Posts Tagged ‘chart’

R-top1

Russia is back in the news again in the United States, with the ongoing investigation of Russian interference in the U.S. presidential election as well as a growing set of links between a variety of figures (including Cabinet and family members) associated with Donald Trump and the regime of Vladimir Putin.

This year is also the hundredth anniversary of the October Revolution, which sought to create the conditions for a transition to communism in the midst of a society characterized by various forms of feudalism, peasant communism, and capitalism. But we shouldn’t forget that, in addition, the Red Century has clearly left its mark on the political economy of the West, including the United States—both in the early years, when the “communist threat” undoubtedly led to reforms associated with a more equal distribution of income, and later, when the Fall of the Wall reinforced the neoliberal turn to privatization and deregulation.

Now we have a third reason to think about Russia, which happens to intersect with the first two concerns. A new study of income and wealth data by Filip Novokmet, Thomas Piketty, Gabriel Zucman reveals just how much has changed in Russia from the time of the tsarist oligarchy through the Soviet Union to rise of the new oligarchy during and after the “shock therapy” that served to create a new form of private capitalism under Putin.

As is clear from the chart, income inequality was extremely high in Tsarist Russia, then dropped to very low levels during the Soviet period, and finally rose back to very high levels after the fall of the Soviet Union. Thus, for example, the top 1-percent income share was somewhat close to 20 percent in 1905, dropped to as little as 4-5 percent during the Soviet period, and rose spectacularly to 20-25 percent in recent decades.

R-top1-1980

The data sets used by Novokmet et al. reveal a level of inequality under the new oligarchs that is much higher that was the case using survey data—a top 1-percent income share that is more than double for 2007-08.

R-shares

Novokmet et al. also show that the income shares of the top 10 percent and the bottom 50 percent moved in exactly opposite directions after the privatization of Russian state capitalism in the early 1990s. While the top 10-percent income share rose from less than 25 percent in 1990-1991 to more than 45 percent in 1996, the share of the bottom 50 percent collapsed, dropping from about 30 percent of total income in 1990-1991 to less than 10 percent in 1996, before gradually returning to 15 percent by 1998 and about 18 percent by 2015.

comparison

In comparison to other countries, Russia was much more equal during the Soviet period and, by 2015, had approached a level of inequality higher than that of France and comparable only to that of the United States.

billionaires

Finally, Novokmet et al. have been able to estimate the enormous growth of private wealth under the new oligarchy, especially the wealth that was captured by a tiny group at the very top and is now owned by Russia’s billionaires. As the authors explain,

The number of Russian billionaires—as registered in international rankings such as the Forbes list—is extremely high by international standards. According to Forbes, total billionaire wealth was very small in Russia in the 1990s, increased enormously in the early 2000s, and stabilized around 25-40% of national income between 2005 and 2015 (with large variations due to the international crisis and the sharp fall of the Russian stock market after 2008). This is much larger than the corresponding numbers in Western countries: Total billionaire wealth represents between 5% and 15% of national income in the United States, Germany and France in 2005-2015 according to Forbes, despite the fact that average income and average wealth are much higher than in Russia. This clearly suggests that wealth concentration at the very top is significantly higher in Russia than in other countries.

Clearly, there is nothing “natural” about the distribution of income and the ownership of wealth. This new study demonstrates that different economic structures and political events create fundamentally different levels of inequality in both income and wealth, both within and between countries.

The Russian experience is a perfect example how inequality can fall and then, later, be reversed with radical economic and political transformations—thus creating a new oligarchy that dominates the national political economy and seeks to intervene in other countries.

Not unlike the United States.

optimism

worry

pain

American workers, as I have argued many times (e.g., here and here), find themselves in increasingly desperate circumstances.

But of course, different segments of the American working-class experience that desperation in different ways, according to the circumstances in which they find themselves.

A new study by the Brookings Institution [ht: db] reveals that the degree of optimism, worry, and pain experienced by poor whites, blacks, and Hispanics varies according to where they live.

Some of the results are not all surprising, given what else we know about the condition of the working-class in different places within the United States. Thus, for example, the best places in terms of optimism for poor minorities are Louisiana, Mississippi, Arkansas, Georgia, Alabama, and Tennessee (the Southern cluster of states), while the most desperate states for poor non-Hispanic whites are the Dakotas, Wyoming, Montana, Idaho, Wisconsin, Missouri, West Virginia, and Kentucky (which correspond, roughly, to the opioid and suicide belts in the heartland). A similar pattern follows for both worry and pain.

But there are some unexpected findings, at least for me, in the study. For example, the worst places for poor minorities (in terms of optimism, worry, and/or pain) include blue states like Washington, California, New York, and Massachusetts. And, as it turns out, for poor whites, the situation is desperate in New Jersey, Massachusetts, and Wisconsin.

The authors of the study admit that,

We cannot answer many questions at this point. What is it about the state of Washington, for example, that is so bad for minorities across the board? Why is Florida so much better for poor whites than it is for poor minorities? Why is Nevada “good” for poor white optimism but terrible for worry for the same group?

Politically, it is important to pay attention to and analyze the causes of these different placed-based levels of desperation for the various groups that make up the American working-class.

But it is also the case that overall, as I argued last November, the deteriorating condition of the U.S. working-class includes but goes beyond the obscene (and still-growing) inequalities in the distribution of income and wealth.

As both a condition and consequence of those inequalities, working-class Americans have suffered from mass unemployment (reaching 1 in 10 workers, according to the official rate, in October 2009, and much higher if we include discouraged workers and those who have underemployed), real wages that have been flat or falling for decades (now below what they were in the mid-1970s) along with declining benefits, a precipitous decline in unions (from one quarter in the 1970s to about ten percent today), an increase in the number of hours worked (both the length of the workweek and the average number of weeks worked per year), a significant rise in the incidence of “alternative work arrangements” (such as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers), and most people think good jobs are difficult to find where they live (by a factor of 2 to 1)—not to mention increasing mortality (for the first time since the 1950s), an increase in differences in life expectancy between those at the top and everyone else, high levels of infant mortality, a spectacular growth in the rate of incarceration, and increasing indebtedness (especially for student and auto loans).

Creating new economic institutions that actually lead to improvements in those circumstances will benefit all members of the American working-class—white, black, and Hispanic.

Then and only then will American workers feel more optimistic, have fewer worries, and experience less pain, regardless of where they live.

DL

Over the years, I’ve reproduced and created many different charts representing the spectacular rise of inequality in the United States during the past four decades.

Here’s the latest—based on the work of Thomas Piketty, Emmanuel Saez, and Gabriel Zucman—which, according to David Leonhardt, “captures the rise in inequality better than any other chart or simple summary that I’ve seen.”

I agree.

The chart shows the different rates of change in income between 1980 and 2014 for every point on the distribution. The brown line illustrates the change in the distribution of income in the 34 years before 1980, when those at the bottom saw larger growth than those at the top. In contrast, in the decades leading up to 2014, only those at the very top saw high levels of income growth. Everyone else experienced very little gain.

broken

Lest we forget, however, the U.S. economy was already broken by 1980: the bottom 90 percent only took home about 65 percent of national income, while the top 1 percent managed to capture 10.6 percent of total income in the United States. There was nothing fair about that situation.

A bit like a car that looks good, when shiny and new, but is designed with cheap parts to fail as soon as the warranty expires.

Well, the warranty on the U.S. economy expired in the late 1970s. And then it really began to break down.

By 2014, that already-unequal distribution of income had become truly obscene: the share of income going to the bottom 90 percent had fallen to less than 53 percent, while the share captured by the top 1 percent had soared to over 19 percent.

Leonhardt is right: “there is nothing natural about the distribution of today’s growth — the fact that our economic bounty flows overwhelmingly to a small share of the population.”

Yes, as Leonhardt argues, different policies would produce a somewhat more equal outcome. And, it’s true, “President Trump and the Republican leaders in Congress are trying to go in the other direction.”

But a different economy—a radically different way of organizing economic and social life—would eliminate the conditions that led to unequalizing growth in the first place. Both before 1980 and in the decades since then.

The fact is, the supposed Golden Age of American capitalism was based on a set of institutions that allowed the boards of directors of large corporations to appropriate a growing surplus and to distribute it as they wished. At first, during the immediate postwar period, that meant growing incomes for those in the bottom 90 percent. But, even then, the mechanisms for distributing income remained in the hands of a very small group at the top. And they had both the interest and the means to stop the growth of wages, get even more surplus (from U.S. workers and, increasingly, workers around the globe), and distribute a greater share of that surplus to a tiny group at the very top of the distribution of income.

Those are the mechanisms that need to be challenged and changed. Otherwise, inequality will remain out of control.

fredgraph (1)

Back in 2010, I warned about the widening and deepening of capitalist poverty in the United States.

The fact is (pdf), more poor people now live in the suburbs than in America’s big cities or rural areas. Suburbia is home to almost 16.4 million poor people, compared to 13.4 million in big cities and 7.3 million in rural areas.

fredgraph (3)

Lake County, IL, one of the wealthiest counties in the United States, is a case in point. Median household income in 2015 was $82,106, 45 percent higher than the national average.

At the same time, 9.6 percent of the Lake County population lived below the poverty line—more than 20 thousand of them children under the age of 17—and about 60 thousand people were forced to rely on food stamp benefits.

As Scott Allard explains,

Set beside Lake Michigan north of the city of Chicago, Lake County abounds with large single-family homes built mostly since 1970. Parks, swimming pools and recreational spaces dot the landscape. Commuter trains and toll roads ferry workers into Chicago, and back again. . .

Poverty problems in Lake County can be hidden from plain view. Many low-income families live in homes and neighbourhoods that appear very “middle class” on the surface – single-family homes with garages and cars in the driveway.

Closer inspection, however, reveals signs of poverty in all corners of the county. Many Lake County communities from all racial and ethnic groups are in need, and poverty rates in the older communities along Lake Michigan, such as Zion or Waukegan, more closely resemble those in the central city.

Pockets of concentrated poverty can be found in subdivisions of single-family homes, isolated apartment complexes and mobile home parks across the county. It also appears at the outer edges of Lake County in areas that might have been described as rural or recreational 30 or 40 years ago, before suburban sprawl brought in new residents and job-seekers. Several once-bustling strip malls are home to discount retailers and empty storefronts. It is not uncommon to see families at local grocery stores and supermarkets using food stamps or electronic benefit transfer cards to pay for part of their bill.

Rising suburban poverty is, of course, not confined to Lake County or the Chicago area. It can be found across the country, from Atlanta to San Francisco.

Back in the 1990s, researchers began to chronicle the diversity that exists across American suburbs, paying particular attention to older, declining suburbs—manufacturing-based, older industrial areas struggling with structural shifts and economic decline.

Now, however, in the wake of the Second Great Depression, the poverty landscape has broadened even further, encompassing all kinds of communities around the country. We’ve now moved well beyond the declining and at-risk suburbs chronicled in earlier research and are forced to confront the geographical widening of poverty, which continues to blight the nation’s cities and rural areas and is increasingly hidden in plain view in its suburbs.

Racing-with-machines

New technologies—automation, robotics, artificial intelligence—have created a specter of mass unemployment. But, as critical as I am of existing economic institutions, I don’t see that as the issue, at least at the macro level. The real problem is the distribution of the value that is produced with the assistance of the new technologies—in short, the specter of growing inequality.

David Autor and Anna Salomons (pdf) are the latest to attempt to answer the question about technology and employment in their contribution to the recent ECB Forum on Central Banking. Their empirical work leads to the conclusion that while “industry-level employment robustly falls as industry productivity rises. . .country-level employment generally grows as aggregate productivity rises.”

To me, their results make sense. But for a different reason.

fredgraph

It is clear that, in many sectors—perhaps especially in manufacturing—the growth in output (the red line in the chart above) is due to the growth in labor productivity (the blue line) occasioned by the use of new technologies, which in turn has led to a decline in manufacturing employment (the green line).

nonfarm

But for the U.S. economy as a whole, especially since the end of the Great Recession, the opposite is true: the growth in hours worked has played a much more important role in explaining the growth of output than has the growth in labor productivity.

The fact is, increases in labor productivity—which stem at least in part from labor-saving technologies—have not, at least in recent years, led to massive unemployment. (The losses in jobs that have occurred are much more a cyclical phenomenon, due to the crash of 2007-08 and the long, uneven recovery.)

But that’s not because, as Autor and Salomons (and mainstream economists generally) would have it, there are “positive spillovers” of technological change to the rest of the economy. It’s because, under capitalism, workers are forced to have the freedom to sell their ability to work to employers. There’s no other choice. If workers are displaced from their jobs in one plant or sector, they can’t just remain unemployed. They have to find jobs elsewhere, often at lower wages than their earned before. That’s how capitalism works.

Much the same holds for workers who don’t lose their jobs but who, as new technologies are adopted by their employers, are deskilled and otherwise become appendages of the new machines. They can’t just quit. They remain on the job, even as their working conditions deteriorate and the value of their ability to work falls—and their employers’ profits rise.

What happens, in other words, is the gains from the new technologies that are adopted are distributed unevenly.

share

This is clear if we look at labor productivity for the economy as a whole (the blue line in the chart above) since the end of the Great Recession, which has increased by 7.5 percent. However, the wage share (the green line) has barely budged and is actually now lower than it was in 2009.

productivity

The results are even more dramatic over a long time frame—over periods when labor productivity was growing relatively quickly (from 1947 through the 1970s, and from 1980 until the most recent crash) and when productivity has been growing much more slowly (since 2009).

During the initial period (until 1980), labor productivity (the blue line in the chart) almost doubled while income shares—to the bottom 90 percent (the red line) and the top 1 percent (the green line)—remained relatively constant.

After 1980, however—during periods of first rapid and then slow growth in productivity—the situation changed dramatically: the share of income going to the bottom 90 percent declined, while the share captured by the top 1 percent soared. Even as new technologies were adopted across the economy, the vast majority of people were forced to find work, at stagnant or declining wages, while their employers and corporate executives captured a larger and larger share of the new value that was being created.

Autor and Salomons think they’ve arrived at a conclusion—concerning the “relative neutrality of productivity growth for aggregate labor demand”—that is optimistic.

The conclusions of my analysis are much more disconcerting. The broad sharing of the fruits of technological change, from the end of World War II to the late 1970s, was relatively short-lived. Since then, the conditions within which new technologies have been adopted have created a mass of increasingly desperate workers, who have either been forced to labor in more automated workplaces or have been displaced and thus forced to find employment elsewhere. In both cases, their share of income has declined while the share captured by a tiny group at the top has continued to rise. That’s the “new normal” (from 1980 onward) which looks a lot like the “old normal” of capitalist growth (prior to the first Great Depression), interrupted by a relatively short period (during the three postwar decades) that is becoming increasingly recognized as the exception.

Even more, I can make the case that things would be much better if the adoption of new technologies did in fact displace a large number of labor hours. Then, the decreasing amount of labor that needed to be performed could be spread among all workers, thus lessening the need for everyone to work as many hours as they do today.

But that would require a radically different set of economic institutions, one in which people were not forced to have the freedom to sell their ability to work to someone else. However, that’s not a world Autor and Salomons—or mainstream economists generally—can ever imagine let alone work to create.

philanthropy

Yes, indeed, as state and local governments struggle with budget deficits and the social infrastructure continues to crumble, rich Americans are sliding “into the driver’s seat of public life, with private funders tackling problems that government can’t or won’t.”

Look in any area — the arts, education, science, health, urban development — and you’ll find a growing array of wealthy donors giving record sums. Philanthropists have helped fund thousands of charter schools across the country, creating a parallel education system in many cities. The most ambitious urban parks in decades are being built with financing from billionaires. Some of the boldest research to attack diseases like cancer and Alzheimer’s is funded by philanthropy. Private funders, led by the Gates Foundation, play a growing role in promoting global health and development.

But as “Bill,” one of the readers who commented on the New York Times article, understands, what we’re seeing “is an undemocratic system that disproportionately allocates the wealth produced by society as a whole to a few unelected people at the top, and expects them to redistribute it in some way. Some do, some don’t.”

The fact is, there’s a close correlation between the growth in the surplus captured by the top 1 percent (as seen by the red line in the chart above) and the real amount of charitable giving in the United States (the blue line in the chart).

The system is undemocratic, first, because the workers who produce the surplus have no say in how much is distributed to others, including the tiny group at the top. Second, it’s undemocratic because the top 1 percent, who have managed to capture a large share of the surplus, are the ones who decide whether or not to give to philanthropy—and on what projects.

They’re the ones who get to decide what kinds of schools American children will attend, whether or not there will be urban parks, what kind of research will be done on which diseases, and so on. They’re literally remaking social life in their own image.

Ultimately, efforts to level the playing field of civic life won’t get very far as long as economic inequality remains so high, putting outsize resources in the hands of a sliver of supercitizens.

Today, as in the first Gilded Age, economic inequality and undemocratic philanthropy go hand in hand.

5_NATUREflat5a

Apparently, Richard Reeves is worried that the top echelons of the U.S. middle class—those earning over $120,000—are separating from the rest of the country, and pulling up the drawbridge behind them.

“The upper middle class families have become greenhouses for the cultivation of human capital. Children raised in them are on a different track to ordinary Americans, right from the very beginning,” he writes.

The upper middle class are “opportunity hoarding” – making it harder for others less economically privileged to rise to the top; a situation that Reeves says places stress on the efficiency of the US economic system and creates dynastic wealth and privilege of the kind the nation’s fathers sought to avoid.

That makes sense. The fact is, class mobility has been declining in the United States. The lack of movement up and down the economic ladder, which itself is a product of growing inequality, serves to magnify the obscene levels of inequality in the United States.

The two longstanding myths about U.S. economic and social structures—that classes don’t exist and, even if they do, there is plenty of movement between them—have been shattered in recent years.

But Reeves needs to take another look at what’s going on. First, it’s not an either-or issue—the top 1 percent or the top 20 percent. Both groups are pulling away from the bottom 90 percent.

top10

The share of income going to the top 10 percent (since I don’t have data on the top 20 percent) has soared over the course of the past four decades from 34 percent to 47 percent. Meanwhile, the share going to the bottom 90 percent has fallen precipitously, from 66 percent to 53 percent.

Top1

The members of the top 1 percent have also pulled away from those at the bottom, since their share of income has grown during the same period from 11 percent to 20 percent.

Both groups—the top 10 percent and the top 1 percent—are pulling away from and leaving everyone else behind.

But there’s also a difference between them, which Reeve also misses. Whereas those at the very top are responsible—via their membership in boards of directors of large corporations as well as their role in sole proprietorships, partnerships, LLCs, and other business forms—for appropriating the surplus, the rest of the top group tend to get a cut of the surplus. In other words, the remaining members of the top 10 (or, for Reeves, 20) percent share in the booty that is extracted from everyone else.

The fact that those at the top are pulling away from everyone else is not just a matter of “legacy” students gaining admittance to top universities or well-placed internships. It’s also about the surplus they manage to capture, both directly and indirectly. That’s what distinguishes them from the 90 percent, who produce but do not share in the surplus—or, for that matter, have any say in what happens to the surplus.

Reeves’s major concern is to celebrate and restore the idea of meritocracy. I get that. The question he doesn’t pose, however, is: where’s the merit in excluding those in the bottom 90 percent from having a say in how much surplus there will be and what to do with it once it’s produced?

The fact is, the organization of U.S. economic and social institutions means that those at the top, whoever they are and however much they might change, are in a position to capture and do what they want with the surplus everyone else creates.

That’s why the current system is “rigged” and those at the top are pulling away from the vast majority at the bottom.