Our Broken Economy, in One Simple Chart
nytimes.com
nytimes.com
Rather, his supposition is that middle-income workers in the US have missed out on gains that have instead gone to upper-income workers in the US. That's false, for the same reason that workers in a single company don't "miss out" on the money given to its executives. As defined by skill sets, the labor pools for upper-income workers and lower-income workers don't intersect, globally or otherwise.
This matters because it affects the solutions we choose. Income inequality is a symptom of the deeper problem of reduced American competitiveness 1) relative to our peers, 2) in the middle- and lower-income labor markets. Because so many more middle- and lower-income skill workers have come online, who are delighted to accept lower wages than US workers because it's an order-of-magnitude improvement over what they had before, these US workers would lose ground merely by remaining as productive as they were 34 years ago.
So in order to maintain the globally-superior wages we have become accustomed to, we must maintain and even increase our productivity edge. How do we do that?
That is the challenge, not income inequality itself. "Fixing" the problem by calling the situation "unfair" (and taxing upper-income US workers out of vengeance for their presumed unfairness and exploitation) isn't a fix at all. It's like prescribing painkillers when someone has a broken leg; the problem isn't the pain, it's the broken leg.
It seems to me that you're defending the uppermost social class in the US, and are attempting to place blame on the middle class of the US for not being able to compete on the global stage against the lower classes of third world nations. They aren't necessarily more productive, they're just willing to work for less. A lot less. I may be misunderstanding your entire point, though.
> So in order to maintain the globally-superior wages we have become accustomed to, we must maintain and even increase our productivity edge. How do we do that?
Couldn't we do this by having competitive taxes on the highest income workers, and then reinvesting that money into things like: reducing the cost of education, reducing the cost of healthcare, improving mass transit and infrastructure, and other things that in general detract from the middle class's ability to "increase our productivity edge". This seems like at least a step in the right direction, instead of allowing the upper echelons of society to vacuum up and hoard billions of dollars that aren't serving any higher goals other than making a select few wealthy beyond reason.
No, and that's actually the crucial point: High wage earners in the US have remained that much more productive than their competitors around the globe. They don't compete/compare at all with middle- and low-wage earners in the US. The "pie" we're slicing up isn't the US GDP (which would be the zero-sum game you-win-I-lose math assumed in the article), it's global GDP.
> It seems to me that you're defending the uppermost social class in the US, and are attempting to place blame on the middle class of the US for not being able to compete on the global stage against the lower classes of third world nations. They aren't necessarily more productive, they're just willing to work for less. A lot less.
I'm identifying the correct problem to solve. The goal is to return to income growth distribution closer to that seen in 1980, since there's a host of benefits to a pluralistic democracy when everyone is doing well. In particular it makes social transitions much easier, such as social justice and access to healthcare, because there's less sense of loss for the incumbents, and the costs of the changes can be borne more easily.
But if you misidentify the problem as mere existence of difference in income, or worse, that growth in the high-income bracket comes exclusively or even mostly from exploitation ("unfairness"), then you'll never solve the real problem, which is:
> They aren't necessarily more productive, they're just willing to work for less. A lot less.
Exactly. The same work, at the same quality, is now actually worth less in real dollar terms than it used to be.
In the 50s and 60s US middle-income workers were much more productive than their peers in other countries, and could charge more for their labor. Now others in the world have caught up (dramatically improving their own quality of life, it should be noted), and if we want to keep getting paid more than them, we have to increase our productivity again. Alternatively we could put trade barriers in place to tilt the playing field in our favor, but the cost for that is borne by consumers of all income classes (via higher prices).
There's a cause and effect connection too. All that wealth at the top increasingly has nowhere to go. Stagnant wages result in what economists call a "demand constrained economy," which basically means nobody has any money to buy anything. This makes it harder to build businesses (no customers!) and therefore makes investments perform worse. Worse performing investments leads money to seek safe havens like... real estate. This causes asset inflation which soaks up yet more middle class wealth and worsens the problem. Repeat cycle. It also inflates bubbles. This is why we've had a serial bubble economy since the late 1990s.
Historically demand constrained economies result in depressions. We've avoided a technical depression through monetary policy (QE, etc.) but at the cost of monstrous asset inflation and bubbles. (My personal opinion is that we have been in a weird kind of stealth depression since roughly 2008, or maybe even since 2001. It's a depression masked by force-pumped asset inflation and bubbles.)
This is in part why you hear some venture capitalists advocating for redistribution methods like universal basic income. VC depends on the ability to build businesses which depends on customers. If there are no customers VC backed companies fail and VC funds under-perform.
Edit: just since this is interesting:
The opposite of a demand constrained economy is a supply constrained economy. This is where you have lots of money in consumers' hands but no capital available for business. This is what we had in the 1970s and it resulted in "stagflation," which is inflation due to consumer demand bidding up constrained supply. Supply side economics such as what the Reagan administration introduced in the 1980s may have been the right answer then. Today we have the opposite problem and probably need something more like FDR's New Deal. Unfortunately we have a generation that grew up in the 70s that is now in power and is fighting the last war. This is the same problem we had in the 70s-- the 30s-40s generation was in power and was fighting the last war.
90% of money being held by a few people whose material needs are already satisfied does not create demand for products and services but mostly inflates stock prices and real estate and other "wealth storage" types of assets.
Money in the hands of the bottom 90% gets spent on things like new cars and shoes and going out to restaurants or getting haircuts. Providing these goods and services is what jobs are made out of.
Wages are not stagnant.
From the article: The news regarding the American middle class is not all bad. Although the middle class has not kept pace with upper-income households, its median income, adjusted for household size, has risen over the long haul, increasing 34% since 1970. That is not as strong as the 47% increase in income for upper-income households, though it is greater than the 28% increase among lower-income households.
Nominal wages are clearly increasing. The "wages are stagnant" argument is more valid only if you discuss real wages (backing out inflation), but then you can't reasonably (IMO) say "real wages are stagnant, but inflation is happening".
a lot more than 34%.
With interest rates as low as they are currently, housing prices are correspondingly inflated (via increased purchasing power for a given/fixed monthly payment). That's pushing us towards the "good historical investment" side of the pendulum, but if interest rates were to return to the 1980s' double-digit figures, it would swing back towards affordable.
1970-1980 - 11%, 1980-1990 - 5.3%, 1990-2000 - 4.2%, 1970-2000 - 6.7%, 1980-2000 - 4.8%
Median household incomes (US census source I found only goes back to 1975): https://www2.census.gov/programs-surveys/cps/tables/time-ser...
1975 - 11800, 1980 - 17710, 1990 - 29943, 2000 - 41990
CAGRs: 1975-1980 - 8.4%, 1980-1990 - 5.4%, 1990-2000 - 3.4%, 1975-2000 - 5.2%, 1980-2000 - 4.4%
For like period to like period (1980-2000), the tracking error is a cumulative 16% over a 20-year period, or about 0.4% per year.
This is actually a well established economic principle known as the "law of rent." I've wondered if maybe the middle class explosion of the mid century was driven by the automobile since it allowed cities to physically expand. This allowed people to temporarily escape the law of rent. But now we've hit the limit of that, so the law of rent has re-asserted itself.
Jan 1970 $23,600(adjusted for inflation 148,993.25)
Jan 2017 $317,400
The other one stopped at 2000.
I come up with 58% higher.
The College Board predicts the average annual cost of a four-year college in 2020 will be $46,368, up 38% from current fee
But then nothing ever changes? shouldn't things improve for everyone? Otherwise what is the point of a society?
Are they not? According to the chart, income growth is positive (things improving) for everyone but those below the 5th percentile.
Everyone with a job makes it possible.
Here is data on life expediencies: http://www.npr.org/sections/health-shots/2016/12/08/50466760...
Maybe, but that's not what was complained about in the original article. So OP's point stands.
Or worse, they start pulling out the guns and guillotines.
That's the thing that many don't seem to realize, large swaths of the country _are_ worse off. There is a very large chunk of the population that has multiple wage earners and are still barely scraping by. Younger people are being required to go tens of thousands of dollars into debt to start a career that makes significantly less than it did 20 years ago. Job concentration has made it so that the only places with good job prospects are becoming prohibitively expensive to live in, mostly because of housing and rental costs. Medical expenses are ballooning out of control, goods like food and vehicles are getting more and more expensive, and nowadays there are new classes of bills that are basically required to make it in the world like cell phones and internet bills.
What makes all of this even more difficult is that there are pockets of the country that are still experiencing economic growth. The people in those areas have been insulated from the wider economic truth that quality of life is declining for much of the nation. This is part of why there were pockets of the country that voted strongly one way while the interior of the nation voted the exact opposite. And the fact that extremists on both sides were nearly elected(Sanders) should be a sign that it's not just the political right that is feeling pressured, but a large chunk of the country overall.
So yes, it is a problem that is threatening our social, political, and economic stability, and needs to be addressed.
Take a quarter from pre-1965 when we still made constitutionally sound money made with gold or silver. The silver contained in it if melted down is as of today almost $3.00 of worthless paper fiat dollars.
If you made a $1 an hour paid in four silver quarters you would be making $12/hr of paper fiat dollars. Think about that. Let that sink in. The problem is the money is WORTHLESS. It's been devalued to the point of buying next to nothing. So when people are screaming to make $15/hr flipping burgers and dunking fries because they can't live on anything else, it's the money that is the problem. Blue collar workers making $20+/hr welding or milling are still struggling because the money doesn't buy anything. The money is the problem. You are being paid in a worthless paper dollar that barely buys anything so you have to make gobs and gobs of it to obtain anything of value.
Fix the currency and a lot of these related problems disappear.
That's because almost all the population in 1980 was experiencing 2%+ income growth. Now the only people experiencing that level of growth the top 2% of income earners.
The vast majority of the US is stagnating as far as wealth growth, this can only lead to catastrophe if maintained, in my opinion.
First, humans are animals with an innate sense of fairness, it's a problem because it's not fair, and when too many people feel things are too unfair, war results. So it's a problem because this shit is what starts wars.
> Growth should go to the people who make it possible
That would be the workers, those actually doing the work, and that's the problem, they're not getting the growth. The capitalists aren't doing the work, they're not where the increased productivity is coming from.
> Now these are people like us.
No group of people should be capture so much of the economic improvement we create by eliminating those other people's livelihoods.
Workers doing the work aren't driving anything, they are being displaced in huge numbers. Income share of capitalists isn't rising, if anything it is falling as returns on capital diminish, which is more than compensating for increased value of that capital. Top 1% who are capturing most of growth are people working for hire (share of income from capital is very small in top 1%, small in top 0.1%, and moderate in top 0.01%, dominating only in the very, very, very small fraction of extremely rich - billionaires). Otherwise, people who win are like, top coders. Top designers. Yes, top lawyers. Top everyone. We are living in the world where success almost infinitely scales.
If some part of population loses as a result well, in every generation we have winners and we have losers. Family farmers 50 years ago also lost all their capital, sources of income, been thrown out of their land and felt like it was deeply unfair and predatory. That could be a problem if it resulted in increasing crime rates (but these are solvable with proper investments, including in software like crime prediction). But, crime rates are falling.
In short, whenever i see someone shouting 'we are becoming less equal, that isn't fair, huge troubles are on the way' i can't help but remember Soviet Union where i grew up. That country was pretty fucking equal, at least on paper. Trust me you don't want to try it on yourself.
I know a ton of people who are rich, like, up to lower centimillion bucks rich (would be comfortably in top 0.01% of Americans). None of them come from wealthy families. Kids from wealthy families mostly enjoy upper-middle class, sinecure jobs secured by their daddies yes. They don't get to worry about anything in their lives, but they aren't rich either, most aren't even in top 1%
The top 0.01% has an income over $8m/year. I dunno about you or anyone else here, but I'm in the top 5% and that is still light years away from being "like me".
The problem is that people making that much can see their income grow without even lifting a finger while real wages remain stagnant for the bulk of the working population. Profits paid to investors are wages denied from those actually creating the value.
Most of the population IS worse off. Just look at the chart - you need to go to about the 96th percentile to find people who aren't worse off.
Yes the growth should go to the people who make it possible, but it is NOT actually doing so (and if you think that the founder/ceo is solely responsible for the growth and we can safely ignore the contribution of all the people who actually do the work, well, you're beyond help).
While there are some true innovators in the tech industry, vastly more capital goes to extractive, rent-seeking corporations that are actually ANTI-innovative, and merely exploit their position to extract maximum rent dollars from customers. Examples: Cable/ISPs who get anti-competitive laws passed to eliminate potential competition, even from towns themselves who want to install cable, MPAA fighting new distribution models, fossil-fuel power providers getting anti-solar legislation passed, high-frequency trading shops that extract money by quasi-legally front-running the market, providing no extra value, auto-dealer associations attempting to prevent Tesla's direct sales business model from coming to their state, real estate agents trying to prevent innovation from changing their commission structure, etc, etc., etc...
Although some of them do actual work, their protectionist anti-innovation behavior puts them all in the "predatory capitalist" class -- they actively prevent the very improved productivity and growth that you cite as deserving of the income, and in doing so they take money out of the economy.
My company has a founder with all the trappings of wealth: the cars, boats, houses etc. However he did bring a product to market that many people find extremely valuable. He also built a company that hires 200 or so directly with many more jobs relying on his company. Nobody grumbles about pay. Some day I hope to emulate his success in a downsized way.
My boss struck gold with a hit record that everyone wants. Although there have been patent trolls to deal with none of that success has been due to a tax anomaly or bribes paid. Also the product is green although could always be greener.
So why tax my boss so he only gets a fraction of what he earns? I understand higher rates of tax, that all makes sense, however there will be a small minority of hard working bright people able to be phenomenonally successful. Are these the bad guys we dispense with come the revolution?