Who has gained from the inequality boom?

A sad state of affairs. So are we (and Americans in particular) really going to end split between Morlocks and Elohim?

But which “pro-rich policies”?

I know I bang on about this but I’ve as yet not had an adequate refutation of the point.

It’s globalisation.

No, not (just, or only, perhaps not even majorly) that the lower paid are competing with the almost not paid at all in places like China but that those very few at the top (the 0.1%, not just the 1% that JQ’s figures show) are now able to pick up nickels from billions of people instead of the former dimes from the tens or hundreds of millions in purely domestic economies.

If this idea is in fact wrong I’d love someone to show me how/where it is: partly to increase my own knowledge and partly so that I can go and find something else to be wrong about.

Tim, is it fair to call a tax cut for rich people a “pro-rich policy”?

Even if you take the view that being “pro-rich” is being “pro-everyone” because, uh, trickledown or something, and even if you take the view that rich people would be getting richer anyway thanks to globalisation, a tax cut designed to make these richer rich people richer at an even faster rate is surely a “pro-rich policy”?

“If globalization made new economies of scale possible, why should those economies acrue to a small set? Why isn’t competition within that set driving their wages back to the old level?”

Tournament economics? That top 0.1% (I think some have even tracked it, in the US at least, to the top 0.01% or a few hundred people) include the likes of Spielberg ($200 million a year or so), Tiger Woods ($100 million a year) etc. These are people who obviously are enjoying new economies of scale and yet they’re also people (Woods especially, obviously) engaged in a tournament. It doesn’t matter how much better he is than the others, even being 0.000001% better will mean he gets a disproportionate share of that expanded market.

@5…I’m not arguing for (or against) any particular tax regime or any other policy stance here. Only that what is causing whatever increase in inequality there might be is probably quite important to the policy response to that increase in inequality (should we want to make one).

For example, if the increase in US inequality is a result of globalisation, which, arguably, has also led to a large reduction in absolute poverty, then we might want to weigh off the benefits of reducing globalisation, less domestic inequality, against less absolute poverty reduction.

Or if rising US domestic inequality is a result of rent seeking we might just say screw the bastards and try to eradicate those rent seeking opportunities.

Neither explanation precludes higher tax rates of course. But I do think we want to know why inequality is increasing before we decide what, if anything, is to be done about it.

Tim, I fail to see the connection between poverty reduction and Tiger Woods’ millions. As far as I can tell, a world where he is paid less would be exactly the same as ours, except there would be some money not in Tiger’s hands, but in hard to guess other hands.

It is not as if he would stop playing if he was paid mere hundreds thousands,or even that a sports world without Tiger Woods would be less entertaining to the tune of 100 million dollar. Everyone would just watch something else.

I guess most very rich people are business owners and their children, not entertainers. But if their wealth is based on something vaguely resembling a golf tournament, I fail to see how that is coupled to poverty-reducing global trends.

Tim:

Sorry for the mix-up! I wasn’t suggesting that you were arguing for or against particular tax regimes. In your original post, you posed the question ‘which “pro-rich policies”?’ and I naturally assumed that either you had forgotten about / were ignorant of American tax cuts on high-earners.

Tim Worstall: That top 0.1% (I think some have even tracked it, in the US at least, to the top 0.01% or a few hundred people)

The top 0.01% of US households in these CBO charts included 9,000 households in 1979 and 11,000 households in 2005 (see here, at Table 3).

In 1979, the average after-tax income of the lowest quintile was $14,400; of the top 0.01% it was $4,188,300. The top 0.01% were taking home (after taxes) 291 times the bottom quintile.

In 2005, the average after-tax income of the lowest quintile was $15,300; of the top 0.01% it was $24,286,300, or 1587 times the bottom quintile.

Tim, globalisation is not just a matter of everything “going global.” There are rules to the process and those rules are made by governments to advantage certain groups of people and to disadvantage other groups of people. The people those rules mostly benefit are the rich. The people the rules mostly hurt are the less rich (perhaps the median wage earner more than the poor). Dean Baker talks quite a bit about this lopsided implementation of so-called “free trade”. It is not some value-neutral globalization that favors the rich but a very particular implementation of globalization — an implementation that favors the rich, that maintains and extends protectionism for the privileged even as it intensifies competition with low-wage labor.

eg, Tiger Woods’s zillions: a particular intellectual property regime is necessary to convert his global symbolic capital into, you know, actual dosh….

Tony Judt references Richard Wilkinson and Kate Pickett’s The Spirit Level: Why More Equal Societies Almost Always Do Better (2009). Does anybody have an opinion on this book?

Well, for a long time, the debate was whether or not the policies that led to these vast inequalities were better than policies which consciously strove to avoid them. The argument went that as long as the rates of growth were higher in the former, in the long run everyone would be better off than in the second case where the growth rates were presumably lower. And much ink was spilled on these intangible benefits of the second scenario as opposed to the very tangible ones of the first.

Now? Well, there seems to be an emerging consensus that great inequalities actually stunt growth in the long run as opposed to situations where they are deliberately damped down. So the old argument is rendered invalid because even if (some) people don’t make as much money as they would otherwise in the first scenario, they will still by virtue of superior growth actually be better off in the long run under the second scenario, and so we get more of both the intangible and intangible benefits than we would in the first.

Of course, those old arguments are now no longer operative, and rather than concede they were wrong, advocates for more inequality now use a completely different set of justifications, usually something to the effect that the wages of the top earners would be greater than they would otherwise, even if average wages are lower.

Right off-hand, Tim, I’d say it’s rent-seeking enabled by globalization. Globalization has enabled Captains of industry (US-based) to outsource labor (increase productivity), and drive down US wages. This, of course, has been enormously exacerbated by anti-union policies and more-and-more regressive taxation over the last twenty years (mostly rationalized by the fear of overseas competition!).

John, yes, I found it, and it doesn’t say anything at all about income inequality in the US. It does say that the (relative, lately) success of India and China doesn’t have any implications for economic liberalism in rich societies. But that wasn’t my question at all.

@14, I’m aware of Dean’s arguments and quite taken by them. Yes, I do think that if there is to be globalisation for the factory worker then there should be for the professional (everyone can still disagree about whether there should be globalisation at all of course). One of Dean’s examples is how journalists would like it if newspapers stopped using expensive people with journalism graduate degrees and used cheaper foreigners. To which, as someone sitting in Portugal who has occasionally written for US outlets I say bring it on.

@21. “If globalization is causing the increase in income disparity in the US, do we need it?”

That’s the corollary to the very question I’m asking. What is the cause of increasing in country inequality (and it is happening everywhere, even if not quite as much, leading to hte thought that a global phenomenon might have a global cause)?

If it is globalisation (as opposed to Republithugs lowering top marginal tax rates, or whatever other answer one might come up with) then, of course, it is globalisation that needs to be looked at in terms of the costs and benefits of it.

I’m absolutely not, here, trying to force my own policy preferences (globalisation, Yay!) on anyone. I really am trying to ask, well, what is it that is causing increased income inequality? For, as seems entirely obvious to me, unless the cause is found then solutions cannot be.

@17: Guess who these sorts of arrangements benefited

I imagine, among others, the people on $3 a day benefited. This is one reason I find it very hard to take seriously all of the hand-wringing about “rising inequality”. If you really cared about the position of the worst-off, not just the position of the worst-off-in-rich-countries, you might think twice about advocating, say, tariffs designed to nullify the “advantage” of being paid $3 a day.

A largely-ignored factor is the impact of our welfare “reform” on wages and job security. “Workfare” has essentially been the creation of a Third World (minimum wage or less/no workers’ rights) workforce here in the US, reportedly often used as replacement labor for those put on “indefinite lay-off.” Previously family-supporting jobs have been broken down into pt. time, bottom wage workfare assignments. With each round, more workers are added to the workfare pool.

The tangle of workfare policies has been a tool for suppressing wages, getting rid of workers’ rights and protections, and ensuring an absence of union representation. Welfare reform is proving to be an increasingly strong factor in the declining quality of life in the US and the profitability of corporations.

This isn’t the only factor in the redistribution of wealth from communities into the bank accounts of corporations, of course, but it is an important one.

Tony Judt references Richard Wilkinson and Kate Pickett’s The Spirit Level: Why More Equal Societies Almost Always Do Better (2009). Does anybody have an opinion on this book?

I think Wilkinson’s work is very important for this discussion. I’ve only skimmed a few parts of The Spirit Level but it’s not clear that it adds a lot substantively to his earlier books, Unhealthy Societies and The Costs of Inequality, which are both very good. The important point is that asking how incomes further down the distribution have changed tells us little or nothing about the social consequences of increased inequality.

To be honest, I’m surprised how many smart, progressive economists treat absolute income as a proxy for wellbeing, when it’s clearly nothing of the sort. (DeLong is the worst offender, but he’s hardly alone.) Look at the Stern Review of the costs of climate change and of policies to avert it. Their absolute worst case scenario for climate change is that it will reduce world GDP by 14 percent, i.e. about 5 years of normal growth in the industrialized countries. How terrible would it be if we were forced todayto return to the penury and deprivation of our lives in 2005 or even 2000?

Um, not very terrible. From which — if you take Stern’s numbers at all seriously — you can only conclude that either climate change is no big deal, or that its effects on measured incomes are only a trivial part of its impact.

I’ll take door number 2; I’m sure most of us here would; I’m sure John Q. would. But in that case you have to accept the implications for questions like the costs of inequality — absolute income may be only a trivial part of those, too. And that’s where Wilkinson’s stuff is so valuable — in thinking about where the real costs of inequality lie.

Actually it’d be great to know where to find some follow-up to #24. Is someone somewhere publishing an ongoing / longitudinal study of the purchasing power of laborers around the world? Probably no equivalent of CBO data exists…

An important reason for growing inequality is the relentless focus on aggregate measures of economic growth, such as GDP. There appears to be no consensus on devising reliable and widely accepted measures of equitable societal wealth distribution. The creation of such measures and their use in economic policy making are crucial to avoiding a neo-feudal future for America.

But the real story is inequality within the top 1%. Over roughly that time period, those at the 99.99th percentile did spectacularly better than those at the 99.9th, 99.5th, 99th, and 95th percentiles. There is some evidence that even within that top 99.99th percentile, inequality reigned. In 2005, the “Fortunate 400”—the 400 households with the highest earnings in the U.S.—made on average $213.9 million apiece, and the cutoff for entry into this group was a $100 million income—about four times the average income of $26 million prevailing in the top 15,000 returns.

I have more stats in part II of this article: http://bit.ly/cYdvfl

Might be interesting to see an ethnic breakdown on those unequal rise/fall stats. Not that ethnicity is anything real or anything. Though then again the US does have something like a 60% incarceration rate for young black males. Etc. That would probably be the bottom end of the chart. The top end might look a little different than the general US demographic as well.