FRBSF: Changes in Income Inequality across the U.S

Tali Regev and Daniel Wilson of the San Francisco Fed look at whether offshoring, skill-based technical change, and immigration are associated with changes in regional income inequality in the U.S. in recent years. Their results "do lend tentative support to these theories":

Changes in Income Inequality across the U.S., by Tali Regev and Daniel Wilson, Economic Letter, FRBSF: Over the past four decades, overall income inequality has increased in the U.S. One particularly striking feature of the data is that the income gap has widened most between the top and the middle of the distribution, while it has remained relatively stable between the middle and the bottom. The causal forces behind the increase in inequality have been a topic of much debate among the public, the media, and policymakers (see, for example, Yellen 2006), as well as a rich field of research for economists.

Underlying these inequality trends are considerable differences across regions. Relating these differences to regional characteristics could help identify the sources of national growth in inequality; yet, surprisingly little research has done so. One exception, though now somewhat dated, is Topel (1994), who looked at the nine major regions of the U.S. and explored how the cross-regional variation in the demand for and supply of skilled labor, immigration, female labor force participation, and technical change can explain the regional variation in the growth of income inequality.

In this Economic Letter, we follow in that spirit, examining income trends at the county level between 1990 and 2000. Basing our analysis on leading theories of the growing gap between the top and middle of the distribution as well as the stable gap between the middle and the bottom, we explore whether county differences in skill levels, immigration levels, and vulnerability to offshoring—that is, relocating domestic operations overseas—appear to be associated with these trends. Our results do lend tentative support to these theories.

National trends in income inequality

Figure 1 shows the national trends in inequality in the top and bottom halves of the distribution from 1967 to 2005, according to U.S. Census Bureau data on household income. Household income is primarily wages and salaries, but it also includes income from self employment, interest, dividends, rentals, retirement, and certain government transfers. Top-half inequality refers to the 95/50 interpercentile ratio (that is, the ratio of the 95th percentile to the 50th percentile of the income distribution) and bottom-half inequality refers to the 50/20 interpercentile ratio. We chose these ratios (as opposed to, say, 90/10 and 50/10) since these data are available at the county level, which is our unit of analysis. As the figure illustrates, while bottom-half inequality has remained relatively stable over the last 40 years, top-half inequality has followed a fairly steady upward trend. Specifically, in 1967, the 95th percentile of household income was 2.6 times higher than the 50th percentile, and by 2005, it was 3.6 times higher.

Potential factors in the evolution of recent inequality trends

Economists have pointed to three particularly important drivers of the recent trends in income inequality: offshoring and immigration, both of which are related to globalization trends, and technological advances that favor skilled workers (often referred to as "skill-biased technological change" or SBTC). Offshoring could help explain the stagnation of wages at the middle of the income distribution, while immigration could push down wages at the bottom. SBTC could help account for the surge in income at the top of the distribution.

Offshoring refers to the shift in the production of goods and services from the U.S. to other countries. Recently, the sector most affected by offshoring has been manufacturing. Since the manufacturing sector traditionally has been a major employer of middle-income workers, the growth in offshoring may explain the reduced demand for such workers in U.S. labor markets and the consequent depressing effect on their wages. Thus, offshoring may account for the widening of the 95/50 gap and the narrowing of the 50/20 gap, all else equal.

Though immigration is integrally linked to globalization trends, in that it represents global mobility of labor rather than of capital and final goods, it is nevertheless distinct from offshoring because it disproportionately brings low-skill workers into the U.S. instead of moving jobs abroad. As immigration increases the relative supply of low-skill workers, the income of individuals at the 20th percentile declines, and the 50/20 ratio increases, all else equal. Thus, immigration has been viewed by some as contributing to the growth in overall income inequality and as being a countervailing force offsetting factors that are working to compress the bottom half of the income distribution (such as SBTC and globalization). The immigration hypothesis offers no clear prediction regarding top-half inequality.

Autor, Katz, and Kearney (2006) propose the SBTC hypothesis to explain the trend in both the 95/50 and 50/20 ratios. This hypothesis starts with the premise that information technology (IT) goods are particularly useful for doing the sorts of routine tasks that were traditionally performed by middle-income (medium-skill) occupations, such as bookkeeping or assembly-line work. At the same time, IT tends to complement the productivity of abstract-task (high-skill) workers, such as financial advisors. Thus, the decline in the price of IT goods has led employers to use IT capital instead of medium-skill workers, while it has increased demand for high-skill workers; it has had relatively little effect, however, on the demand for low-skill workers, such as truck drivers or janitors. The shift in relative skill demands, in turn, causes increased polarization of wages; that is, all things equal, it tends to widen the 95/50 gap and narrow the 50/20 gap.

Some suggestive evidence

We explore the potential of each of these three factors to explain the differential trends in top-half and bottom-half income inequality using data for the roughly 3,000 counties in the contiguous U.S. We focus on household income percentiles for 1989 and 1999 from the U.S. Census Bureau (based on the 1990 and 2000 Decennial Censuses; data for others years were not available). The geographic variation in inequality growth can be crucial to separately identifying the factors associated with the growth in top-half inequality and the relative stagnation in bottom-half inequality. We find that the growth of inequality varied widely among these counties. For the top half of the income distribution, the percentage change in income inequality between 1989 and 1999 ranged from -50% to 79%, with a mean of 2.7%; for the bottom half, changes ranged from
-37% to 44%, with a mean of -3.0%.

We conducted a simple, multivariate regression analysis to assess the contribution of each factor to the change between 1989 and 1999 in the top and bottom halves. For offshoring, we look at the association between inequality growth and manufacturing's share of county employment in the initial year (1989), which may indicate a county's initial "vulnerability" to offshoring. For immigration, we use a county's initial (1989) noncitizens' share of the 18-and-over population as an indicator of its "openness" or "susceptibility" to subsequent immigration, both legal and illegal, since previous research has shown that immigrants tend to settle in areas with high proportions of legal (and overall) immigrants. (Using the foreign-born population share gives nearly identical results.) For SBTC, the effect on widening the gap in the top half while narrowing it in the bottom half should be more pronounced in counties where high-skill labor is relatively more important. It has been shown that a reasonably good predictor of a local area's SBTC is its initial (1989) education level, taken as the share of the county's population with college education (see Doms and Lewis 2005).

Figure 2 displays our estimates for each factor. The numbers are coefficients, which represent the contribution (in percentage points) to the 1989-1999 growth rate of the 95/50 (or the 50/20) ratio associated with a 1 percentage point increase in a factor. Beginning with the SBTC explanation, we find that a county with a 1 percentage point higher college share than average (specifically, 16% instead of 15%) in 1989 would be expected to have seen a 0.53 percentage point higher increase in its 95/50 ratio over the subsequent decade (that is, instead of the average increase of 2.7%, top-half inequality would grow by 3.2%). For the bottom half of the distribution, the average county's ratio experienced a decline of -3.0% from 1989-1999, so the 0.11 coefficient can be interpreted as saying that, compared to the average county, a county with a 1 percentage point higher college share in 1989 would be expected to have experienced a 0.11 percentage point slower decline in the 50/20 ratio over the subsequent decade (that is, a decline of -2.89% instead of -3.0%).

Our results then show that, consistent with the SBTC hypothesis, education share has a large positive and statistically significant association with top-half inequality. However, the coefficient on the 50/20 ratio contradicts the SBTC prediction, as it also is positive and significant, even though much smaller. The reason could be that, while the college share of the population is a good proxy for the type of computerization that complements high-skill labor, it may not be a good proxy for the type of computerization that substitutes for medium-skill workers.

Turning to the role of offshoring, our results are consistent with the hypothesis that offshoring pushed down the wages of middle-income workers (who tend to be disproportionately employed in manufacturing). We find that the initial manufacturing share is positively associated with the change in the 95/50 ratio and negatively associated with the change in the 50/20 ratio (both are statistically significant).

For immigration, we find that the 1989 noncitizen share has a positive association with bottom-half inequality changes over the subsequent decade; the association for upper half inequality is not statistically significant. These results are consistent with the immigration hypothesis, which predicts that the income of those at the lower end of the income distribution will be pushed down, increasing bottom-half inequality while offering no predictions for top-half inequality.

Conclusion

This analysis of the 1990s suggests that offshoring, immigration, and SBTC all likely played important roles in the divergent trends of top-half and bottom-half income inequality in the U.S. over the past four decades. However, the statistical associations we have uncovered are not necessarily causal, and there are other possible factors we did not explore, such as the increase in the female labor force participation rate and the increase in capital income, including dividends, capital gains, and interest income, relative to labor income. Nonetheless, this preliminary analysis suggests that further research exploring the geographic patterns in the evolution of top-half and bottom-half inequality could be fruitful in identifying the separate contributions of each of these factors.

References

Autor, David H., Lawrence F. Katz, and Melissa S. Kearney. 2006. "The Polarization of the U.S. Labor Market." American Economic Review 96(2), pp. 189-194.

Doms, Mark, and Ethan Lewis. 2005. "The Diffusion of Personal Computers across the U.S." FRBSF Economic Letter 2005-37 (December 23).

Topel, Robert H. 1994. "Regional Labor Markets and the Determinants of Wage Inequality." American Economic Review 84(2), pp. 17-22.

Yellen, Janet. 2006. "Economic Inequality in the United States." FRBSF Economic Letter 2006-33-34 (December 1).

Comments

[kio]

When personal income estimates provided by the US Census Bureau (http://www.census.gov/prod/www/abs/income.html) are used, no change in income inequality can be seen:
http://ideas.repec.org/p/inq/inqwps/ecineq2007-67.html

[Mark Thoma]

There are big problems with using census data to measure inequality. When better data are used, the increase in inequality is evident.

[John]

Income equality in and of itself should be dwelt upon too much, IMO. What matters most is quality of life and opportunity. Worrying too much about income inequality can cause people to veer off and make that and end unto itself or draw wrong conclusions from the current climate.

Just my two cents.

[John]

correction:

should NOT be dwelt upon too much.

[kio]

I'd prefer the US Census Bureau answer for me.
http://www.census.gov/hhes/www/income/guidance081904.html

"Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS)

Because of its detailed questionnaire and its experienced interviewing staff trained to explain concepts and answer questions, the CPS ASEC is the source of timely official national estimates of poverty levels and rates and of widely used estimates of household income and individual earnings, as well as the distribution of that income."

Because this estimate is the official one - other look a bit irrelevant.

[dissent]

No surprise here. After years of saying the rise in inequality was due to SBTC and NOT offshoring and immigration, now economists say that all three are important.

Of course those of us in the globalization line of fire could have told you this years ago.

Will the last one laid off please turn out the lights.

[dissent]

Oh, and the hocus pocus wave a wand and it doesn't matter anymore approach to the rise in inequality does NOT work. I for one am sick of this issue being denied it's rightful place as one of the central of our time.

My view of the housing bubble: the middle sector and below will be absolutely hammered, while the homes of the economic elites will conserve their values. I would wager on this. Already it's happening: lower end homes aren't selling at all, while upper end homes are, dragging up the median.

Who after all cares about ordinary working Americans who make no large $$$ to our political process? That's the real reason we send jobs overseas, cut pensions, health care, increase tuition, ad nauseum, while corporate profits soar.

Bring on the dollar crash!!

[John]

Dissent,

you say:

Oh, and the hocus pocus wave a wand and it doesn't matter anymore approach to the rise in inequality does NOT work. I for one am sick of this issue being denied it's rightful place as one of the central of our time.

I feel cheated. I made a statement of opinion and said WHY I believe it to be true.

You simply say "Not so" in so many words and that it is very, very important. But you don't say why. You just make an assertion and think that's enough. It's not.

[Patricia Shannon]

John says...
Income equality in and of itself should be dwelt upon too much, IMO. What matters most is quality of life and opportunity. Worrying too much about income inequality can cause people to veer off and make that and end unto itself or draw wrong conclusions from the current climate.

A large degree of income inequality leads to a disproportionate degree of power in those at the top. And history, including recent history, shows that that is not good for the rest of us. Eg., it leads to the few at the top owning most of the land, resulting in high costs of housing for those less favored. It allows those at the top to influence politics for their own benefit, to the detriment of others. It allows them to distort the news media, by owning it and by being the source of advertising revenue.

[dissent]

John,
If you have a genuine interest, I suggest reading Krugman's latest book, The Conscience of a Liberal.

I say "If" because this was a topic on this blog just a short while ago.

Here's the link where Krugman intros the book, with a chart of inequality.
http://krugman.blogs.nytimes.com/2007/09/18/introducing-this-blog/

[John]

Dissent,

OK. Thanks for the tip. But you still didn't answer me. I could throw books in front of myself as well.

[John]

Patricia,

The first part of what you say only matters in so far as the goal of politics is to usurp the law to benefit competing groups while causing backlash to others. I oppose this first and foremost. But this won't change until people don't see government force on their behalf as an end unto itself. When that happens, if it happens, politics will be about the details governance and the protection of rights WITHOUT trampling on the rights of others. That sphere of law will cease to a weapon and morph into an OBSTACLE to the passions of competing and selfish groups who further a constant intensified spiraling of perverse laws that lead to more perverse laws. That's my political philosophy, not economics.

[Patricia Shannon]

Since property taxes are usually based on the theoretical value of the property , rather than the income of those currently occupying it, when higher-income people move into a neighborhood and build bigger houses, the property taxes for their neighbors are likely to go up. This is a hardship for those neighbors, and may force them out, causing a longer commute, eg.

[Patricia Shannon]

John, when have you seen your vision happening?

The reality is that when you have a large income inequality, those at the top will bribe the government for their benefit to the detriment of others. There are a plethora of examples available for that. Eg., recently the Bush administration ruled on behalf of mining companies doing mountaintop removal.

[John]

Patricia,

I'm not defending the Bush administration. My points are still there.

You will never stop the incentive for bribery and favoritism until remove the INCENTIVE to pursue it. And this, I'm afraid, will involve people outrightly refusing such powerful discretion to pervert laws of property and commerce for isolated benefits. Such systems are not just and will only foster more injustice.

Sadly, I don't see this happening. The goal never seems to be a restrain this discretion but rather to use it countering yet still flawed ways and the cycle simply continues.

[S Brennan]

John,

As I pointed out in an earlier post, large income disparitys has historically been associated with bad things...depressions, large recessions, revolution...and I might as well toss this one in for good measure...plague. Most people would consider such regrettable outcomes a matter for government intercession .

So while you are free to disparage folks who are concerned with income distribution, they have quite a bit of historical baggage to throw back at you.

[ken melvin]

Income disparity leads to third world poverty, the direction America's headed. Mattel's having toys manufactured in China for pennies may look like 'good economy' to Wall Street, but it looks like more hard times for Main Street. The big crunch comes when there's no more equity to buy all the bargains.

[John]

S Brennan,

I'm not talking about association or corollary. This site is called "Economist' View", not "Pundit's View".

I'm not disparaging anyone. I'm having a discussion. Why can't we just stay on topic, here?

Melvin, read what I said above. It's not "Pundit's View".

Income disparity does NOT lead to third world poverty OR depressions/recessions. Income disparity, by itself, leads to nothing in particular. Such disparity has more than one possible cause. Best to look at WHY EXACTLY that disparity exists in any particular country. I'm sure you'll find answers there.

Depressions and recessions have nothing to do income disparity. You'll be hard pressed to find proof that income disparity causes such things. It's existence during such events does not denote cause. Likewise, better income parity does not stave such events either. Totally irrelevant.

[calmo]

I wonder whether this thread rouses our Senior Fellow from Cato to respond.
Fig 1 above using the official data is not too alarming, but Mark's reservation(s)There are big problems with using census data to measure inequality. When better data are used, the increase in inequality is evident. might be housed in that somewhat sloppy top 5%:

Specifically, in 1967, the 95th percentile of household income was 2.6 times higher than the 50th percentile, and by 2005, it was 3.6 times higher.which fails to distinguish, say, those Fortune 400 billionaires (top 0.00026%)...which makes us think about what the appropriate percentile should be. [Can we have the envelope containing all the relevant incomes...esp from the uncooperative super wealthy?] ( No we can not.)
I know it sounds downright Communist to squeak up and suggest that this is...bad...beyond unfair...somewhat ruinous...unprecedented and indefensible.
Morally abhorrent...and:
Uglier than your $6 haircut from the barber-in-training.
Should food costs continue to spiral up, perhaps John and kio might see more of the relevance of income disparity.

[Patricia Shannon]

John,
You disparage others for sloppy thinking. But you keep saying we need changes to the political system, w/o giving specific changes you want, or how to accomplish them.

Correlation is a commonly used means of proving causation. For most disease caused by bacteria, eg., we prove the bacteria causes the disease by exposing an organism to the bacteria and seeing if it gets the disease. That's correlation. Of course, when using correlation, we have to make sure there are not confounding variables, like contamination with some other substance. But we don't say the effect hasn't been proved because we haven't observed some kind of chemical reactions with an electron microscope, or whatever could be used in such a case.

[ken melvin]

CATO/Randian Greed and Grub has done great damage this nation. I submit that the consequences of Greed and Grub are poverty and the failure of society, that in the short term Greed and Grub appear to work well here and other places where there's distributed wealth consequent past policies, but should Greed and Grub persist in a wealthy host nation, that nation will in turn, too, become poor and fail. Simple things such as the accumulation of real property by a few may be the road to success for the few yet lead to a failed economy and society. Disparity of income leads directly to disparity of wealth which leads to serfdom.

[ken melvin]

Further, those societies with greater equality have a higher standard of living. The greater the inequality, the poorer the living standards.

says...

If one considers the Pareto distribution (which I believe accurately describes our situation), wealth distribution is an even more striking disparity than income in this country. The top quintile owns 80% of the assets in the U.S. The second quintile own another 15%, and the remainder of the country doesn't own much of anything, and less if you add debt into the equation.

[John]

Patricia,

I'm disparaging no one. I'm attacking no one. I'm merely engaging in the topic and adding a POV to the conversation. Anything you can possibly be uncharitably calling "disparaging" are responses to people saying things that I could just as easily call disaparaging by your standard...but I don't.

Look around at the name calling by some others and what these same people have said of any substance to challenge what I said.

I try to ANSWER everyone and address their points as best I can.

In that spirit. Commonly using correlation does not mean all such attempts are valid. And on the matter in question, I still haven't even seen an attempt.

[John]

Kevin,

Sorry but that's just more of the same said differently. It's zero sum thinking.

Also, I've seen Gini stats before. For most hand picked cases to prove your assertion, there are many cases that just don't fit. Besides, like I've said, income disparity by itself, means very little. The nature of the disparity is what matters. If you were to dive into the numbers, I'd be willing to bet that some real causes of income disparity will show a much stronger causal correlation...not the very general one you're insinuating.

[ken melvin]

Between then and now, between the gilded age and ~1970, distribution in America was at its best. So America. Labor used its leverage to force the distribution, and the pie grew. Today, labor has no leverage. Nor the democratic process. Labor lost out to automation and offshoring, democracy to, strangely, plutocracy. Does the maldistributed pie grow? Could it become smaller?

The distribution is what's at hand and that brings us to the selection process. Rather like the universities, a system is needed. We hear of a meritocracy. But we see selection by race, ethnicity, ... and seek to further control it by controlling the access to opportunity. Extended not much further than today, we can foresee a time when there's only enough good jobs for MBAs, Doctors, Lawyers, Professors, ... with lots of cheap service. (There's the possibility that the MBA's job could be done with a program and the Doctors' and Lawyers' jobs be offshored, but that's all further into the future.) So, the pie wouldn't necesssarily need to grow, we could just narrow the distribution.

The excess? Prisons are a growing and profitable industry and are certainly no more flamable a storage than ghettos.

[bullbust]

Consider an asset valued at $100.

Hedge funds and IB's borrow money and buy up this asset on 10x leverage. This extra speculative demand drive the asset price to $200.

The returns (earnings, income, dividend, rent, whatever) from this asset do not justify this price. But since the interest rates are low, the speculative cycle now continues ( Hey, asset is worth $200 now, so leverage that extra $100 in gains). It continues till it can't.

When the bubble breaks, in a free market, the speculator goes bust, and the bank which lend the money to the sepculator also goes bust.

Not in this country. In this country, the people who work and save get punished. Their savings are devalued by cutting rates. The savers have to watch while their savings get devalued, or the savers have to buy the overvalued asset off the hands of the speculator.

The speculator got in at $100, and gets out at $200.

The saver buys the overpriced asset at $200, and watch it fall in real terms to $100, or watch a far more devaluation of their money savings.

So in net, the speculator gets in at first and drives the asset prices to the moon, and then the Fed devalues money to rationalize the asset prices. This is a massive con job to transfer wealth to bankers (who get the money first) from workers (who get the money last).

The retail investor has stayed out of the market since the 2000 bubble. Now the Fed is forcing the retail investor to buy the overpriced asset, at driven-to-the-moon with leverage prices, by threatening to devalue his hard savings.

Because otherwise, the system may go bust! Yes sir. No wonder Bernanke was called Wall Street's bitch.

[save_the_rustbelt]

If they had asked me I could have saved them all of that research effort.

CPAs know today what economists may figure out 5 years from now, because we live in the here and now of business and employment. We don't have time for macro analysis, but we are very good at reading the environment.

I'm in Michigan today, the Mi'ganders claim 54000 manufacturing jobs have been shipped directly to China, plus those to Mexico and etc. Who thought this would have no impact?

[save_the_rustbelt]

Dissent:

Why complain? You get to buy cheap stuff at Wal-Mart.

Who needs health insurance or a pension when you get to buy cheap stuff at Wal-Mart? :))

[John]

Labor used its leverage to force the distribution, and the pie grew.

How so? That sounds wildly speculative to me. In all my economic reading, I've never read about any empirical study or economic principle for that matter that draws cause/effect relationship on economic growth and a "larger pie" on that notion you make.

[John]

Save-the-Rustbelt,

are you trying to say that being able to buy cheap goods and having health insurance or a pension are mutually exclusive?

I don't see that.

[calmo]

Dear John, (the devil made me try it out)
You write Income equality in and of itself should [not] be dwelt upon too much, IMO. What matters most is quality of life and opportunity. And that raised the dust somewhat.
Twas a general remark objecting to Mark's excessive (in your opinion) attention to this issue at the expense of more important matters: quality of life and opportunity (suitably vague and not further delineated).
This lack of attention to these details reflected badly on that 'quality of life' which some (possibly educated, possibly informed...or possibly just plain thoughtful) may have felt did not include your education. Even after several posts you did not seize the 'opportunity' to expand on that general theme that quality of life and opportunity should be our focus and not disparity. ["B thankful for what you have an quit bitchin" is the smell of it.] The impression is that you are unable to defend your views (so they appear as cliches) and are prone to receiving any criticisms as ad hominems...like this:I feel cheated. I made a statement of opinion and said WHY I believe it to be true. that "WHY" bein:Worrying too much about income inequality can cause people to veer off and make that and end unto itself...and we feel cheated, you know? We veering types (and proud of it too!) are not about to be herded by just any cowboy who thinks we might draw wrong conclusions from the current climate. We (the herd) need to see evidence that you are not just another 'all hat no cattle' cowboy.
Ok, back to grazin...

[PeterRabid]

One of the the worst and most obvious effects of widening income inequality is the negative correlation with unity and coherence in society. I say this is obvious because it leads to the kind of political gridlock we are seeing now in the USA and elsewhere. Further evidence is visible on this very blog, where the intensity of debate often rises to extreme (though usually polite) levels without any evidence of rapprochement between the two or several sides.

As we try to make the political process work, it helps to know that we're all in the same boat and and working toward a common end. Income and wealth polarization breaks this down.

It's class warfare all over again. Objectively, we see that the upper classes - those who have gained the most - are the ones who have initiated hostilities.

[BJ Feng]

Patricia, I disagree that higher inequality necessarily leads to bad government and concentration of political power. Political power is concentrated in elites, no matter the income inequality. The Chinese are governed by high ranking Communist party members while the French are governed by those who graduate from a certain university. If anything, the correlation is the other way around. Concentration of political power leads to inequality, as government officials use their political power to seize assets and wealth from the people. I think what matters most are 1) the political system and 2) cultural and social factors.

I think John has the right idea here when he says that money and bribes are always going to be a factor in politics regardless. The solution then, is to limit the power of government so that those in power cannot use government to further their own ends! Or rather to limit how much they can use government to exploit the people. The less power that government has, the less power that the elites who control the government have. This is what the founding fathers had in mind. We were also very lucky to have George Washington as our first president who set a very high standard and instituted the tradition of serving a maximum of two terms. It's amazing that this tradition was respected until FDR, but it had the effect of limiting how much control a person or group could get over the government. Again, the system is the important factor.

As for equality, I think what matters most is the equality of opportunity. Do the elites have so much control and power that it is impossible for someone in the lower ranks to make it to the top? It's impossible to achieve total equality of opportunity, the elites will always have more resources and thus can hire tutors, lawyers, etc. to give themselves an advantage, but is that advantage too much to overcome? It seems that the freer a market is, the greater the opportunity for economic mobility. That is the less the government can interfere, the more likely a talented person is to be able to attain vast wealth and move up. In countries with a high amount of concentrated government power, the government makes it impossible for people to gain wealth and move out of the lower levels. It's simply impossible for a person to start up an Amazon.com or Ebay in countries like Venezuela, and Zimbabwe where you have to get government permission to do anything, and live in fear that your great business will be seized and nationalized by the government.

To prevent abuse of power, we limit that power. Power corrupts and those who have it will use it for their own ends. Best to make sure they can't do too much harm.

[BJ Feng]

No doubt someone will point out that there are times when we need the government to limit the power of others. I agree that the government should break up monopolies to ensure a free competitive market. Competition is the key, we cannot have free markets without competition, and competition is what makes capitalism work. Monopolies are the way the rich can use their wealth to gain an unfair amount of power and an insurmountable advantage over everyone else. That's why you see so many companies try to limit competition like with Visa and Mastercard. Unfortunately, government also can be used that end too. In many states, only Ticketmaster or the team in question can resell tickets to sporting events, thus insuring a monopoly. Cable companies are also working hard to prevent anyone else from providing TV service, by making ridiculous arguments that people need to be "protected". Of course, they use the government for that purpose. Being able to donate millions helps win the trust of government officials, which reinforces my point that government power should be limited to certain things. Government should be able to use their power to increase competition, not decrease it.

[PeterRabid]

Feng wrote -

"I think John has the right idea here when he says that money and bribes are always going to be a factor in politics regardless. The solution then, is to limit the power of government so that those in power cannot use government to further their own ends! Or rather to limit how much they can use government to exploit the people."

Yes, but, as most of you will have noted, the New Deal era was one during which there was less corruption perhaps than any time before or since. Could this have had something to do with the fact that the elite which came to power was not a group of greedy money grubbing crony capitalists, but largely a group of idealists sincerely interested in advancing justice and fairness in the society rather than feathering their own nests. And they were not only ivory tower idealists, but also practical business and local govt people with hands on experience.

I fear we will not again see a group like that in power, until we go thru an inevitable crisis of capitalistic greed, when the economy and governance plunges to such depths, that the broad public will once again realize that the one percent now running the show are incapable of finding solutions.

Perhaps we are approaching such a conjunctue now. Hold onto your hats and tighten your belts!

[ken melvin]

Beware those sudden right turns; they'll give one a whiplash.

[anne]

Simply trying to understand what is happening in America in terms of concentration of political power, and concentration of wealth and income, is essential beyond partisan conclusions. We will in coming weeks have later data to evaluate on wealth and income concentration, while there are several important studies of concentration of political power that have just been published.

The importance before partisan issues are examined and foguht over is that we have experienced an astonishing increase in power concentration as a result of an Administration and Congress and now Supreme Court majority determined to emphasize the power of the Presidency. We need to understand the extent an meaning, and have scarcely begun.

As for wealth and income concentration, we will find anew shortly how much the increase has been and need to understand the consequences in terms of policy.

Writing about concentrations of power, whether political or wealth and income, telling little without a cultural context is meaningless, power concentrations create cultural context.

[PeterRabid]

Aawww cmawn now Anne really (I almost wrote Polly-Anne-a),

"Writing about concentrations of power, whether political or wealth and income, telling little without a cultural context is meaningless, power concentrations create cultural context."

If you sill haven't figured out what's happening with concentration of economic and political power, where have you been the last 300 years. We all understood long ago (except you? I can't believe it) that the top 10 % , now 1/10 of 1%, long ago polluted American CULTURE with myths about pie in the sky, unlimited individual opportunity, go West, young man, anyone can be President, the great American frontier (not to mention "the only good Indian is a dead Indian")

Are you trying to say (for example) that concentrations of power around the southern planter were OK because they were culturally condoned. Please explain this indecision, so that I can back off, too, if such a retreat is justified.

[evagrius]

"Income equality in and of itself should [not] be dwelt upon too much, IMO. What matters most is quality of life and opportunity."

Damn right. Look how much better it can be if you're a beggar with a Ph.D rather than just being a high school droput.

( There's a scene in the Japanese movie "Tampopo" where street beggars debate the merits of the French wine left in the dumpster behind a posh restaurant- They knew more about the wine than the clients so, obviously, they had a much better quality of life.)

[Bruce Wilder]

What the heck is "skills-based technical change (SBTC)"?

Is this a legitimate economic concept? Or, just plutocrat-friendly b.s.? (Obviously, I suspect the latter is the case.)

[John]

Sorry, Calmo.

But you are drawing far too many wannabe-combative conclusions out of what I wrote.

The way you insinuate I was directly going after Thoma with my remarks is a first example. My god, I make an observation and give my opinion and I'm objecting to Mark's "excessive" attention to income inequality?? I merely raised a point and gave an opinion and you're looking for fighting words because I said quality of life is more important. As if that is such an abrasive and aggressive thing to say. Way off base.

Your post is very defensive and for little reason.

You intentionally draw pejorative conclusions in my motives to avoid addressing my point. I have stated why I disagree with several points here and B J Feng reiterated those points quite eloquently. He didn't just assert something hoping nobody would notice he didn't actually demonstrate any point, no, he explained why it is so.

Perhaps you could tell me (and B J) why it isn't so instead making counter arguments to opinions by debasing my intent.

[NLS]

A wise woman once sang:

When logic and proportion
Have fallen sloppy dead
And the White Knight is talking backwards
And the Red Queen's "off with her head!"
Remember what the door mouse said:
"Feed your head, feed your head"

[dissent]

I believe the association of bad governance, social suspicion, and high levels of inequality is a strong one.
It is well known, and really rather sloppy for John to assert otherwise without spending 5 minutes with google. Also I note, John, that your arguments above would be less ignorant if you followed up on my Krugman reference.

It is typical of conservative ideologues to flounce around about discourse and responding to views but not to do the minimal work of checking references and the actual data. If you want to post here, I suggest taking into account that many of us here actually do our homework: you should do the same.

As for inequality and corruption, etc. see Latin America, for example, or this link:
http://irps.ucsd.edu/assets/003/5298.pdf, abstract:

A Comparative Studyof Inequality and Corruption
You, Jong-sung Sanjeev Khagram
Harvard University

This article argues that income inequality increases the level of corruption through
material and normative mechanisms. The wealthy have both greater motivation and
more opportunity to engage in corruption, whereas the poor are more vulnerable to
extortion and less able to monitor and hold the rich and powerful accountable as
inequality increases. Inequality also adversely affects social norms about corruption and
people’s beliefs about the legitimacy of rules and institutions, thereby making it easier
for them to tolerate corruption as acceptable behavior. This comparative analysis of 129
countries using two-stage least squares methods with a variety of instrumental variables
supports the authors’hypotheses using different measures of corruption (the World
Bank’s Control of Corruption Index and the Transparency International’s Corruption
Perceptions Index). The explanatory power of inequality is at least as important as
conventionally accepted causes of corruption such as economic development. The
authors also found a significant interaction effect between inequality and democracy, as
well as evidence that inequality affects norms and perceptions about corruption using
the World Values Surveys data. Because corruption also contributes to income inequality,
societies often fall into vicious circles of inequality and corruption.

[John]

Dissent,

I believe the association of bad governance, social suspicion, and high levels of inequality is a strong one.
It is well known, and really rather sloppy for John to assert otherwise

When did I say otherwise?? Why are you trying to make me wrong about something? I haven't been ignorant at all.

I'm not a conservative. And also, I say it again, why can't you just address the topic and what I'm saying about it. You can't seem to resist going around what I say and coming after me by debasing me or my motives. I think I mentioned before.

BTW, the study on corruption and inequality is fine.

Here's the thing though: When did anything such thing wasn't true? Go and find where I argue against the premise of that article.

If anything, I did say toward the beginning that reasons behind inequality are more important than inequality itself. And then you say I'm not doing my homework.

Based on what?

[evagrius]

"Income equality in and of itself should[not] be dwelt upon too much, IMO. What matters most is quality of life and opportunity. Worrying too much about income inequality can cause people to veer off and make that and end unto itself or draw wrong conclusions from the current climate.

Just my two cents."

"If anything, I did say toward the beginning that reasons behind inequality are more important than inequality itself. And then you say I'm not doing my homework."

Oh.

Ahem, sorry.

[John]

evagrius,

me:

Income disparity, by itself, leads to nothing in particular. Such disparity has more than one possible cause. Best to look at WHY EXACTLY that disparity exists in any particular country. I'm sure you'll find answers there.

?

[John]

evagrius,

here's another:

Besides, like I've said, income disparity by itself, means very little. The nature of the disparity is what matters. If you were to dive into the numbers, I'd be willing to bet that some real causes of income disparity will show a much stronger causal correlation...

[calmo]

Seriously (combat ready) John, now is the time to expand this message/note/redirection/opinion/concatenation of letters forming words that are being intentionally maligned and/or poorly understood Income equality in and of itself should [not] be dwelt upon too much, IMO. What matters most is quality of life and opportunity. Like this: " X should not be dwelt upon too much" is maybe a guide (that none of us need --unless your first language is not english (and there are several multi-lingual posters here) ) to english usage and normatives, but tells us nothing about income equality. Tis on a par with "You should not B bad." --not an interesting remark that informs competent speakers who already know what "should" means, you know?
We need to hear your expansion of "dwelt upon too much"...since our inference that you were implying our host (and perhaps others) was guilty of this charge...was hasty...it appears. [Maybe it was not a response to the thread at all, but exasperations about hearing the monotonous down right dreary "disparity" elsewhere, day in day out..night after night...?] My god, I make an observation [This Johnny boy is a judgement: "too much"] and give my opinion [just the label: "IMO", John] and I'm objecting to Mark's "excessive" attention to income inequality??
Ok, what else could you have meant? How is this tentative interpretation ("the smell of it"):"B thankful for what you have an quit bitchin" so surprising and unnatural...for you: antagonistic ("insinuating", "abrasive", "aggressive", "fighting words", "pejorative", "debasing")...although you don't recognize your own fiat redirection ("too much") as the blunt (ie no explication) dismissal it is. [I know, that's just my nasty interpretation of what you said...and I'm just a wannabe combative concluder...dang.]
Ok, I surrender John. Set Way-off-Base me straight and tell me where you're coming from on this disparity thingie.

[John]

Calmo,

A lot of nothing there. Please try again. You and others seem to like wasting time doing the same things over and over and over again. And then you use my responses to it to continue further down the tangent. It's not that hard to see.

[ken melvin]

The cause of disparity in the US of A is the lack of good paying jobs. Now the cause of this lack is due ...

[John]

melvin,

what are basing this on?

[John]

you basing this on

what are you basing this on?

[ken melvin]

Other manna from heaven?

[BJ Feng]

"Because corruption also contributes to income inequality,
societies often fall into vicious circles of inequality and corruption."

"The wealthy have both greater motivation and
more opportunity to engage in corruption, whereas the poor are more vulnerable to
extortion and less able to monitor and hold the rich and powerful accountable as
inequality increases."

Corruption and income inequality are linked, but it's secondary to a greater cause. Like I stated before, it's the system that matters the most. If you have a system that allows any one person or monolithic group to seize total power, then that group will use that power to enrich itself causing income inequality. Countries without strong legal and government systems tend to be unstable, and also more unequal as measured by international agencies. That's because instability itself causes poverty due to constant warfare, the lack of a strong legal system for businesses, etc. It's the lack of a good governmental system that causes both corruption and income inequality.

Elites can exhibit abuse power only through certain means.

1) Economic by establishing monopolies and gaining complete or nearly complete control of certain industries. Carlos Slim and Mexico comes to mind here.

2) Through the use of force, with warlords just taking what they want.

3) Through governmental and legal means as with Robert Mugambe in Zimbabwe taking over white farms and giving them to his cronies and friends.

The list is not exclusive, but without those means, the rich cannot use their wealth in an unfair manner. So we have to preserve our current system and look at the system of other countries to see why they failed.

Definitely limiting the power of what government can do is essential. That's because we can never be sure of the decency of those who are in power. We all hope that the leaders we have are good, honest, and moral folks, but there's no way to tell for sure so it's best to limit what anyone in power can actually do. Countries with good systems allow their citizens to openly criticize the government, and severely limit the government's ability to arrest, detain, and harass its citizens without very good cause.

Because the system, in a democratic society, is created by the people, ultimately it comes down on them and they must both understand and want the things it takes to create a good system. First, they cannot vote based on tribal reasons. They shouldn't vote for someone because they are of the same race, or they come from the same region, or they are the X political group. They have to vote based on ideas and who can govern best. They also shouldn't vote for the promise of benefits at the expense of a minority or segment of their society.

Do you think I could win an election if I said, "Vote for me. Those who do, I will give you 70% of the assets from those who don't vote for me. All we need is 50.1% and you will be rich!"? The people have to want to limit the power of government so that such things are impossible. The real danger then, is not income inequality, but the expansion of government power to the point where it can be used to abuse and exploit the populace.

[PeterRabid]

Feng - you wrote -

"It's the lack of a good governmental system that causes both corruption and income inequality."

There, you WERE on the right track. And it's true that the USA used to have a good government system before Reagan and Bush broke it. The USA used to have pro-active environmental, securities and exchange, food and drug, fair labor practices, effective tax collection, food and drug safety regulation as well as trust busters, and a FEMA that worked
The USA used to have a progressive taxation system that regognized the basic truth that living in society is a cooperative effort, and that it is practically impossible for one man or woman working alone to create new riches.

Why did Reagan and Bush break it. Because they were acting as shills for the 0.1% who profit from shrunken government.

Yes, for a moment I thought you were on the right track, but then for some reason, you decided that we should divert our attention from whatever is not working in our own country and look at the faults of others.

You wrote

"So we have to preserve our current system and look at the system of other countries to see why they failed."

So you want to preserve our current system with all its faults, and you tell us that INSTEAD of fixing our own problems we should look at Zimbabwe. Really, Feng, the USA has NEVER been plagued with Zimbabwe type problems. Are you trying to scare us into further shrinkage of government for fear that the USA will become like Zimbabwe? It would be ludicrous for me to pretend that you wish to prepare public opinion for an eventual invasion of Zimbabwe so we could fix their problems like we are fixing Iraq's problems, but you are at least doing your best to divert attention from the real problems of the USA at home.

[Don Quijote]

Here's why we should worry about income inequality:

The Ends of the World as We Know Them By Jared Diamond

Why weren't these problems obvious to the Maya kings, who could surely see their forests vanishing and their hills becoming eroded? Part of the reason was that the kings were able to insulate themselves from problems afflicting the rest of society. By extracting wealth from commoners, they could remain well fed while everyone else was slowly starving.

What's more, the kings were preoccupied with their own power struggles. They had to concentrate on fighting one another and keeping up their images through ostentatious displays of wealth. By insulating themselves in the short run from the problems of society, the elite merely bought themselves the privilege of being among the last to starve.

[ken melvin]

Beware whiplash when reading Feng. The matter of how Bush and Reagan negated democracy by choosing which laws to enforce and how their supporters abetted this, even wishing that they do so, is an obvious threat to democracy and is a subject much in need of public discourse.

[calmo]

Thanks for that clear exposition John.
BJ writesSo we have to preserve our current system and look at the system of other countries to see why they failed. provoking haiku master melvin's "whiplash" remark. [We don't expect John to get this...ever.] Are you saying that those other countries have greater income disparities than the US, BJ? [But there are some of us that will even try to teach slugs, it appears.] Of that list of Fortune 400, how many were American? [You want to stick with the top 5% like the census...when there are stats that show the top 1% own 57% of the stock market?]
What ken said...just tatoo it on your forehead John and hope for osmosis.

[John]

calmo,

Huh?

[Icarus]

Widening Income inequality (which I think will only grow) is a result of Globalization, and the need for the US to attract finance capital to maintain its profligate spending.

Globalization has rendered many tasks/jobs less valuble on the open market. Why pay a telephone operator a 'living wage' in the US, when it can be done overseas for 20 cents on the dollar? Why manufacture a car in Detroit, when the quality of it is already suspect, and the product can't compete on the open market due to its costs. One can almost argue that buying an american car is a form of charity, which pays for elderly healthcare in the guise of getting a car.

The new market values of labor have, and will continue to have a destablizing effect on social perceptions of wages (ie, who deserves what).

But, the consumer benefits, and the consumer is kind in the US. Most of us would rather have a Korean car (one day Chinese or Indian) than pay for retiree healthcare for GM or Ford. We can complain on posts all day, but, we collectively tend to prefer the lower cost item on the shelf, all other things equal.

We can point to New Deal era politics, but, that won't get us far anymore. That Keynesian age is over. Our 15% tax rate on capital gains is a strategic move to ensure that capital feels quite comfortable in US banks. Perhaps if we raise it to confiscatory levels, the flight of capital and the reduction of the dollar will lead to a more competitive labor cost. But, the powers that be won't let that happen to quickly. Also, the past in the US wasn't too hospitable for non-white male laborers. I don't think any of us dream of that past too much, except those perched comfortably in that world view.

Right now, Global wage competition is a serious challenge to US workers. The answer isn't to blame the professional elite, or the captians of industry. The answer is for laborers to accept a new challenge, and stop pointed at the previous decades of relative shielding from such competition. The middle class in the US can succeed, provided they play by new rules. No more high school drop outs, no more getting married at 18 and expecting to start a home...no more "I should get a middle class life with my 9th grade level of education". Those days are thankfully over. The rest of us (the consumer class) was financing this with our dollars. It's quite over. Now, like anyone else, they will have to compete to offer their labor services. This may entail moving, this may entail finding training in some craft, and it will entail refraining from starting a family until revenue is stable. This is the overall behavior of the professional caste today...they wait till 30 + to start a family, they move for work, they live like students for a long time, to one day earn well.

To confiscate any more of the professional caste's wages in order to finance a middle/lower class lifestyle which should be taken out to the shed and shot is ludicrous. The professional caste already spend 40% or so of their wages in taxes (state/federal). We should thank them, and figure out a way for others to replicate their behavior.

[calmo]

We have seen this for more than a decade:Right now, Global wage competition is a serious challenge to US workers. --the last volley being the software workers who thought they had trained to avoid the plight of the blue collar workers...little did they know they were wasting their time when they could have been selling houses...and languishing in that 40% tax bracket...while their lessers (starvin electrical engineers and similar dummies) shed tears of gratitude that they don't have to pay taxes like that.
Ok, so I have some worries/reservations about your post Icarus...possibly on account of a fixation I have with seeing this "globalization" as a label for the latest stage of capitalism.
Let me poke your last paragraph: [like this]
No more high school drop outs, [ Bill Gates and a surprising number of Fortune 400 are college dropouts though] no more getting married at 18 and expecting to start a home [such an odd expression from its root: "starter home"...because the house has this importance now: not a physical shelter but an investment vehicle, that might just be a social liability far larger than any personal financial liability ]...no more "I should get a middle class life [another odd expression derived from "get a life!" and it's not as if we have shunned the "upper class life", but that we are reasonable people with reasonable aspirations] with my 9th grade level of education".[I would move this stick to 4yrs of college...] Those days are thankfully over.[I wish I could agree with this sunny disposition] The rest of us (the consumer class) was financing this with our dollars.[This is my view of housing and that suspect financial investment, which may be just starting to unravel...revealing the hollowness, not the solidity of this last business cycle.] It's quite over.[A nice slap back at Yogi's "It's not over til it's over." But I agree: the middle class is taking a hit (not just here) and that income tax distribution is far worse than that 40% number might suggest.]

[ken melvin]

Ah, Icarus just flew in and what treasures he brings. Not to eat them, no he didn't say that, but a solution indeed. Beginning tomorrow, too late today, we should start with the homeless, then the chronically never employed, the mentals, ... work our way up.

[Icarus]

Calmo,
Whether one is a software engineer, an electrical engineer, or a worker in any service potentially touched by global trade, employment within one's field is not a guarantee. That engineer has to be open to re-training, and, has to save enough to have a pool of money ready for that retraining (and not wait for govt handouts). This is the reality of labour...it will be more stressful, yes...but, the net cost reduction will lead to greater consumption, which is the end goal of consumper capitalism, or 'late' caplitalism.

And, forget the Bill Gates and other elites...the issue is what is the best tactic for a non-elite to develop and sustain a good standard of living. The answer isn't to cry for greater social redistribution, or blame the wealthy. The answer, I believe, is to mimic the behavior of the professional caste. There's no reason to have children before the age of 25 (30, really)...there's no reason to refrain from self-education, and, there's no one else to blame (an homage to howard jones, sure).

And Ken Melvin...
What's the solution...do you want people to be able to sit on their proverbial ass, complain at infinitum, blame the govt, blame the rich, blame the invisible man in the sky...and collect checks from a central govt? What exactly would that enable, besides laziness?

India is an interesting example of the move toward greater income inequality. Since 1991, and the opening of the Indian economy to pro-capitalist attitudes, wealth has grown tremendously. But, in accordance with that, inequality has grown as well. The nation is better off than it was 20 years ago, but, a susbstancial population is not benefitting from these gains. If we look at the subset of the population who does benefit, we'll quickly notice the behavior modification connected to capitalist aspirations. Women are single much later into their lives, postphoning childbirth...the education levels are increasing amongst this group, to the point where a bachelor's degree is no big deal. And, people are thinking of their training and education from an early age. And, as well...people are shifting and moving from one career and home-city, to others. Med school graduates can be found managing call centers, and electrical engineers turn into SAP trainees quickly.
This is the behavior capitalism rewards in terms of a labour class. It may sound harsh, or too rigid...but, there are millions around the globe hoping to enter it. So, the competition to the US worker will only increase.

As professor Binder at Princeton wrote about recently, we have to get used to the idea that a further 40 odd million jobs will eventually face global competition, and we should embrace it. No more radiologists making $400k/year...tax accountants who the lower middle class can afford...and even paralegal work done at 20 cents on teh dollar. The vast majority of consumers will benefit. But, of course, those who work in those fields will have to adapt. Those radiologists will have to re-train in some other non-tradable area of medicine, tax accountants can learn some other area of financial services, and paralegals can dissapear and do something else. They will complain, and left leaning bloggers will complain. But, the population will be better served with lower cost products.

The issue is only the cost of transition...who bears it?

[ken melvin]

Icarus,

I could not have said it better - been wanting to. Obviously there are at least 20 million jobs waiting for the taking in our America. Just as so, the source of income for the elites is from the elites and no where else. Well put, the point that India's (and China's, I presume) rise is due the emphasis on whatever it was you said so well.

[CALLAHAN]

Here is a fact for John. Fact of business is I do not like such widening income inequality as we've seen of late.

One grows tired of hearing about multi million dollar salaries for CEO's, while also hearing political candidates talk of "decent wages" for the rest of us, also while minimum wages were stagnant for 10 years. I am struggling to get by now on what are probably much greater wages than those "decent" ones I've heard about lately.

Put that into your funkenwagnal.

[John]

Such hostility, CALLAHAN. Amazing.

Still, in terms of economics, I don't see any ideas coming from you or the others who'd rather complain about A as a way wanting to change B without even demonstrating how A and B are related and what policy would rectify it.

[calmo]

Such a line Callahan! Put that into your funkenwagnalcalmo brings out star clusters around the hitherto hard-working conscientious and pain-staking 'Callahan' tag ...no longer needs constant supervision and suggestions on how to Deliver.
Now which orifice izit again, this funkenwagnal? (I can get over it people. I must.)
Ok, bearing down now, with some composure...knowing a great poet is in our midst (making me lose it...):I am struggling to get by now on what are probably much greater wages than those "decent" ones I've heard about lately.Reminds me of Tony Snow whose $160,000 was too much of a sacrifice to keep the post of Press Secretary. You figure the MSM should have put that in their funkenwagnel?

[Patricia Shannon]

John is serving a useful purpose. He helps us appreciate Icarus :)

I often think Icarus is not correct, but John reminds me of one of those computer programs which is programmed to sound like a human being is responding.

[John]

Patricia,

But you know, the funny thing is that most of what you all say isn't very substantive. I'm merely pointing that out and sticking to the ISSUE RELATED observations I've made. Those observations seem to have gotten lost and unanswered in the middle of all this. If you can't recall those observations, then I think my point is pretty clear.

Anyone can complain and insinuate. I'm not seeing much beyond that. And whenever anyone has said anything beyond that, it was quickly challenged and put into question with no real follow-up to try and advance the point again.

Maybe it's short term memory or confusion, not sure. But it is what it is. I see no need to keep repeating the same points that I've made with respect to any direct comments on what I've said relating to the thread topic and related observations.

[calmo]

Purposeful Patrica, possibly useful, possibly serving...I can be cajoled into appreciating you, but only if you lean on Icarus for an expansion of ...the end goal of consumper capitalism... and a determination about whether he is making a clever allusion to that submerged hole in the ground where you stick the pump to save usall from the incoming swamp.(the 'p' is a long way from any of the other characters)
Actually, Icarus (w or w/o the typo gods) this is pretty chewy:The answer isn't to cry for greater social redistribution, or blame the wealthy. The answer, I believe, is to mimic the behavior of the professional caste. There's no reason to have children before the age of 25 (30, really)...there's no reason to refrain from self-education, And I'd want to be very clear about what you mean with "professional caste", (not guilds? associations? class?) and "self-education" (as opposed to training?). My fuzzy generalizations: the professionals have parasticized the human resources of First World countries. Prospective technicians forego that avenue (technical training) because they cannot afford the opportunity cost of not becoming a RE agent, a broker, a HF manager who have been better remunerated for less training...for nearly a decade. Incestuous financialization, possibly coming to a close now (see, I can still hope, people) looks like it doesn't need any more mimicking.

[Icarus]

Calmo...

What I mean by the "professional caste" is not guilds or craftsmen, but the caste of 'techno-managerial elites' who support the capitalist class with their consent and educational paths.
These are the mba's, llm's, jd's, ma's, and a host of other degree bearers who aspire to enter the capitalist fold, with their skillsets in hand, and the hope of a six figure income firmly entrenched in their brains by the 5th grade or so. This is the end result of charter schooling and other 'good schools', and, more importantly, the result of discpline and good parenting.

As an economy moves up the value chain, and like Japan, no longer makes simple electronic, toys, and trinkets, and moves up the ladder to transistors, high end electronics, autos, and now the frontier of stem cell research and all sorts of other high tech gizmo's...its labour force will have to change.

And, as this happens, labour forces from previously 'backward' (economically, not culturally/morally/etc) economies will enter the game as participants in lower capital intensity work.
Globalization has added the new factor of being able to easily displace digitizable work. Previously this was probably considered the provenance of the 'middle class' in the developed world, but, that expectation has been ripped apart.

So, for a labourer in the US, one has a few choices. One begins with a head start, compared to many around the globe. Even a basic school system in your basic small town in your basic mid-western state is far far ahead of what a poorer middle class family in the developing world has at its disposal. (a poor-middle class family in India, for example, lives on roughly an income of $300-$400/month).
This advantage (having schools with books distributed, blackboards with erasers, teachers who are trained, etc, etc) has to be harnessed better, and that is the responsibility of the PARENTS who choose to bring these kids into the world.

I've seen and worked with kids in the developing societies I've mentioned (not just India, but Sri Lanka, the Philippines, and a few other nations)...I've seen many who wake up at 4-5am, to get extra tuition (at the age of 10 or 11)...who take a long path to school...are at school, listening carefully and intently, until 3pm...then, doing homework at the school library, preparing...then, getting home after a music or sports lesson by 7pm...then, bathing, and sleeping. That's it. Routine and discipline. These kids fear their teachers a bit (a good thing, in my opinion)...these kids are competitive, and are hoping (without knowing it really) that their counterparts in the US are busy having sex with girlfriends/boyfriends, skateboarding, and playing Playstation.

And, in the US, without a parental system which disciplines a child's time, they will essentially produce an uncompetitive product on the open market. This is what's happened.
The Microsoft's and the Intels, and a host of other MNC's don't want the US labourer I just charicaturized. Sadly, it is a reality. They want more H1b visas to bring in the talent from overseas, because, they can get people in their 20s who have studied, and are willing and ready to work, despite minor cultural/linguistic differences.

This behavior of the educated in the developing world, is similar to the professional caste here. The kids who actually do homework, don't waste time in convenience store parking lots all afternoon, who are 'honors-students'...who are anxious about the college they want to get into by the 8th grade. These kids are plentiful (hence, colleges like Berkeley and Duke and Columbia get thousands of applicants aspiring for entrance). These are the kids who will compete effectively in the global economy, and ensure that the US is still competitive with any other nation.

It is the other kids who will be forced to take menial (more menial) jobs, with perpetual entry level wages because the skillset required for those jobs is minimal), and then, later complain. They will have children quicker, incur expenses quicker, and have a more difficult path alltogether.
Our instinct is to tax the professional caste, and 'help' this 'working class'. It's misguided I say. Our real task is to change the behavior of the 'working class' into something more compatible with consumer capitalism.

And, Calmo...the 'end goal' (neverending) of "consumer capitalism" is to bring the joy (and trappings) of consumption to every single person on the globe, despite the ire of the quasi-eco conscious. In Econ 101 terms, it is to maximize the overall 'utility' of the total population. Playstations and coca-colas in every single household...that's their goal.

[Icarus]

And Calmo,

Tony Snow (whom I do despise), isn't 'sacrificing' and taking a $160k salary really. This reduction in salary (yes, he can earn much more) is an investment in his future career, as he'll be poised to receive the best anchor positions on TV moving forward due to his time in the White House.
But, your sarcasm is intersting. Yes, $160k sounds like a lot, and compared to a working class salary, it is. But, we can't make that comparison, mainly because...Tony Snow has a skill set rewarded by the market.

Don't hate...participate. If a person makes $9/hour at Walmart, it isn't because of a conspiracy against a segment of the population. It is simply because that labour isn't really worth more. That's all.

[Icarus]

And Calmo,

Tony Snow (whom I do despise), isn't 'sacrificing' and taking a $160k salary really. This reduction in salary (yes, he can earn much more) is an investment in his future career, as he'll be poised to receive the best anchor positions on TV moving forward due to his time in the White House.
But, your sarcasm is intersting. Yes, $160k sounds like a lot, and compared to a working class salary, it is. But, we can't make that comparison, mainly because...Tony Snow has a skill set rewarded by the market.

Don't hate...participate. If a person makes $9/hour at Walmart, it isn't because of a conspiracy against a segment of the population. It is simply because that labour isn't really worth more. That's all.

[reason]

Icarus,
I'm all for motivated and educated kids, but I don't think you are right.

As Paul Krugman has argued, economies don't compete with one another, that is a misunderstanding. Individuals, and particularly individual firms within a given economy do compete with one another, but economies trade with one another. This should be mutually advantageous, so long as the financial parameters are set appropriately. (The USD is obviously overvalued because the US is running a large trade deficit.)

The real issue here is that redistribution (as James Krueger has here forcefully argued) benefits all members of a society INCLUDING the rich. (JK argues that the rich mostly care about positional goods whose availability depends only on relative wealth not absolute wealth.)

Also widely spread prosperity increases the opportunity of entrepeuners to make profits from a large market. Suppliers to these entrepeuners in turn create an environment in which other entrepeuners can start businesses.

Money doesn't trickle down, it trickles UP to the best producers. We need development not just growth, failure to understand the difference has hurt many underdeveloped countries. Being educated won't help people if we end up with a feudal economy.

says...

Icarus,
I wonder how old you are. Can you remember the 1960s? I am old enough to remember a world where everybody had a place, people weren't thrown on the scrapheap, firms tried desperately to keep their workers committed to them with all sorts of loyalty bonuses (scholarships, company pensions, extra holidays etc). That was an economy that clearly worked for everybody.

Some cynical people suggest that the fall of communism meant that the gloves could come off. Things has deteriorated so much I'm almost ready to believe them.

[reason]

That was me...
... Things have deteriorated...

[reason]

Icarus
And, Calmo...the 'end goal' (neverending) of "consumer capitalism" is to bring the joy (and trappings) of consumption to every single person on the globe, despite the ire of the quasi-eco conscious. In Econ 101 terms, it is to maximize the overall 'utility' of the total population. Playstations and coca-colas in every single household...that's their goal.

Now whose side are you on? If that is the end goal I want nothing to do with it (playstations and coca-cola are both banned in my household). Surely there are loftier goals? To serve the customer our king? You've done it now, you are clearly a closet socialist, no credibility left I'm afraid!

[calmo]

Thanks for those lengthy (it is a very compact form and you might be losing readers who demand 'the executive summary' instead (and less parenthetical remarks too) and broad (ie. globally referenced, decade-sized time frames) replies Icarus and I have few quibbles.
Randomly:
Don't hate...participate. Are you employed in marketing? (Aren't we all?) [Me, kicking and screaming, against it (how am I doin so far?) preferring to...take it apart and look at it ("examining it" was of course too heavy on the marketing of it..and "investigation" 10 times worse).
Am I understanding this slogan to mean that the Walmart worker should not hate his circumstances, but participate...recognize that his labor (R you a Brit?) is only worth the $9/hr he is paid and continue his efforts in obtaining his PhD in brain surgery?
I think this is a Mach line representation of our host's position (that push for higher skills)...and it only exacerbates the problems I see: more with less...or less blatantly: fewer with concealed gobs and gobs.

But what I really wanted to bite on was "caste" vs "professional". That's next.

[CALLAHAN]

Here is an idea:

March with guns to DC, demand real campaign reform to include 6 month campaign period on public funds, no tv ads, no newspaper ads.

Still with guns in hand, remove most of those who occupy K street, next roundup wing nuts, put em on a boat and send em to iraq, next return all regular military to the U.S., next cut funding for the iraqian war.

Hire the Trumpster to fire all CEO's.

All of the above in combination with the departure of W and his cronies, and a new and better congress, stiff fines for those companies that would hire illegals, strong border security, business watchdogs, smiles from lady luck, and a little help from the mafia, and maybe just maybe things would get better, where better includes a narrowing of the income gap.

[calmo]

So, Callahan comes out of the closet ("guns in hand") [very small arms then?...I don't know that I could competently carry more than one per hand, you?] (possibly Callahan has big hands and fingers like a clump of bananas)... and declares himself a Moderate.
Ok, maybe not.
You know, (just know...like the smell of a rose) the wads of lipstick couldn't be thicker here, but that core message, act, (represent yourself & fuggedabout that miserable government representation)--is alright (All Right...like the way you blossomed with your first Love).

[CALLAHAN]

Calmo, yes I'm a moderate Libertarian/Independent with a two gun holster.

[Icarus]

Says...

Funny you mention the 1960s as the era where' "everybody had a place". This is an era where the Civil Rights Act needed its inception, where Women were largely out of the marketplace, and, where there were almost no Asians in the US. Is this the era you want to cry out for? There was also little in terms of modern Globalization...there was competition from Japan/Germany (hence US gold reserves dwindling), and, an Imperial War.

Yes, in the 1960s, the US was much more of a Keynesian economy, with a stronger Labour politics. Nixon, the Reagen crushed that after the 1970s, and we now are in an ere of dominance by finance capital.

Because of the dominance of unions during that time (post WW2 to around 1970), people with high school educations made, what, roughly $15/hour (in today's dollars), and could theoretically raise a 'middle class' family. What the market has taught us is that they were overpaid. Once those tasks could be done in overseas labour markets for much lower wage rates, and competition set in, we saw the beginning of the end.

Am I in any state of sympathy for the death of the US middle class? Not really. It was a largely exclusive group, which preyed upon a short phase in the global economy, and, was effectively collecting rents. If Kansas dissapears, many on the coasts won't really care. I'd rather have Bangalore rise, and Detroit dissapear, personally. And, I'd rather have a better educated, harder working person in another city succeed. Sorry, US nationalism means little to me...

[Icarus]

Reason...

While I agree that the future of consumer capitalism is gaudy, and potentially irresponsible in terms of the environment, our feelings mean little. Think of the wonderful things consumption has enabled in the past 40 years. It truly is amazing. A simulacra to make a living room couch dweller feel like king.

As much as I'd want to see it curbed, and us worship slightly wiser gods, the thing is, 5/6 of humanity have yet to experience such pleasure. So, yes, if we can improve the utility of more people, consumer capitalism has a strong life force left in it. We are far away from ubiquitous commoditization, and, that is the path we're on.

As much as you and I may hate coca cola, there's a population that hasn't really tasted it yet, and may have only seen billboards. Their 'desire' is our collective problem, and, it will eventually get them a sip.

[calmo]

Icarus is beating quite a drum hereIt [the US Middle Class] (most reading this should feel recognized) was a largely exclusive (I had a hunch I was exclusive...) group, which preyed upon a short phase (this could mean that some people were eaten, but rather than identify who, you (Icarus), turn at the last moment to the duration of the feast...whywazat?) in the global economy, and, was effectively collecting rents. (sure to bring on James Killus's club about thinking and not renting out that space between your ears)
So the picture I get from you is that it (you say "The US Middle Class", but I prefer "the boomers") created their own economic conditions (that bulge in consumption) which enabled them to prosper briefly at the expense of others (the trades, the generation behind them, the 3rd world countries and their workers & resources).
So rather than complain about the death of the middle class, recognize that it was a blip...and we are headed back to normal where the rich and powerful are not that sprawling overpaid predatory middle class...but that smaller, adequately compensated judicious few, pejoratively referred to in the Middle Class Era as the ruling class.
Izatit? Did I get the drum beat?

[Icarus]

Calmo...

A little off...here's the cliff-note version.

Post WW2, the US did enter a very unique, and fortunate era of its history. With the advanced economies battered, and the rest of the world escaping the yolk of colonialism, there was not much economic competition. And, from its own history of being the financiers for the two "World Wars", was in a unique position to shape the emerging global economy (an economy based on trade, and, one that initially involved US exports).

So, in the 1950s, and 1960s, these were 'golden years' for some, especially for its internal labour force. Post WW2, labour was a bit more scarce than ever (no global competition yet, and more manufacturing capacity than people to do the work). Unions had great strength, and obtained agreements which were historically nice (connecting employment to medical insurance, pensions, etc).
The very seeds of its undoing were already sown.

Eventually, other nations entered the competitive fray. Germany and Japan were first (by the 1960s), and after, a dozen or so 'advanced economies'by the 1970s/80s.

The were high on the value chain, and could export their way into relative excellence. South Korea and India had the same per capita gdp in 1960. By 1980, they looked like 2 very different nations. The US had to compete in a new climate...and free up capital from its labour constraints.

Nixon began the process by eliminating gold as a reserve, and Reagen exacerbated it greatly by fighting the private sector unions. The rise of neo-liberal rule. They even took over the IMF and World Bank by the 1980s, and ripped open economies here and there.

Now, post 1990, and really accelerating post 2000, we have the BRIC economies, and they've changed things tremendously.
Their capacity to enter this game forcefully, rationally, and viciously is a great payback from years of economic underdevelopment, and colonial rule. The revenge of the repressed, metaphorically.

So, yes, a population (the US middle class...you know, whom the depict on Roseanne and Drew Carey) which benefited tremendously from the state of the global economy in the 1950s and 1960s now have a much higher intensity of competition.
They have to compete with families raising children in China/South Asia, and one day, the Philipines, and Indonesia. Right there, we have half the world's population.

The 'good jobs' in a capitalist economy will grow, but, will always be scarce. These 'seats' will be bid upon by great students from all over. May the best win.
So, yes, there will be strong parts of the US middle class culture which will be trimmed like fat of a thick steak.

Perhaps one great day, the "Casserol" and the "Meat Loaf" at the dinner table in Kansas, will be a portrait of "What Was" in an exotic museaum in Banglare or Kuala Lumpur. Sounds good to me.

I know that sounds harsh...but, throughout the history of US Capital domination, there were no cries of horror at cultures being transformed and decimated overseas by the power of US capital. If US Fruit dominated an economy in some small Latin American country, and put people out of a livelihood...the US Middle Class could not be bothered. They were busy watching the Beaver. Well...this is payback. No one outside Kansas gives a shit about Kansas. That's the elephant in the room, in my opinion...that no one really cares about a group of people who are so ignorant, they can support a war in Iraq which they almost know nothing about. That level of dim-witted consent should be trimmed like fat on a steak...and obesity is a great metaphor for that culture, much as it is a great reality which they can't manage.

So yes, unlike Michael Moore, I have no assumption that this middle class is worth saving. The alternative interest me more.

[calmo]

Ok, a large (if Cliff Noted) drum and pretty authoritative beat too...you figure the US middle class (what happened to "caste"?) is the proper drum skin to beat here or would you be partial to looking at those principals who were instrumental in engineering this exploitation (Chomskyish view)?
That "harshness" here:That level of dim-witted consent should be trimmed like fat on a steak...and obesity is a great metaphor for that culture, much as it is a great reality which they can't manage.might be so brutal as to be self-mutilating...and your obvious strengths and capacity misdirected by the same means as those "dim-witted"...according to Noam anyhow.

[Icarus]

Calmo,

When I use the term "Professional Caste", I do so because professionals can cross class lines. We have engineers and accountants, who may earn c. $60,000/year, as well as Lawyers/Physicians/Consultants who can reach a half a million. This is a large group, and exceeds class. But, there are similirities in background and attitudes, and hence, the word 'caste'.

Sure, the engineers of exploitation and violence should be treated harshly by the court of opinion. I think people like Kissinger should be tried much like Goebels or any other war criminal.
But, the consenting mid-american population is also to blame. They live, willingly, under a shield of ignorance, and quasi-religioius nationalist idiocy. They are responsible, primarily, for the neo-conservative rise, and, yes, screw them. The world would be better off, now, without their presence.

Instead of calling it 'self-mutilating" (it's not...I'll be fine)...why not give me an argument. I hope you have more than Chomsky to quote.

[calmo]

Well, I have references Icarus, and Chomsky is one, but I'd hate to give you the impression that I'm a scholar. I have not even read a tenth of Chomsky's books for instance. I don't think it's even accurate to say that I'm a reader. I don't seem to have the patience anymore ...suspendingwhatevaitwas on those authors seems to be more than I can muster lately.
I wasn't expecting that (arbitrary it seems to me) distinction between "professionals" and "caste". We have engineers and accountants, who may earn c. $60,000/year, as well as Lawyers/Physicians/Consultants who can reach a half a million. This is a large group, and exceeds class. But, there are similarities in background and attitudes, and hence, the word 'caste'."Caste" has strong connotations (for me) of 19th c India and rigid class stratification that might correlate to occupations (what do I know of India's social structure?...diddly). Within professional structures we see this caste-like stratification. [eg. The Economics Dept might have a Chair, Full, Associate, and Assistant Professors, and senior lecturers. Similar stratification with larger law firms, accountant firms, engineering firms] Against that hierarchical rigidity we have the burgeoning middle class entering these professions (as you note in a previous comment) for the first time coming from working class backgrounds. Very un-caste like.
But this terminology thingie is not worth the trouble --I was just curious about what you meant.

This is worth the trouble: I seemed to have caught the "harsh" tone (attitude dude!) you used and spilled out "self-mutilation" and need to scale that back...down...something.
Not all of us can always think for ourselves. The "dim-witted"They are responsible, primarily, for the neo-conservative rise, and, yes, screw them.need a different kind of attention than bashing their little brains in. [Isn't this some of it right here?]
The more constructive approach might be to get some air in there between their ears somehow...which I know is going to take a ton of effort just to even imagine a gesture of compassion for this so un-compassionate self-centered, self-benighted group.
We (ok, esp you) cannot and must not adopt their behavior is what I want to say.

[Icarus]

Calmo,

I was using 'caste' in its largest connotation. Let go of the sociology of India in this regard...

And, yes, although perhaps we need to muster a 'sense of compassion' for this group we agree is self centered, with air between the ears, my response is simple...lets move on. There are other, more deserving people to muster sympathy for. I say we bury our pick up trucks, our casseroles, and country music...and press forward. I hope for an america which is more hispanic and asian...one that can finally escape the shackling of the european enlightenment, and can embrace a more dignified role in global relations. I dream of the day I can look at congress and see hardly any old white men. Ideally, I'd like to see spanish, chinese, and hindi as common second languages in the US...
Sure, there's some attitude...but, we should expect it. The US is currently the most evil nation state ever assembled. It pre-emptively attacks nations, demonizes their people without facts, ignores any semblance of law, and yet, screams justice.
They make war and call it peace...they eat lettuce and call it salad. Screw them.

[reason]

Calmo,
it seems our Icarus is a very curious person.

Passionately anti-imperialist but none-the-less a passionate supporter of red claw capitalism, a social darwinist extraordinaire. I understand what he is against, I just have a bit of a problem understanding what he is actually for. He seems to be a bit of an anarchist from my understanding of what he is saying (strange then that he isn't over at Brian Caplan's place, he might feel more at home there).

[Icarus]

Reason,

Ah, isn't is sooo much tougher to detail what one is for, as opposed to the illogics of what one is against?

No, I'm not a scion of red-claw capitalism. I just returned from Japan, and have spent some time in a few of the Asian Tiger economies recently, and, I can't stress how impressed I was. Singapore and Taiwan didn't affect me as much, simply because the complexity of leading a city state, or island state into the frontier of capitalism isn't quite as monumentous as doing so with a nation of 120 million (japan).

Japan is an amazing country...I was jealous, in fact, wishing my 'home' nation of India could mimic (theoretically) such fantastic planning, infrastructure, and social cohesion.

Of course, every nation has its problems (deflationary economy and immigration hesitation being major ones for Japan).

But, what am I for? I do embrace much of capitalism, without ignoring its historic injustices, and its perverse path towards existence. I mean, how did social property relations which arose through the logic of peasant uprisings in 14th century England get transposed all over the globe? There was much violence, obviously.
That said, as Capitalism rewards intelligent investment, in educational capital, social capital, and even finance capital...it requires a subject population to plan in exceeding detail. The Japanese seem to have mastered it quite well.

As for the social darwinism, perhaps I am a bit guilty. After all, Eugenics and such were an invention of the colonialist mindset, and justified some of their civilizational rhetoric.

I just don't see populations as "innocent" simply because they're ignorant. For example, after the Pohran Nuclear Tests by the Indian Government, quite a large population protested, stressing the inherent violence in such acts, and that they did not want their nation state to be corrupted by such acts. Even after a Pakistani terrorist group attacked a parliamentary building in Delhi, with machine guns, the response by the population was not to 'bomb Lahore'.
Manufacturing consent towards a violent end was not so easy in India. That's a good thing. That comes from not being able to quickly banish one's opponent into the world of the "other". I'm quite proud of this.
In the US, unfortunately, the state could manufacture the consent required to illegaly invade Iraq, through the drumbeat of an erroneous, farce-like littany of accusations. The sad thing was that the US population didn't really care, or have time to really investigate the reasons for war. They were busy with their American Idol. And now, perhaps 1 million deaths, and 2 million refugees later, they still have minimal time.

This is evil, in the most grotesque way, through the cult of indifference and entertainment. Easy to kill brown people when brown people are crazy arabs, regardless of the reality on the ground. Whether palestinians, iraqis, lebanese, doesn't matter.
So, yes, any social force which further marginalizes those that enable such forces to come to power would be beneficial to trim away. If the detroits and wichita's dissapear, I think we'd all be better off. Farmers in the developing world would benefit, we could all drive less expensive cars, and, hopefully, the political system would be less of a dim-witted charade with religious overtones.

[reason]

Icarus -
Me I'm from sunny Australia and living in Germany (a land once occupied by ancestors - the Celts and Ango-Saxons - hey you Germany for the Germans types I have a PRIOR claim!). I wish everybody well, even the lazy and ignorant. I guess, I agree with many of your solution, I just think the transition could be more gentle.

But I think your view of capitalism is a bit wrong. I think luck plays a bigger part than you do. The future is very hard to predict, some stumble on the best path through serendipity.

If you are from India, you must know cricket. Even Bradman got lots of ducks. Skill and effort play a part on average, but in any given innings success is not guaranteed. And life is like having one single innings.

I think the success of capitalism depends not just on rewarding the successful, but in not punishing the failures too hard. Humans are risk averse, security is important to them. If we promise we will pick them up when they fall, they will have the courage to run.