New Labour and inequality redux

Laffable.

“Could it be that, on any sane theory of human flourishing in 2010, no one needs more than 250 times the wage of a care worker?”

Could it be that, once a political movement decides that it’s entitled to deny people things on the sole basis that they don’t “need” them, it’s shed one of the more basic obstacles to oppression? Or are we to live limited to only those things the government thinks we “need”?

Could it be that, once a political movement decides that it’s entitled to deny people things on the sole basis that they don’t “need” them, it’s shed one of the more basic obstacles to oppression? Or are we to live limited to only those things the government thinks we “need”?

Could it be that condemning the level of inequality in the UK and the contributions New Labour has made to it does not imply proposal to set a legal maximum income? Strawman, ik hör dir trapsen. There are endless numbers of approaches that one could come up with, such as maybe reducing norms and influences that actively favour excessive salaries at top. I find the Swedish practice of making all salaries effectively public fascinating and wonder what impact it may or may not have on the salary structure of large commercial organisations.

What struck me most about Tim Allan’s “open letter” is its apparent stupidity. Apparent, because it may just be pretend. I recommend that Ed Miliband and his New New Labour spend some time in uncomfortable company, that of people disenchanted of the current left, but not to pander to their superficial protectionist and inwards-looking tendencies and sentiments.

After reading the above posts, I can understand better why John Rawls excluded envy from considerations behind the veil of ignorance. The concern is not with poverty in the above posts.

John Rawls oppose progressive income taxes and preferred progressive consumption taxes because it “imposes a levy according to how much a person takes out of the common store of goods and not according to how much he contributes”. A simple way to have a progressive consumption tax is to exempt all savings from taxation.

Rawls argues that a society organized around his two principles of Justice as Fairness will be less prone to the disruptive effects of envy than will a utilitarian society .

Brett Bellmore wrote:

Could it be that, once a political movement decides that it’s entitled to deny people things on the sole basis that they don’t “need” them, it’s shed one of the more basic obstacles to oppression? Or are we to live limited to only those things the government thinks we “need”?

Could it be that a democracy today can only survice a certain amount of inequality?
A decade or two of 250:1 or 300:1 will lead to a lot of money owned by the top 1 or 0.1% of a society.
(Not to mention that according to you the 1950s to the 1970s must have been pretty oppressive in the West? :) )

Money is influence in todays society.
That might be donations to politicians or political parties. Or ownership (shares) of mass media. Or advertising (or the threat of withholding it) in said mass media.
Or influencing regulations and laws (and the agencies trying to enforce them).

Why do you believe that the 0.1 or 1% (in any given democratic country) have the best interests (the common good) of their country / democratic society in their mind in todays globalized economy?

Not to mention that a lot of CEOs and (investment) bankers in the last 2 decades earned a lot of money while pushing short term gains. In short, they were rewarded for short term gains for their company / bank while hurting the long term prospects of survival.
(See above about the influence of money. )

Quite simply put, I don´t believe that any CEO or hedge fund manager deserves to earn hundred of millions per year. How can anyone earning that much money per year be concerned with the long term survival of their company?
Or the survival of their society / country?

Pete,
on footballers or musicians, Nozick has the example of a great american basketballer Wilt Chamberlain.

Imagine a society in which the distribution of wealth is an equal distribution.

Now suppose that among the members of this society is Wilt Chamberlain, and that he has as a condition of his contract with his team that he will play only if each person coming to see the game puts twenty-five cents into a special box at the gate of the sports arena, the contents of which will go to him.

Suppose one million fans decide to pay the twenty-five cents to watch him play.

The result will be a new distribution in which Chamberlain now has $250,000, much more than anyone else – a distribution which thereby breaks the original pattern of equality. Is this just?

Liberty upsets patterns. Allowing individuals freely to use their equal wealth and income as they choose will inevitably destroy any distribution advocated by socialists and egalitarian liberals.

If anyone evaluates how just a distribution is based on how things end up, we must constantly interfere with people’s liberties to prevent injustice.

I have only read the post until the beginning of the quoted passage. I do not think it is worthy of crooked timber. You made an assertion. Yglesias responded by presenting data. You have decided to question his motives rather than addressing the data.

I think it is simply unacceptable to respond to someone who presents data which contradicts ones claims by ignoring the data and speculating about about motives.

I did not expect to find such argument ad hominem here.

One can examine your new hypothesis. It is clear that it is total nonsense. Yglesias often discusses the huge increase in US inequality including the huge increase so far in Obama’s presidency. If he resents your claim about the UK, because it reminds him of similar claims about the USA, then why does he personally and repeatedly make those claims about the USA ?

Writing much more than I read, I add that I don’t agree with your hypothesis about Brad either. I don’t recall any comment he made on your post (I thought I read everything on his blog). Brad worked for the Clinton administration. He does not have fond memories. He has been very frank in public. At one point he wrote that he learned during the HRC HCR effort that Hillary Clinton must be kept far away from any policy deliberations. He wrote that the welfare reform was almost totally destructive. He agreed with both Clintons on free trade, taxes on the rich and the EITC. In each case he demonstrated concern for inequality. You might not agree about the first, but the others are obvious. So we have someone who wants higher taxes on the rich, lower taxes on the poor and good old unreformed AFDC.

That’s from the public record. I won’t describe personal conversations.

Do you know much about Brad and the Clinton administration other than that he worked there ? It certainly doesn’t seem so.

All in all I am very displeased to have read the first 7 lines of your post here at Crooked Timber.

[Reponse from CB. I’ve edited the post to take the speculation out. However, I’d point out that Brad DeLong and Matt Yglesias did not, in fact, present data which contradicted my claims. My claims were about the policy objectives of New Labour (about which the present post – the bit you didn’t read – provides further supporting evidence), their data purported to say something about the evolution of income distribution under New Labour. For reasons explored in earlier posts by dsquared, Brian Weatherson and others, the data doesn’t actually support the point they wanted it to make, but it isn’t even the kind of evidence that would contradict my claim.]

Oh, and Robert? Look up ‘ad hominem’ in a dictionary. It is not ad hominem to speculate about someone’s motives; it is ad hominem to use such speculation to cast doubt on their claims (which Chris doesn’t do).

Jim Rose @8: spare us the ‘kin sermon.

There are many reasons to prefer equality other than the much-vaunted (vicarious?) ‘envy’; too many for an easily bored (and quite possibly boring) person to enumerate. I’d just point out that the idea is not to burn the money (though pro tanto that would enrich others through deflation), but to spend it elsewhere. ‘Let’s not have this money going to these chaps when it would be better spent on these other ones’ is not envy. If you hunt around you might find some books about equality.

Even so, the case against envy (or ‘envy’) is not so clear. Felt envy (e.g. desire to keep up with the Joneses) might well be analysed as an externality imposed by conspicuous consumers (and btw the same censorious kind of attitude doesn’t seem to accompany anodyne descriptions of ‘positional goods’, which are basically the same phenomenon from the Joneses viewpoint).

Acting on such envy in individual cases by ‘levelling down’ may indeed be criticised as pusillanimous – but from behind the veil of ignorance, there is no such possibility, only an impartial assessment of the prospects of ending up on a desire treadmill. So Rawls has no business ruling out this consideration.

More generally, functionally envy-like phenomena, such as being subject to the imposition of high expectations or standards, sometimes moralised or evaluative ones, might be viewed in a similar light. At the same time as arguing that it’s no-one else’s business to drag them down (psst! even if their money is unearned), high ‘earners’ generally retain and promulgate the conviction that it very much is earned, and indeed reflects special qualities, worthiness, excellence, etc. If they stopped doing that, they would have a better case.

Relatedly, The concern is not with poverty is only necessarily true if we are talking about absolute poverty, and care workers don’t qualify. Going back a bit, I remember looking at some stuff on ‘adaptation-level theory’ which lends a scientific gloss to the ideas of relative poverty and relative advantage. If that’s how we are, there’s no point pretending otherwise, as the defenders of pandering to greed are only too happy to point out when they are peddling their own deranged ideas about human nature.

Opponents of huge surpluses needn’t rely on such a defence of ‘functional envy’ – the point is the ad hominem one that these arguments haven’t been disposed of by those who treat ‘envy’ as a knockdown argument (rather than just a very handy bit of name-calling).

On Rawls: according to how much he contributes is precisely the main issue here (though not the only relevant issue): the claim is that these rewards do not reflect any real ‘contribution’ (see FISIM.) Saying they do on the basis of some facile a priori bullshit doesn’t make it so. Rawls is a good example of handwaving in the general direction of Dorian Gray economics. (Oh – and/or what geo said.)

Rawls argues that a society organized around his two principles of Justice as Fairness will be less prone to the disruptive effects of envy

ISTR that he doesn’t so much argue that as flatly assert it, and, less confidently, that he even admits as much. Besides which, the fact he raises the issue at all shows that he does think it is a valid concern for those devising a set of institutions from behind his metaphorical veil (or more prosaically, from an impartial standpoint).

Chris Bertram, thanks for your posting

Let’s rename Nozick’s Wilt Chamberlain parable the J.R. Rowling parable.

A Scottish welfare mum decides to cheer her-self up and write a book, going to local cafés to do so to escape from her unheated flat.

The initial print run was 1000 books, five hundred of which were distributed to libraries. Today, such copies are valued between £16,000 and £25,000.

Rowling is the first to become a U.S.-dollar billionaire by writing books

G.A. Cohen twisted and turned to argue that the fruits of Rowling’s mind, in effect, belong to us all?

How many Harry Potter books would have been written if Cohen is right and his ideas applied, and the suggestions here on this blog for a maximum wage applied?

Are you willing to risk explaining your answer and how it would be part of a better world for them to the young and not so young fans of Rowling’s books?

Instead of just buying her book, we must put up with constant interference with people’s liberties to prevent injustices from Rowling’s royalties getting too high. What value would the socially necessary labour theory of value place on the fruits of her writings?

How much of the credit should belong to Alice Newton, the eight-year-old who was given the first chapter of J.R. Rowling first book to review by her father and immediately demanded the next and kept pestering her dad until she got her way?

Was Alice Newton no more than an alert entrepreneur seeing value that others missed and acting to close a gap in the market by saying ‘I want it now, I want it now’ over and over? Who owns Alice’s voice, determination and entrepreneurial alertness?

p.s. I have never read any of the harry potter books nor seen any of the films.

Well, JK Rowling wrote the first Harry Potter book while on welfare, and is very clear that she owes her good fortune to the welfare state that right wing governments have tried to dismantle. Otherwise she’d presumably have wasted her life as an advertising copywriter or something like that. Rowling indeed, like most sensible people who have the joint good fortune of having inborn valued talents and a social environment that enables them to make significant (or in her case vast) amounts of money from them, understands that she has very substantial obligations to those who, either because of nature, or the environment, or both, are worse off than her.

I’ll let others address Jim”s contention that “options encourages managers to make choices more in line with the interests of their owners.” What’s even more disturbing is the apparent assumption that Wilt Chamberlain, A.K. Rowling, and other benefactors of humanity do what they do primarily for money, and that this (if it’s true) is perfectly natural and acceptable. It seems to me, on the contrary, profoundly pathological. If Chamberlain, Rowling, et al do what they do not because it delights and/or edifies millions of fellow humans, and perhaps even more important, because it engages all their powers and gives them intense aesthetic and/or moral satisfaction, but merely so that they can consume luxury goods and services on a fantastic scale, then yes indeed, we’ll be much better off as a society if they, and everyone else, are encouraged and enabled to do what they find most pleasurable and useful. Of course we must collectively produce subsistence, indeed moderate comfort, for one another, but beyond that, we’ll be best off if everyone does what she delights to do. I suspect such a society would produce an abundance of Chamberlains and Rowlings.

Sounds like New Labour works for Londons finance industry, which makes sense up to a point from a British nationalists viewpoint who doesnt care about the damage Londons finance industry does to the rest of the world. Delong and Yglesias are just right wingers. Ocassional lip service to progressive taxes from a starting point like this with all kind of hedges does not change that.

Geo,

You say “I’ll let others address Jim’s contention that “options encourage managers to make choices more in line with the interests of their owners.”

Suppose you own a buy and hold diversified portfolio which includes being a shareholder in AIG or some other to-big-to-fail financial institution.

You want your top executives to get cracking at taking full advantage of their implicit government guarantee while interest rates are unusually low and while Fannie and Freddie are underwriting sub-prime mortgages like there is no tomorrow.

It is a public service for your institutions to help to put more Americans in their first home because this is the will of Congress. The fact that some cannot repay if interest rates rise will be the problem of Fannie and Freddie and your friends in congress.

Congress knew this all along the way. Even Greenspan testified about Fannie and Freddie in 2004 saying in plain English, for once, that the increasingly large and risky Government Sponsored Entreprise portfolios could have enormously adverse ramifications.

A salary of a few hundred thousand and a gold watch at 65 is hardly likely to encourage your top executives to risk their whole futures and take on more risk because they might lose their jobs and careers if things go badly along the way.

While your top executives dither, you are missing out of a government underwritten gravy train. Heads you win, tails the taxpayer loses, and in any case, you have a buy and hold diversified portfolio of which bank and insurance shares are but a small part.

If your top executives have lots of share options and they participate in the growth of the company, and they make plenty along the way so they will land on the feet is their employer fails, the incentives of your top executives are aligned with your increased demand for more risk in the to-big-to-fail companies within your portfolio.

The only losers are those who pay for the implicit government guarantee. who to blame? If government offer businesses a big subsidy, do not complain when they accept it.

#19 what happens to any residual

– what, on the offchance that a company might happen to end up being run in such a way that from time to time – perhaps, let’s say, roughly every year – it turns out that some of the capital is so hard to find a use for that it needs to be got rid of; maybe – I dunno – about 5 to 10%?

A salary of a few hundred thousand and a gold watch at 65 is hardly likely to encourage your top executives to risk their whole futures and take on more risk

I am sure there are plenty of people willing to “risk their whole future” in return for a few hundred K a year and a gold watch. If you collect a “few hundred thousand” for a few years, you end up with a lot of hundred thousands. After that, there really isn’t any risk to your future anymore, unless your future absolutely needs a new Ferrari every few years.

Not to mention that the people in most companies who are risking their futures and taking on the most risk are usually paid minimum wage.

It seems to me that the entrepreneurial argument should go the other way: thus, this is not only vaguely distasteful in that New Labour “I loves me a mukular captain of industry” way, but also it is not economically sound: “Would the maximum wage apply also to entrepreneurs earning money from successful companies they have created?”

Now I know the entrepreneur is a sacred thing, but it is easy to see that one of the power advantages to having great wealth is to bar entry to others who might compete with you for great wealth. The great Rockefeller, a Tony Blair type, used his money, made from his successful company, to creat a nice and notorious monopoly, and put many a small farmer out of business.

More modern captains of industry, extracting exorbitant profits from the companies they have ‘created” (an interesting auteurist view of the firm, and one that belongs more in a story book, with an evil giant and a horrible witch, than in reality), do not have a good record (perhaps this is why VCs have a tendency, when aiding up and coming firms, of bracketing out the founder).

A good case in point is Larry Ellison. I loved this summary of his current compensation:

Ellison’s base salary came to $250,000, down from $1 million the year before.

But the software company did boost his performance-based bonus to US$6.5 million, up nearly 80 per cent from $3.6 billion. The bonus last year was cut because the Oracle didn’t meet internal earnings targets.

Ellison made less in stock options in the most recent year; about US$61.9 million worth, down 21 per cent from $78.4 million.

Other perks added up to US$1.5 billion, most of it for security at Ellison’s home, roughly in line with the prior year.”

I see no economic gain for the company in being burdened with the 1.5 billion dollars in ‘other perks: that goes to Ellison. If there really were a competitive labor market in upper management (something we can only dream of) the company could release a billion dollars or more by simply cutting him off. The only argument is that this would be, oh, somehow unfair to our plutocrat, a genius no doubt!

But to return to earth from risible New Labour sycophancy: inequality of the type that allows the Ellisons their other perks will definitely have a long time deleterious effect upon the middle and working class, creating such bars to upward movement as, for instance, raising the cost of higher education sky high – in a market that can easily be met by the rich – giving the rich the political power to have more influence on policy decisions (the exemplary payoff here being, of course, the recent but now suddenly forgotten socialization of the debts of the wealthy in taking over those falling investment banks); and directing policy towards ever downward wages in order to create ever more profits for the wealthiest.

Capitalism isn’t a fairy tale. It depends on the amoral pursuit of self interest, and it can as little then claim to be about ‘fairness” as one can become virgin again. Its modification – so that it doesn’t become a nineteenth century horror – is through the countervailing power of the state, which should indeed take action to keep the compensation of the wealthiest from becoming a threatening private power. The stooges of the wealthy like to pretend that the only interest the worker could possibly have is to hitch her wagon to the star of some magnate. That will lead to diminished quality of life for the worker, and diminished opportinity for her children.

Well Rowling seems to be entirely on geo’s side. (I, too, have never read any of the books or seen any of the films — I was an adult by the time they started coming out — but that doesn’t stop me admiring her as having complete good sense. Including, I understand from indiscreet sources, being as quiet as possible about a good deal of her considerable charitable giving). The idea that money has motivated her significantly is absurd.

Now, when Hewlett Packard’s CEO Mark Hurd resigned unexpectedly, the value of HP stock dropped by $10 billion!

Who is getting Hurd’s labour surplus? Him or his employer?

His $30 million in annual pay seems to be a bargain for shareholders whose share were jointly worth $10 billion more when it was thought Hurd fad ten more years tenure at the top of Hewlett Packard.

Do employers exploit executive employees and deny them part of their labour surplus? How is the presence of exploitation measured?

If a boardroom fight will make your stock fall that much, your company is overly reliant on its board. Imagine you have a button in an oil rig that causes a massive spill when pushed. The person in control of that button can make your stock drop billions.

So clearly, a million a year for the best non-pusher around would be a steal.

roger,

you say “A one day drop in stock price is our standard for the worth of the CEO? Presumably, then, any time during the reign of the business-king that the stock drops, it is his fault?”

Hewlett-Packard share prices have not recovery from the resignation of Hurd nearly two months ago. It was not a one day flash in the pan that you suggested – see http://uk.finance.yahoo.com/echarts?s=HPQ#chart1:symbol=hpq;range=3m;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined for the last three month’s data

Hurd was paid to go after a sexual harassment complaint. Obviously, the Hewlett-Packard board failed to collude to save one of their own!

How does his sacking for misconduct sit with the top executives stick together and screw shareholders theory of corporate control?

The company’s stock-market value increased $44.6 billion, rising to $108.1 billion, since Hurd took the helm on April 1, 2005.

However, Hewlett-Packard’s share price was falling significantly this year, so maybe the sexual harassment complaint was an excuse to get ride of Hurd. An unforgiving lot are boards of directors, but they are supposed to all in it together?

Oracle’s shares rose 6% on word of Mr. Hurd’s hiring as co-president on an annual base salary of $950,000 and being eligible for up to a $10 million annual bonus.

“However, Hewlett-Packard’s share price was falling significantly this year…”
Gee, really? This is the kind of proof that the rain god really works, because after his statue was destroyed, there was a dry spell. Of course, before the statue was destroyed there was a dry spell too…

I’m not even going to get into what variations in market cap really say about a company.

But Chris, if Hurd can even influence other companies’ market cap, than surely he is a public good, and should receive extra income on top his company-provided one?

A proposal I have seen is to have the maximum wage in a company X times the lowest wage in the company.

I’m all for it, but I see no chance in hell of that happening: if you look at the wage differences among all those involved in the production of e.g. a running shoe or a laptop, it becomes quite clear that those discrepancies are not a bug, but a feature on which the whole system relies. Unless that system is changed fundamentally on a global scale, there will only ever be negligible adjustments at the margins.

if you look at the wage differences among all those involved in the production of e.g. a running shoe or a laptop, it becomes quite clear that those discrepancies are not a bug, but a feature on which the whole system relies.

It’s neither a bug nor a feature, it’s a dynamic process, and a hundred years from now we will know what this period was all about. Meanwhile, if the guy involved in the production of a laptop is unhappy about the size of hedge fund manager’s loot, he should do something about it. One thing is for sure: he’s not getting salvation from God, Caesar, or tribune.

Oh, I dunno, block oil terminals in Marseille? burn the factory?

with a maximum wage, how could the later harry potters be written?

Rowling would be hitting the maximum on ongoing income from her first or second writings and films? furthur books would be of no value because she would be hitting the annual maximum wage from earlier efforts and could earn no more in that year?

Hou could she auction he later work because the maximum wage including royalties from past efforts would be less that the auction value of her later books and film rights so the auction would never be completed.

the maximum wage would require people to stop work for the part of each year as soon as they get to their annual maximum. what a waste.

explain to our children why fewer harry potters are good for them?

The funny thing is, Jim Rose almost certainly isn’t being paid by the comment. In fact, I’m pretty sure he isn’t being paid to write here at all. And despite that, he cannot imagine how J. K. Rowling could write without being paid for it.

explain to our children why fewer harry potters are good for them?

Certainly, if the last book had not been printed, it would have been a net literary benefit. God, it was interminable.

Freshly Squeezed Cynic,

I see you prefer to talk about the quality of harry potter books rather that more substantive issues such as my post #45 where I point-out that since 1950 the US gender wage gap closed mostly under Reagan and stayed stubbonly still under democrats.

the answer would require you to give-up bivariate analysis where income gaps are discussed in terms of who is in power and nothing else.

The good answers require hard thinking and are lacking in scapegoats

A good data-mined example of the labour supply effects of a maximum wage with a laughably small data set is the number of world boxing title defences before and after taxes dropped from 90% to 70%.

Fixed that for you, Jim lad.

Clearly nobody punches anybody for free.

you tell some 17 year old sweat shop slaves in Vietnam or Honduras who produce all the wonderfully cheap stuff you own that it’s their own fault they haven’t started the revolution yet.

Well, it’s been only a couple of decades since this particular mutation took hold: kid in Vietnam assembling my laptop for a bowl of rice/hedge-fund manager making a billion – and already a whole bunch of people are extremely pissed off, so much that someone even knocked down skyscrapers called “world trade center”.

Well, but perhaps the prices that we are paying for those items would, in fact, raise the income of the people producing it, if not for the activities of hedge-fund managers and that genius CEO of HP. I mean, we certainly do benefit, but probably just enough to make sure that we don’t get too pissed off.