How Do We Best ‘Save the Poor’?

The data is in: Shared growth, not top-heavy growth, helps the poor.

[cross-posted from Inequality.org]

Note to BfAZ readers: I love being right, which made this post especially fun. The new data not only debunk the argument of the Illinois professor in her NY Times piece, but also the rantings of ole Thuckenthal, who regularly proclaims the superiority of America’s economy over the French economy. It just ain’t so.

Two months ago, in Equality for Taxi Drivers and Surgeons Taxi Drivers, I challenged the logic of Illinois professor Deirdre McCloskey in her New York Times op-ed,  Growth, Not Forced Equality, Saves the Poor.

My point was simple: In defending the grotesque level of economic inequality in America today, it is not sufficient simply to make the case that some level of inequality is needed to optimize growth in the economy. Put another way, proving that Soviet style communism doesn’t work well does not justify America’s economic model of the last 40 years.

The question is not, as McCloskey suggests, whether zero inequality would be a good thing. Rather, it’s whether extreme inequality is a bad thing.

Our analytical starting point ought not be exploring whether paying brain surgeons and taxi drivers equally would be a good idea, but exploring what level of income disparity between brain surgeons and taxi drivers ought to give us pause.

Would our society benefit, for instance, if brain surgeons made 300 times what taxi drivers do, such that brain surgeons would earn more on the first work day of the year than taxi drivers could earn in an entire year?

Would you consider this 300-times gap unconscionable? Much of our economy already is operating at that level of disparity. CEOs currently take home over 300 times the pay of average workers at America’s large corporations, many of which pay little or nothing in corporate tax.

To my surprise, Professor McCloskey commented rather extensively on my piece, engaging in a wide-ranging debate with other commenters. I found little in those comments, however, that reconciled her views and mine.

But the newest data on this subject, from a recently released paper by Thomas Piketty and others, sheds considerable light on this subject. Piketty and his colleagues conclude that the income share of the bottom 50 percent in America is “collapsing.” Between 1978 and 2015, the income share of the bottom 50 percent in America has declined from 20 percent to 12 percent. That has been slightly more than enough to offset the help the poor in America received from the overall growth in the American economy.

The result: The real income of the bottom 50 percent in America declined by 1 percent between 1978 and 2015, despite 59 percent real growth in the American economy over the same period.

To borrow Professor McCloskey’s words, over that 37-year period, the country’s growth did not “save the poor.”

The experience of the bottom 50 percent in France over the same period was entirely different. They saw their real income increase by 39 percent, even though overall growth in France was only 39 percent. That’s not a clerical error. In France, the participation of the bottom 50% in the country’s growth was exactly proportional. During the same period that the income share of America’s bottom 50 percent was plummeting, the income share of the bottom 50 percent in France stayed remarkably constant, never straying more than a percentage point or so from 22 percent, with zero overall movement between 1978 and 2015.

The bottom line? The data disprove McCloskey’s theory that “Growth, Not Forced Equality, Saves the Poor.” Rather, it is shared growth, not top-heavy growth, that’s needed to help the poor.

20 Responses to How Do We Best ‘Save the Poor’?

  1. John Huppenthal

    What a load of horse poo. Not only a failure to hold all things constant but a failure to even attempt to hold anything constant.

    France has lost 3 billion hours of work since 1980. The US has added 88 billion hours of work since 1980. Those are facts.

    The typical french household hasn’t even risen to the point of having an electric clothes dryer.

    If you separate the US into two populations, one stagnating like France and the other the growth portion of our economy – the stagnating one blows France away on income growth.

    In 1980, we had 47 million tax returns with an income greater than $13,000. In 2012, we had 47 million tax returns with an income greater than $44,000 per year.

    Since 1980, government spending in the USA grew by 260% more than France government spending. So much for the idea that lower taxes starve government.

    Since 1980, stock market value in the USA has grown more than $20 trillion more than France and that doesn’t even take into account the unlisted companies which might be another $10 trillion.

    Since Trump’s election, the stock market increase has been more than the entire value of the French stock market.

    Since 1980, household consumption in the USA grew by 120% more than household consumption in France.

    USA GDP per capita, your favorite number on this blog, increased by 343% to $43,239 in the US and only 181% to $23,335 in France. Take a good look at those two numbers. You can’t even win on the tough numbers that severely penalize growth economies.

    Picketty’s claim that “all modern industrial countries grow about the same rate” and that the revenue maximizing tax rate is over 60% are both clearly absolute falsehoods.

    Keep dreaming.

    France isn’t “mature” , France has Picketty policies and taxation levels that are strangling it.

    • Ultimately, it doesn’t matter how many hours of work are getting created the average wage level is declining and incomes for the bottom are stagnating. Americans are working longer hours and more jobs for less pay, and corporate profits and stock prices are booming as capital continues to take labor out back to slaughter it like cattle at the stockyard. News at 11.

      • John Huppenthal

        24 million immigrants entering the US since 1980 is the key to understanding the puzzle. These entrants came from countries where the minimum wage is less than $2 an hour.

        There were no jobs in France to provide immigrants with prosperity.

        You believe that France made these 24 million better off and that we made them worse off. Maybe that’s why they decided to come here?

        Bob’s writing should be titled “how to deceive with percentages.” If you just get 4 distribution charts of income for 1980 and 2010 for France and US it would be obvious.

        Also, they have done huge sample longitudinal studies where you can compare apples to apples longitudinally. The cumulative income gains for the bottom half in 1980 the US dwarf those of the bottom half in 1980 of France.

        Finally, the ultimate test – what is in their house? Go to the Census data on cars, flat screen tvs, airconditioning, mobile phones, ovens, refrigerators, clothes washers, clothes dryers. Our bottom half swamps the bottom half in france.

        Lord is doing his best to propagate the Picketty illusion.

        Oh, and capital isn’t slaughtering labor, regulation is slaughtering labor. The formation rate for small businesses and the jobs they create is down 77% from peak.

        • All of this is predicated on the implicit assumption that consumption is the ultimate measure of welfare. You have repeatedly deflected the assertion that I have made that the people of France voluntarily chose to cut back on the amount of work that they do in a typical day while Americans value work and consumption more than they do non-consumption amenities.

          And yes, I will admit, I personally want policies put in place which give up some jobs in this country and lose some income in order to have stronger protections for workers and for the environment. My political inclinations support this tradeoff done sensibly. You might have different points of view, and believe that economic development is the end-all, be-all, and if we continue down our current plan of species eradication, rising global temperatures, deforestation, acidification of the oceans, and so forth, that you consider those an acceptable price to pay. Unfortunately, we can’t eat money and drink oil. Of course, given your age, you’ll be too dead to care when that time comes.

          • “And yes, I will admit, I personally want policies put in place which give up some jobs in this country and lose some income in order to have stronger protections for workers and for the environment.”

            Edward, you are speaking the arrogant gibberish of a graduate student who has never faced the prospect of being unemployable. Of course you’re willing to give other people’s jobs to satisfy something you want more. It reminds me of some Generals who are willing to squander the lives of their soldiers to accomplish what they see as their mission.

            “My political inclinations support this tradeoff done sensibly.”

            “Sensibly”. What a nice word. If you lost your job I am certain you wouldn’t mind if it was done sensibly. If your “political inclinations” consists of a callous disregard of the livelihood and welfare of other people, you are not the benevolent person you see yourself to be. You are, in your own way, a petty tyrant who professes to care about people while willingly destroying them in search of what you call the greater good. Who are you to sit in judgement of such things? And why do you believe that what you think of as more important gives you the right to decide the fate of other human beings?

            I am not trying to be harsh, Edward. I applaud you for your honesty. But I have to say it is a bit frightening to hear you declare that it is acceptable to see other people suffer in order for you to achieve your dream. I am fairly certain that you do not see yourself as one of those displaced and unemployed by your “better world”.

          • John Huppenthal

            In 1980, it took 12,000 british thermal units of energy to create a dollar of gdp. Today, it takes just 8,000. Economic growth’s incredible drive for efficiency is not just good for the environment, it’s great for the environment.

            You ascribe the differences to French culture yet we and France started at the same place. In 1980, the average French adult worked 20.3 hours a week and the average American adult worked 20.9 hours per week. Not much of a difference.

            Today, the average American adult works 20.4 hrs but the work for the average french adult has collapsed to 15.9 hrs.

            Taxes affect all work related decisions. People start working later in life, retire earlier, pick second family jobs with a different criteria, work with less intensity and ambition, learn slower (high taxes make you stupid), and gain less from the synergy between two higher taxed workers (thus the anemic french stock market).

            The problem we have is not the private sector but the public sector – education. The private sector is evolving with breath taking speed. Education is not evolving – it is actually devolving, moving to a lower state, a less productive state. It has actually lost 15% in academic productivity in very scientifically measured scale scores since the year 2000.

            This very second I returned from a low income all minority class where several of my students did in excess of 1,000 math problems each today. The class as a whole did more than 17,000 math problems correctly today. This is a class where the average student was at the 11th percentile and the top student just cleared the score you can achieve by guessing. Five students scored zero on last years benchmark not even summoning up enough persistence to be in position to guess one correctly.

            Four years of drowning in failure have left them with breathtaking cognitive deficits. Now, they have a lot of success.

            I have been setting up performance systems my entire life and the problems with the classical classroom just scream. In high performance organization, people have a clear sense of team goals and are highly motivated to achieve at both the individual level and the team level. Students are no different. My students have both team and individual goals that are customized twice a day and are a sophisticated function of both their skills and their motivation level.

            The whole system is designed to give each student a success to failure ratio of 9 to 1 – the optimum learning ratio.

            Unfortunately, I have hugely suboptimal software, but if this were to be easy someone would have done it a long time ago. This is my journey for the rest of my life. After two years, my analytical estimate is that these students are capable of moving at a 100 SAT scale score points a year as compared to the typical child from poverty probably moving about 13 points.

            Imagine that, a system which is only operating at 13% effectiveness with so many lives at stake. It’s like have clothes hangers for surgical instruments – something I saw described in the former Soviet Union.

          • Steve, I don’t think you’re being particularly harsh. That is a heavy statement that I’ve made, but I want us both to look at things from each other’s point of view, so that we might understand each other’s thoughts and reasons better.

            Am I being any more arrogant than the current people today who would poison the water and toxify the air in order to save oil & coal jobs today? Pollution is already costing, I think it was 40,000 preventable deaths each year, and there are hundreds of thousands of lives lost due to the political instability caused in-part by food insecurity, drought, and other severe weather events exacerbated or caused by anthropogenic climate change.

            And you yourself said a few months back that you believe that healthcare is, or should be, a commodity to be bought or sold as per the laws of supply and demand. And in America alone, 36,000 people each year die due to preventable illness because they could not afford to see a doctor, to get the medication they need, or the procedures required to cure or treat their condition. Is it okay that you would support inaction which costs those lives? How many people are already getting sick, disabled, or dying due to the pollution which we could prevent? How much welfare, or how much production is already being lost by society because of the damages that are being generated by pollution each year? I’ve heard answers in the hundreds of billions of dollars by well-respected economists.

            Since Steve, you have never claimed communist tendencies, I will assume that you are acceptable with people winning and losing based on the impersonal forces of ‘the market’, and accepting that because you believe that system is in place for the greater good.

            I’m not trying to appeal to hypocrisy here or anything; every action we take will affect the lives of those around us, some decisions for the better, and others for the worse. I am no god, no omniscient, omni-benevolent entity. I’ve never claimed to be. I support policies which I believe, based on my judgment and the best available evidence at my disposal, will create the best outcomes for society. I am going to assume that you also support policies which you believe create the best outcomes for society, based on your judgment, experiences, and information.

            You have made no secret that based on your judgment, that you support the right to bear arms, exercise that right, and defend that right, despite knowing that 30,000 lives are lost annually due to gun violence. Through your actions, you contribute to somewhere up to 30,000 lives each year lost because you are defending something you believe in, and are willing to make sacrifices for, because you believe it is for the greater good for society. Are you equally arrogant as I for fighting for that cause?

            Everything we do creates winners and losers. If we truly believe that an action creates more winners, and that the magnitude of those gains is greater than those who lose from a policy, should we not go forward with that? I will admit what you said. I’m a graduate student, and despite my disabilities, I am likely to find a job when I graduate. Other people may not be so fortunate. The world isn’t a profoundly fair place, and despite my youth and naivete, even I can see that much.

            It’s hard for me, sometimes, to see the conservative point of view that you espouse. I have different experiences, different values, different judgment based on those. But, I do make a genuine effort to see the things that you say, and I will admit that I respect your views even when I vehemently disagree, and I do have some level of respect because, though I may disagree with your values, your opinions are generally well thought-out. But I do hope that we can both make an attempt to understand one another better.

          • Thank you, Edward, for taking the time and energy to write that narrative. You covered a lot of ground and I have to say I agree with you on nearly everything you said. I especially agree on the last paragraph where you discussed trying to understand one another. It is often difficult, sometimes impossible, but we lose a lot if we don’t try.

            I apologize for the sanctimonious nature of my original reponse. It is easy to get a “holier than thou” attitude sometimes, even though I try hard not to do so. Mea culpa!

          • And one last thing, Steve, since you brought up a good point.

            I don’t know if I’ve mentioned it before, but the topic of my dissertation is actually on climate change and public policy responses; these are the sorts of questions I attempt to answer on a daily basis.

            And though tangential, I wanted to point out something that I was just discussing on this topic with one of the professors earlier today, since discussion had turned to one of the bills recently discussed in the legislature on this topic. We were talking about how, when dealing with climate policy, economists tend to look at an aggregated viewpoint of total costs vs. total benefits, and it often doesn’t come up that those aggregates contain winners and losers on both sides. Ultimately, because of that, any action is going to seeing as dictatorial and arrogant, particularly by those who will be detrimentally impacted as a result. But I don’t think that we as a society have the luxury of doing nothing and hoping the IPCC and 97% of climate scientists, along with 99.9% of peer-reviewed studies in the field over the last 20 years, are wrong about the dangers of anthropogenic climate change. I would hear your thoughts about what obligations and responsibilities we as a society have to address this issue.

          • It’s nice of you to ask for my opinion, but you won’t like it. I have driven AzBM and Bob Lord crazy with my insistence that my perspective should not be ignored. I no longer discuss it on this site because it seems sort of pointless. But since you ask, I will condense it down to a short paragraph.

            I think climate change is real. BUT I don’t think mankind has that much affect on it. I look at the geological history of the planet, and climate change has been a constant in it’s history. You can go back 20,000 year to the great ice age where sheets of ice covered most of North America. Or you can just go back to the 1200’s when we experienced a century of unusual heat where the temperatures were considerably higher. Or you can look at the 1400s when we had a mini-ice age again that lasted almost a century. And there have been other times where the temperature changed for 30-50 years. We have enjoyed a period of relartively stable climate, but things are changing right now. How far? How much? How long? Who knows? Right now, temperatures are changing on the other planets, as well. That is not caused by man. Because I don’t think the changes are manmade I don’t think it is a good idea to punish mankind for climate change by massive taxation, crippling of industries, and massive transfers of wealth to developing countries.

            Now you are going to say that there is almost 100% agreement among scientists that climate change is man caused. I would ask what the benefit is to them NOT agreeing with that premise? There is no money, no grants, NOTHING that comes your way as a scientist for saying anything but that man is causing the climate change. To say otherwise not only takes away your funding, it opens you to criticism and professional stigmatization. You have no job unless you agree with the premise that man is the cause. It is the current mantra and these people are not stupid, they like to work. Look what happened to the few scientists who did not accept the doctrine…they have disappeared. Not literally, but as far as their profession is concerned they no longer exist. Why risk that when it is so easy to go along with the flow and be told what a clever person you are?

            Okay, it took me two paragraphs, not one. That is what I think. I believe climate change is going to occur regardless of what we do. Nature is bigger than us and will do what it wants to do. We are temporary riders on this beautiful planet. It was here long before we got here and I believe it will be here long after we are gone. Our impact is not as great as we like to imagine. We can make tiny changes here and there, but overall we can’t do a whole lot. When I see hurricanes, floods, droughts, earthquakes, volcanoes, tsunamis, et. al., I realize how puny we are in the face of nature, and that includes our potential to change the climate. We just don’t have the horse power to do that.

      • Edward, he’s not interested in learning anything here, or even having a respectful exchange. If you reflect on his comment you’ll see it reeks of intellectual dishonesty and outright falsehoods. Check out French GDP statistics, for example. Or consider the comparison of stock market values when most of the value in either exchange is dominated by multinationals. He just can’t sort stuff like that out. Commenting here is an obsession with him at this point, so much so that he’s willing to throw away whatever shred of dignity he had left after what transpired 3 years ago.

        That said, your comment is spot on. The French value quality of life, not quantity of consumer crap. They don’t spend their weekends at the big box store. But they have better health care, better food, more vacations and holidays, and live longer lives. Thucky thinks they envy us. You and I think they’re laughing at us. Oh well.

        • John Huppenthal

          World Bank GDP per capita, http://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=FR-US

          France and United States in 1980- dead heat: $12,600

          2015, France: $36,205

          2015, United States $56, 115

          we blew them away – this despite bringing in a massive number of immigrants from countries with a minimum wage below $2.

          Also, France doesn’t have better health care. They have much lower access than US consumers to MRI and CAT machines, the workhorses of healthcare quality. This lack of access shows up in their lower probability of surviving a wide variety of cancers.

          Now, who is not telling the truth?

          • According to the same World Bank (2015 data), France has the 9th longest lifespan in the world, 82.4 (average for both sexes), while the US is at 31 in the world (79.3 for both sexes). The US is now below Costa Rica. So the bottom line is that France gets much better results for what they spend. They live statistically significantly longer than we do.

            As to per person GDP, Ireland, Switzerland and a number of other countries with more reasonable income distributions have significantly higher per person GDP than the US. In many cases much higher (e.g., Ireland now has a purchasing parity equivalent GDP per person of $69,375 compared to the US of $57,294 according to World Data Atlas as of 2016). These countries (mostly in Europe) also live longer and have significantly higher measures of happiness. There is no rational reason to have the extreme levels of income disparity in the US other than the pure naked greed of the ultra-wealthy and their sycophants.

  2. one of the marx brothers said this along time ago. “the problem with capitalism is int can’t make everybody rich.” his solution didn’t work out. but their are solution that do work out. to the conservatives here stoping the poor and minorities from voting is only a short term solution to your problem and their are other ways in the short term to retaliate. remember you have other enemies then just elitist liberals.

  3. “They saw their real income increase by 39 percent, even though overall growth in France was only 39 percent.”

    When I read that sentence, Bob, so many questions popped into my head that begged for answers. Taken on face value, the statement offers very little insight as to what the figures actually represent. To better understand the meaning, we would need to know:

    • What does the 39% growth rate for the French economy actually represent?
    • How long did it take France to achieve 39% growth?
    • How much does the French income tax system affect the distribution of wealth?
    • How much of the lower wage workers compensation is found in subsidies provided by the government?
    • How much do the minimum wage requirements affect the compensation of lower wage workers?
    • How do the maximum work hour laws affect the compensation of the lower wage workers?

    I have a dozen more questions, but I think you get the idea. When dealing with France, it is not as easy to compare their workers compensation because of all the labor rules and regulations that stilt the employment process. The reason I bring it up is that I am not certain that lower wage workers have really seen an increase in their wages as much as they have seen government intervention to boost their wages by contorting the system while, at the same time, taking large amounts away from the higher wage workers.

    I guess I am thinking the 39% increase in low wage workers compensation in an economy that grew 39% is more of an artificial manipulation of the economy by the government than a legitimate measure of a healthy economy. If we tried the same thing here, wouldn’t we wind up following France into a stagnant, faltering and weak economy? Simply because the poor appear to do better doesn’t mean it is necessarily the correct thing to do, does it?

      • OUCH!! That’s gonna’ leave a mark, Bob! ;o)

        • Well, what did you expect, Steve? Your comment was beyond obtuse. What’s happened in France is not the least bit extraordinary. Real income increased by 39% over a 37-year period. That’s not fantastic, but, for a mature economy, it’s also not bad. And the bottom 50% held their own, noting more, nothing less. Their 22% share of income didn’t move, so their income also increased by 39%. The answer to your questions about French tax and other policies is that they’re working. They’re preventing the concentration of wealth and income at the top, in contrast to America, where the bottom 50% have seen a massive erosion in the extent to which they participate in the nation’s economy and have not participated one bit in a 59% increase in real income for the nation as a whole.

          Frankly, your comment reeks of American arrogance. The idea that another country does a better job on economic policy is so antithetical to you that you search for “explanations” that allow you to deny the truth that is staring you in the face.

          • “Well, what did you expect, Steve?”

            Well, this message was what I was expecting. Your first message (“LOL”) was so nuanced I laughed my head off when I read it. It was sublimely droll.

            “Frankly, your comment reeks of American arrogance.”

            That is probably true. Having lived in many countries around the world (including Paris, France) I have a great deal of pride in America and the success we have enjoyed. Given a choice, America is still the place most people in the world would choose to go if they could. I realize we have our flaws, but we spend a lot of time struggling with them.

            You know from our past discussions that I don’t think giving more money to the poor will make them anything other than what they are: poor. They will still be at the bottom rung of the economic ladder and inflation will soon eat away any financial progress their new found wealth may provide. You disagree with that, but I don’t understand how you can. Those at the bottom of the economic pyramid will always be poor.

            As far as France getting it right, it required that the French economy take a hit and stagnate. The government pretty much runs the economy and new wealth generating industries are virtually non-existant. And the poor are still poor.

  4. it is staggering to think that the poor in this nation, have actually lost 50% of their income in the last 40 years.