The essay is truly horrible. I don't have the time to take it to bits, but a couple of starting points:
- he conflates earnings and effort, as if by earning 100 times you were necessarily 100x more productive at some point.
- related: wealth is categorically different. The worst chess player and the best chess player must both play the same game. But if chess were wealth, the poor guy would have to carve his own pieces and rent the hall, while the rich guy would turn up and sit while the game played itself, no effort required
- he's right that the middle-classes are the true engines of wealth creation, not the rich. This is the crux of the problem: income inequality destroys the middle class. It leaves only very poor and very rich. No middle class = no wealth generation. That is why it's an issue for everyone, and no amount of "smart people who work hard deserve to control 99% of capital" changes that.
Could you define "middle class", and perhaps explain how income inequality "destroys" it? By most common definitions, your statement can't be true.
Taking a typical relative definition, if the middle class is [50-X%, 50+X%], then by definition the middle class always makes up 2X% of the nation and nothing can destroy it.
If you take an absolute definition of middle class (i.e., middle class = home with X ft^2/person, tv, car, refrigerator), then inequality is pretty much unrelated to how many people are middle class.
In short, for your claim to be true, you must be using some uncommon definition of middle class. It would help to explain what it is.
The number of people who are middle class or higher has remained contant since 1970. Using Alan Krueger's definitions, all inequality has done is moved people from middle class to rich. Is that a bad thing?
Yes, if it leaves in its wake massive income inequality.
The middle class is the engine of wealth generation. It both spends high proportions of its income and has enough income to start new enterprises. A middle class drives an economy.
What you are asking is if it's OK for the middle class of merchants to shrink because many are now rich enough to be lords and kings. That may be, but it still leaves a society with no merchants: only the very poor and very rich.
It both spends high proportions of its income and has enough income to start new enterprises.
Why can't a middle class person who became "rich" (although most people don't consider >1.5x median to be rich) do the same thing?
Suppose my income dropped dramatically and I suddenly entered the "middle class" (by Alan Krueger's definition - I'm actually middle class by the definition of most people). How would this make it easier for me to start new enterprises?
Why can't a middle class person who became "rich" (although most people don't consider >1.5x median to be rich) do the same thing?
Starting new businesses: It's more a matter of "Don't" than "Can't." A middle-class person who became rich is either tending the business that got them there or has otherwise lost the impetus of need that drove them to start a business. If your income suddenly dropped dramatically, what would you do: adjust to your new income level and be happy, or strive immediately to retain your previous level?
Spending income: It's easy to spend 99% of a median income. It's almost impossible for the very wealthy to spend anything like what they make.
Additionally, there are only so many needs to be filled. It's more economically productive to have a very large number of people willing and able to buy modestly priced items than it is to have a very small number wanting to buy very highly priced items.
You clearly haven't read any of the articles cited in this thread. Alan Krueger defines middle class as more than $25k/year, but less than $75k/year (at contemporary income levels). Rich is presumably $75k or more. The middle class has shrank because people have moved from $65k to $85k.
This has absolutely nothing whatsoever to do with the very wealthy.
If you have evidence that people going from $50k to $80k is bad for the economy, go ahead and present it. You haven't yet. All you've presented are vague misconceptions and demonstrated you don't understand the numbers under discussion.
Sorry, if you want to turn this into a flame war, I'm out. I understand that it's difficult to see or admit flaws in a system and an industry that has personally benefitted you, but the flaws remain nonetheless.
In particular, you have not provided evidence for your contention that the middle class has shrunk solely because people have moved "from 65k to 85k", you have shown only that they have not dropped below 25k.
The facts -- income stagnation and wealth inequality -- are in direct opposition to your "the disappearance of the middle class is fine, they're just getting rich" fantasy. People have either gone to exceptionally above 85k, are stagnant, or are dropping towards the lower end.
What they are not doing is just edging into "rich". That's not a supportable claim.
And, ultimately, irrelevant. The problem is income inequality, the shrinking middle class is its symptom. If you have evidence that a society can survive this level of wealth inequality, please present that.
...you have not provided evidence for your contention that the middle class has shrunk solely because people have moved "from 65k to 85k", you have shown only that they have not dropped below 25k.
True - $65k -> 85k was an example. Let me be more precise: the middle class has only shrunk because people have moved from X to Y, where $25k < X < $75k and Y > $75k. I.e., no one became poorer, and some people became richer.
The facts -- income stagnation and wealth inequality -- are in direct opposition to your "the disappearance of the middle class is fine, they're just getting rich" fantasy. People have either gone to exceptionally above 85k, are stagnant, or are dropping towards the lower end.
No one is dropping towards the lower end. The number of people at the lower end (below $25k) is the same (about 25%). Since the number of people between $25k and $75k shrank, it must be because the number of people above $75k increased. That's just basic arithmetic.
You still have yet to show how people's income exceeding $75k causes any harm at all, short of vague hints that it's almost impossible for them to spend anything like what they make.
"Let me be more precise: the middle class has only shrunk because people have moved from X to Y, where $25k < X < $75k and Y > $75k. I.e., no one became poorer, and some people became richer."
Again, you haven't shown this, either. Many people could have gone from $65k to $35k while a few moved from $65k to $650k on the same set of facts. That nobody has dropped below the baseline of the middle class does not mean it is not shrinking or that nobody in it has gotten poorer.
"You still have yet to show how people's income exceeding $75k causes any harm at all"
This is not the point. The point is that massive wealth inequality causes the harm. A shrinking middle class is a symptom of that inequality.
Whether or not you continue to deny or justify the symptoms is not going to change the facts of the underlying disease. I'm not going to show you how dying causes cancer.
>Could you define "middle class", and perhaps explain how income inequality "destroys" it?
It's political economy 101. I don't understand your bizarro counter-arguments. Take the first for example:
>Taking a typical relative definition, if the middle class is [50-X%, 50+X%], then by definition the middle class always makes up 2X% of the nation and nothing can destroy it.
It cannot destroy the existence of the category named "middle class", but it can very much destroy its living conditions. It's not just being in the 50%+-X range, it's also what that range represents in purchase power.
>If you take an absolute definition of middle class (i.e., middle class = home with X ft^2/person, tv, car, refrigerator), then inequality is pretty much unrelated to how many people are middle class.
Only in a bizarro world where the wealth is magically readjusted to account for inequality. In the real world this inequality is caused by wealth moving from the middle to the upper classes.
For example, a company moves its factories to China. The middle class families making a living around the US factory and the nearby city are devastated, but the company executives get even richer because of the higher margins.
It's not just being in the 50%+-X range, it's also what that range represents in purchase power.
In the US, the purchasing power of that range has dramatically increased over the years. We live in bigger houses, consume better medicine, more food, more education, more and better electronics and entertainment, etc.
I think you'll be hard pressed to find a single category in which contemporary Americans have less than 1970's Americans, for any reasonable value of x. If you dispute this, go ahead and find that single category.
Only in a bizarro world where the wealth is magically readjusted to account for inequality. In the real world this inequality is caused by wealth moving from the middle to the upper classes.
Are you seriously calling a world of economic growth and technological process "bizarro world"?
We have become vastly wealthier than we were at any historical period, ignoring short term fluctuations (e.g., recessions). In the 1970s, the bottom 11% didn't have flush toilets.
For example, a company moves its factories to China. The middle class families making a living around the US factory and the nearby city are devastated, but the company executives get even richer because of the higher margins.
Hahaha! Now I know you are writing a parody of something - first complaining about inequality, then complaining about wages becoming more equal.
>> I think you'll be hard pressed to find a single category in which contemporary Americans have less than 1970's Americans, for any reasonable value of x.
x = time and unencumbered balance sheets. The gains you indicate are partially the result of the other 50% of working-age adults (women) entering the labor force. The expected outcome of this is average household income increasing ~100%, with net increasing somewhat less due to childcare expenses.
Arguably this trend had mostly played out by the early 90s, when consumer debt came to the rescue in the forms of credit cards, securitized mortgages, and educational loans, which allowed the trend to continue. Outstanding consumer debt is much higher today than in 1970.
So while economic growth and technological progress have helped the middle class, they don't tell the whole story. And taken alone, they don't provide a useful roadmap for the future.
You are making large omissions of quality when claiming things like "more" food and "more" education. America's educational rankings are descending rapidly. More HFCS is not more cane sugar.
"go ahead and find that single category."
Income expectations for their offspring are lower now for contemporary Americans than 1970s Americans.
If you want historical comparisons, you will be hard pressed to find a single successful society that has maintained income equality at anything like current US levels without collapse, economic devastation or massive human rights violations. Which of those three are acceptable in the quest to be the richest-ever?
Income expectations for their offspring are lower now for contemporary Americans than 1970s Americans.
No, income expectations for the offspring of Americans are far higher than they were in the 1970s.
However, when you include immigrants and their children in the mix, the numbers appear disproportionately low. This is due entirely to Simpson's paradox.
"However, when you include immigrants and their children in the mix, the numbers appear disproportionately low."
Your post doesn't adjust for immigration levels. In particular, income stagnation was not similar at previous periods when immigration was at comparable or higher levels.
>I think you'll be hard pressed to find a single category in which contemporary Americans have less than 1970's Americans, for any reasonable value of x. If you dispute this, go ahead and find that single category.
I hear this argument all the time, but it doesn't seem to match reality as I've personally observed it. Example: my uncle, who had only a high school education, was a delivery driver for a bakery, and he had a wife who didn't work, 2 kids, a house, and a car. The idea that somebody like him (like, say, his son-in-law, who works the same job for the same employer to this day) could do that now is laughable - unless his family qualified for government assistance, which might actually be true for a family of four on that income.
I didn't say that relative wages were the same for every single category of employment. I said that consumption of virtually every category of consumer good and service has increased across the board for virtually every income category.
I'm not talking about a category of employment as in "delivery driver," I'm talking about a category of employment as in "jobs accessible to bottome 50% of people." If relative wages are declining in that category, it's hard to make a case for increased prosperity, unless you're just talking about the other half, or about increased work hours.
If relative wages are declining in that category, it's hard to make a case for increased prosperity...
I think you meant to say "if absolute wages are declining". Increased prosperity could easily make relative wages decline - the bottom might increase by 10%, while the top might increase by 20%.
But forget the bottom 50%, lets look at people below the poverty line. Even most people below the poverty line today have a house (with 2 rooms per person) and a car. And that house has all sorts of amenities that were uncommon even for the mid to upper classes in the 1970's.
The numbers suggest the lifestyle formerly characterized as "middle class" is now accessible to virtually every American. I.e., we have more now than ever before.
Anyone below the poverty line with a house is probably not paying for it themselves. If they're more likely to have houses now, it's probably because they're getting Section 8 now instead of apartments in the projects.
>In the US, the purchasing power of that range has dramatically increased over the years. We live in bigger houses, consume better medicine, more food, more education, more and better electronics and entertainment, etc. I think you'll be hard pressed to find a single category in which contemporary Americans have less than 1970's Americans, for any reasonable value of x. If you dispute this, go ahead and find that single category.
This conflates technological and process improvements (e.g. a CPU with 100 times an CPU 's PC power can now be made with 1/1000 of the money) with increases in actual purchasing power.
This also forgets that wealth is relative. A piss-poor Mississippi kid might now have a mobile phone, which in 1980 it would cost tens of thousands of dollars to have (if it was even possible). That doesn't mean the kid is richer than Gordon Gecko, it just means that the scale has changed.
See this for example:
American men in their 30s are earning less than their father's generation did (…) The study was produced by a handful of politically diverse think tanks including the Pew Charitable Trusts, the American Enterprise Institute, the Brookings Institute, the Heritage Foundation and the Urban Institute. It looked at income levels of American men in their 30s, which can be a good indicator of lifetime income. (…) Relying on Census Bureau figures, the study's authors found that after adjusting for inflation, men in their 30s in 2004 had a median income of about $35,000 per year, for a 12 percent drop compared with $40,000 per year for men in the same age group in 1974. (cnn.com)
>>Only in a bizarro world where the wealth is magically readjusted to account for inequality. In the real world this inequality is caused by wealth moving from the middle to the upper classes.
Are you seriously calling a world of economic growth and technological process "bizarro world"?
No, what I call bizarro world is that place you describe where "inequality is pretty much unrelated to how many people are middle class".
>We have become vastly wealthier than we were at any historical period, ignoring short term fluctuations (e.g., recessions). In the 1970s, the bottom 11% didn't have flush toilets.
Again, conflating technological and manufacturing progress (and cheaper prices for certain products) with wealth.
From Wikipedia: "12.3% fell below the federal poverty threshold and the bottom 20% earned less than $19,178". And this "less than $20K annual", is for household incomes, not personal.
>Hahaha! Now I know you are writing a parody of something - first complaining about inequality, then complaining about wages becoming more equal.
Yes, it must be "hahaha"-level funny for all the families in foreclosures, the homeless, the dying communities with an industry in decline, et al.
And, no, I'm not complaing about "wages becoming more equal", I'm complaining about wages entering a race to the bottom.
If the chinese made $1/hour and US workers made $20/hour, getting the chinese to $2/hour and the US workers to $5/hour is not the kind of equality we were discussing. How about raising Chinese wages WITHOUT fucking the american middle class over (and eventually the Chinese too, as it both caps their salaries and kills their market)?
Here's where your argument breaks down: technological advancements that make people's lives better now than they ever have been despite weaker purchasing power are made possible by the your so-called race to the bottom fueled by off-shoring. The reason even our poorest citizens are able to afford toilets that flush and cellular phones is because of off-shoring. And no, off-shoring isn't simply done to increase margins, although it does in the short term - it's done also to undercut competitors prices, which is exactly the kind of "race to the bottom" that makes lives so good for American consumers. And the best part? All those Chinese workers have jobs and aren't simply subsistence farming anymore. An increase in global productivity makes lives better for everyone, not just the ultra-rich.
This conflates technological and process improvements (e.g. a CPU with 100 times an CPU 's PC power can now be made with 1/1000 of the money) with increases in actual purchasing power.
The study you cite says income went up, it's just distributed more evenly between men and women (i.e., it went up for women by more than it went down for men).
Again, conflating technological and manufacturing progress (and cheaper prices for certain products) with wealth.
What do you think wealth is, if not technology, goods and servies?
How about raising Chinese wages WITHOUT fucking the american middle class over (and eventually the Chinese too, as it both caps their salaries and kills their market)?
The American middle class has more goods and services than ever before. So does the Chinese middle class. What else do you want - ponies for all?
Your biggest complaints seem to be that women and the Chinese are now allowed to compete with you. I.e., your complaint isn't really with inequality at all, it's more with the elimination of inequality.
he conflates earnings and effort, as if by earning 100 times you were necessarily 100x more productive at some point
No I don't:
"When we talk about "unequal distribution of income," we should also ask, where does that income come from? Who made the wealth it represents? Because to the extent that income varies simply according to how much wealth people create, the distribution may be unequal, but it's hardly unjust."
"I explicitly say that variation in productivity is only one source of variation in income [...] where does that income come from? Who made the wealth it represents?"
This shows the same problem -- productivity (effort) of the individual is not identical with wealth creation (earnings) and hence the two have different consequences for the individual's compensation and its justification.
A person (your CEO) who is a 100x more productive (which I do have difficulty conceiving) does not necessarily generate 100x more wealth. Jobs was replaced by Tim Cook, and Apple continues to create astonishing amounts of wealth. Is that because Cook is actually as productive as Jobs? Was Jobs in fact replaceable?
No, it's actually that the wealth created by Apple was attributable to Apple. Yes, it took a particular person to start Apple and forge it into a wealth-creating machine, but that forms a different kind of compensation argument.
Sever that link between an individual's productivity/effort and the earnings of their company, and it becomes vastly harder to justify a CEO earning 100x more than an employee.
I realise the difference is subtle, and that's why it's often missed. But the output of a person and the output of a thing they created are not identical, and you can't conflate the output of the creation with the creator's effort.
Why not? If I grow some wheat on a farm, don't I get to take credit for photosynthesis and perhaps the nearby river? How is creating a company any different from growing plants?
Because other people are involved. EG If you hire three farm hands, you can no longer say that the revenue of the farm is directly related to your productivity. It is now related to the productivity of the farm.
A big problem is that the two don't vary together in many cases, because the people who create the wealth often do not succeed in capturing it.
A good example is scientific and mathematical discoveries. Judea Pearl's work on Bayesian networks has created a large amount of wealth, some of it pretty directly, but he himself has seen very little of that.
I would hypothesize that the correlation between wealth-creation and wealth-capture is actually not very high, because a large amount of value creation is indirect and sometimes time-delayed, making it hard for the wealth-creator to capture the result. Alas, attempts to fix the accounting process so that people who create value have some sort of ownership interest in it (patents) often seem to produce new problems that are possibly worse than the original ones.
- he conflates earnings and effort, as if by earning 100 times you were necessarily 100x more productive at some point.
- related: wealth is categorically different. The worst chess player and the best chess player must both play the same game. But if chess were wealth, the poor guy would have to carve his own pieces and rent the hall, while the rich guy would turn up and sit while the game played itself, no effort required
- he's right that the middle-classes are the true engines of wealth creation, not the rich. This is the crux of the problem: income inequality destroys the middle class. It leaves only very poor and very rich. No middle class = no wealth generation. That is why it's an issue for everyone, and no amount of "smart people who work hard deserve to control 99% of capital" changes that.