source [ht: sm]
Yes, the -isms determine who gets paid—and, of course, who gets to appropriate the surplus.
source [ht: sm]
Yes, the -isms determine who gets paid—and, of course, who gets to appropriate the surplus.
About one in twenty Americans—or almost 16 million people—are struggling to survive in conditions of “deep poverty.” As Eduardo Porter observes, “No other advanced nation tolerates this depth of deprivation.
Clearly, as can been seen in the chart above, the number of people below 50 percent of the poverty threshold would be higher—more than three times higher—without some form of government assistance.* Still, the persistence of such poverty a fundamental change in the nature of government anti-poverty programs—from helping all poor people to increasing benefits only to those who work.
All in all, in the early 1980s more than half of government transfers to low-income families went to the very poorest. Thirty years later these families received less than one-third of the government’s help.
This choice, as a society, to target most of our help only to those who can help themselves exhibits a blinkered understanding of what perpetuates the deep, intractable poverty that affects many communities. But it serves a purpose. By believing the poor are not exerting enough effort, we allow ourselves not to care. This permits politicians — and voters — to go normally about their business while 16 million Americans live on $8.60 or less a day.
One might argue that fundamental change in anti-poverty programs, starting with Clinton’s 1996 welfare overhaul, represents an increasingly cruel and callous country, one that seeks to punish a large portion of the population that it has pushed into deep poverty. Alternatively, it’s a sign that the key criterion for government programs is not to alleviate poverty per se but to put increased pressure on poor people to be forced to have the freedom to work for someone else.
In the United States, we often refer to poor people as being “dependent” on government assistance. But the real dependence we have to face up to is the use of government programs to force people to make themselves available so that someone else can profit from their labor.
*The number and rates are calculated according to the Census Bureau’s Supplemental Poverty Measure, which includes the value of cash income from all sources, plus the value of in-kind benefits (such as nutritional assistance, subsidized housing, and home energy assistance) that are available to buy the basic bundle of goods, minus necessary expenses for critical goods and services not included in the thresholds.
We all know that the distribution of income has been increasingly unequal in recent decades—in the years leading up to the crash of 2007-08 and, now, during the current economic recovery.*
But, as I explained to my students in class this week, there are two different ways of conceiving of and measuring inequality within capitalism. One is the size or interpersonal distribution of income—the distribution of income to individuals or individual households. Thus, for example, the Gini coefficient, the share of income going to the top 1 percent, and the 90-10 ratio are all ways of measuring the size distribution of income. The other way is the functional distribution of income—the distribution of income to groups that are functionally related to process of generating income. Thus, we often refer to and measure the income shares going to capitalists and workers (and, less often these days, to landlords) in the form of profits and wages (and, of course, rents).
The question is, what is the relationship between the functional distribution of income and the size distribution of income?
Branko Milanovic (pdf), in a recent paper, usefully clarifies the issue by exploring the conditions that link a higher capital share to a larger share of income going to the tiny group at the top of the household distribution of income. They are two. First, the concentration of capital income has to be high.
Working with only two factor incomes, that of labor and capital, for the overall inequality of personal income to go up, the requirement is that the more unequally distributed source has to grow relatively to the less unequally distributed source. With capital income, this condition is relatively easily satisfied since in all known cases, the concentration of capital income is greater than the concentration of labor income.
Second, there has to be a high association between households that are capital-rich and households that are income-rich. This requirement is
expressed in the form of a high correlation between rankings according to capital income and rankings according to total income. Put simply, this requirement means that people who receive large capital incomes should also be rich. Empirically, this requirement is easily satisfied in most countries.
In other words, if there’s an unequal distribution of capital ownership (and thus capital income) and if the capital owners are themselves the richest members of society, then a more unequal functional distribution of income will result in a more unequal size distribution of income.
Or, to put it differently, if the capital share (consisting of profits and other distributions of the surplus, e.g., in the form of dividends and CEO incomes) is rising then we should expect the share of income going to the top 1 percent to also be rising.
And that’s exactly what we’ve seen in the United States in recent years and decades: both the functional and size distributions of income have become increasingly—indeed, obscenely—unequal. Capitalists and the top 1 percent are pulling further and further away from labor and the 99 percent.
*In fact, TPM is hosting a promising series on “The March to Inequality,” edited by Josh Marshall, which I look forward to reading.
The distribution of income in the United States is increasingly unequal. We all know that. The problem is, the more we focus on the unequal distribution of income, the more we’re forced to discuss the issue of class.
And that’s a real problem for mainstream economists, who either deny the existence of inequality or deny its connection to class.
That’s the only way of explaining why Jason Furman repeats, in two recent papers (“Global Lessons for Inclusive Growth” [pdf] and, with Peter Orszag, “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality [pdf]), the same argument:
Overall, the 9 percentage-point increase in the share of income of the top 1 percent in the World Top Income Database data from 1970 to 2010 is accounted for by: increased inequality within labor income (68 percent), increased inequality within capital income (32 percent), and a shift in income from labor to capital (0 percent).
In other words, for mainstream economists like Furman who actually do pay attention to rising inequality (e.g., as measured by the share of income going to the top 1 percent), it can’t have anything to do with class (e.g., as measured by changing labor and capital shares).
As it turns out, I’m presenting Marx’s critique of the so-called Trinity Formula in one of my courses this week.* Basically, Marx argued that, if the value of commodities is equal to constant capital plus variable capital plus surplus-value, then both the “profit share” (the “profits of enterprise” plus “interest”) and the “rental share” (“ground rent”) represent distributions of surplus-value. In other words, productive labor—not independent factor services—creates, via exploitation, the incomes of both capitalists and landlords.
Marx’s critique of the Trinity Formula is still relevant today because, even if we assume (as many mainstream economists still do, against all evidence) that wage and profit shares are relatively constant, it’s still possible to show that the rate of exploitation has risen.
Consider the following hypothetical chart:
The blue and red boxes represent profits and wages in 1997 and 2007. However, as we can see, the share of income going to CEOs has risen (Furman’s “increased inequality within labor income”). If we combine profits and CEO salaries as different forms of surplus-value, then indeed it is possible for the rate of exploitation to have risen—even if the conventional measure of profit and wage shares remains the same.
In terms of actual national income data, what we’d want to do is add to corporate profits the distributions of the surplus that go to those at the top (including CEO salaries) in order to to get “capital’s share” and subtract those same distributions from wages to get “labor’s share.”
As it turns out, Olivier Giovannoni [pdf] has made something like the latter calculation, by subtracting top 1 percent incomes from the total U.S. labor share. As we can see in the chart above, the real labor share in the United States has fallen dramatically since 1970—from about 77 percent to less than 60 percent—just as it has in Europe and Japan.
The only appropriate conclusion is that the increasingly unequal distribution of income in the United States has a lot to do with the diverging movements of the labor and capital shares, and therefore with class changes in the U.S. economy. And the only way to deal with that problem—that class problem—is not by increasing tax rates at the top or by raising minimum wages, but by eliminating the problem itself: the exploitation of labor by capital.
*For the uninitiated, the Trinity Formula is the classical idea that the “natural price” of commodities is equal to the summation of the natural rates of wages, profit, and rent, that is, the idea that the incomes of workers, capitalists, and landlords are independent of one another. The same idea was later articulated by neoclassical economists, who argue that each “factor of production” receives its marginal contribution to production.
Mike the Mad Biologist [ht: sm] casts doubt on the idea of scarcity. And for good reason:
While they seem to have receded somewhat, a couple of years ago, there were quite a few arguments about the fundamentals of economics (especially macroeconomics) and how to teach them. As an outsider, one thing that struck me as odd was the emphasis on scarcity (e.g., economics is called the science of scarcity). It’s odd because, at least in wealthy societies, there are very few scarce items. We’re definitely not slacking in our ability to produce calories, which arguably for most of human, if not hominin, history was the vital concern.
Mainstream economists, as I teach my students, start with the idea of scarcity—the combination of limited means and unlimited desires. And then, after a great deal of math and a wealth of assumptions, they prove that a system of private property and free markets provides a perfect balance between those limited means and unlimited desires.
But, as I also teach them, the mainstream presumption is that scarcity is universal—both transcultural and transhistorical. In other words, they start with the idea that all human beings, in all times and places, have had to confront and solve the problem of scarcity.
An alternative is to see scarcity as an institutional, historical and social, phenomenon. In particular places, at particular times, the existing set of economic and social institutions makes certain goods and services scarce. Thus, for example, oil is scarce because of the particular configuration of the energy industry, the personal car and truck culture, the government-sponsored expansion of the highway system, and so on. That’s what makes oil scarce. Similar stories can be told about the scarcity of water, arable land, good public transportation, high-quality mass education, and so on. Their scarcity is the product of particular sets of institutions in particular societies.
Why is that important? Because, as against the assumption of mainstream economists that scarcity is always with us (and therefore can’t be changed), the idea that scarcity is an institutional phenomenon means that changing economic and social institutions can change or eliminate scarcities.
The same applies, of course, to abundances. Right now, we’re living in a society that has created a surplus of labor (and, as a result, stagnant wages), which is part and parcel of capitalism’s law of population. If we get rid of capitalist institutions, then we can create a new law of population, one in which the labor workers perform and the value they create are not turned against them.