Monday, March 17, 2014

Who will Save Us from Inequality?

"Paul Krugman won't save us," writes Thomas Frank. (Neither, he adds for good measure, will Brad DeLong.) Frank is referring to economic inequality--in his opinion a "needlessly clinical" phrase and "a pleasant-sounding euphemism for the Appalachification of our world." Inequality, he believes, has gotten into the wrong hands:
"Who is called upon to speak on the subject [of inequality] today? Why, academics, of course. 'Inequality' is a matter for experts, a field for the playful jousting of rival economists, backed up by helpful professors of political science, and with maybe an occasional sociologist permitted into the games now and then...
The discovery of inequality has also compelled our leadership class to establish things like the Washington Center for Equitable Growth, which boasts a steering committee made up of six economists plus one Democratic foundation/policy type....But to look at its website, it’s just another platform for the trademark blog styling of the well-known economist Brad DeLong." 
Our ancestors, notes Frank, referred not to "inequality" but to "the social question." And they treated the question not with the "wonkery" and endless charts of today, but with wide and deep conviction. 
"'Inequality' is not some minor technical glitch for the experts to solve; this is the Big One. This is the very substance of American populism; this is what has brought together movements of average people throughout our history. Offering instruction on the subject in a classroom at Berkeley may be enlightening for the kids in attendance but it is fundamentally the wrong way to take on the problem...We owe the economists thanks for making the situation plain, but now matters must of necessity pass into other hands."
Whose hands? Frank isn't entirely explicit. His historical examples include an 1892 passage from the Omaha Platform of the Populist Party, a 1916 report of the Commission on Industrial Relations, and a 1932 testament of a socialist newspaper editor to a congressional committee. He highlights their "singing" language but not the fruits of their labors. He mentions that in the current day, a local union leader would be a more effective mouthpiece than a Nobel Laureate, and says that "This is a job we have to do ourselves." But how? 

Frank neglects any mention of religious figures and institutions that can speak to the social question. As I wrote in an earlier post, the Catholic Church has a very long history of teaching about economic justice. Pope Francis, thankfully, is bringing this tradition back into the forefront. Hopefully his words will influence not only Catholic believers who may have been unaware of the Church's position on inequality, but also members and leaders of other faiths who will see that economic and social justice are pressing moral issues. The moral issues involved in an economic system can be appreciated by thoughtful members of any religion, or of no religion, who share a concern for justice and for their neighbors. Ultimately, policy changes will be required, and these people can be the impetus.

Frank writes that "When President Obama declared in December that gross inequality is the `defining challenge of our time,' he was right, and resoundingly so. As is his habit, however, he quickly backed away from the idea at the urging of pollsters and various Democratic grandees." If Pope Francis' convictions were sufficiently widespread, maybe politicians wouldn't be able to back away.

Still, I don't think economists' work here is done. Economists are still learning new things about the causes and extent of inequality. They still disagree among themselves. (Minimum wage hikes, anyone?) Even if politicians and the public were 100% gung ho about reducing economic inequality, the best way to achieve it wouldn't be perfectly straightforward. Economists should keep at it. And while Frank may mock the "trademark blog styling of the well-known economist Brad DeLong," he is well-known for a reason. People read what he writes. They read it and they think about it. He should keep writing. Frank is dubious about the effectiveness of teaching Berkeley students about inequality-- but informed and ambitious young people seem like a pretty good demographic to reach. We should keep teaching them.

I agree with Frank that inequality, or call it the social question, is a big deal, The Big Deal. And I agree that it shouldn't be left solely in the hands of economists. But his disdain for the way economists treat inequality as a complex technical issue-- "Oh, it is extremely complex. It requires so many charts"-- is misplaced. It is both a technical issue and more than a technical issue. Let economists take on the technical issues in accordance with their expertise. Encourage others to take on the "more than technical" issues in accordance with their own. Paul Krugman won't save us, but he shouldn't stop trying.

17 comments:

  1. Rest assured, that Jesus Christ acting in the economy of God will save all from inequality as he introduces the age of debt servitude.

    Writing in Bull Stock Market Turns To Bear Stock Market ... http://tinyurl.com/ouq9vx4 I write that the Dispensation Economics manifest ... http://tinyurl.com/m4gv3vt ... presents the concept of the Apostle Paul, writing in the Epistles of New Testament Scripture, reveals that all things are of God, 2 Corinthians 5:17-18, and presents the Economy of God in Ephesians 1:10, where Jesus Christ is seen acting in stewardship of all things economic and political to bring them to fulfillment and completion.


    The greatest ever credit creation initiative came in 2008 with the US Federal Reserve beginning with QE 1, where money good US Treasuries were traded out for the most toxic of debt held by banks, such as those traded by Fidelity Investments, mutual fund FAGIX, and has underwritten stock investments worldwide with ongoing reiterations of world central bank easings through global ZIRP.



    He perfected the governance of democratic nation states and the inflationism of the world central banks, working through the three dynamos of creditism, corporatism, and globalism, as well as through money manager capitalism of the speculative investment community, which produced investor centric, peak moral hazard investment prosperity in March 2014, which drove the concentration of income and wealth into the hands of the few, as stellar financial rewards accrued to shrewd corporate executives and to wily investors.


    Jesus Christ acting in dispensation, as presented by the Apostle Paul in Ephesians 1:10, completed liberalism on March 14, 2014, as both a paradigm and an age, and pivoted the world into that of authoritarianism, by turning equity investments, World Stocks, VT, Nation Investment, EFA, Global Financials, IXG, Yield Bearing Investments, DTN, as well as currencies, Major World Currencies, DBV, Emerging Market Currencies, CEW, as well as credit investments, Distressed Investments, FAGIX, and Junk Bonds, JNK, lower in value.


    We will be saved from inequality by Jesus Christ, as under his economic administration, all become debt serfs, rather than investors, by an ever increasing destructionism, coming with the final phase of the Business Cycle, that being Kondratieff Winter, where economic deflation is the new normal, replacing global growth, stemming largely disinvestment out of currency carry trade investing and debt trade investing.


    The dynamo of regionalism is now the singular dynamo of economic activity, which produces debt servitude centric austerity for all.


    Regional economic fascism is rising to rule in the world’s ten regions and occupy therein in every one of mankind’s seven institutions.The beast regime is making landfall in the Eurozone, by The Sovereign, Revelation 13:5-10, and his partner, the Seignior, Revelation 13:11-18, that is a top dog banker, who in the process of minting money, takes a cut, is fated to be the singular, all inclusive, economic experience, as the ships of state flounder, and sink, in the tossing sea of debt deflation driven, competitive currency devaluation.


    There be no longer any citizens, rather there be only residents of regions of economic governance.

    Under authoritarianism a new form of money is rising to rule all. Regionalism is establishing a new debt based money system, that being the diktat money, where regional overlords, ruling in each one of the world’s ten regions in mandates of regional economic governance, and in debt servitude schemes of totalitarian collectivism, to unify all of mankind’s seven institutions, and establish regional security, stability and sustainability.


    Those living in the EU will soon be prisoners in a regional banking, debt, fiscal, debt, economic and military panopticon and union, serving as the defining model for regional integration throughout the world.

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  2. read a piece by Dave Cohen yesterday that i think pretty much nails it; first, quoting Heather Bouchay:  In his discussion of the thriving top decile, Piketty points out that “among the members of these upper income groups are U.S. academic economists, many of whom believe that the economy of the United States is working fairly well and, in particular, that it rewards talent and merit accurately and precisely. As I've written lately, academic (and working) economists are beneficiaries of the status quo. As such, they have what Mark Twain called "cornpone opinions" in which their self-interest guides their so-called "thinking" on economic matters. Thus the policy "choices" they recommend always rationalize (defend) the essential wonderfulness of the status quo.

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  3. Try not to get defensive. What's needed to reach a mass audience is a reasonably simple message and a dynamic, effective communicator. This often takes someone unencumbered with all the caveats and nuance a professional economist brings to the debate -- Harry Truman's "one-handed economist" if you will. I'm not saying the message needs to be reduced to a Bush-ism -- just more like something from one of our two great Roosevelt Presidents.

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  4. And this is what is being said in the UK.

    http://www.theguardian.com/society/2014/mar/16/inequality-costs-uk-billions

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  5. It is indeed to big question. And the problem, and the solution, lies in the control of human effort and attention. The rich are not rich in money, which is just a proxy for the mobilized energy of others, but in that energy itself, in whatever way it is controlled.

    If some have captured the energy of many, the solution lies in the many not giving it to the few. So, knowing where all the filaments of control are, and how to remove or weaken them, is key to reversing the current system that funnels that energy upwards.

    Easier said than done, but without that knowledge, resistance efforts can be ineffective, self defeating or worse, play right into the existing systems and paradoxically strengthen them and further weaken the majority.

    Noni Mausa

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  6. Frank forgets -- or perhaps just has no idea? -- that union leaders wouldn't have had much success without the efforts of Eccles and Keynes ... let alone without FDR becoming convinced that the (pre-Keynes) economics he'd learned in college was wrong.

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  7. Everything else being equal, academics studying inequality is a good thing. And they aren't crowding out people from organizing around it. So I fail to see what problem Frank is really addressing.

    But I do give him props for saying that inequality is a stunningly simple problem to solve. It really is: transfer money from wealthy people to poor people. This can be done directly (guaranteed minimum income funded by progressive taxation) or less directly (stuff people need funded by progressive taxation), but there really is no way to decrease inequality while protecting the privilege of the wealthy.

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  8. Carola,
    There is only one mechanically plausible way to rebalance the US labor market (and, because it means massive re-unionization, also reform the US political forum): a post-WWII, industrialist invented (that's right; not Marxist) setup called centralized bargaining -- legally mandated.

    Under centralized bargaining (A.K.A., sector wide labor agreements) all employees working at similar occupations (e.g., retail clerk) in the same geographic locale (where applicable -- airlines would presumably take in the whole country) negotiate one common contract with all employers.

    Wal-Mart recently closed 88 big-boxes in Germany where it could not undercut based on lower pay and benefits.

    Where to start: supermarket and airline employees would kill for centralized bargaining. A few years ago Northwest Airlines squeezed a billion dollars of givebacks out of flight crews -- to be followed a year later by a billion dollars of bonuses for 1,000 executives.

    Where it stops: not with you -- your are a female human. You are able to judge the saleability of a new direction strictly on merits of argument -- and not be totally mesmerized by the big world outside that always looks too big, much too big, to seriously change. You are an individual gatherer, instinctively.

    Human males -- with their (our) pack hunter outlook -- always and immediately check with the world outside and almost always assume nothing can be done (maybe this is so only if we have no immediate personal stake -- which academics don't have in reforming the labor market). Have see this issue after issue over and over for decades.
    * * * * * *
    Realistic way out: just guessing: the $15 an hour minimum wage is sweeping the west coast -- and I am spamming the inarguable basics to every journalist and legislature whose address I can track down ...
    ... spammed 14,000 of simpler arguments about same all over country last year (took three months) so when it comes their way they will at least have the basics.

    I figure that when the $15 minimum wage comes in to everybody's benefit in the west, it shouldn't take long to go in the east -- meantime it will be time to start pushing centralized bargaining -- once the possibility of real change reaches into the male pea brain (midbrain, limbic system).

    I reading Piketty's magnum opus -- when I am finished (month or two) I will be ready to do a real zinger on the labor market overall.

    Different versions of centralized bargaining can be found in continental Europe, French Canada, Argentina, Indonesia.

    Final thoughts (one example) on the human male problem:
    Show a human female that a $15 minimum wage will only raise overall prices 3.5% ($560 billion added to $16 trillion) and common sense takes care of the rest. Males need one more number (before they no longer obsess on the big pack outside): that the 45% of the workforce getting a raise wont be laid off -- wont be told: "we don't need your output anymore" -- over a small price increase.

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  9. POSSIBLY OVER POSTING HERE -- BUT HERE IS MY LATEST SPAM ON THE $15 MINIMUM WAGE, SHOULD ANYONE WANT TO WHOLLY UNDERSTAND MY COMMENT ABOVE:


    On the bottom end of the wage scale we may find a "DISCOUNT wage effect": wherein weak bargaining power leaves wages below -- in the American labor market probably far below -- what consumers would have been willing to pay: meaning that today’s consumers are getting a – probably hugely serious -- bargain.

    On the other end of the wage scale we may find examples of a "PREMIUM wage effect": where consumers are pressured by market conditions to pay much more than the seller would have been willing to accept had there been sufficient competition or whatever: meaning consumers are getting a -- possibly hugely serious -- skinning.

    If a deeply discounted minimum wage is raised to a still deeply discounted level -- in Obama's case ...

    ... nearly a dollar below LBJ's 1968 minimum wage ...
    ... almost double the per capita income later (!) ...
    ... (dragged out over three years; agh!!!) ...

    ... I think consumers are much more likely to drop some spending on premium wage products (where they are still being skinned) to continue purchasing DISCOUNTED wage products – which are still very much comparative bargains.

    All these fancy words mean that we do not buy more ice cream cones and jeans just because the minimum wage is too low – neither are we likely to buy less of same should the wage go up within reason: we are likely to spend less at Nordstrom’s so we can maintain our level at Target.

    Even if today's $7.25 federal minimum were doubled to $15, consumers still end up paying only as much as they would probably have been willing to pay all along – leaving minimum wage products still a COMPARATIVE bargain against PREMIUM wage made products.

    Never forget – seems de rigueur for all to forget – that labor costs represent only a small fraction of ultimate price tag – as low as 7% with Wal-Mart – even if sales drop a bit, poverty incomes can soar – everybody seems to serially forget this.
    * * * * * *
    When I was a gypsy cab driver in the Bronx, back in the late 1970s, the city’s yellow cabs raised their meters and we raised ours in step. Most drivers agreed this did not hurt business. I also heard from veteran drivers that the previous meter raise did cost business (I was new – having finally gotten my driver’s license at age 32).

    In any market, selling anything, you never know for sure what the customer will pay until you test. Does this chart below look like the federal minimum wage has been much tested OVER MULTIPLE GENERATIONS!!!?

    “Dbl-index” is for inflation and per capita income.

    yr..per capita…real…nominal…dbl-index…%-of

    68…15,473….10.74..(1.60)……10.74……100%
    69-70-71-72-73
    74…18,284…..9.43…(2.00)……12.61
    75…18,313…..9.08…(2.10)……12.61
    76…18,945…..9.40…(2.30)……13.04……..72%
    77
    78…20,422…..9.45…(2.65)……14.11
    79…20,696…..9.29…(2.90)……14.32
    80…20,236…..8.75…(3.10)……14.00
    81…20,112…..8.57…(3.35)……13.89……..62%
    82-83-84-85-86-87-88-89
    90…24,000…..6.76…(3.80)……16.56
    91…23,540…..7.26…(4.25)……16.24……..44%
    92-93-94-95
    96…25,887…..7.04…(4.75)……17.85
    97…26,884…..7.46…(5.15)……19.02……..39%
    98-99-00-01-02-03-04-05-06
    07…29,075…..6.56…(5.85)……20.09
    08…28,166…..7.07…(6.55)……19.45
    09…27,819…..7.86…(7.25)……19.42……..40%
    10-11-12
    13…29,209…..7.25…(7.25)……20.20?……36%?

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  10. Good post. Although things can seem hopeless, it is a good sign that the Pope and the President of the United States are talking about Inequality. I'm hopeful about Yellen.

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  11. just to quickly revisit this; first, i have to agree with Frank's premise, that Krugman wont save us...Krugman revealed his true colors on inequality when threatened by the Occupy movement, when he responded with a column titled "we are the 99.9%", wherein he said the 99% target that Occupy was aiming at was too low, that the real threat came from the top tenth of a percent, ie, not him, since he's part of the 1% himself...this is a classic liberal talking, "10 degrees to the left of center in good times, 10 degrees to the right of center when it affects them personally'...and we cant blame him; if we were presented with a redistribution scheme that would level the playing field worldwide to the extent of taking American wealth and distributing it to Africa, India and South America so that every human on the planet would be on a equal footing, even the most ardent advocate would object, even if it could be shown that such a scheme would be an overall net benefit to all of us..

    and Denis; you know ive also advocated for a higher minimun wage, but a higher minimum wage and collective bargaining wont get to the root of the inequality problem; all that a higher mininum wage and stronger unions will buy our slave class is slightly more material wealth, and maybe a bit of relief from living from one personal financial crisis to the next...a few weeks ago the Fed's Flow of Funds report showed that household wealth jumped to $80.1 trillion in 2013; that's an average of over $700,000 per household....$15 an hour isnt gonna get a foot in that door for the average MickyD or Walmart worker..

    finally, Carola, i think your post asks the wrong question, or asks it in the wrong way...no individual or group of individuals or groups of groups acting in concert are going to put a real dent in the inequality problem, which is probably as old as western civilization itself...the foundation of inequality in the West today started with our families and the birth of each one of us...and unless we can figure a way to go back to our childhoods and kick out the bottom of that foundation, everything else we do is just ripples on the surface of the ocean...

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  12. rjs,
    One almost always unmentioned aspect of the post WWII "Great Compression" is confiscatory taxation. I am only becoming aware of this as a possible NECESSITY recently. I always thought it would be harmless (CEOs and baseball players and
    TV news anchors will work just as hard for what they USED TO earn -- or we'll find someone who will!) and just sort of nice if we ever get around to it. But, I am beginning to understand that constant leveling down may be an essential ingredient of real democracy.

    The best argument for confiscatory taxation -- both income and estate -- is that it went on for decades after the war WITHOUT ANYBODY THINKING ABOUT IT -- IOW, with no conscious ideological support. Nobody (but maybe the taxed -- and maybe not them) was railing against any tradeoffs -- presumably because there wasn't any noticeable harm. PS. 5 star Republican President Eisenhower was fine with it.

    [Come to think; my first job in downtown NYC in 1962 was as a pageboy in the executive offices of Nation Dairy Corporation (the GM of the dairy industry) in just another office building on Madison around 40th Street. The CEO rode the same elevator as everyone else and his office door was right off the elevator behind his secretary. I worked one floor down outside the treasurer's office -- same basic setup -- who I remember for his scatological jokes in the same bathroom everyone else used.]

    My division gives more like a $250,000 household wealth -- doesn't sound to tough when 75% of Americans own their homes (working on it anyway).

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  13. $250K is wealth per capita, Denis, there are roughly 115 million households in the US, which is where my $700K per came from...

    anyhow, i screwed up the link to the Krugman article i cited, so i'll give it to you all straight: http://www.nytimes.com/2011/11/25/opinion/we-are-the-99-9.html?_r=0...

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  14. rjs,
    Auto workers in Germany -- which has a third of our population but for "some reason" manufactures twice as many cars -- earn double what American auto workers earn -- and auto workers are our best paid manufacturing workers -- because they have the institution of legally mandated, centralized bargaining there (also called sector wide labor agreements).

    Whatever else might be wrong in Germany -- whatever is right is because of centralized bargaining (or the threat of). Whatever else we do here it is absolutely necessary to bring that system here -- it is the only one that works anywhere. Doing that would revolutionized the political forum too: with equal funding and lobbying versus ownership and almost all the votes. Gotta do it, no matter what else we do.

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  15. i'm not disagreeing with you, Denis, in fact i dont recall any of your proposals in comments at AB that i wouldnt support.....it's just that incremental steps to raising the well being of our workers doesnt change their status vis-a-vis the plutocracy, and that there is still something much deeper and innate in our social order that defies being addressed by policy...

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