What Produced the Inequality Boom?

by Henry Farrell on July 28, 2010

Riffing off John’s “post of a few days ago”:https://crookedtimber.org/2010/07/25/who-gained-from-the-inequality-boom/, the most recent issue of Politics and Society (which, as I noted before, “has free access”:http://pas.sagepub.com/content/current for the next few months” ) has a pretty interesting debate on this topic. There are four contender. One of these – the standard technology-leading-to-inequality-story – is not discussed at any length in _Politics and Society_, but this accont doesn’t in any event tell us why there has been substantial variation in the impact of technology on different industrialized democracies, and hence requires at the least an account of intermediating forces.

(1): The Hacker and Pierson argument (laid out “here”:http://pas.sagepub.com/content/38/2/152.full.pdf and “here”:http://pas.sagepub.com/content/38/2/266.full.pdf. Here, the emphasis is on _policy institutions._ Hacker and Pierson specifically argue that one cannot just pay attention to the institutions of redistribution, which may serve, to a greater or lesser extent, to correct for inequalities created by markets, but which do not help explain e.g. the Picketty-Saez results showing a concentration of wealth among a tiny elite of hyper-rich people.

bq. The economist (and former Bush administration official) Gregory Mankiw has evocatively likened the American super- rich to the winners of the golden ticket in _Charlie and the Chocolate Factory._ Most of the educated receive only the chocolate bar; a lucky few find a ticket to vast riches within the bar’s wrapper. But Mankiw’s analogy is silent on the question of _how the tickets were placed in the chocolate bar and why some of the educated get the ticket and others do not._ It implies that both the presence of the tickets and the selection is market-driven, when in fact, as we shall see, Mankiw’s “golden tickets” were in substantial part created by government, and their distribution has been deeply shaped by the political clout of their beneficiaries.

They respond to those (including Brad DeLong) who do not think that government policy can produce large changes in pre-income tax distribution by arguing that the key vector of change is market-making institutions which both enact new policies that help rich people, do not seek to respond to the median voter, but “to minimize the trade-offs when the desires of powerful groups and the desires of voters collide.” This set of arguments seems to me to be highly intuitively plausible (as a personal rule, I am far more attracted to models of politics and the economy that emphasize self-interest and power asymmetries than models that stress e.g. mutual advantage). Furthermore, Hacker and Pierson do make a highly convincing case that we have seen a very substantial shift in power relations so that business and its allies predominate over e.g. a greatly weakened union movement in influencing decision making. However, what they do not provide is a large set of cases demonstrating how market-making policies have worked to shift the ground in favor of the rich – instead, they provide only a couple of examples. I’d like to see a lot more evidence fleshing out this account to really be convinced. Hacker and Pierson do have a book forthcoming next year that will perhaps address the case material in greater detail. But really assessing these claims properly is going to require a long-term research program that would uncover the roots of the American political economy.

(2) The power of ideas. Neil Fligstein “makes a two-fold argument”:http://pas.sagepub.com/content/38/2/233.full.pdf+html – that the key vector of change is ideas about how the economy should be organized, and that we are likely witnessing the crumbling of the ideational frame that produced radical inequality.

bq. My main argument is that the economic crisis of the 1980s produced a new consensus that attaining economic growth without government interference was the be-all and end-all of public policy. Post-1980, Congress and the president gave business whatever they wanted. They did so because they valued economic growth and wanted to reward risk taking. As a corollary, they also supported making such risk taking lucrative and they never were concerned about the distributional consequences of giving business what it wanted. … I document how the top managers and owners under the rubric of “maximizing shareholder value” worked to reform the economy to get a larger and larger share of income. … It was in the late 1980s and early 1990s that top managers began to use the arguments of agency theory to suggest that their pay should be tied to the performance of the firm, in particular, to their ability to raise the share price. … During the 1990s, pay packages for top managers grew dramatically. … My argument … implies two forces that will decrease income inequality. First, the massive destruction of wealth and income earn- ing investments means that inequality will just drop. The decline of banking will mean that the outrageous amounts paid to bankers and hedge fund managers will also lessen. But, equally important, the Obama administration seems to want to attack the problem of income inequality from a number of angles.

This captures possible causal relationships that are not included in Hacker and Pierson’s analysis. They concentrate on the role of government policy – not the internal politics of firms. It is more than plausible that the politics of “shareholder value,” and ideas about the proper relationship between shareholders and managers played an important role in generating inequality, entirely independent of the rules laid out by politicians. It is also very likely that there were interactions between these two arenas of politics that would have to be disentangled. That said, if Fligstein’s account seems to me to be stronger than Hacker and Pierson on the politics of markets, it is by the same token weaker on the politics of politics. His optimism, however cautious, about the ability of the administration to successfully attack income inequality doesn’t take nearly as much account of the difficulties of policy change as I think it should. Perhaps the Obama administration will succeed in staving off a re-enactment of the Bush tax cuts for the wealthy. But if it does, it will likely be because renewing the cuts would require _active legislation_ (the reversion point in the case of non-agreement on taxes is that the tax cuts will lapse – this substantially improves the bargaining power of the administration). Initiatives that require Congressional approval are likely to be heavily watered down, or vetoed.

(3) “Lane Kenworthy’s synthetic account”:http://pas.sagepub.com/content/38/2/255.full.pdf, which tries to combine the kinds of argument laid out by Hacker and Pierson with a set of other factors, including ideational and technological change.

bq. Business political capacity plays a role here too, but in this explanation the increase in that capacity is not what matters. Instead, American political institutions and a shift in perceptions of U.S. economic strength amplify the impact of corporate mobilization and political effort on policy. Shifts in the political culture and strategy of the Republican party also have an important effect on policy. Changes in technology, economic competition, and corporate governance practices contribute, together with changes in policy, to the rise in winner-take-all economic outcomes. … In Hacker and Pierson’s account, options were able to produce enormous gains for corporate executives because prior to 2005 they did not have to be expensed … an intentional lack of policy change amounted to endorsing and encouraging this development. … Let me sketch an alternative story. … American political system is especially conducive to drift. … the perception among the public and among policy makers of the health of the American economy. … the underlying pessimism continued at least until the later years of the 1990s boom. … prevailing thinking about firm governance moved steadily toward the notion that high-level executives are critical to the success of the firm and should be rewarded appropriately. … a more extensive search for quality leadership and to a willingness to pay more for it. … Clinton administration changed the tax rules … encouraged firms to accelerate the shift toward compensation via stock options. … compensation for top executives in U.S.-based firms has tracked the market capitalization of those firms, and stock values more generally, very closely. … CEO free agency … a credible exit threat. … benchmarking and leapfrogging can generate a sizeable rise over time in the average compensation package.

Accounts like this have the advantage of combining _both_ developments in markets _and_ in policy institutions. A really comprehensive account of how inequality came about is likely to resemble this one, at least in broad outline. However – given the current paucity of really comprehensive data and the complexity of the causal processes involved, they also have clear weaknesses. Most obviously, they do less to disentangle the underlying relationships than to provide a list of plausibly relevant causal factors, without very much sense as to how they might interact with each other. Kenworthy provides a schematic, but it is a very bare-bones one, that (I think) is less a presentation of a model than an effort to clarify thinking a little bit. It’s an open question (as I think Kenworthy himself would agree) as to whether it is better to try to start (as Kenworthy does) with an overall framework and then fill in the gaps as more empirical material is gathered, or alternatively to start with very simple models that leave out most of the complexity, and build it in as needs be. Happily, we don’t have to choose – both approaches can co-exist and argue with each other. Unhappily, this is because the study of American political economy is still in its very early stages, so that we simply don’t know what the best way to proceed is.



Gaspard 07.28.10 at 5:56 pm

If you want a cracking example of an explanation of changes rolling out over a similar period, I thoroughly recommend the opening section of Prisons of Poverty by Loic Wacquant. It shows the interaction between business friendly think-tanks and the way in which the political consensus is shifted basically by providing backstories for politicians and civil servants looking to make a name for themselves. He also shows how it filters through different countries. I think Doug Henwood’s Wall St maps the overall outline – productivity gains go increasingly to capital. The changing of the conventional wisdom which renders the stock market synonymous with economic growth, and making ‘innovation’ (especially financial innovation) the supposed engine of this growth, add the fact that politicians are generally starstruck when it comes to businessmen, and then the result is the Cameronesque politician, who are willing to take lobbyist proposals and turn them into legislation. Wacquant makes a good case that the high incarceration rates (esp. US & UK) helps with providing a compliant workforce for the low paid jobs, which also contributes to the rising inequality.


geo 07.28.10 at 6:18 pm

the study of American political economy is still in its very early stages

Well, really … what have all you political scientists and economists been up to for the last hundred years or so, then?


chris 07.28.10 at 7:00 pm

@geo 2: maybe they haven’t been studying America in particular, but somewhere else.

This brings up an interesting point: how much of the inequality boom has been replicated elsewhere in other high-tech societies? This seems to me to be very relevant to the question of causation; political institutions are somewhat idiosyncratic to the country they exist in, but technology or ideas not so much. (If the same ideas are accepted in one place and rejected in another, the ideas aren’t causing anything; the local factors leading to their acceptance or rejection are.)

It’s my impression that a lot of the inequality boom is specifically an American, and to some lesser extent British, phenomenon, and other countries that have had the same technological changes but under different institutions haven’t adopted the cult of the CEO culture or the pay packages that go with it.


Straightwood 07.28.10 at 7:19 pm

I would add a fifth explanatory contender: the perfected engineering of the instrumentalities of propaganda to advance the concentration of wealth and power in the hands of the rich. For example Rupert Murdoch’s FOX News organization is a powerful advocate of oligarchy, crony capitalism, and Dickensian social Darwinism – all wrapped in the American Flag.

FOX works tirelessly to promote the marketplace over government and laissez-faire over egalitarian planning. It saturates its viewers with the myth of the market-God and intimidates politicians with contrary inclinations. Propaganda works, when skillfully designed and aggressively broadcast. That is why the Murdochs grow steadily richer and more powerful while the rest of us are left poorer and politically marginalized


Henry 07.28.10 at 7:22 pm

George – this is a real problem in the discipline. Paul Pierson had an excellent essay some years ago, which I blogged about “here”:http://www.themonkeycage.org/2008/10/americanists_and_political_eco.html – while things have gotten better since then, they haven’t gotten that much better.


Henry 07.28.10 at 7:22 pm

Chris – I’ll be blogging about that tomorrow.


Tomboktu 07.28.10 at 8:22 pm

A few years ago, John Roemer pointed out (and can I find a link now? Bah!) that the highest incomes now (well, in the period before the current crisis) were no longer returns to capital but returns to labour for the top executives.

I think it interesting — telling, even — that the kinds of issues raised by Hacker and Pierson are not given any space in The Oxford Handbook of Economic Inequality.

And, when I was rooting around looking for material on the causes about a year ago, I also thought it interesting that the best discussion (that I could find) of the processes at the firm level, and the legal (and hence, essentially, political context) were coming from somebody working in a law school, not from economists.


chris 07.28.10 at 8:42 pm

A few years ago, John Roemer pointed out (and can I find a link now? Bah!) that the highest incomes now (well, in the period before the current crisis) were no longer returns to capital but returns to labour for the top executives.

ISTM rather misleading to describe this as “returns to labor”. Aside from the fact that management is typically regarded as different from and often opposed to labor, wouldn’t it be more accurate to call it return to social capital, or something like that? Most people don’t have the opportunity to sell some more labor and enter the CEO category.

The role of management in the, well, management of corporations is fundamentally different from even highly specialized and valuable forms of labor like sports stars.


ScentOfViolets 07.28.10 at 8:59 pm

Er, hasn’t this already been done? Galbraith and his “countervailing power”?

I would say that the only thing new and “institutional” since then (the erosion of more social capital, of course) has been the co-opting of economics which “scientifically” explains why the pigs get the windfall apples. But this was just a cover for intent anyway – you can’t prevent being robbed at gunpoint by explaining that the mugger’s theory of “marketplace forces” is flawed.

I’d date this erosion of equity back to Reagan and his firing of the air traffic controllers, aided along the way by the importance of big money in elections which serves as an entry barrier to politics. That term is not unintentional; politics as bargaining for favors seems to be the model for today, and when discussed in those terms, with considerable approval.


Billikin 07.28.10 at 9:16 pm

“The rich get richer and the poor get poorer.” That has been the usual case for millennia, over a variety of social. political, and economic systems. How do we explain the times and places that have been different? Most have involved social upheaval, haven’t they?


Norwegian Guy 07.29.10 at 1:40 am

@Chris 3:

It’s my impression that a lot of the inequality boom is specifically an American, and to some lesser extent British, phenomenon, and other countries that have had the same technological changes but under different institutions haven’t adopted the cult of the CEO culture or the pay packages that go with it.

I think inequality has been rising in most, perhaps all, western countries for the last three decades or so. But this doesn’t say too much about technology or whatever justification the rich may come up with. Because while Thatcher and Reagan might have gone further than in many other countries, they were not alone, and just as in the UK and USA their policies have been continued by both right-wing and nominally left-wing politicians in many countries. There is hardly a country that has not been infected with neoliberalism!

The increasingly large salaries of CEO’s has certainly been discussed quite at lot in Norway at least, so I doubt it is a purely American and British phenomenon.


Doctor Science 07.29.10 at 3:53 am

I have to agree with Straightwood on the importance of propaganda and on a pervasive mental model of how the world should work. Ideology, maybe?

What I’ve noticed, especially in the last couple of decades, is that many Americans and almost all Republicans or libertarians have great difficulty assigning blame to rich people. In discussing any problematic situation or institution — illegal immigration, for instance — their first reaction is to see the source of the problem in the least powerful and wealthy people involved. In the example of immigration, if you bring up the complicity of major employers who want to hire illegal immigrants because they’re cheap and exploitable, they’ll nod and then … it’s as though their brains skid away and they start talking about anchor babies again. The idea that wealthy people have more power and thus may be more culpable doesn’t seem to have an traction in their brains, it’s a notion that doesn’t seem to compute on some basic level. Wealth is the elephant in the room that *people can’t actually see*.

From Henry’s description of the articles, what stands out to me as an unconsidered aspect is something about the behavior of inherited wealth. It’s not just that some people were able to get lots of money, it’s that at least some people who started out with money — Old Money — didn’t lose it in the time-honored fashion, but saw it grow in the way only New Money used to grow. See, for instance, a Wall Street Journal article about Charles Koch, which said he ‘applied the “science of liberty” to become one of the world’s richest men’ — apparently the “science of liberty” allowed him to make a very wise choice of parents.


LFC 07.29.10 at 4:53 am

Looking quickly through Fligstein’s piece, I see he suggests that, under the impact of (among other things) ’70s stagflation, criticism that corporate managers had become ‘complacent,’ and pressure from ‘corporate raiders,’ managers started in the late ’70s to take fairly drastic steps to increase profits. And in this context he mentions deindustrialization; but he does not mention (unless I missed it) that what made deindustrialization in the US possible was corporations’ ability to shift production facilities en masse to lower-wage and so-called newly industrializing countries (which in turn was made possible by a variety of other developments in transport, etc.). An obvious point perhaps, but it seems weird not to state it.

And a somewhat related point — I’m not sure it makes sense to study the US political economy without reference to trends in the global political economy.


john c. halasz 07.29.10 at 4:54 am

There are two different technological “vectors” of explanation. On the one hand, obviously, technological automation has raised the productivity of labor, especially in manufacturing, and, especially, the marriage of IT with robotics has increased the flexibility, while lowering the costs, of capital goods and thus increased its substitutability for labor, thus reducing labor force requirements and their bargaining power.

But the other line is different. Starting with the stagflation/realization crisis of the 1970’s, after the breakdown of Bretton Woods and the reversion to free-floating currencies and thus free flowing financial capital, (with presumably the breakdown of fix currencies having something to do with the oil and other commodity shocks and the resulting wage-price spiral impacting profits, especially through losses to “fixed income” assets), a gradual restructuring of corporate organization began to take hold in response, beginning with the Reagan/Thatcher rise of neo-liberalism. Especially the emergent development of IT combined with telecom, meeting up with the new era of floating for-ex and free-flowing financial capital, began a process of corporate re-organization which “progressively” restructured oligopolistic corporate rents. The old industrial work forces, which under national mass production regimes had participated in corporate rent structures, were gradually downsized and let go under MNC platforming of global production supply chains, while a lot of middle management functions were rendered redundant by IT. Gradually profitability was restored at the expense of wages and salaries, as corporate organizations became “flatter” and more “virtual” through out-sourcing and off-shoring, which manipulated for-ex differences, while maintaining control of production supply chains through IP and the control of first world marketing apparatuses. The emblematic corporation is no longer Ford, the mass employment/mass production model, dependent on paying sufficient efficiency wages to sustain product demand, but rather Walmart, which somewhat paradoxically has developed a dominant oligopoly in the highly competitive and low-margin retail sector, through converting its monopsony power, organizing its supply chains in depth, into an entirely virtual industrial oligopoly. But then the further paradox ensues as high tech organizational means meet up with low wage labor, that the incentive to develop the means of production to raise the productivity of labor in the face of wage-cost pressure and wage-based demand diminishes and virtually disappears, as jiggered profits/corporate rents mount, while investment requirements and opportunities disappear. The surpluses increasingly are distributed to the gate-keepers of those restructured rents, CEOs, corporate lawyers, political operators and various other hangers-on, whether technically qualified or not, while corporate operations, flush with excess uninvestable profits/rents, become increasingly financialized and the financial system comes increasingly to the fore in loaning out funds to sustain demand in the face of relative wage-and-salary stagnation. A process of looting of prior collective productive wealth attainment takes hold, in favor of the tippy-top. Until not. (Chinese currency manipulation, which is really a greater East Asia co-prosperity sphere matter altogether, are just a reflection of PPP for-ex differentials that already existed and are just the enhancing counterpart to the MNC/HiFi game).

In the old jargon, these matters were spoken of in terms of relative and absolute surplus-value and of the forces of production coming into increasing contradiction the the prevailing relations of production. In more contemporary terms, how long can a regime of accumulation based on for-ex and trade imbalances and narrow control of the gate-keeping of rents based on IP and corrupted political supports really last?


Robert Shaw 07.29.10 at 7:15 am

I believe strongly that technology is the primary driver of inequality, followed by globalization. Technology is moving faster and faster. In the next couple of decades will will see a staggering level of progress and as a result the labor of the average worker is going to be worth less and less. We already see the beginnings of structural unemployment and the problem will get worse and as more and more people have fewer marketable skills. Contrary to conventional wisdom more training/education will NOT solve this problem in the long run.

For an excellent overview of this problem, check out this book (available as a free PDF): The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. (http://www.thelightsinthetunnel.com).

If there were a textbook on this issue of technological unemployment and where it will lead, this book is it. I wish every economist would take a break from data analysis and READ THIS BOOK.


Dr. Hilarius 07.29.10 at 8:23 am

Just thinking out loud at the end of the day: technology has increased the mobility of capital but also of people with capital. The wealthy from all across the US and the world can and do interact. The rich have always tended to inbreed. In the not-so-distant past the pool of available mates was limited geographically. Now the son of an Indian tech mogul can marry the daughter of a Wall Street banker. Take a look at the NYT wedding notices; more marriages across racial lines than class lines.

Doctor Science @12 alludes to the rich not losing money down generational lines as much as in the past. These days anyone with real wealth has it tied up in various trusts, family corporations, and other legal structures so that idiot grandchildren can’t blow it all on coke or magic beans.

The above are likely not major factors in rising inequality but are certainly contributing factors.


om 07.29.10 at 10:19 am

What about the effects of the weakening and then collapse of the Soviet block? As long as Western big business and governments were confronted by the threat of an ‘actually existing’ communist alternative (the explanation would begin), workers had to be appeased to some extent. That became increasingly less necessary since the detente and especially since the collapse of Soviet communism.

This very general suggestion can only be the beginning of a proper explanation, of course — the various micro-mechanisms at work would need to be filled in. And even then this is likely to be only one cause among several. But it strikes me as being quite plausible.


chris 07.29.10 at 1:13 pm

What I’ve noticed, especially in the last couple of decades, is that many Americans and almost all Republicans or libertarians have great difficulty assigning blame to rich people.

It ties in with their economic Calvinism, I think. If you believe, a priori, that the rich got rich by hard work and superior intelligence, and that they are the titanic creators of wealth and the rest of us are riding their coattails at best, then anything that doesn’t fit that frame has to be rejected.


Doctor Science 07.29.10 at 3:14 pm


It can’t be just Calvinism, we’ve had Calvinism all along.

Currently, there’s a discussion at Balloon Juice about Megan McArdle’s piece in the Atlantic blaming the housing bubble on the 30-year fixed mortgage, because it

gives the consumer the power to shaft banks whenever it is to their advantage.

See Irvine Housing Blog for more evisceration.

McArdle is a useful idiot test case, because she so perfectly exhibits the attitudes I’m talking about. She’s not a Calvinist; she calls herself a “libertarian”. She’s The Atlantic’s business and economics editor, though it’s thunderously obvious that she knows nothing about what Henry would call “economics”.

What she *is*, is an MBA. As I recall, MBA programs became very popular and important in the late 70s, as the inequality boom was taking off. I wonder, now, if what these programs teach — the mindset, the basic attitudes, what things are important and what aren’t — isn’t where the Dives-blindness (or whatever it should be called) comes from. MBA programs, generally speaking, teach the wealthy to regard workers as tools, consumers as lawful prey. This is where our aristocracy is trained, and this is what they learn.

Now that I think about it, what has changed in how inherited wealth functions is that the scions of wealth are often expected to get MBAs. Dr. Hilarius @15 talks about how Old Money is tied up in trusts, etc., so the heirs can’t spend it on hookers & blow, in traditional fashion. But since the 60s-70s the MBA has become a way to train heirs to a different kind of aristocratic tradition. You don’t have to insulate your heirs from the money if you train them not to blow it, and that’s why e.g. Charles Koch (who has an MBA) can be so obscenely wealthy. Gilded Age robber barons started small and made their businesses large; modern ones are Robber Dukes: they start with a large business and make it gigantic.


Straightwood 07.29.10 at 3:29 pm

The hijacking of the Atlantic by right wing publisher Bradley is an excellent example of the creeping propaganda barrage serving the American plutocracy. The magazine was deliberately moved from Boston to DC to ideologically cleanse its ranks, and many of its new “voices” now sound the praise of the rich and the powerful. McArdle is one of the Atlantic’s less useful idiots because of the extraordinarily shoddy character of her commentary.

McArdle’s main claim to blogosphere fame is her Olympian chutzpah, which allows her to shoot the polemical equivalent of rubber bands at people like Paul Krugman and Elizabeth Warren, whose professional credentials and capabilities tower over her third-rate resume and conspicuous stupidity. McArdle doesn’t deserve to shine Elizabeth Warren’s shoes.


Bruce Baugh 07.29.10 at 3:45 pm

Doctor Science, I agree very strongly that the centrality of MBA-trained thinking is really important in our current disastrous condition. When I was growing up in the ’70s, it was already clear that there was a rivalry on between two visions of what great management is like – do great managers recognize the strengths of those they’re managing and put them to best use, or do great managers themselves come up with all the good ideas and make sure that those they manage carry out the managerial vision without fuss or complication? Managers get trained now to believe less and less that subordinates can or should do anything worthwhile that the boss didn’t come up with first. For a while there there was at least the idea that managers could incorporate underlings’ innovations for the greater glory of their own plan, but it seems like even that’s faded now.


chris 07.29.10 at 4:42 pm

It can’t be just Calvinism, we’ve had Calvinism all along.

We’ve had apologists for the rich all along, too. Libertarians prominent among them. If you think the market is intrinsically meritocratic and the best people rise to the top of it, then why should government monkey with it? That’ll only drag down the successful people.

ISTM that this idea was already old when Ayn Rand expressed it at great length. But I suppose in some sense it has to have followed the fall of traditional aristocracies in which birth was everything. Neoaristocracy depends on mythologizing people like Bill Gates to produce the idea that anyone can become a capitalist hero if they’re smart and hardworking enough, which ties into the Calvinism: your success in the market reveals your inner worthiness, and therefore the unsuccessful are the unworthy and must be the ones screwing up anything that is in fact screwed up.

In reality, almost everyone who reaches the top of the economic ladder was born at least halfway up (including Gates, who had quite a comfortable upper-middle-class upbringing). Hard work is neither a necessary nor a sufficient condition for success. But the right doesn’t want to hear that — they’re practically defined by unwillingness to hear that.


Uncle Kvetch 07.29.10 at 4:51 pm

Hard work is neither a necessary nor a sufficient condition for success. But the right doesn’t want to hear that

The right doesn’t need to “hear” that, chris — they’re every bit as aware of the situation as you are. And they like it that way, and they’re dedicated to keeping it that way. It’s what makes them the right. Everything else is distraction for the rubes.


Minor nonsense 07.29.10 at 5:05 pm

Gone through the entire comment line. Interesting but not extremely careful to draw anything like the correct conclusion.

Institutionalized corruption has now become the norm. This has nothing to do with any standard economic theory because they all ignore corruption. The fact that no one on this entire thread even comments on the total corruption of the executive, legislative or judicial branches has reached a level that it cannot be rooted out.

The “tea partiers” realize that things are broken. They don’t know what or when. They don’t have nonsense formulas like economists, but they are totally correct. Things are broken.

Anyone who can say anything positive about capitalism is totally refuted by the fact that getting a gallon of gas to the outlying troops in Afghanistan costs over $400. I can get a 5 gallon can delivered through China for $15.00. It is the corruption of all American personnel and rapidly all of the coalition forces that cause the market not to work. There is no market, it is all theft.

There is not really a cost of $1 million per troop in Afghanistan, it is the fact that there is $900,000+ in corruption in that figure.

Welcome to the corrupt world.


Bruce Baugh 07.29.10 at 5:09 pm

What do you mean by “corruption”, though?


Straightwood 07.29.10 at 6:30 pm

The corruption argument in #24 is well founded, and raises the question of the noteworthy avoidance of this phenomenon by economic researchers. Larry Lessig at Harvard is belatedly trying to bring some rigor to the study of corruption, and Harvard, to its credit, is trying to retrofit ethical issue awareness into all of its curricula. Harvard sees the iceberg of gross societal corruption ahead and is spinning the pedagogic ship’s steering wheel as fast as it can, but there is little cause for optimism. Harvard grads will still be lining up for interviews at Goldman Sachs.

I don’t think “corruption studies” are neglected because the subject is peculiarly intractable or uninteresting. Rather, it is because such research is a political hot potato, likely to lead to trouble with the leaders, funders, and influencers of whatever institution employs such a researcher. Corruption spreads rapidly in a secular society because there are no powerful intellectual defenses against it.

So today’s economists are like the drunkard who is searching for his keys under a lamp post because the light is better there than in the place where they were lost. Our economists can’t find the answers we need because they are using the wrong tools and studying the wrong problems.


lemuel pitkin 07.29.10 at 7:00 pm

A few years ago, John Roemer pointed out (and can I find a link now? Bah!) that the highest incomes now (well, in the period before the current crisis) were no longer returns to capital but returns to labour for the top executives.

If Roemer said that, he was wrong. As of 2005, half the total income among those reporting incomes of $10 million cam from capital gains. The remainder broke down approximately equally between wages and salaries; interest, dividends and rent; and business income. So less than 20% were returns to labor even formally.

I’ve put some more detailed numbers up here.


chris 07.29.10 at 8:01 pm

@Uncle Kvetch: Most of the right *is* the rubes. I think you’ve correctly outlined the thinking of the not-all-that-secret masters, but there aren’t enough of them to populate a mass movement that can win an election in a democracy. You need foot soldiers — lots of them — and they have to be people who don’t realize the system they’re supporting is keeping them down, because there just aren’t that many genuine masochists.


bianca steele 07.29.10 at 8:44 pm

chris @ 22

Which is why books like Malcolm Gladwell’s, which emphasize the contributions of social institutions to success (Bill Gates could not have been successful if he had not had the kind of computer access only rich people could get, athletic success depends heavily on the amount of attention teachers give), are so important.


bianca steele 07.29.10 at 9:20 pm


I don’t actually know how many corporate managers have MBA’s, but I would guess the percentage is pretty low below the upper executive level and except in the largest organizations. There are a fair number, I suppose, with undergraduate business degrees, but most line managers still come from the line, and some line managers still get promoted to executive positions. Often they get a lot of their business knowledge comes from Barnes and Noble, Amazon, and the New York Times, or from employer-sponsored training by consultants.


Bruce Baugh 07.29.10 at 9:47 pm

Bianca, do you have a source on the line managers thing? The last time I looked at the Forbes 400, some years ago, MBAs were pretty ubiquitous.


Bruce Baugh 07.29.10 at 9:48 pm

(That’s not an expression of disbelief, by the way; it’s a request for info I’m lacking.)

Also, even though there probably are fewer MBAs right at the top, you go down a tier or two and they really are for sure ubiquitous, and they play a very prominent role in shaping corporate policies and cultures.


Steve LaBonne 07.29.10 at 10:01 pm

You need foot soldiers—lots of them—and they have to be people who don’t realize the system they’re supporting is keeping them down, because there just aren’t that many genuine masochists.

Which is why the dumbing-down of the corporate media, and the rote/scripted education “reforms” heavily promoted by the business class, are no accident. Mustn’t take any chance on the rubes learning enough to figure out what’s really going on.


bianca steele 07.30.10 at 12:49 am


Sorry, I don’t have a source. I’m also using “line manager” to include engineering managers at engineering or R&D heavy companies, more generally people not in business areas like HR, finance, marketing that are taught in MBA programs, which may not be correct. Checking with my husband, he agrees that probably few people at tech companies (h/w manufacturing) have MBAs, but thinks the head of a large manufacturing organization would have one. At larger companies it may well become a prerequisite, but there are a lot more small companies out there than large ones.

At three non-randomly selected tech companies, among the VPs and above, listed on the corporate website: 2/10 MBAs, 2/5 MBAs, 1/6 MBA. The only CEO MBA was the 1/6 (also the most successful of the three). I see JDs, MSs, CPAs, and undergrad business degrees.


Bruce Baugh 07.30.10 at 1:25 am

Bianca: Thanks very much for checking! I wonder how much living in southern California and Puget Sound skews my sundry samples.


chris 07.30.10 at 1:59 pm

@Steve 33: I have long believed that the fact that the party that does more poorly among highly educated voters frequently seeks to cut education budgets isn’t a coincidence. (And vice versa, of course, but if you see education as a generally worthy and beneficial goal, one of these plots seems much more sinister than the other.)

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