Posts Tagged ‘class’

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There’s no doubt that economic inequality is growing within the great cities, in the United State and around the world. The question is, is inequality killing what is great about those cities?

According to a new report by Alan Berube and Natalie Holmes for Brookings (in an update to an earlier study), inequality in the 50 largest cities in the United States (measured in terms of the disparity between the bottom 20 percent and the top 5 percent) is much higher than the national average.

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Thus,

Across the 50 largest cities, households in the 95th percentile of income earned 11.6 times as much as households at the 20th percentile, a considerably wider margin than the national average ratio of 9.3. This difference reflects the fact that in big cities the rich have higher incomes, and the poor lower incomes, than their counterparts nationally. From 2012 to 2013, the inequality ratio widened in both cities and the nation overall, as incomes at the top grew somewhat faster than incomes at the bottom. Notably, incomes grew faster for both the rich and poor in cities than they did elsewhere.

Similar trends have been reported elsewhere, in London and other major cities. (Baltimore, for those keeping track, was ranked twelfth in 2013 inequality, with a 95/20 ratio of 12.3.)

So, are these obscene levels of inequality destroying our cities?

Paul Krugman is not too sure about the historical lessons—but he does admit that “we’re now arguably looking at something new,”

as the really wealthy — domestic malefactors of great wealth, but also oligarchs, princelings, and sheiks — buy up prime real estate and leave it vacant, creating luxury-shopping wastelands at best (I know, snobbish Upper West Side bias), expensive ghost districts at worst.

David Harvey [ht: sk], for his part, sees increasing urbanization around the world connected to widespread “discontent emerging around the quality of urban life.”

So you can see this discontent producing uprisings in some instances, or mass protests like Gezi and what happened in Brazil shortly after Gezi. There is actually a long tradition of urban uprisings — the Paris Commune in 1871 and other instances well before that — but I think that the urban question is really becoming a central question today, and the qualities of urban life are moving to the forefront of what contemporary protests are about. . .

So we are seeing these sorts of emerging urban uprisings in a patchy way all around the world: in Buenos Aires, in Bolivia, in Brazil, etc. Latin America is full of this sort of stuff. But even in Europe we have seen major urban unrest: in London, Stockholm, Paris, and so on. What we have to do is to start thinking of a new form of politics, which is what anti-capitalism should fundamentally be about. Unfortunately, the traditional left still focuses narrowly on workers and the workplace, whereas now it’s the politics of everyday life that really matters.

The problem, as I see it, is neither Krugman nor Harvey offers a convincing class analysis that connects inequality with what is happening to and in the world’s cities. For Krugman, it’s a tiny group of wealthy oligarchs versus everyone else; Harvey seems to believe the “revolts in Baltimore and in Tahrir Square and so on” have nothing to do with the proletariat, at least as envisioned by Marx and Engels.

Now, I’m the first to admit the world has radically changed since the mid-nineteenth century. But that only means we have to update our class analysis of what is occurring within cities—where, to my mind, there is a broad class that is still doing most of the work and a tiny class at the top that is managing to capture a large portion of what those workers produce (within those cities and, in some instances, from cities across the globe). Otherwise, we’re going to fail to recognize the complex class dynamics of what is currently happening in our cities, and of course how they might be reshaped into urban centers that are worthy of the name of great cities.

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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.

inequality-health

The United States does not collect health data by class.*

However, the recently released report from the County Health Rankings and Roadmaps project (which for the first time this year include a measure of county-level inequality, depicted in the map above), conducted by the University of Wisconsin Population Health Institute, does give us some sense of the relationship between class and health outcomes in the United States.

Here are some of the key findings:

  • Rates of children in poverty are more than twice as high in the unhealthiest counties in each state as they are in the healthiest counties. (The top performing counties in the United States, the 10 percent with the lowest rates of child poverty, have child poverty rates of less than 13 percent. The worst performing counties, the 10 percent with the highest rates of child poverty, have child poverty rates of at least 38 percent.)
  • Across the nation, rates of unemployment are 1.5 times as high in the least healthy counties of each state as they are in the healthiest counties. (The top performing counties in the United States have unemployment rates of 4.1 percent or lower. The worst performing counties for unemployment have unemployment rates of 10.7 percent or higher.)
  • The top performing counties in the United States have income inequality ratios of less than 3.7, while the worst performing counties have income inequality ratios of 5.4 or higher. (Within counties in the United States, the average—median—income inequality ratio of the 80th to the 20th percentile is 4.4. The income-inequality ratio in U.S. counties ranges from 2.6 to 9.6.)

Thus, as Margot Sanger-Katz explains,

The researchers measured inequality by comparing the number of people in a given place who earned above the 80th percentile in the county with the number of people earning less than the 20th percentile. Then they measured life expectancy using a custom measurement they developed — it counts the “potential life years lost” in each community by measuring all those who died before the age of 75, and the age at which they died. So someone who died at age 70 would have five years of potential life lost. Then they adjusted the numbers according to how old people were in the county, so counties with more old people wouldn’t look sicker than counties that were younger. The study looked at only the average life span and not that of higher-income versus lower-income residents.

For every one-point increase in the ratio between high and low earners in a county, there were about five years lost for every 1,000 people. That’s about the same difference they observed when a community’s smoking rate increased by 4 percent or its obesity rate rose by 3 percent. Researchers said that inequality effect persisted even when they compared communities of similar average income and racial composition.

The question we all need to ask then is, how many potential life years have been lost to the grotesque levels of inequality (and the conditions and consequences of growing inequality, such as poverty and unemployment) we have seen emerging in recent decades in the United States?

 

*In contrast to other countries, such as the United Kingdom (which has issued a series of reports over the years on the relationship between health and class, including the Acheson Report, fully titled the Independent Inquiry into Inequalities in Health Report, in 1998).

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The discussion of capital and labor shares puts the issue of class at the top of the agenda. No wonder, then, that mainstream economists are expending so much effort these days attempting to define away the problem.

Let me explain.

If we look at changes in capital and labor shares (measured in terms of corporate profits before tax and compensation of employees as shares of gross domestic product, as in the chart on the left), we can clearly see that, in recent decades, the profit share has been rising and the labor share has been falling. In other words, labor has been losing out to capital—and we need to focus on solving that class problem.

But, of course, the share of income accruing to capital doesn’t just show up in corporate profits; some of that capital share is also distributed to a small portion of income-earners in the corporate (both financial and nonfinancial) sector. The share of income of the top one percent (as in the chart on the right) is a good approximation. If we therefore added the top-one-percent to corporate profits, and at the same time subtracted it from the compensation of employees, the divergence between the capital and labor shares would be even greater—and the class problem would be even more acute.

MIT’s Matthew Rognlie understands this perfectly. He notes that David Ricardo pronounced the issue of how aggregate income is split between labor and capital the “principal problem of Political Economy” and that the recent explosion of research on inequality has both called into question the postwar presumption of constant capital and labor shares and emphasized the increasing share of income accruing to the richest individuals. In other words, class has once again reared its ugly head.

Instead of trying to solve this class problem, Rognlie attempts to define away the problem—first, by focusing on net income shares and, then, by including housing in capital. He concludes that, once those adjustments are made,

concern about inequality should be shifted away from the split between capital and labor, and toward other aspects of distribution, such as the within-labor distribution of income.

The problem with focusing on net income shares—that is, in the case of capital, gross profits minus depreciation—is that it confuses flows of value (corporate profits before taxes, plus incomes to the top one percent, in the way I suggested above) with expenditures (e.g., by corporations to replace the value of plant, building, and machinery that has depreciated in value during the course of production).

The problem with including housing in the capital stock is that it doesn’t form part of the capital from which capitalists derive a flow of new value added or created. Housing industry profits are already accounted for in gross corporate profits. The fact that individuals may own housing doesn’t allow them to capture any of that new value; it just allows them to enjoy the benefits of having a home and to pay the costs (to banks and other financial institutions) of financing their homeownership.

While I agree with Rognlie that the “story of the postwar net capital share is not a simple one,” the fall and then recovery of the capital share (in the form of both corporate profits and one-percent incomes), which is mirrored by the rise and then fall of the wage share, can’t simply be defined away.

In other words, just as it was in the early-nineteenth century, class remains the “principal problem of Political Economy” in our own times.

economic segregation

It is not just that the economic divide in America has grown wider; it’s that the rich and poor effectively occupy different worlds, even when they live in the same cities and metros.

That’s the conclusion of a new study by Richard Florida and Charlotta Mellander [pdf]. What they do is construct an index of economic segregation based on three variables—income, education, and occupation—which are themselves highly correlated.

The ten large metropoles with the highest values on the Overall Economic Segregation Index are Austin, Columbus, San Antonio, Houston, Los Angeles, New York, Dallas, Philadelphia, Chicago, and Memphis. When the listed is expanded to cover all metro areas, a number of college towns rise to the top: Tallahassee (home to Florida State University) jumps to first place and Trenton-Ewing (Princeton University) to second, while Austin falls to third. Tucson (University of Arizona) and Ann Arbor (University of Michigan) also make the list, along with Bridgeport-Stamford-Norwalk.

The least segregated large metropoles include Orlando, Portland, Minneapolis-St. Paul, Providence, and Virginia Beach. Rustbelt metros like Cincinnati, Rochester, Buffalo, and Pittsburgh also have relatively low levels of overall economic segregation.

Another notable finding is that economic segregation tends to be more intensive in high-tech, knowledge-based metropolitan areas. It is positively correlated with high-tech industry, the “creative class” share of the workforce, and the share of college graduates. In other words, the so-called new economy is less a cure and more a cause of the new levels of class segregation in urban America.

And the implication of their analysis?

Where cities and neighborhoods once mixed different kinds of people together, they are now becoming more homogenous and segregated by income, education, and occupation. Separating across these three key dimensions of socio-economic class, this bigger sort threatens to undermine the essential role that cities have played as incubators of innovation, creativity, and economic progress.

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Special mention

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My post on the nature of the conflict over Greek debt seems to be getting some notice, here and on the Real-World Economics Review Blog.

Now it’s been translated into Italian.