Here is one of the great paradoxes of our time. The world is dominated by a few corporations that are among the most profitable companies in the history of capitalism. In the US (the home of these giants) and in the UK (an enthusiastic vassal state), parts of the economy are booming and employment is at record levels. And yet, in the middle of this astonishing prosperity, inequality is at levels not seen since the period before the first world war. In the US, the share of total income going to the top 1% of the population is now back to the level it was in the 1920s. And in the UK, more than 4 million people are trapped in deep poverty.
Since this catastrophic rise in inequality seems to be correlated with the rise of the tech industry, it’s tempting to see a causal link between the two. Tempting, but too simplistic. For while digital technology has been a central factor in what’s happened, it’s only a part of the story. More often, it’s been an enabler of other forces rather than a prime mover.
The biggest force reshaping our world has been globalisation…
From John Lanchester, opening a thoughtful and informative LRB essay on the idea of Universal Basic Income. “The broad outline of 21st-century history, its first couple of decades anyway”, he writes,
is starting to become clear. A period of credit-fuelled expansion and runaway financialisation ended with an abrupt crash and an unprecedented bank bailout. The public’s reward for assuming the bankers’ losses was austerity, which crippled the recovery and led to an interminable Great Recession. At the same time, increasing automation and globalisation, and the rise of the internet, kept first-world wages stagnant and led to an increase in precarity. Elites did fine, and in the developing world, especially Asia, economies grew, but the global middle class, mainly located in the developed world, felt increasingly anxious, ignored, resentful and angry. The decades-long decline in union power made these trends worse. The UK had its longest ever peacetime squeeze on earnings.1 In response to this the political right played one of its historically most effective cards – Blame the Immigrants – and achieved a string of successes from Brexit to Trump to Orbán to Bolsonaro to Salvini and the AfD, succeeding in normalising its new prominence to such an extent that a quasi-fascist party scored 34 per cent in the French presidential elections, which were nonetheless hailed as a triumph for the ‘centrist’ winner.
That’s a pretty good summary, IMHO. Characteristically good piece by a terrific explainer. Worth reading in full.
From a remarkable essay about Leonardo da Vinci by historian Ian Goldin1 in this weekend’s Financial Times, sadly behind a paywall:
“The third and most vital lesson of the Renaissance is that when things change more quickly, people get left behind more quickly. The Renaissance ended because the first era of global commerce and information revolution led to widening uncertainty and anxiety. The printing revolution provided populists with the means to challenge old authorities and channel the discontent that arose from the highly uneven distribution of the gains and losses from newly globalising commerce and accelerating technological change.
The Renaissance teaches us that progress cannot be taken for granted. The faster things change, the greater of people being left behind. And the greater their anger.
Sound familiar? And then…
Renaissance Florence was famously liberal-minded until a loud demagogue filled in the majority’s silence with rage and bombast. The firebrand preacher Girolamo Savonarola tapped into the fear that citizens felt about the pace of change and growing inequality, as well as the widespread anger toward the rampant corruption of the elite. Seizing on the new capacity for cheap print, he pioneered the political pamphlet, offering his followers the prospect of an afterlife in heaven while their opponents were condemned to hell. His mobilisation of indignation — combined with straightforward thuggery — deposed the Medicis, following which he launched a campaign of public purification, symbolised by the burning of books, cosmetics, jewellery, musical instruments and art, culminating in the 1497 Bonfire of the Vanities”.
Now of course history doesn’t really repeat itself. Still… some of this seems eerily familiar.
It’s a simple formula (ALDC), really, as the New York Timesexplains:
Harvard gives advantages to recruited athletes (A’s); legacies (L’s), or the children of Harvard graduates; applicants on the dean’s or director’s interest list (D’s), which often include the children of very wealthy donors and prominent people, mostly white; and the children (C’s) of faculty and staff. ALDCs make up only about 5 percent of applicants but 30 percent of admitted students.
While being an A.L.D.C. helps — their acceptance rate is about 45 percent, compared with 4.5 to 5 percent for the rest of the pool — it is no guarantee. (One of those rejected despite being a legacy was the judge in the federal case, Allison D. Burroughs. She went to Middlebury College instead.)
Harvard’s witnesses said it was important to preserve the legacy advantage because it encourages alumni to give their time, expertise and money to the university.
Which is how you get to have a hedge fund with a nice university attached.
A new study shows that, thanks to inequality, the U.S. has potentially missed out on millions of inventors during that time — what the researchers refer to as “lost Einsteins.” Kids born into the richest 1 percent of society are 10 times more likely to be inventors than those born into the bottom 50 percent — and “this is having a big effect on innovation,” MIT Sloan professor John Van Reenen said.
The research also shows that innovation in the U.S. could quadruple if women, minorities, and children from low-income families became inventors at the same rate as men from high-income families. Making that happen is the hard part, though. It means exposing more children to innovation when they are young — and the younger they are, the better.
The researchers wanted to see what part childhood wealth plays on future innovation. And guess what? “The most striking thing was how sharp the relationship was between the wealth of your parents and whether you grew up to be an inventor or not” reported one of the researchers.
By linking patent records with de-identified IRS data and school district records for more than one million inventors, the researchers found that, while ability does play some part in a child’s chance of becoming an inventor in the future, it is far from the biggest factor.
Instead, wealth played a much larger role. Among children who excelled in math in third grade, those whose families’ incomes fell into the highest fifth of the population were more than five times as likely to be inventors than those whose families’ incomes were in the lowest fifth.
This disparity is amplified among children whose parents were in the top 1 percent of earners — they were 10 times more likely to be inventors than those in the bottom 50 percent.
Oh – and white children were three times as likely as black children to be inventors. And only 18 percent of inventors were women.
I once spent a day during a general election campaign going round the UK in a helicopter. It was a fascinating experience, but not one I’d like to repeat. Choppers seem to me to be ludicrously primitive machines — a bit like steam-powered automobiles. They are also, of course, vanity toys for the very rich. And they are incredibly noisy. So this Bloomberg video brings a welcome dose of reality to chopper-worship.
Brad de Long is one of my favourite bloggers — and economists. Here he is brooding on a problem that once preoccupied Keynes and is likely to surface again, if we do crack the problem of increasing productivity with robotics — and displacing employment. Sample:
There is no shortage of problems to worry about: the destructive power of our nuclear weapons, the pig-headed nature of our politics, the potentially enormous social disruptions that will be caused by climate change. But the number one priority for economists – indeed, for humankind – is finding ways to spur equitable economic growth.
But job number two– developing economic theories to guide societies in an age of abundance – is no less complicated. Some of the problems that are likely to emerge are already becoming obvious. Today, many people derive their self-esteem from their jobs. As labor becomes a less important part of the economy, and working-age men, in particular, become a smaller proportion of the workforce, problems related to social inclusion are bound to become both more chronic and more acute.
Such a trend could have consequences extending far beyond the personal or the emotional, creating a population that is, to borrow a phrase from the Nobel-laureate economists George Akerlof and Robert Shiller, easily phished for phools. In other words, they will be targeted by those who do not have their wellbeing as their primary goal – scammers like Bernie Madoff, corporate interests like McDonalds or tobacco companies, the guru of the month, or cash-strapped governments running exploitative lotteries.
Problems like these will require a very different type of economics from the one championed by Adam Smith. Instead of working to protect natural liberty where possible, and building institutions to approximate its effects elsewhere, the central challenge will be to help people protect themselves from manipulation.
The thing about neoliberalism is that the poverty and inequality that it produces are not regrettable side-effects of a basically sound engine, but the whole purpose of the exercise. In programming terms, they are features, not bugs. This point is nicely made by Benjamin Selwyn in a blog post in Le Monde diplomatique – English edition.
In his film Inequality for All, Robert Reich, who was Bill Clinton’s labour secretary between 1993 and 1997, documents the collapse of US wages over the last four decades. In the late 1970s the typical male US worker was earning $48,000 a year (inflation adjusted). By 2010, the average wage had fallen to $33,000 a year. Over the same period the average annual income of someone in the top 1% of US society rose from $390,000 to $1,100,000.
Neoliberal policies aim to reduce wages to the bare minimum and to maximize the returns to capital and management. They also aim to demobilise workers’ organisations and reduce workers to carriers of labour power — a commodity to be bought and sold on the market for its lowest price. Neoliberalism is about re-shaping society so that there is no input by workers’ organisations into democratic or economic decision-making. Crises and austerity may not be intentionally sought by most state leaders and central bank governors, but they do contribute significantly towards pursuing such ends. Consequently, these politicians and leaders of the economy do not strive to put in place new structures or policies that will reduce the recurrence of crisis.
Well, well. Hot on the heels of the English translation of Thomas Piketty’s magnum opus comes this report of a new study by Martin Gilens and Benjamin Page from Princeton. Excerpt:
Money buys power.
That’s the bottom line of a new study from Princeton University political scientist Martin Gilens, who looked at 1,779 U.S. government policy decisions between 1981 and 2002. Gilens found that the preferences of the median earner had no impact on whether policies are adopted — but that politicians march in lockstep with what the top earners wanted.
You may think you’ve heard that conclusion before, but Gilens’s approach is unique, and that makes his findings all the more important. Gilens didn’t take one theory of who has political influence and test it with data, as does almost all of the research on this topic. He tested the power of the rich, middle class, and interest groups simultaneously, allowing for any theory to win or lose. That is new.
And here’s the real danger of what Gilens finds: It means that the U.S. political system is set to transform the dramatic rise of income inequality into entrenched differences in political power — and there’s very little the middle class can do to stop it from happening.
There is, in other words, an inequality feedback loop built into the U.S. political system — and America may be spiraling into it. A policy that enriches what Gilens calls the “economic elite” will command its support. Their support, Gilens shows, means that the political system is likely to make it happen. And the ever wealthier become the ever-more powerful. Policies that undermine the elite become ever more difficult to pass as economic inequality buys political obedience.