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October 30, 2006
Inequality and Power
Tyler Cowen has a thoughtful response to the meme that "[m]any intelligent Democrat bloggers are converging upon," namely, that income inequality and the ever-increasing share of productivity gains wrested by the rich are related to the increasing power of the upper class, and solutions will lie in increasing the power of the working class. Tyler takes a limited view of what that might mean, focusing his reply on the inadequacies of German unions and noting the general decline in union density across the industrialized world. I've got to a run to an event -- appropriately enough -- on challenges to America's growth, but a few quick points:
• It seems to me that Tyler elides the relevant issue, which is that the top 10 percent have captured virtually all the recent gains in productivity, and wages have stagnated for the middle class. Some attribute this in whole or in part to so-called "superstar economics", deunionization, globalization, immigration, redistribution policies, chutzpah, divine right, skills-biased technical change, education differentials, and any other number of fully, partially, or not-at-all plausible culprits. But few doubt that it's happening, and it seems like something economists and political thinkers should be trying to address.
• Tyler's undoubtedly right that unions are in steep decline. Organized Labor in the US has borne the worst of it, but that doesn't obviate the trend. In Europe, however, those density declines have come without large, correspondingly steep increases in inequality. Not so here. Nevertheless, unions may well not be the answer. It certainly seems they should be given a fair chance to compete and workers should be freed from the current system of heavily-corrupted NLRB elections, but it's certainly possible that once that's done, it'll turn out that they've no answers.
• On Germany more specifically, it's worth saying that the Social Democrat leanings of Germany and their expansive safety net make unions somewhat less important than they are here, simply because they've less benefits to wrest or guarantee. When most benefits are centrally guaranteed, unions don't need to grab them in piecemeal negotiations with individual employers or industries. Further, as one of Tyler's links (pdf) points out, the structure of German bargaining means that while only one out of five employees is in a union, two out of three work in an establishment covered by employer bargaining.
• Tyler also makes reference to Germany's coming two-tiered economy that's evading areas of union density. His supporting link (pdf) doesn't appear to offer much evidence for that, but I'll grant him the premise. What's also true is that America is moving into just such an economy, and doing so without Germany's expansive safety net. The Bureau of Labor Statistics expects the next ten years to see the most job growth in retail sales, followed by nursing, postsecondary teachers, customer service reps, janitors, waiters and waitresses, food preparation and serving, home health aides, nursing aides and orderlies, and managers. Only postsecondary teachers require advanced degrees. The rest of those jobs are all low wage, low paid, few benefits, and largely non-union. This doesn't strike me as a reassuring future for our economy, and if it's one we're comfortable predicting, it's one we should spend more time thinking about how to prepare for.
October 30, 2006 | Permalink
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Comments
I was just thinking of this terrible state of affairs in relation to those evil union killing, little guy crushing, big oil killing Wal*Mart monsters!
I did find a Leftist solution to this whole thing. If everybody would adopt the Liberal salary policies of Leftwing magazines the problems will be solved. If $264/week in DC is a living wage it should be fine anyplace else too.
Posted by: Guy Montag | Oct 30, 2006 9:30:21 AM
one quick note on international comparisons: you need to look at union coverage, not just membership/density.
France has a union density of just over 8% while 95% of the workforce is covered. When wage bargaining is done thru multi-employer or sectoral contracts, these measures can diverge greatly. Because of this, there is great support for unions in France and they can turn out many more people in support of their positions than, say, unions in the US which have higher membership rates.
I'm no expert at all in this, but, it does seem like between the securing of a comprehensive welfare state and coordinated wage-bargaining that much of what unions do in company-to-company fights in the US has been secured at a national level in some of the European countries, making the decline in union membership much less damaging than it seems.
joshb
Posted by: joshb | Oct 30, 2006 9:57:22 AM
As far as inequality goes, the people here who earn 19% of the income pay 37% of the income taxes. The people who earn the top 50% of the income pay 97% of the income taxes.
An "unequal" thing that I have finally warmed up to is eliminating filing and witholding for the bottom 50% as they only pay 3% of the taxes but the resources used to pester them are pretty pricey.
The above is only my position on the current tax mess. I prefer a flat rate for all.
Yes, I can't wait to see all of the nonsense about how that is too simplistic, so many things depend on keeping it the way it is now, blah blah, just like that marriage nonsense a few threads ago, LOL.
Posted by: Guy Montag | Oct 30, 2006 10:08:37 AM
The first part, the expanding power of the top 10%, doesn't seem like an issue to me. The government oversteps its authority when it tries to continually adjust the agreed upon rules to favor whichever side happens to be "losing". It's the process that matters, not the results. If the top 10% are gaining and the rules are fair, then there's nothing to change.
The second point, safety nets, is the most important. We could probably stand to improve our safety net, especially in regards to health care. But on the other hand, we don't want to go as far as Europe, where the safety net is more of a warm, comfortable bed to lay in to get yourself out of the cold. A safety net should be more like, "We don't want you to die of pneumonia standing out there, so here, sleep in my barn until it passes."
Posted by: Adam Herman | Oct 30, 2006 10:56:27 AM
Encouraging philanthropy is a much better avenue than forcing it.
Better how? In results, or in theory?
Posted by: Sanpete | Oct 30, 2006 1:16:46 PM
Cool. I'm able to respond to future posts!
Posted by: Sanpete | Oct 30, 2006 1:20:00 PM
Adam Herman,
Not much disagreement on your second paragraph, but I suppose implimintation ideas would differ.
On the first part, I personally do not believe in punishing anybody if they did nothing wrong. Being successful is not wrong, in my eyes.
Encouraging philanthropy is a much better avenue than forcing it.
Posted by: Guy Montag | Oct 30, 2006 1:33:11 PM
Sanpete,
Encouraging philanthropy is a much better avenue than forcing it.
Better how? In results, or in theory?
Well, in reality it is not philanthropy if it is at the barrel of a gun, now is it?
Your just asking this question puzzles me. I have been pretty darn poor in the past but never thought that people who had more stuff than me should be forced to give it to me or anybody else. I guess it is just the mindset of not being jealous of someone else's good fortune.
Also, as I have noted in other posts here, I have known people who had little or no means that already get State paid health care for cancer (the big scare example always used in health care posts) and other things and fail to see where that system is 'broken' for the truly needy in our society. These folks lived in relatively rural areas too.
Now, I do see a 'problem' with the segment of society that owns homes, cars and Winnabegos but 'can't afford' their to pay for their medications. The Honorable Vice President Albert Gore, Jr. used a lady in that category as a prop during the 2000 presidential debates.
The problem there is selfish snots who do not have their priorities in order.
Posted by: Guy Montag | Oct 30, 2006 1:53:53 PM
Guy, if you favor anything like the way things are now, you favor what I suppose you mean by "forced philanthropy." My point was that while it might be better as an ideal if we needed no force to support the poor and unlucky (or to build roads, maintain the common defense, and so on), that free love approach doesn't work as well as forcing those who have to give to those who don't. It's a question of how much of that is best, and how, rather than whether we should do it at all.
Some of your comments suggest to me that you're out of touch with some of the realities of poverty and catastrophic medical conditions. Things aren't so hunky dory.
Posted by: Sanpete | Oct 30, 2006 2:25:02 PM
Sanpete,
Perhaps you find that my experience with people who actually use some of the services that you feel do not exist, either from classes or from the press, to be "out of touch". So be it. Just because you do not believe something does not make it nonexistant.
If you think it is fine to punish people for being successful, like for mass producing a needed object for a much lower price than the old way and making it available to anybody with two nickles to rub together, that is fine too. I disagree whit that approach and find it to discourage people from improving.
Like I said, I really do not understand your approach but I am not going to dream up reasons why you have it.
Posted by: Guy Montag | Oct 30, 2006 2:40:22 PM
Adam, you made two statements that just don't work together: "The second point, safety nets, is the most important" and "The first part, the expanding power of the top 10%, doesn't seem like an issue to me." Clearly, the power of the top 10% is driving the lack of safety nets--if you want a strong safety net, you've got to empower those who demand strong netting. So even you "equality-of-opportunity" types should be on board for this, if only for pragmatic reasons.
Posted by: Dan Miller | Oct 30, 2006 3:06:27 PM
Guy, if you don't understand my approach, you don't understand your own. Do you or do you not favor some government safety net? Do you think it realistic to replace Medicaid with uncompelled charity? Were you the one just talking about not bothering to tax the poor?
I'm not sure what you think I deny the existence of. People who get help? I know they exist. What I'm pointing out to you is that there are also people unable to get help, who don't get medical care when needed until it's too late because no one will provide it for what they can pay, whose children don't get adequate housing, who fall between the cracks of both charity and government. That's why we need more/better help than we have now. You seem to deny that such people exist, that everyone gets or can get what they really need. Not so in any real sense.
Posted by: Sanpete | Oct 30, 2006 3:18:08 PM
The cost of government should be funded in accord with the percentage of assets owned and earned. Here are increases in national debt for the past few years. Note, increasing national debt shows the full extent of deficit spending.
9/29/2006 $574,264,237,491.73
9/30/2005 $553,656,965,393.18
9/30/2004 $595,821,633,586.70
9/30/2003 $554,995,097,146.46
9/30/2002 $420,772,553,397.10
9/30/2001 $133,285,202,313.20
9/30/2000 $17,907,308,271.43
Here are the taxes paid by quintile
Here is a pie chart of wealth distribution
As you can see from this chart, the bottom 50% owns 2.6% of the wealth; they are therefore overtaxed because their tax burden is 3.4%. The top 10% own 69.9% and the remainder, the 40% between the top 10 and the bottom 50% own 27.4%. That totals 99.9% of American wealth. Note, the chart is dated 2001. Since then, the upper groups have gained wealth, the lower have lost.
There is a correlation between wealth owned and income earned, but note; there are families with great wealth and low income because the wealth is considered unearned: from stocks, bonds, and other sources aside from the weekly paypacket.
It is clear that the Federal taxes are too low by 575,000,000 in order to meet federal expenses and that the people owning America are drastically undertaxed because they are in no way paying their fair share, which is under 65% when it should be over 70%.
Therefore, all talk of the rich being overtaxed is bunk.
Posted by: Mike | Oct 30, 2006 3:43:39 PM
Posted by: Guy Montag | Oct 30, 2006 7:08:37 AM As far as inequality goes, the people here who earn 19% of the income pay 37% of the income taxes. The people who earn the top 50% of the income pay 97% of the income taxes.
So it would seem that the principle beneficiaries of the system pay a larger proportion of the support of the system.
On the other hand, there is an income tax hidden in the Social Security surplus, which is another $150b+ hidden income tax under the absurd notion that the US government can "save" in assets that are its own liabilities to itself. That's an additional marginal tax rate of around 3% on wages and employment overheads for incomes from $0 to $90,000.
Posted by: BruceMcF | Oct 30, 2006 4:01:02 PM
Mike,
When we start taxing wealth a flat tax will work just fine there too.
Right now we are taxing income and punishing anybody for making a different income by giving them a higher rate is just wrong, in my opinion.
Posted by: Guy Montag | Oct 30, 2006 4:04:23 PM
Sanpete,
Guy, if you don't understand my approach, you don't understand your own.
If you think so.
Do you or do you not favor some government safety net?
I do. However, I am not in denial of one already existing. My old position, that was the same as yours, was destroyed by seeing people getting the help from government that I thought did not exist.
Do you think it realistic to replace Medicaid with uncompelled charity?
Nope.
Were you the one just talking about not bothering to tax the poor?
Actually, not the "poor" and perhaps I was not clear on what I was advocating. My back-of-envelope-calculations told me that bothering to collect taxes on the half of workers who fork over such a small amount of the total revenue should be skipped purly for practical reasons.
Expanding on that, if a flat tax is introduced I would prefer it to begin with the upper 50% of wage earners with those in the lower 50% exempt from personal income taxes. Adding more clarity, I don't care if they are married to six goats and a houseplant, the tax rate for their income should be the same as for a single person.
Posted by: Guy Montag | Oct 30, 2006 4:14:09 PM
Wow. No comment on that thread, sorry. Another day.
Mr. Klein, consider using the phrase "tournament economy" instead of "superstar". For better or ill, Barry Bonds and the estate of Kurt Cobain deserve their fortunes. They are superstars for a reason; their talents and skills may seem fungible, but their accomplishments indicate that they are not. "Tournament" better describes the Jack Welch's of this world, surely also a supremely skilled, talented and ambitious man, but one whose skills the data indicate are mostly if not entirely fungible but for one detail: he won the executive tournament.
Posted by: wcw | Oct 30, 2006 4:29:14 PM
Inequality of wealth generates inequality of power, which then generates even more inequality of wealth in an ever-perpetuating cycle. That is why government has to step in and set reasonable limits. Otherwise, the end state will be indistinguishable from any other form of totalitarianism. We all know that in a game of Monopoly, one person winds up with all the property and everyone else ends up broke. That's why every advanced capitalist society has mechanisms to prevent this from happening.
Loony libertarians like Guy Montag and Adam Herman really don't need to be taken seriously. We waste far too much time debating them here. It's not an intellectually serious ideology (for starters, they completely overlook the fact that private property itself is a creation of governments) and it has no real popular support. Furthermore, it is clear that there is at most a tangential relationship between freedom and strong property rights. China and Victorian England were both authoritarian societies with very strong property rights regimes, while the Scandinavian nations don't treat property as sacrosanct yet offer strong protection of civil liberties. Hayek was wrong about this and just about everything else (How's England going on the road to serfdom, these days?) Of course, you fools are probably using an even more intellectually worthless source, like that bitch Ayn Rand.
Posted by: Firebug | Oct 30, 2006 4:40:46 PM
"Adam, you made two statements that just don't work together: "The second point, safety nets, is the most important" and "The first part, the expanding power of the top 10%, doesn't seem like an issue to me." Clearly, the power of the top 10% is driving the lack of safety nets--if you want a strong safety net, you've got to empower those who demand strong netting. So even you "equality-of-opportunity" types should be on board for this, if only for pragmatic reasons."
They've got the votes, theoretically. 90% vs. 10%. What would you prefer, poor people get two votes, rich people get half a vote?
Also, the top 10% aren't standing in the way of getting a good safety net. The reason we don't have one is much more complicated than "Rich folks are greedy and don't want us to have one".
Posted by: Adam Herman | Oct 30, 2006 5:20:21 PM
"They've got the votes, theoretically. 90% vs. 10%. "
Yes, clearly. Because access to resources has no bearing on public policy outcomes. Go read Off-Center and some of the other literature on the topic (hell, Mancur Olson would be a good place to start) and then get back to me.
Posted by: Dan Miller | Oct 30, 2006 6:19:30 PM
Why don't you just show me evidence that the top 10%, or even the top 1% are inordinately likely to oppose improvements to the social safety net.
Those voters are coming from the middle class as much as the upper class.
Sorry to burst your class warfare bubble, but the real divide in America is one of ideas, not class. Half of us are mistrustful of government, the other half wants government more involved in our lives.
Posted by: Adam Herman | Oct 30, 2006 7:44:50 PM
Well, there's this. And this. And several chapters of this. Should I continue?
Posted by: Dan Miller | Oct 30, 2006 10:52:13 PM
It matters not how much money, in stocks or bonds or cash, that one has. Each adult has one and only one vote*.
*Unless you are a Democrat in a major city.
Posted by: Guy Montag | Oct 30, 2006 11:23:12 PM
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