Posts Tagged ‘inequality’

Cartoon of the day

Posted: 21 October 2016 in Uncategorized
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Late last month, I argued Donald Trump doesn’t know what he’s talking about when it comes to international trade. But his attacks on free trade are in fact resonating among working-class voters. That, and the fact that the polls show the presidential election much closer in recent weeks than anyone expected, has finally made others sit up and take notice.

And now we’re witnessing the free-trade, anti-Trump backlash.

Thomas B. Edsall cites the same Peter Goodman article I did last week, which included this astute observation:

Across much of the industrialized world, an outsize share of the winnings has been harvested by people with advanced degrees, stock options and the need for accountants. Ordinary laborers have borne the costs and suffered from joblessness and deepening economic anxiety.

But then Edsall goes all in with the mainstream economists who, as part of their unchanging mantra, celebrate free international trade.* He cites, as one example, Erik Brynjolfsson, an economist at M.I.T.’s Sloan School of Management:

No nation can succeed by trying to protect the past from the future. We will succeed by having the confidence to embrace competition, and leveraging our comparative strengths, which are numerous. We have the largest, most productive and most technologically advanced economy that’s ever existed on this planet. The more open the world economy is, the more we have an opportunity to leverage our many strengths.

My sense is that mainstream economists are doubling down on their free-trade argument, forgetting about the “ordinary laborers [who] have borne the costs and suffered from joblessness and deepening economic anxiety,” for two major reasons.

First, they fervently believe in free trade, because their models are designed to ignore the unequal costs and benefits of international trade. That is, the “gains from trade” that supposedly accrue to everyone are literally baked into their models. And they’re afraid to admit that some gain, and many others lose, under existing international trade regimes and agreements. They’re afraid because admitting the unequal outcomes opens the door to intervening and creating patterns of trade that might actually help workers and other losers within the current arrangements. They’re also fearful of incurring the wrath of other mainstream economists, who attack any exceptions to the free-trade mantra with a vengeance (as even Paul Samuelson discovered).

Second, mainstream economists are doubling down on their defense of free trade because they’re willing to say anything and everything to attack Trump. Just the fact that Trump has had the temerity of criticizing free-trade agreements, such as the North American Free Trade Agreement and the Trans-Pacific Partnership, thereby creating (in the eyes of mainstream economists) the specter of protectionism, has led them to cast aside all caution and reinforce their uncritical support for free trade. (Edsall even invokes the long-discredited idea that the Smoot-Hawley Tariff Act was “one of the principle causes” of the first Great Depression to make the case.) But, of course, in their determination to oppose the Republican candidate, mainstream economists also dismiss the indignities and injuries many of Trump’s supporters have suffered in recent decades.**

International trade is not the only thing hurting American workers. It’s probably not even the major factor. Decades of stagnant wages, rising inequality, outsourcing, and job-displacing technological change created by their employers are, in my view, even more important. But mainstream economists’ and pundits’ all-out defense of free trade, their refusal to recognize the unequal benefits and costs of globalization, and their determined efforts to let employers completely off the hook are among the important reasons that, against all odds, Trump is only 5-6 points behind in the national polls.***


*It should come as no surprise that, according to the International Monetary Fund, the World Bank, and the World Trade Organization, the solution to the problems of international trade is. . .more trade.

**Many of Clinton’s supporters have also been harmed by U.S. economic policies, including international trade agreements.

***I wrote this post before the revelation of the 2005 Trump tape and the Wikileaks publication of the emails concerning Hillary Clinton’s speeches. Given the media coverage of the two events (plus whatever happens in the Sunday debate), my guess is the new polls will register a much larger lead for Clinton—and there will be much less discussion of international trade (or economics of any sort) in the weeks ahead.


To read National Public Radio’s [ht: ja] article on the latest World Bank report on Poverty and Shared Prosperity: Taking on Inequality, you’d think the problem of global poverty was well on the way to being solved.

Is that just wishful thinking?

In terms of the headline numbers, the author of the article is correct:

In 2013, fewer than 800 million people lived on less than $1.90 a day. That’s less than 11 percent of the global population. As recently as 1990, about 35 percent of all people lived in such extreme poverty.

That means about 1.1 billion people rose out of extreme poverty.

But, before we get too excited, there are 3 key issues to keep in mind.

First, the World Bank itself follows the presentation of the numbers with a note of caution:

Although this represented a noticeable decline, the poverty rate remains unacceptably high given the low standard of living implied by the $1.90-a-day threshold.

That’s right. The threshold is a miserly $1.90 a day, an update taking into account inflation of the previous limit of $1 a day. If they used anything more reasonable—say, an absolute level of $5 a day or, even better, a relative level of 50 percent of mean income—the level of global poverty would be much higher.*


Second, while it’s never mentioned in the article, the actual focus on the World Bank report is inequality. And there the results are, at first glance, bewildering: global inequality has fallen while average within-country inequality is greater now than 25 years ago. But it can be easily explained: Rising incomes in China and India alone, given the size of their populations, have led to a reduction in between-country inequality. However, in many countries, the income share of the top income groups has been expanding—in the United States, of course, but also in Argentina, India, the Republic of Korea, Taiwan, and China. And in South Africa, the top income share roughly doubled over 20 years, to levels comparable to those observed in the United States!

Finally, we need to understand what is actually causing the reported declines in global poverty and inequality. The World Bank singles out five countries—Brazil, Cambodia, Mali, Peru, and Tanzania—as the best performers. And here the NPR article is just plain wrong. The policies the World Bank itself cites are the following “building blocks of success”:

prudent macroeconomic policies, strong growth, functioning labor markets, and coherent domestic policies focusing on safety nets, human capital, and infrastructure.

This is exactly what one would expect from the World Bank: more growth—in other words, business as usual—will solve the problems of poverty and inequality.

The Peruvian example (based on reading the World Bank report and the background research papers) is particularly instructive. The “remarkable” improvement in living conditions among the poor and bottom 40 percent mostly occurred through the labor market (which explains about three-quarters of the reduction in extreme poverty).

What does that mean? Extreme poverty in Peru declined because more people, men and women, joined the labor market. Some left rural areas and migrated to cities; others exited the informal sector and went to work for larger enterprises. In both cases, more Peruvians were forced to have the freedom to sell their ability to work to someone else and, as a result, received more cash income in the form of wages—and then, of course, could use those wages to purchase more commodities.

So, as far as the World Bank is concerned, more Adam Smith development—a faster growing wealth of the nation—was both a condition and consequence of expanding the labor market and reducing poverty. The World Bank’s much-vaunted “shared prosperity” is just another name for more markets and more people working to make profits for a tiny group of employers at the top.

That’s the key point the article missed and the reason the World Bank, in the report, is so keen on celebrating the progress toward achieving the goal of eliminating extreme poverty by 2030.


*In fact, in a World Bank research paper, Shaohua Chen and Martin Ravallion (pdf), compared absolute and relative measures and found “a simultaneous rise in the numbers of relatively poor, alongside the fall in absolute poverty.”



Yesterday, I argued that capitalism has, over the course of its history, generated movements of masses of people, both within and between nations. However, in the United States, the effects of capitalism’s laws of population are mostly ignored, as are the links between internal and external migrations of workers. Instead, the discussion tends to focus only on the consequences of immigration (and, even then, on only some of the consequences).

And that’s exactly the focus of the new study, “The Economic and Fiscal Consequences of Immigration,” by the Panel on the Economic and Fiscal Consequences of Immigration of the National Academies of Sciences, Engineering, and Medicine.

I won’t attempt to summarize the entire, 508-page study (itself a follow-up to the last major report on the topic by the National Academies, The New Americans: Economic, Demographic, and Fiscal Effects of Immigration, in 1997). However, as I read it, the study boils down to two key questions: First, what are the consequences of immigration, particularly those involving wage and employment prospects, for individuals already established in the United States? Second, what are the fiscal impacts of immigrants for local, state, and federal governments?

The answer to the first question is covered in Chapter 5 of the report, titled “Employment and Wage Impacts of Immigration.” The panel surveys a large, diverse literature, which they summarize as follows (on p. 4):

When measured over a period of 10 years or more, the impact of immigration on the wages of natives overall is very small. However, estimates for subgroups span a comparatively wider range, indicating a revised and somewhat more detailed understanding of the wage impact of immigration since the 1990s. To the extent that negative wage effects are found, prior immigrants—who are often the closest substitutes for new immigrants—are most likely to experience them, followed by native-born high-school dropouts, who share job qualifications similar to the large share of low-skilled workers among immigrants to the United States.

The first result, concerning the effects over a decade or more, should be treated with more than a few grains of salt. That’s because, as George Borjas explains, the finding (that “the impact of immigration on the wages of natives overall is very small”) is actually an artifact of the mathematical assumptions on which the models are built. More important are the shorter-run effects on the wages of workers against whom immigrants are often thrown into competition: prior immigrants and native-born high-school dropouts. Their wages do fall when large numbers of foreign-born workers immigrate and are forced to have the freedom to sell their ability to work within U.S. labor markets. And, of course, one can argue that new immigrants’ wages are lower than they otherwise might have been because of the existence of a large pool of previous immigrants (many of them without documents) and native-born workers without high-school degrees.

So, who gains from immigration?  Clearly, employers benefit from the existing “stock” as well as the annual “flow” of immigrants, especially since foreign-born workers “are more responsive than natives to regional differences in labor demand” (p. 222) and because “immigrants can be employed under arrangements in which payroll taxes are ignored and labor regulations are not observed” (p. 242).* That’s particularly true in the construction industry, where foreign-born workers constitute about 25 percent of the labor force.**

And, of course, there are two other major groups that benefit from an influx of workers: wealthy households that directly employ them, in “child care, landscaping, . . .and other household services” (p. 226); and the owners of the housing stock, who rent to immigrant workers and their families.***

The other major area of academic and policy research, and a key area in the Panel’s report, has to do with the impact of immigration on public finances. As with labor-market effects, estimating the fiscal impacts of immigration is complex (since it involves different levels of government as well as different generations of foreign-born workers and their families). The general conclusion is that the fiscal impacts of immigrants are generally positive at the federal level and negative at the state and local levels (p. 354):

State and local governments bear the burden of providing education benefits, upon arrival and continuing, to young immigrants and to the children of immigrants, but their methods of taxation tend to recoup relatively fewer contributions later from the most highly educated taxpayers. Federal benefits, in contrast, are largely focused on the elderly, so the relative youthfulness of arriving immigrants means that they tend to have positive fiscal impacts on federal finances in the short term. In addition, federal taxes are more strongly progressive, drawing more contributions from the most highly educated. The investment in public education requires public funds and pays public dividends, but a key issue is that the public dividends tend to be absorbed by the federal government, while the public funds are provided by the states. The fact that states bear much of the fiscal burden of immigration may incentivize state-level policies to exclude immigrants. Equity issues between the federal government and across states should be given consideration in future iterations of immigration policy.

It should come as no surprise, then, that especially at the local and state levels, where taxation is generally much less progressive than for the federal government, native-born workers (in additional to small-business owners and others) are forced to shoulder a higher burden of financing the expansion of education and other public programs needed by immigrant (especially first-generation immigrant) workers and their families. Over the longer-run, though, the net fiscal impact of immigrant (especially second- and higher-generation immigrant) workers turns positive, particularly at the federal level—and their future contributions to Social Security and other national programs will take some of the burden off other workers.

And the bottom line? The Panel itself never attempts to combine the labor-market and fiscal effects to determine the overall impact of immigration.**** But it’s clear from the various pieces of information this study provides that, as with all of the other periods of internal and external migration induced by U.S. capitalism, recent waves of immigration have benefited a tiny group of employers at the top, who in turn have managed to shift the costs—through wage reductions and higher taxes—onto workers (both recent immigrants and native-born workers).

The problem in American public debate is, now as in previous battles over immigration, foreign-born workers are scapegoated—and attention is shifted from the real cause of immigration.***** As I see it, American workers have every right to be concerned about lower wages and higher taxes. But they also have to recognize that wage stagnation and their growing tax burden are only partly caused by immigration—and that capitalism, not the influx of foreign-born workers, is what is responsible for their plight.


*As a result, immigrant workers are “more likely to hold jobs characterized by poor working conditions or high risk than are natives” (p. 242).

**Overall, if immigrant labor accounts for a large percentage (according to the report, 16.5 percent) of the total number of hours worked in the United States, the Panel estimates that “the current stock of immigrants lowered wages by 5.2 percent and generated an immigration surplus of $54.2 billion, representing a 0.31 percent overall increase in income that accrues to the native population” (p. 128), most of which flows to their employers.

***For example, according to the Panel (p. 227),

The immigrant share of rental unit growth was 26.4 percent in the 1980s, 60.4 percent in the 1990s, and 31.7 percent in the 2000s; it is projected to be 26.4 percent in the 2010s. The unusually high immigrant share of rental unit growth in the 1990s is attributed to an upswing in immigration in that decade, combined with a downswing in the population growth of native-born young adults, due to the arrival in adult years of the undersized cohort known as Generation X (those born from the mid-1960s to the early 1980s).

****In a footnote, Borjas attempts a back-of-the-envelope calculation of the total wealth transfer—which amounts to $500 billion—caused by immigration:

The calculation of the immigration surplus reported in Chapter 4 of the NAS report assumes that GDP is $17.5 trillion; that 65% of GDP goes to workers; and that 16.5% percent of the workforce is foreign-born. The report also says that “the current stock of immigrants lowered wages by 5.2 percent.”

Because only 65% of GDP goes to workers, that means that the total earnings of all workers is $11.4 trillion (or 0.65 × 17.5). But because only 16.5% of workers are foreign-born, the fraction of total earnings that goes to native workers is $9.5 trillion (or 0.835 × 11.4). The NAS report says that native earnings fell by 5.2 percent, so that the wage transfer from native workers to employers is $494 billion (or 0.052 × 9.5).

****There is, of course, a large nativist lobby that has spearheaded that scapegoating.


Special mention

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We know the rich are getting richer in the United States. And, as it turns out, people are well aware of how rich people are flaunting their growing wealth.

One Reddit [ht: sm] thread last week (which, last time I looked, had over 19 thousand comments) started with the question, “What’s the most obscene display of private wealth you’ve ever witnessed?”

Here are some of my favorites:

I used to be a nanny to celebrities and high profile New York financial families. . .The CEO and his model wife of a famous athletic wear company paid for an entire wardrobe for me to keep at their home because they didn’t want “outside clothes” contaminating their house or infant. I was to take my street clothes into the bathroom near the entrance, take them off, change into my “house” clothing, and then only change back after I was finished with the baby for the day and was getting ready to leave. They also had a safe of cash that I was to use exclusively for my meals, drinks and take out food, and then leave the receipts in the safe.

I work for a luxury home builder. Very big, very expensive houses. We are building a home for this guy & he calls freaking out at me because AT&T would only provide him with 9 DVRs when he needs 11. They would provide him with more, but he would need to open a second account to do so. I don’t know why, I guess they had some kind of weird limit at the time. I’m the CTO of the homebuilder, so he expected me to get AT&T to change this policy so he could have a TV with DVR in every bathroom as well as the normal TV-viewing rooms. I obviously couldn’t do this, so he cancelled his contract with us thru his lawyer & never spoke to us again. His deposit was non-refundable, in fact we had already spent most of the money on the initial part of the build. So he walked away from over $100,000 we wouldn’t give him back without ever saying a word to us. It was no biggie to him I guess. It also made NO SENSE.

I was driving for Uber in a college town and picked up a group from one of the richer frat houses to take them to a club. The girls were discussing how one of their friends was upset and went on a huge shoe shopping spree where each pair cost roughly $2,000 except for one. This one pair costed $7,000. One of the girls casually expresses that “$7,000 is really not a bad price to pay for shoes, they should’ve just been a little bit prettier. I would’ve paid $5,000 for them.” Why they called an Uber instead of a limo, I don’t know.

My boss owns a 15+ million dollar cottage. He likes to “entertain” and throws some pretty wild parties. His wealthy neighbours down the lake complained about the noise and frequently called police. One day they saw him on the street and told him smugly that they had a generous offer on their cottage and they were moving. I know, said my boss, I bought it.

A party at the CEO’s house for Halloween. Insanity. I thought I was going to get kicked out of the neighborhood because I was only driving a 30k car, not a 300k car. Anything you can think of, he had at this party – staff with signature cocktails at the door, a fully staffed bar for liquor, a fully staffed bar for wine, an entire table made of ice with ice shot glasses and ten different vodkas. He was wearing a costume made of leather that his wife commissioned for him, handmade in France. The 400 yard bridge to his private lake was strung up with extra lights, and the dock had a separate bar for those who wanted to sit on the lake.

My mother owned a small home-based business doing a whole bunch of different shit, including silk floral arrangements and other artificial plants. Occasionally, she would be hired to do the floral component of some big interior decorating job.

One time, she was hired by a local home builder to do just such an interior decorating gig at his mansion.

He did have a private helicopter pad in his backyard, but someone elsewhere in this thread has already mentioned another one of those.

The conservatory flooring was walnut parquet tile. It was lovely, except that the mogul’s wife had recently had a party where, of course, many of her guests were wearing stiletto heels. These heels made a kajillion tiny divots in the walnut parquet tile, ruining it. Mrs. Homebuilder was unconcerned; she was simply going to replace it.

I think, though, what stands out to me the most was the foyer, mainly its Corinthian columns gilded in 24 karat gold. Who the fuck does that?

Building a house for some rather wealthy people. While they “rough it” in their $1.5M barn waiting for us to finish. The horses they own have their individual quarters being completely cleaned around the clock. There is fresh new hay brought in by the truckload which is then sorted through in front of a fan where the dirt is blown out leaving only clean hay. The floors in each stall are constantly being covered with a bed of imported wood chips/shavings from somewhere in Northern California (we’re in central TX). The chips and hay are brought in by the truckload every week. Each horse is fed a Snickers Bar before bed. They live in a climate controlled area of the “barn” where they are fed filtered water. Hot water during the winter and ice water in the summer. None of these horses are pure-bred or rare/special other than the fact that they were chosen. One day while working we saw one of the barn workers hauling ass through the field so naturally we waited and watched to see what he was doing. He was running to our portopotty. We didn’t think much of it at first. Then we got a phonecall. “Have you guys seen one of the mexicans over there? He asked to use the bathroom and has been gone gone for 7 minites when he’s only allotted a five minute break.” She then proceeded to ask if we’d find him and send him back before he goes pilfering through the construction supplies and tools. These people made a ~45 yr old grown ass man, with kids and shit, haul ass across a field, about 300 yards, in the dead of summer in TX to take a shit…while they timed him. This lady once asked some hispanic concrete workers to move from under the shade of her giant oak tree because they may kill the root system with their boots. When we told her they were just eating luch and that it was hot her reasoning was that “mexicans don’t feel heat anyways”. Money makes people weird. I could go on for hours.

Well, you get the idea. There are plenty of other stories—about neighbors, roommates, and so on. The ones I’ve chosen (and there are many more) are all from or about people who have worked for the tiny group at the top.