Growth and its discontents

I’m a bit unsatisfied with the final graphs of my Inequality-who-cares post from yesterday. Herewith a few attempts at clarification and extension, probably not for the last time.

There should be no question that for many, many people, faster economic growth is a matter of life and death, especially in the developing world. My GDP post speaks to where the U.S. is on that score. Faster growth doesn’t solve everything, and it can create other problems, but you can’t diminish its importance. As I mentioned previously, low or zero growth with increasing poverty provokes political interest in inequality, which is why Thomas Piketty is now rich. If you care about inequality for its own sake, however, growth is not enough. The burden of TP’s blockbuster book is that growth under capitalism has generated inequality and may continue to do so.

What are really in question are productivity, properly adjusted for environmental costs, and distribution. With higher productivity, we can work less, play more, and still have more stuff. We can decide how much of our increased productive capacity to deploy to leisure time. In that context, there is still the issue of distribution, or inequality. You can have more or less inequality with less or more growth. In circumstances of economic growth, is inequality still salient? I would say yes. It may not be as important to the poor as a higher floor on living standards, but it’s still a legitimate concern.

The growth agenda stripped naked of weak promises of greater social welfare is an invitation to a lottery, also known as greater mobility. People prefer limited, unfair chances at reward to no chance at all. So they buy Powerball tickets and they buy into Horatio Alger tales. For the sake of growth, we are encouraged to look askance at labor organizing and social insurance (‘don’t kill the Golden Goose’), the key components of an equality agenda.

People forget that mobility is a double-edged sword. Your lottery ticket’s prize can be hugely negative. It’s wonderful when by a combination of effort, talent, and good luck somebody rises from the bottom to the top. But with unchanging inequality, someone has also fallen from the top to the bottom, not necessarily because of any personal deficiencies.

There is also the politics of growth-meritocracy-mobility versus inequality. (Data point: an article alleging the Administration’s flagging interest in inequality, courtesy of Tom Philpott. By my previous post, this interest can be questioned.) I want to argue that the politics of anti-poverty are weak, beyond a minority, core constituency of some well-off liberals and some poor, mostly people-of-color people. There has been no integrated working class constituency for anti-poverty action for some time, even under conditions where poverty has recently increased. By contrast, an equality-anchored agenda under such conditions may carry promise, not least because growing inequality squeezes the lower sixty percent of the income distribution closer together. We become more like the old 19th century populist dichotomy of “tramps and millionaires.” We evolve to an appreciation of class.

In my previous post I contrasted my own view with what I described as the ‘liberal’ position. My liberal friend Bob Lucore pointed out that my view is coincident with that of the Americans for Democratic Action (on whose national board I once sat, so to speak, and would happily sit again). This is certainly true. Liberals are an ideologically diverse group. I wish the ADA had enough adherents to conquer the world. It would be a much better place. Alas, the common use of liberal is more closely associated with the president than with the ADA.

Some time soon we’ll unpack “neo-liberal.” That will be fun.


Who cares about inequality?


A lot of people are enjoying cheap dates with expressions of concern. To cut to the chase, what you propose to do about inequality matters more than the fact that you have recognized it. So what do our anti-inequality champions propose?

Take President Barack Obama (please!). Here’s a speech to the Center for American Progress, which does some good work (the Center, that is). And here’s an excerpt:

“Their [the “middle class”–MBS] frustration is rooted in their own daily battles — to make ends meet, to pay for college, buy a home, save for retirement. It’s rooted in the nagging sense that no matter how hard they work, the deck is stacked against them. And it’s rooted in the fear that their kids won’t be better off than they were. They may not follow the constant back-and-forth in Washington or all the policy details, but they experience in a very personal way the relentless, decades-long trend that I want to spend some time talking about today. And that is a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead. I believe this is the defining challenge of our time . . . “

See what he does there? He pairs up inequality with upward mobility, notwithstanding their utterly different meanings. After all, you could have crazy good mobility (people rising and falling all the time in income levels) and absolutely no change from today’s inequality.

Mobility is necessary to meritocracy, and meritocracy as a social ideal sucks eggs. Take the vastly diverse distribution of talent, mix in the inevitable storms of good and bad luck, there’s your inequality.

Mobility is not the same thing as just reward. Mobility is market-based, and markets are not just. Often they are not even markets after the economists’ mythical ideal, but mere commerce. Justice is defined by philosophers and operationalized democratically, and philosophers do not run markets, much less commerce. Mobility speaks to the Horatio Alger myth.

Obama again:

“[S]uccess doesn’t depend on being born into wealth or privilege, it depends on effort and merit.”

What happened to inequality? What do we know about the distribution of effort and merit? Lots of people work like dogs. Is their reward proportional to their effort? As for merit, where does that come from? Picking the right parents helps a lot. Of course individual initiative can come into play, but see ‘work like dogs’ above.

I would say the alternative to mobility-meritocracy is two things. One is economic security for those with no assets but their own labor power. That means decent (subject to democratic decision-making) minimum standards of labor compensation and adequate family allowances for those unable to work. Within that framework, there is still room for differences in wages. Two is the non-proliferation of extreme levels of wealth, levels having no conceivable relationship to contribution, levels that render democratic institutions impotent. Levels like we have now.

Obama again:

“Together, we forged a New Deal, declared a War on Poverty in a great society. We built a ladder of opportunity to climb, and stretched out a safety net beneath . . . “

The New Deal was primarily about employment and episodic relief. The War on Poverty as far as end results go was also about relief (minimum income support levels). Opportunity much less inequality was not much in evidence. Income guarantees are fraying at the edges these days, not least because of the welfare reform of 1996, in which many Democrats are deeply invested.


“Now, it’s true that those at the top, even in those years, claimed a much larger share of income than the rest: The top 10 percent consistently took home about one-third of our national income. But that kind of inequality took place in a dynamic market economy where everyone’s wages and incomes were growing. And because of upward mobility, the guy on the factory floor could picture his kid running the company some day.”

Note, by POTUS, inequality is o.k. sometimes! In terms of definitions, you could have incomes rising from top to bottom and the same or greater inequality. (I grant you that in this circumstance, nobody would care about inequality.) The upshot is that inequality is not really the problem, in this line of reasoning. This is another illustration of the difference between liberalism and alternatives on the left. It is not a difference of degree; it’s a difference in kind. In principle.

The axe I’m grinding is summed up in this from BHO:

“So the basic bargain at the heart of our economy has frayed.”

My jaundiced interpretation of ‘that bargain’ is that inequality is fine as long as the rising tide is lifting all boats. You may think it’s fine, so you’re a liberal and God love you. I love you. But I suggest that the search for that rising, beneficent tide, constrained by meritocratic, market-loving rhetoric, is doomed. You can’t get there from here. Economic growth impedes social progress, not because more stuff is bad, but because nobody wants to be the pooper at the party. If we enter a period of growth (if!) blinded by delusions about opportunity, oblivious to the need for more social security, not less, and absent a strong labor movement, inequality will worsen. There might be somewhat less poverty, obviously a good thing, but there will be more dispersion of income and wealth blossoming outside the realm of democratic moderation.

If you follow the president’s closing paragraphs — his proposals for action — you will find they are focused on economic growth (how well is a different question), with a generous serving of opportunity, and scant regard for compression of the income and wealth distribution, or the expansion of social insurance. (Beware vague calls to “strengthen Social Security.”)

So who really cares about inequality?

P.S. Related: This is good, on who deserves what.

The irrelevance of tax reform

The Gov needs money. I’m as entertained as anyone else by speculations about how to improve the tax code. It certainly could be improved. But there is a much simpler way to increase collections — enforce the tax code we already have. About one in six dollars owed is not paid on time, or ever.  The solution is simple: give the over-burdened Internal Revenue Service more money. I wrote about this some years ago, but now as my twin brother The Dude says, new shit has come to light: a report from the Center on Budget and Policy Priorities.

Jared Bernstein elaborates here in the Washington Post, and the New York Times editorial page takes note.

One of my pet peeves is that in budget score-keeping, which is the process of estimating the impact of new legislation on the Federal budget deficit, extra spending on the IRS counts as an addition to the deficit, whereas there is little doubt that more money for enforcement would bring in more revenue and reduce the deficit. I brought this up with a couple of score-keepers once, and they said such estimation was too difficult to do for technical reasons. I don’t believe it.


Why we suck

This chart from the Federal Reserve Bank of Philadelphia depicts one of our central economic dilemmas. The most recent jobs report was perhaps the best yet since the start of the Great Recession, in 2007. Economic growth is real, but it proceeds on … Continue reading