Posts Tagged ‘landlords’

VanishingMiddleClass2

Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

productivity top1

And, as it turns out, both of us have invoked Arthur Lewis’s “dual economy” model to make sense of that growing gap. However, we present very different interpretations of the Lewis model and how it might help to shed light on what is wrong in the U.S. economy—with, of course, radically different policy implications.

It is ironic that both Temin and I have turned to the Lewis model, which was originally intended to make sense of “dual economies” in the Third World, in which peasant workers trapped by “disguised unemployment” and receiving a “subsistence” wage (equal to the average product of labor) in the “backward,” noncapitalist rural/agricultural sector could be induced via a higher “industrial” wage rate (equal to the marginal product of labor) to move to the “modern,” capitalist urban/manufacturing sector, which would absorb them as long as capital accumulation increased the demand for labor.

That’s clearly not what we’re talking about today, certainly not in the United States and other advanced economies where agriculture employs a tiny fraction of the work force—and where much of agriculture, like the manufacturing and service sectors, is organized along capitalist lines. But Lewis, like Adam Smith before him, did worry about the parasitical role of the landlord class and the way it might serve, via increasing rents, to drag down the rest of the economy—much as today we refer to finance and the above-normal profits captured by oligopolies.

So, our returning to Lewis may not be so far-fetched. But there the similarity ends.

Temin (in a 2015 paper, before his current book was published) divided the economy into two sectors: a high-wage finance, technology, and electronics sector, which includes about thirty percent of the population, and a low-wage sector, which contains the other seventy percent. In his view, the only link between the two sectors is education, which “provides a possible path that the children of low-wage workers can take to move into the FTE sector.”

The reinterpretation of the Lewis model I presented back in 2014 is quite different:

What I have in mind is redefining the subsistence wage as the federally mandated minimum wage, which regulates compensation to workers in the so-called service sector (especially retail and food services). That low wage-rate serves a couple of different functions: it’s a condition of high profitability in the service sector while keeping service-sector prices low, thereby cheapening both the value of labor power (for all workers who rely on the consumption of those goods and services) and making it possible for those at the top of the distribution of income to engage in conspicuous consumption (in the restaurants where they dine as well as in their homes). In turn, the higher average wage-rate of nonsupervisory workers is regulated in part by the minimum wage and in part by the Reserve Army of unemployed and underemployed workers. The threat to currently employed workers is that they might find themselves unemployed, underemployed, or working at a minimum-wage job.

In addition, the profits captured from both groups of workers are distributed to a wide variety of other activities, not just capital accumulation as presumed by Lewis. These include high CEO salaries, stock buybacks, idle cash, and financial-sector profits (with a declining share going to taxes). And, if the remaining portion that does flow into capital accumulation takes the form of labor-saving investments, we can have an economic recovery based on private investment and production with high unemployment, stagnant wages, and rising corporate profits.

For Temin, the goal of economic policy is to reduce the barriers (conditioned and created by an increasingly segregated educational system) so that low-wage workers can adopt to the forces of technological change and globalization, which can eventually “reunify the American economy.”

My view is radically different: the “normal” operation of the contemporary version of the dual economy is precisely what is keeping workers’ wages low and profits high across the U.S. economy. The problem does not stem from the high educational barrier between the two sectors, as Temin would have it, but from the control exercised by the small group that appropriates and distributes the surplus within both sectors.

And the only way to solve that problem is by eliminating the barriers that prevent workers as a class—both black and white, in finance, technology, and electronics as well as retail and food services, regardless of educational level—from participating in the appropriation and distribution of the surplus they create.

The plot thickens.

The history of Monopoly includes—in addition to Lizzie MagieDan Layman, and Charles Darrow—another interesting character: Scott Nearing.

In the summer of 1971, Ralph Anspach, a game inventor and retired economics professor who lives in San Francisco, emerged from a crushing Monopoly defeat in his living room—his eight-year-old son had bankrupted him—and found himself considering the salability of a board game that was explicitly antimonopolistic. . .

One of Anspach’s first discoveries as he built his case was the existence of The Landlord’s Game. But he could not explain how Magie’s invention, with its promotion of socialized land and shared wealth, had been transformed into the proprietary commodity that made billions of dollars for Parker Brothers. The key to the mystery, he learned, was a radical socialist professor of economics named Scott Nearing, who taught at the Wharton School of Finance from 1906 to 1915. Anspach spoke to Nearing in 1974, when Nearing was ninety-one years old. The professor said he had learned to play the game around 1910, while living in Arden, then taught it to his students at Wharton in order that they might learn, in his words, “the antisocial nature of monopoly,” and in particular “the wickedness of land monopoly.” The students apparently taught it to their friends. It was around this time that the game became known as “monopoly”—denoted in lowercase, like checkers, chess, or dominoes. The game spread widely over the next several years, to the hometowns of Nearing’s students and to other universities. It would slowly lose its antimonopolistic message, however, as players came to the conclusion that Magie’s vision of Georgist redistribution was not nearly as entertaining as ruining one another.

Update

I realized that young readers may not remember, or even know of, Scott Nearing. The Wikipedia entry on him is pretty good, covering his 1915 dismissal from the University of Pennsylvania’s Wharton School of Business, his membership in the Socialist Party, his many pamphlets and books (including Dollar Diplomacy : a Study in American Imperialism), his attempts to create a self-reliant life in rural Vermont and Maine, his monthly column in Monthly Review, and his opposition to the Vietnam War.