Posts Tagged ‘inequality’

In Time is set in the “near future.”

But economic inequality has caught up with us sooner than expected. Right now, according to the New York Times,

Despite big advances in medicine, technology and education, the longevity gap between high-income and low-income Americans has been widening sharply.

The poor are losing ground not only in income, but also in years of life, the most basic measure of well-being. In the early 1970s, a 60-year-old man in the top half of the earnings ladder could expect to live 1.2 years longer than a man of the same age in the bottom half, according to an analysis by the Social Security Administration. Fast-forward to 2001, and he could expect to live 5.8 years longer than his poorer counterpart.

And it gets worse.

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According to a new study by Barry Bosworth, Gary Burtless, and Kan Zhang (pdf), not only is there a large gap in life expectancy between those at the top and bottom of the economic scale. It’s actually been growing.

The authors find, for example, that the average life expectancy of a man born in 1920 in the top 10 percent of the mid-career income distribution is 79.3 years. The same man in the bottom 10 percent of the distribution has an average life expectancy 5 years lower. However, for men born 20 years later (in 1940), the difference in average life expectancy is 12 years.

The large and growing gap in life expectancy in the United States is even more grotesque when compared to our neighbors to the north. Again, according to the New York Times,

The experience of other countries suggests that disparities do not necessarily get worse in contemporary times. Consider Canada, where men in the poorest urban neighborhoods experienced the biggest declines in mortality from heart disease from 1971 to 1996, according to a 2002 study. Over all, the gap in life expectancy at birth between income groups declined in Canada during that period. And a study comparing cancer survival rates found that low-income residents of Toronto had greater survival rates than their counterparts in Detroit. There was no difference for middle- and high-income residents in the two cities.

“There are large swaths of the population that are not enjoying the pretty impressive gains the rest of us are having in life spans,” said Christopher J. L. Murray, director of the Institute for Health Metrics and Evaluation in Seattle. “Not everybody is sharing in the same prosperity and progress.”

A lot of liberals are complaining these days about focusing too much on the causes and consequences of economic inequality.

They’re just wasting our time.

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One of the consequences of Bernie Sanders’s campaign for president is that economists and economic ideas that are often overlooked or marginalized are making the news.

Consider, for example, Gerald Friedman [ht: ja], a University of Massachusetts Amherst economics professor.* He’s front-page news on CNN, and that’s because he has provided “the first comprehensive look at the impact of all of Sanders’ spending and tax proposals”—including spending on infrastructure and youth employment, increasing Social Security benefits, making college free, expanding health care and family leave, raising the minimum wage, and shifting income from the rich to the working-class through tax hikes on the wealthy and corporations.

“Like the New Deal of the 1930s, Senator Sanders’ program is designed to do more than merely increase economic activity,” Friedman writes. It will “promote a more just prosperity, broadly-based with a narrowing of economy inequality.”

Emmanuel Saez, Professor of Economics at the University of California, Berkeley, is also in the news, because of his research on tax rates. In a 2011 paper he wrote with Peter Diamond, Saez argued that, in order to achieve a fair distribution of the tax burden in the midst of rising inequality, very high earners should be subject to high and rising marginal tax rates on earnings. While the top income marginal tax rate on earnings today is about 42.5 percent, they estimate the optimal top tax rate (which would maximize tax revenue from top-bracket taxpayers) to be 73 percent, even higher than Sanders is currently proposing.

“My feel is that the reasoning behind Sanders’s tax plan is not so much tax revenue generation from top earners but rather make top tax rates so high so as to discourage ‘greed,’ defined broadly as extracting income at the expense of the rest of the economy as opposed to real productive behavior,” Mr. Saez wrote in an email. “I think pretax top incomes would finally start to decline.”

Friedman and Saez are economists who are never cited in the mainstream media, and whose ideas are receiving a public airing precisely because of Sanders’s extraordinary success in the current campaign.

 

*Here’s the appropriate disclaimer: I did my doctoral work at the University of Massachusetts Amherst, although Friedman was not there at the time.

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Laura Meckler, as if to confirm my analysis of political change in 2016, explains,

Mr. Sanders’s surprising success—and Mrs. Clinton’s travails—highlight how far the party has moved leftward since her husband, former President Bill Clinton, steered it to the center in the early 1990s.

The Republican Party, meanwhile, has veered to the right.

Polls illustrate the shift in both parties. In 1990, just 13% of Democrats called themselves “very liberal,” while 12% of Republicans identified as “very conservative,” according to Wall Street Journal/NBC News polling. By last year the number was 26% for Democrats and 29% for Republicans. . .

Anger mounted during the Obama years over growing income inequality, particularly after Wall Street bailouts rescued some of the country’s richest people while many Americans struggled financially in a tepid job market.

Statistics explain voter fury. The top 3% of households had more than twice as much wealth in 2013 as the bottom 90% put together, according to the Federal Reserve. The top 400 taxpayers’ share of U.S. income doubled in two decades, according to the Internal Revenue Service. While top incomes rose, every other group was stagnant. . .

“Here’s a guy who owns the label of socialist. It’s inconceivable that a major candidate would have done that prior to Occupy,” Mr. Varon said. “Occupy gave a new prestige to a set of ideas that were normally considered quite marginal.”. . .

“In the last 30 years, when people say to me, ‘Bernie you’re coming up with these ambitious ideas. How can you afford them?’” Mr. Sanders told the crowd at a campaign rally Sunday. “The answer is in the last 30 years, there has been a massive transfer of wealth from the pockets of working families to the top 1/10th of 1%. And we can afford these programs because we’re going to transfer some of that wealth back.”

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The typical American has no idea how much corporate CEOs make—but they still believe CEOs are making much too much.

That’s according to a new study from researchers at the Stanford Graduate School of Business (pdf):

Public frustration with CEO pay exists despite a public perception that CEOs earn only a fraction of their published compensation amounts. Disclosed CEO pay at Fortune 500 companies is 10 times what the average American believes those CEOs earn. The typical American believes a CEO earns $1 million in pay (average of $9.3 million), whereas median reported compensation for the CEOs of these companies is approximately $10.3 million (average of $12.2 million). . .

The vast majority (74 percent) of Americans believe that CEOs are not paid the correct amount relative to the average worker. Only 16 percent believe they are paid an appropriate amount.

Even more:

Nearly two-thirds (62 percent) of Americans believe that there is a maximum amount CEOs should be paid relative to the average worker, regardless of the company and its performance. . .

Those who believe in capping CEO pay relative to the average worker would do so at a very low multiple. The typical American would limit CEO pay to no more than 6 times (17.6 times, based on average numbers) that of the average worker. These figures are significantly below current pay multiples, which are approximately 210 times based on recent compensation figures.

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Contemporary capitalism has a big problem. And no one seems to be able to refute it.

The problem, as Robert J. Gordon sees it, is that economic growth is slowing down, it has been for decades, and there’s no prospect for a resumption of fast economic growth in the foreseeable future. After fifty (from 1920 to 1970) years of relatively fast growth, and a single decade (the 1950s) of spectacular growth, the prospects for continued growth seem to have dimmed after 1970.

In the century after the end of the Civil War, life in the United States changed beyond recognition. There was a revolution—an economic, rather than a political one—which freed people from an unremitting daily grind of manual labour and household drudgery and a life of darkness, isolation and early death. By the 1970s, many manual, outdoor jobs had been replaced by work in air-conditioned environments, housework was increasingly performed by machines, darkness was replaced by electric light, and isolation was replaced not only by travel, but also by colour television, which brought the world into the living room. Most importantly, a newborn infant could expect to live not to the age of 45, but to 72. This economic revolution was unique—and unrepeatable, because so many of its achievements could happen only once. . .

Since 1970, economic growth has been dazzling and disappointing. This apparent paradox is resolved when we recognise that recent advances have mostly occurred in a narrow sphere of activity having to do with entertainment, communications and the collection and processing of information. For the rest of what humans care about—food, clothing, shelter, transportation, health and working conditions both inside and outside the home—progress has slowed since 1970, both qualitatively and quantitatively.

From what I have read, Gordon appears to privilege technical innovation over other factors (such as dispossessing noncapitalist producers and creating a large class of wage-laborers, concentrating them in factories and cities, and so on). He also seems to argue that the fruits of past economic growth were evenly distributed and that the drudgery of work itself has been eliminated.

Still, the idea that rapid economic growth took place during a relatively short period of time dispels one of the central myths of capitalism, much as the discovery that relative equality in the distribution of wealth and constant factor shares characterized an exceptional phase of capitalism.

And that’s a problem: the presume and promise of capitalism are that it “delivers the goods.” It did, for a while, and now it seems it can’t—which has mainstream commentators worried.

They’re worried that capitalism can no longer guarantee fast economic growth. And they’re worried, try as they might, that they can’t refute Gordon’s analysis. Not Paul Krugman or Larry Summers or, for that matter, Tyler Cowen.

All three applaud Gordon’s historical analysis. And all three desperately want to argue he’s wrong looking forward. But they can’t.

The best they can come up with is the idea that the future is uncertain. Thus, as Cowen writes, “many past advances came as complete surprises.”

Although the advents of automobiles, spaceships, and robots were widely anticipated, few foretold the arrival of x-rays, radio, lasers, superconductors, nuclear energy, quantum mechanics, or transistors. No one knows what the transistor of the future will be, but we should be careful not to infer too much from our own limited imaginations.

Indeed. We certainly don’t know what lies ahead. But, since the 1970s, we’ve witnessed growing inequality in the distribution of income and wealth, which resulted in and in turn was exacerbated by the most severe economic crisis since the 1930s. Capitalism’s legitimacy, based on “just deserts” and economic stability, was already being called into question. Decades of slow economic growth and the real possibility that that trend might continue for the foreseeable future mean that capitalism (not to mention those who spend their time celebrating capitalism’s successes and failing to imagine alternatives) has an even bigger problem.

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Special mention

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Chart of the day

Posted: 4 February 2016 in Uncategorized
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As Alvin Powell explains,

One measure of American inequality is the percentage of the nation’s overall wealth owned by different parts of the population. The graphic above shows that the richest 20 percent of the country owns 88.9 percent of the nation’s wealth, while the bottom 40 percent owes more than it owns.