Inequality: Reversing The Trend

Posted by Bob Lord

Okay, I've been all over inequality for months now. But sooner or later, we'll reach the point where even conservatives will have to acknowledge the immorality of today's American economy. We're not there yet, but we'll get there. So, what then? Can we just turn back the clock? Almost certainly not. Is there another alternative? Quite possibly, yes. A few recent articles I've read suggest how the trend towards greater and greater inequality could be reversed. 

A few weeks back I wrote a post, That Awful Four(teen) Letter Word, about a Paul Krugman column where Krugman questioned the ability of the U.S. economy to continue creating jobs in adequate numbers. He recognized the problem of mechanization destroying jobs faster than new jobs are created. He concluded:

Education, then, is no longer the answer to rising inequality, if it ever was (which I doubt).

So what is the answer? If the picture I’ve drawn is at all right, the only way we could have anything resembling a middle-class society — a society in which ordinary citizens have a reasonable assurance of maintaining a decent life as long as they work hard and play by the rules — would be by having a strong social safety net, one that guarantees not just health care but a minimum income, too. And with an ever-rising share of income going to capital rather than labor, that safety net would have to be paid for to an important extent via taxes on profits and/or investment income.

I can already hear conservatives shouting about the evils of “redistribution.” But what, exactly, would they propose instead?

At about the same time, two economists at MIT, Erik Brinjolfsson and Andrew McAfee made the same argument, summarized at TechnologyReview.com in a piece entitled How Technology Is Destroying Jobs. The lynchpin of Brinjolfsson and McAfee's argument is the relationship between productivity and job creation, which they term the great decoupling:

Perhaps the most damning piece of evidence, according to Brynjolfsson, is a chart that only an economist could love. In economics, productivity—the amount of economic value created for a given unit of input, such as an hour of labor—is a crucial indicator of growth and wealth creation. It is a measure of progress. On the chart Brynjolfsson likes to show, separate lines represent productivity and total employment in the United States. For years after World War II, the two lines closely tracked each other, with increases in jobs corresponding to increases in productivity. The pattern is clear: as businesses generated more value from their workers, the country as a whole became richer, which fueled more economic activity and created even more jobs. Then, beginning in 2000, the lines diverge; productivity continues to rise robustly, but employment suddenly wilts. By 2011, a significant gap appears between the two lines, showing economic growth with no parallel increase in job creation. Brynjolfsson and McAfee call it the “great decoupling.” And Brynjolfsson says he is confident that technology is behind both the healthy growth in productivity and the weak growth in jobs.

They also see technology as a driver of inequality:

The rapid acceleration of technological progress, they say, has greatly widened the gap between economic winners and losers—the income inequalities that many economists have worried about for decades. Digital technologies tend to favor “superstars,” they point out. For example, someone who creates a computer program to automate tax preparation might earn millions or billions of dollars while eliminating the need for countless accountants.

New technologies are “encroaching into human skills in a way that is completely unprecedented,” McAfee says, and many middle-class jobs are right in the bull’s-eye; even relatively high-skill work in education, medicine, and law is affected. “The middle seems to be going away,” he adds. “The top and bottom are clearly getting farther apart.” While technology might be only one factor, says McAfee, it has been an “underappreciated” one, and it is likely to become increasingly significant.

Enter Salvatore Babones. In a post at inequality.org, The High Road to 21st Century Economic Success, Babones notes the same hollowing out of what have been middle class jobs, but he makes an argument that few are making today: The supposedly "good" high-paying jobs of the past, like manufacturing jobs, were not intrinsically good jobs. They paid well because workers were able to organize and because employers were faced with tight labor markets. 

The myth that manufacturing jobs are good and caring jobs are bad is just that – a myth. Yesterday’s manufacturing jobs were good because they were unionized. Today’s caring jobs are bad because they are not. Remember the bad old days before unions? Manufacturing jobs in Dickens’ England were hardly the solid, well-paying jobs of manufacturing lore. One way to improve service jobs is to support unionization. Unionized service workers enjoy much better pay and working conditions than non-unionized ones. Just ask a unionized maid or janitor in a major conference hotel and you’ll see. But if we can’t rely on unions to lift service workers out of poverty, there is another way. The best guarantee of good wages and workers’ rights is a tight labor market. When jobs are hard to find, employers run rampant over workers’ rights. When jobs are easy to find, workers take their pick of the best employers. 

And, through government, we can create that tight labor market. Babones:

Would our children benefit if there were a teacher’s aide in every public school classroom? Hire a million teacher’s aides. Why deny our children the best education possible? Are hospitals dangerously understaffed? Staff them. Doctors and nurses are expensive and take years to train, but nurse’s aides can be trained in a few months. Our goal should be to have safe, comfortable hospitals, not cheap, unpleasant hospitals. What these solutions have in common is the need for government action to take up the slack left by individual consumer choice. 

Babones makes another point we seldom hear: That our aggregate wealth and income is higher than it ever was. The problem is not that we don't have wealth, it's that the distribution of our wealth and income is woefully unequal.

Right now many of the developed countries of the world are mired in recession and austerity, but they don’t have to be. The developed countries of the world are twice as rich in per person terms as they were 40 years ago. We are rich, whether we believe it or not. Our problem lies in how those riches are distributed. The global decline in unionization has been associated with a massive shift in income away from ordinary workers toward managers, professionals and the wealthy. This shift has put us on the low road toward a 21st century economy based on low employment, highly concentrated wealth and only-if-you-can-pay-for-it services for the already-privileged.

Now, if you're still with me, combine what Krugman and Babones suggest. We expand the safety net to provide health care and a minimum income to all. And we use the public sector to create jobs that create a higher quality of life for all of us and, at the same time, drive demand for workers, resulting in higher wages.

Of course, that will require higher tax rates, but the benefit to society at large, including the very rich, will be well worth it. 

One response to “Inequality: Reversing The Trend

  1. Thucydides

    The typical poor person in America has a flat screen tv, cable, air conditioning, a cell phone and an automobile. Immoral? You can live well if you are poor and if you are rich but it is cheaper if you are poor and you have a luxury the rich do not have: time.

    Ask yourself if you are really thinking of the poor or if you are thinking of you own personal jealousy over what you imagine the rich might have that you don’t.