovereign individuals are free to engage in voluntary transactions, which result in equal exchanges. That’s an idea that is created and reproduced throughout contemporary society, especially in mainstream economics.

So, yes, individuals within contemporary capitalism are constituted, at least in part, by certain notions of fairness, which they express in a wide variety of contexts, from participating in the ultimatum game to making a distinction between “takers” and “makers.”

By the same token, it’s not particularly shocking that those same individuals agree there should be some degree of inequality in economic outcomes. That’s also part of capitalism’s self-justification, that “fair” processes will produce unequal results. So, people seem to agree, not everyone can or should receive the same income or have the same wealth. We have different abilities, needs, desires, and circumstances, so the discourse goes, resulting in—perhaps even requiring—different amounts of income and wealth.

average1

But then, of course, income inequalities have become so obscene—so unjustified by any conceivable differences in abilities, needs, desires, and circumstances—that, in the name of fairness, people demand more equality.

That’s how I think we need to reconcile the ideas of fairness and equality—not, as Starman et al. would have it, that people are bothered by fairness but not by inequality, but instead that bourgeois notions of fairness are so challenged and disrupted by existing levels of inequality people demand perhaps not perfect but certainly much more equality than exists today.

The real question is not whether there’s a “universal moral concern with fairness.” Instead, it’s whether the existing system can deliver on its promise to create fair (and, with them, more equal) outcomes—or, alternatively, whether it’s necessary to imagine and create a different set of economic and social institutions, which will actually fulfill that promise of fairness and at the same time deliver much more equality than exists in the United States today.

33a09cd8e6b7c2bf6187f77211e5b279

One of the arguments I made in my piece on “Class and Trumponomics” (serialized on this blog—here, here, here, and here—and recently published as a single article in the Real-World Economics Review [pdf]) is that, in the United States, the class dynamic underlying the growing gap between the top 1 percent and everyone else was the much-less-remarked-upon divergence in the capital and wage shares of national income. Thus, I concluded, “the so-called recovery, just like the thirty or so years before it, has meant a revival of the share of income going to capital, while the wage share has continued to decline.”

Well, as it turns out, that conclusion is more general, characterizing not just the United States but much of global capitalism.

graph_dl

We know that—not just in the United States, but in a wide variety of national economics—the share of income going to the top 1 percent has been rising for decades now.

karabarbounisfig1a

Thanks to the work of Peter Chen, Loukas Karabarbounis, and Brent Neiman (and the full paper [pdf]), we also know that corporate profits (across some 60 countries) have also been rising.

We document a pervasive shift in the composition of saving away from the household sector and toward the corporate sector. Global corporate saving has risen from below 10 percent of global GDP around 1980 to nearly 15 percent in the 2010s. This increase took place in most industries and in the large majority of countries, including all of the 10 largest economies.

According to their analysis, the rise of corporate saving mirrors an increase in undistributed corporate profits, corresponding to a decline in the labor share for the global economy.

Moreover, the increase in corporate saving exceeded that in corporate investment, which implies that the corporate sector improved its net lending position. Just as I concluded in the case of the United States, the improved net lending position of corporations is associated with an accumulation of cash, repayment of debt, and increasing equity buybacks net of issuance.

If you put the two trends together—increased individual income inequality and increased corporate savings—what we’re witnessing then is increasing private control over the social surplus. Wealthy individuals and large corporations are able to capture and decide on their own what to do with the surplus, with all the social ramifications associated with their decisions to invest where and when they want—or not to invest, and thus to accumulate cash, repay debt, and repurchase their own equity shares.

And proposals to decrease tax rates for wealthy individuals and corporations will only increase that private control.

Why is it anyone would want to save such an economic system?

mortality

We don’t need Louisiana Detective Rodie Sanchez coming out of retirement to solve the crime against the members of the working-class currently being committed in the United States.

We already know many of the details of the crime. We also know the identities of both the victims and the serial killer. The only real mystery is, what’s the country going to do about it?

The investigation itself is being painstakingly carried out by Anne Case and Agnus Deaton (pdf). They show, with abundant statistics, that mortality trends in the United States run counter to those in other rich countries, where they have been steadily declining for decades.

mortality2

The headlines, of course, have been about one group—middle-age white non-Hispanics with a high-school degree or less—whose mortality rates, especially those attributed to “deaths of despair” (drug overdoses, suicides, and alcohol-related liver mortality), increased from 1998 through 2015.* The focus in on that group for a number of reasons, including the fact that increasing rates for them (as against blacks and nonwhite Hispanics) have all but erased the racial gap in mortality among non-college-educated Americans—and, of course, because of the prominence of “white working-class” voters in explanations of Donald Trump’s electoral victory.

But we also need to go beyond the headlines and understand that, while rates for different ethnic and racial groups in the United States have moved in opposite directions in recent decades, the rates for working-class blacks and Hispanics are still very high—and, in recent years (as can be seen, in the case of blacks, in the chart at the top of the post), they’ve also begun to rise.

That’s the real crime story. All three groups within the American working-class—whites, blacks, and Hispanics—are being killed at abnormally high rates compared to the populations of other rich countries.

And the serial killer? Case and Deaton have a much more difficult time working in this area. That’s because they follow the headlines and emphasize the differences in the long-term trend rates and lose sight of the larger picture. So, they discount the role played by income inequality and, instead, endorse Charles Murray’s story about the decline in traditional American virtues among working-class whites (which I wrote about back in 2012).

The fact is, the labor-market factors identified by Case and Deaton—which have negatively affected whites, blacks, and Hispanics with a high-school degree or less—have become more severe as inequality has soared and the social safety net ripped apart in the United States from the early 1970s onward. The upward trend for whites and the narrowing of the racial gap, as significant as they are, shouldn’t hide from view the more general problem (as I wrote about in 2015) of a large and growing gap between the life expectancies (for both men and women) of those at the top and bottom of the distribution of income in the United States.

American TV is currently captivating viewers with stories of people accused of committing horrific acts. It’s time, however, to focus on the story of an economic system that has created its own killing fields.

 

*Mortality increases for whites in midlife have also been paralleled by morbidity increases, including deteriorations in self-reported physical and mental health, and rising reports of chronic pain.

raccoon