Slate: The Great Divergence: The United States of Inequality....get ready to read

[AsburySkinsFan]

Yet it is one I hear from the religious social justice crowd all the time,not hard to see why it gets confused.

I cannot be held responsible when the economics support my position.

[twa]

I cannot be held responsible when the economics support my position.

You mean that interpretation of economics

[AsburySkinsFan]

You mean that interpretation of economics

Well it's obvious that the trickle down economics of free market capitalism is not raising all boats in the harbor proportionately as we were told it would.

[twa]

I don't recall proportionality being promised,perhaps some need to throw off the dead weight?...or quit drilling holes in their boat to let the water out.

[Hubbs]

:applause: :applause: :applause:

ASF, I know I bicker with you in plenty of other threads, but on this issue I couldn't agree with you more. Rising income disparity is a problem. And figuring out the proper solution to that problem is very important.

[Destino]

Yeah because minimum wage costs, health care costs, retirement contribution costs and other related costs are too much to discuss.

It is all about companies profits and getting rich and not about simple realities.

Here is a clue, if you make it too costly to hire an employee, you probably wont.

Great clue.... now tell us how the lowest on the income scale of which you are referring to when you discuss min wage would greatly impact the economic disparity that is the subject of this thread? Is it your contention that lowering the min wage would shrink the wealth gap? Of course not. Of course the employees being cut aren't the min wage workers exclusively and you know that so you mention retirement? But then again lowering the cost of workers wouldn't do a damn thing to address the subject of this thread.

Awesome point you made man. Glad you chimed in. Where would we be without classic examples of economic thinking that create the problem.

True, that's why companies are hiring illegals.

So your point is?

The examples continue.

BTW Asbury, Slate.com isn't going to go to fight for your religious beliefs. But keep on keeping on

Hey look at that unrelated nonsense thrown in for good measure.

Yet it is one I hear from the religious social justice crowd all the time,not hard to see why it gets confused.

And yet this isn't a religious thread and you know that. Would you like to discuss the religious implications of knowingly supporting policy that disenfranchises those most in need?

I don't recall proportionality being promised,perhaps some need to throw off the dead weight?...or quit drilling holes in their boat to let the water out.

And I don't remember any part of trickle down economics sales presentation including a massive increase in the wealth gap and the creation of an American aristocracy. But then again you guys aren't done cementing that are you? Still have to finish off the death tax and then lower capital gains a little more. Because clearly this policy is working so well that we should totally expand it.

[Fergasun]

This seems to be something I call the "great squeeze". It is related to the worker having less power. Consider the fact that the baby boomers represent a large mass on the labor market... thus an increase supply in labor. Then, their wives start to enter the workforce, more increase supply in labor. Then when all American wives and husbands are working, let's bring in the illegals and outsource. Certainly there's no crime in outsourcing. But, to be honest, I think it *should be* a crime. The jobs are only cheaper because other countries don't have the same labor, minimum wage and other laws. It's kind've perverse but compliance to the law is more expensive than simply working around it.

Another way the great squeeze works. I don't get why health care costs are going up. In the past 3-4 years wages have been flat, but health care costs have gone up something like 30% total (10% a year). I have no source for the statistic, but I know my health care premiums have gone up. I don't know why. There must be a shortage of doctors, or else some health insurance company and doctors would come up with a way to provide it for cheaper without sacrifice to the quality. Yet, no one talks about a shortage of doctors.

[Fergasun]

My interpretation of the graphs:

After WWII the rich were a lot nicer, until after 1976 which caused them to become a bunch of greedy prikces...

I blame Jimmy Carter... *edit* THIS IS A JOKE!

Or perhaps late 1970s early 1980s is when the rich people figured out they could exercise a lot more political power and began to do so to their own benefit.

How does inflation factor into this as well?

[elkabong82]

As I read the article, and as I read this post one thought keeps coming to my mind, and I'm confused as to why so many find this a mystery, and it seems that the reason this divergence is so apparent is simply that Capitalism is working perfectly. The law is that those running publicly traded companies have a fiduciary responsibility to increase profits and the share-holders stock holdings as such it was inevitable that there would come a point in time when our economy reached a critical mass when expense cuts finally started to cut into the actual workforce at which point the employees became the liabilities to the companies. So those at the top kept cutting workers and freezing pay rates all the while their profits kept climbing. Sooner or later something had to give, and it would seem that the justifiable cost liability was seen as the employees.

It would seem that in the end Capitalism is on the verge of devouring itself.

That's an interesting way to look at it. It's true that in an ideal capitalist system that the elite would be substantially so, to the point that what trickles down from them is enough to viably sustain the rest. Essentially it encourages an aristocracy to develop. However, even with the goal of excess in capitalism, its goal is to elevate everyone on a top-to-bottom scale. So unlike a typical aristocracy where hoarding occurs at the top, with capitalism the trickle down is necessitated. Unfortunately that trickle seems to be a mere drip right now and the average person's wallet is being stretched thin.

A democracy allows for checks and balances; ideally it serves as an equalizer. We have the ability to get the drip back to a trickle, heck, once upon a time we had it as a steady flow. I believe if we focus on those same methods, specifically increasing taxes on the wealthy and introducing luxury taxes, the average person can get that stream back.

[Art Monk Fan]

I've always been an advocate for replacing the federal income tax with a federal sales tax, including a premium on luxury items. It is naturally progressive, without involving the politics of class warfare.

The wealthy buy more stuff and the stuff they buy is more expensive, therefore they would pay a larger portion of taxes without fighting class wars about income tax rates. Necessities can be excluded from the tax and the poorest Americans could continue in their largely tax-free existence.

What I don't see in any of the charts is an accounting of the proportion of taxes paid and government services consumed. What portion of the overall tax income to the federal government does the top 1% pay? What portion of government services do they consume?

I think this is a missing component that would need to be examined in the whole situation. If an argument can be made that engineering better wage growth equality would result in a lessening of services needed and perhaps an overall shrinking of the necessary annual tax income to the government, I'd sure like to hear about it.

[TimmySmith]

Interesting, but actually the whole thing is basically a pyramid scheme. To me, the income disparity really stems from the fact that the middle & lower classes are so willing to incur debt, (cars, credit cards, houses, lifestyles above their heads). And guess who owns that debt? If the middle and lower classes were less inclined to live above their means the disparity would be much less.

[stanleys]

The gap exploded in the 70s, the same time that Free Agency hit professional sports......

I'd love to see what the disparity is with professional athletes excluded.

[GoCommiesGo]

I've always been an advocate for replacing the federal income tax with a federal sales tax, including a premium on luxury items. It is naturally progressive, without involving the politics of class warfare.

The wealthy buy more stuff and the stuff they buy is more expensive, therefore they would pay a larger portion of taxes without fighting class wars about income tax rates. Necessities can be excluded from the tax and the poorest Americans could continue in their largely tax-free existence.

I strongly agree with this, America needs a VAT. Their has to be some way to collect taxes on luxury purchases, similar to the European model.

[AsburySkinsFan]

Interesting, but actually the whole thing is basically a pyramid scheme. To me, the income disparity really stems from the fact that the middle & lower classes are so willing to incur debt, (cars, credit cards, houses, lifestyles above their heads). And guess who owns that debt? If the middle and lower classes were less inclined to live above their means the disparity would be much less.

The fact that the middle class incurs debt has nothing to do with income divergence, if we were discussing retirement planning etc then maybe you'd have a point but if anything the debt increase should also increase the workforce and pay. What you're discussing is how that money is spent by the middle class, not how it is paid to them, those are two totally different issues.

[endzone_dave]

The thing is, it's not going to get any better. CEO's aren't going to open up their wallets and hand out their money. Our governement isn't going to start forcing companies to spend 5 times more on a US person to assemble parts than the foreign people they have doing it now.

The harsh reality is if you don't have a valuable skill, you're not going to get paid very much. If you want i-pods, HDTV's, a nice car, a nice house, good health insurance... you had better make your self valuabe in the workplace.

If your little Billy is good at football, that's great. But you need to tell little Billy that if he doesn't work hard in school and get good grades, life is a lot tougher.

[December90]

The reality is as was stated in the articles that while the income on the low end has gone up slightly, the incomes on the top end have increased dramatically. Education cannot account for that.

By your own words, income on the low end has gone up slightly.

So I ask the question, why do "outcome" have to be equal?

Would people take financial risks if it were not for financial rewards? Why shouldn't a "wealthy" person be able to risk his fortune for the chance at an even bigger fortune. The fact that some are much better as seizing opportunity than others does not mean that those high achievers are "bad." Shouldn't high achievement be something to strive for? Are we really a better place if we say "since I can't have it, you can't either?"

I am not in the top 1%, but rather than drag them down to where I am, I would like the opportunity to pull myself up to where they are. If I fail, that does not make those who succeeded evil, it just means that I need to change something in what I did, maybe even learn some lessons who have reached where I want to go.

[chipwhich]

Is it your contention that lowering the min wage would shrink the wealth gap?

Wealth gap exists in every society, and so does increasing inequality.

So your point is?

The only "fix" is for new ideas, or new revolution to move through a society and create new wealth.

It won't get fixed through payroll. And surely you must understand what business operating costs consists of. Taxes, benefits, retirement, increasing salary, etc, etc. As costs of doing business goes up, costs of employing people goes up. Those costs aren't typically absorbed by erasing company profits.

[AsburySkinsFan]

The thing is, it's not going to get any better. CEO's aren't going to open up their wallets and hand out their money. Our governement isn't going to start forcing companies to spend 5 times more on a US person to assemble parts than the foreign people they have doing it now.

The harsh reality is if you don't have a valuable skill, you're not going to get paid very much. If you want i-pods, HDTV's, a nice car, a nice house, good health insurance... you had better make your self valuabe in the workplace.

If your little Billy is good at football, that's great. But you need to tell little Billy that if he doesn't work hard in school and get good grades, life is a lot tougher.

So apparently you didn't even read the articles.

[endzone_dave]

So apparently you didn't even read the articles.

From the article "Yet few of these experts have much idea how to reverse the trend."

My post aligned with that statement.

[AsburySkinsFan]

By your own words, income on the low end has gone up slightly.

So I ask the question, why do "outcome" have to be equal?

You're going to have to explain what you're asking here, are you asking why I see a problem with the growing income divergence?

Would people take financial risks if it were not for financial rewards? Why shouldn't a "wealthy" person be able to risk his fortune for the chance at an even bigger fortune. The fact that some are much better as seizing opportunity than others does not mean that those high achievers are "bad." Shouldn't high achievement be something to strive for? Are we really a better place if we say "since I can't have it, you can't either?"

Why has it gotten worse since the 70's? People in the last hundred years of our nation have reaped the financial rewards etc that you mention, but that simply does not explain why the divergence has been growing over the last 40 years, to the point of eliminating the middle class and creating an aristocratic class.

I am not in the top 1%, but rather than drag them down to where I am, I would like the opportunity to pull myself up to where they are. If I fail, that does not make those who succeeded evil, it just means that I need to change something in what I did, maybe even learn some lessons who have reached where I want to go.

Well that's certainly the American myth.

[AsburySkinsFan]

From the article "Yet few of these experts have much idea how to reverse the trend."

My post aligned with that statement.

Ok, so we give up and just accept it?

You talked about being more valuable in the workforce, but the problem is nearly the entire workforce is being devalued. What we're finding is that the "work hard", "study hard" to get a good job is simply a myth when those holding the purse strings aren't valuing those things anymore.

[AsburySkinsFan]

Importing Inequality

Why We Can't Blame Income Inequality on the Post-1965 Immigration Surge

Part III

http://www.slate.com/id/2266025/entry/2266506/

In June 1970, when I was 12, my family moved from New York to California. We didn't know it at the time, but our migration came at the tail end of a historic trend that predated California's entry into the union. Starting with the 1849 Gold Rush (which prompted Congress to grant statehood), California had been a place whose population grew mainly because people from other parts of the United States picked up and moved there. In the 1870s, Hoosiers tired of the cold and settled Pasadena. In the 1930s, Okies fled the Dust Bowl and followed Route 66 to the Central Valley. In the 1940s and 1950s, engineers descended on South Bay to create an aerospace industry. My family's migration came about because television production had been relocating from New York City to Los Angeles for about a decade. (My dad was a TV producer.)

After 1970, people kept coming to California, and new industries continued to sprout there (most notably in Northern California's Silicon Valley). But the engine of population growth ceased to be native-born Americans leaving one part of the United States for another. Instead, California's population grew mainly because foreign-born people moved there. The catalyst was the Immigration and Nationality Act of 1965, which eased up on immigration restrictions generally and on restrictions affecting non-Europeans in particular. Since 1970, the foreign-born share of the U.S. population (legal and illegal) has risen from 4.8 percent to 11 percent. More than half of U.S. immigrants now come from Mexico, Central and South America, and the Caribbean. Although a substantial minority of immigrants are highly skilled, for most immigrants incomes and educational attainment are significantly lower than for the native-born.

Did the post-1965 immigration surge cause the Great Divergence?

The timing is hard to ignore. During the Great Compression, the long and prosperous mid-20th-century idyll when income inequality shrank or held steady, immigration was held in check by quotas first imposed during the 1920s. The Nobel-prizewinning economist Paul Samuelson saw a connection. "By keeping labor supply down," he wrote in his best-selling economics textbook, a restrictive immigration policy "tends to keep wages high." After the 1965 immigration law reopened the spigot, the income trend reversed itself and income inequality grew.

But when economists look at actual labor markets, most find little evidence that immigration harms the economic interests of native-born Americans, and much evidence that it stimulates the economy. Even the 1980 Mariel boatlift, when Fidel Castro sent 125,000 Cubans to Miami—abruptly expanding the city's labor force by 7 percent— had virtually no measurable effect on Miami's wages or unemployment.

George Borjas, an economics professor at Harvard's Kennedy School, rejects this reasoning. Looking at individual cities or regions, he argues, is the wrong way to measure immigration's impact. Immigrants, he observes, are drawn to areas with booming economies. That creates a "spurious positive correlation between immigration and wages," he wrote in a 2003 paper. Immigration looks like it is creating opportunity, but what's really happening is that immigrants are moving to places where opportunity is already plentiful. Once a place starts to become saturated with cheap immigrant labor, Borjas wrote, the unskilled American workers who compete with immigrants for jobs no longer move there. (Or if they already live there, they move away to seek better pay.)

Instead of looking at the effects of immigration in isolated labor markets like New York or Los Angeles, Borjas gathered data at the national level and sorted workers according to their skill levels and their experience. He found that from 1980 to 2000, immigration had reduced the average annual income of native-born high-school dropouts ("who roughly correspond to the poorest tenth of the workforce") by 7.4 percent (see Table 3). In a subsequent 2006 study with Harvard economist Lawrence Katz, this one focusing solely on immigration from Mexico, Borjas calculated that from 1980 to 2000, Mexican immigrants reduced annual income for native-born high-school dropouts by 8.2 percent. Illegal immigration has a disproportionate effect on the labor pool for high-school dropouts because the native-born portion of that pool is relatively small. A Congressional Budget Office study released a year after Borjas's study reported that among U.S. workers who lacked a high-school diploma, nearly half were immigrants, most of them from Mexico and Central America.

Immigration clearly imposes hardships on the poorest U.S. workers, but its impact on the moderately-skilled middle class—the group whose vanishing job opportunities largely define the Great Divergence—is much smaller. For native-born high-school graduates, Borjas calculated that from 1980 to 2000, immigration drove annual income down 2.1 percent. For native-born workers with "some college," immigration drove annual income down 2.3 percent. Comparable figures for Mexican immigration were 2.2 percent and 2.7 percent. (For all workers, annual income went down 3.7 percent due to all immigration and down 3.4 percent due to Mexican immigration.) To put these numbers in perspective (see Figure 1), the difference between the rate at which the middle fifth of the income distribution grew in after-tax income and the rate at which the top fifth of the income distribution grew during this period was 70 percent. The difference between the middle fifth growth rate and the top 1 percent growth rate was 256 percent.

Another obstacle to blaming the Great Divergence on immigration is that one of Borjas' findings runs in the wrong direction. From 1980 to 2000, immigration depressed wages for college graduates by 3.6 percent (see Table 3). That's because some of those immigrants were highly skilled. But the Great Divergence sent college graduates' wages up, not down. To reverse that trend would require importing a lot more highlyskilled workers. That's the solution favored by Alan Greenspan. In his 2007 book The Age of Turbulence, the former Federal Reserve chairman proposed not that we step up patrols along the Rio Grande but that we "allow open migration of skilled workers." The United States has, Greenspan complained, created "a privileged, native-born elite of skilled workers whose incomes are being supported at noncompetitively high levels by immigration quotas." Eliminating these "would, at the stroke of a pen, reduce much income inequality."

Gary Burtless, an economist at the Brookings Institution in Washington, proposes a different way to think about immigration. Noting that immigrants "accounted for one-third of the U.S. population growth between 1980 and 2007," Burtless argued in a 2009 paper that even if they failed to exert heavy downward pressure on the incomes of most native-born Americans, the roughly 900,000 immigrants who arrive in the United States each year were sufficient in number to skew the national income distribution by their mere presence. But while Burtless' methodology was more expansive than Borjas's, his calculation of immigration's effect was more modest. Had there been no immigration after 1979, he calculated, average annual wages for all workers "may have risen by an additional 2.3 percent" (compared to Borjas's 3.7 percent).

The conclusion here is as overwhelming as it is unsatisfying. Immigration has probably helped create income inequality. But it isn't the star of the show. "If you were to list the five or six main things" that caused the Great Divergence, Borjas told me, "what I would say is [immigration is] a contributor. Is it the most important contributor? No."

[AsburySkinsFan]

Computer Exceptionalism

Did the tech boom create inequality?

Part IV

http://www.slate.com/id/2266025/entry/2266508/

"What you earn," Bill Clinton said more than once when he was president, "is a function of what you can learn." That had always been true, but Clinton's point was that at the close of the 20th century it was becoming more true, because computers were transforming the marketplace. A manufacturing-based economy was giving way to a knowledge-based economy that had an upper class and a lower class but not much of a middle class.

The top was occupied by a group that Clinton's first labor secretary, Robert Reich, labeled "symbolic analysts." These were people who "simplify reality into abstract images that can be rearranged, juggled, or experimented with" using "mathematical algorithms, legal arguments, financial gimmicks, scientific principles, psychological insights," and other tools seldom acquired without a college or graduate degree. At the bottom were providers of "in-person services" like waitressing, home health care, and security. The middle, once occupied by factory workers, stenographers, and other moderately skilled laborers, was disappearing fast. Did computerization create the Great Divergence?

Our story begins in the 1950s, at the dawn of the computer age, when homo sapiens first began to worry that automation would bring about mass unemployment. Economic theory dating back to the 19th century said this couldn't happen, because the number of jobs isn't fixed; a new machine might eliminate jobs in one part of the economy, but it would also create jobs in another part. For example, someone had to be employed to make these new machines. But as the economists Frank Levy of MIT and Richard J. Murnane of Harvard have noted, computers represented an entirely different sort of new machine. Previously, technology had performed physical tasks. (Think of John Henry's nemesis, the steam-powered hammer.) Computers were designed to perform cognitive tasks. (Think of Boris Kasparov's nemesis, IBM's Deep Blue.) Theoretically, there was no limit to the kinds of work computers might eventually perform. In 1964 several eminent Americans, including past and future Nobel laureates Linus Pauling and Gunnar Myrdal, wrote President Lyndon Johnson to warn him about "a system of almost unlimited productive capacity which requires progressively less human labor."

Such a dystopia may yet one day emerge. But thus far traditional economic theory is holding up reasonably well. Computers are eliminating jobs, but they're also creating jobs. The trouble, Levy and Murnane argue, is that the kinds of jobs computers tend to eliminate are those that require some thinking but not a lot—precisely the niche previously occupied by moderately skilled middle-class laborers.

Consider the sad tale of the bank teller. When is the last time you saw one? In the 1970s, the number of bank tellers grew by more than 85 percent. It was one of the nation's fastest-growing occupations, and it required only a high school degree. In 1970, bank tellers averaged about $90 a week, which in 2010 dollars translates into an annual wage of about $26,000. But over the last 30 years, people pretty much stopped ever stepping into the lobby of their bank; instead, they started using the automatic teller machine outside and eventually learned to manage their accounts from their personal computers or mobile phones.

Today, the job category "bank teller" is one of the nation's slowest-growing occupations. The Bureau of Labor Statistics projects a paltry 6 percent growth rate during the next decade. The job now pays slightly less than it did in 1970, averaging about $25,000 a year.

As this story plays out in similar occupations—cashiers, typists, welders, farmers, appliance repairmen (this last already so obsolete that no one bothers to substitute a plausible ungendered noun)—the moderately skilled workforce is hollowing out. This trend isn't unique to the United States. The Japanese have a word for it: kudoka. David Autor, an MIT economist, calls it "job polarization," and he has demonstrated that it's happening to roughly the same extent within the European Union as it is in the United States. But Autor readily concedes that computer-driven job polarization can't possibly explain the entire trend toward income inequality in the United States, because income inequality is much greater in the United States than it is in Europe.

Another problem that arises when you try to attribute the income-inequality trend to computers is that the Great Divergence began in the late 1970s (see Figure 2), well before most people had ever seen a personal computer. By the late 1990s, as businesses stampeded to the Internet, inequality slackened a bit. If computers were the only factor driving inequality, or even the main factor, the opposite should have happened. A final problem is that the income premium for college or graduate-level education gradually slackens off at higher incomes, even as income inequality intensifies. If computers required ever-higher levels of education to manipulate ever-growing quantities of information in ever-more rococo ways, then we'd expect the very richest people to be the biggest nerds. They aren't.

Here, then, is a dilemma. We know that computers put a premium on more highly educated workers, but we can't really demonstrate that computers caused the Great Divergence. What is it that's so special about computers? Harvard economists Claudia Goldin and Lawrence Katz offer an interesting answer: Nothing!

Yes, Goldin and Katz argue, computer technology had a big impact on the economy. But that impact was no larger than that of other technologies introduced throughout the 20th century, starting in 1900 with the dynamo that Henry Adams famously swooned over at the Paris Exposition. Between 1909 and 1929, Katz and Goldin report in their 2008 book, The Race Between Education and Technology, the percentage of manufacturing horsepower acquired through the purchase of electricity rose sixfold. From 1917 to 1930, the proportion of U.S. homes with electricity increased from 24 percent to 80 percent. By contrast, from 1984 to 2003, the proportion of U.S. workers using computers increased from 25 percent to 57 percent. Computer use has spread quickly, but not as quickly as electric power did during the early part of the 20th century. "Skill-biased technological change is not new," Katz and Goldin wrote in a 2009 paper, "and it did not greatly accelerate toward the end of the twentieth century."

Contemporary culture is so fixated on the computer revolution that the very word "technology" has become an informal synonym for "computers." But before computers we witnessed technological revolutions brought on by the advent of the automobile, the airplane, radio, television, the washing machine, the Xerox machine, and too many other devices to name. Most of these earlier inventions had much the same effect as the computer—that is, they increased demand for progressively higher-skilled workers. But (with the possible exception of radio) none of these consumer innovations coincided with an increase in inequality. Why not? Katz and Goldin have a persuasive answer that we'll consider later in this series.

[hkHog]

I think the main reason for this is technology. It is now easier than ever to replace workers with computers/robots and for people with really good ideas to be more productive than ever. Businesses can be far more streamlined and productive and this means more money to the people who run them relative to the rest of the population. Fewer and fewer people can create more than ever before and therefore wealth is accumulating at the top. Surely, there are other factors but I think technology is far and away the most important factor to this trend.

[AsburySkinsFan]

I think the main reason for this is technology. It is now easier than ever to replace workers with computers/robots and for people with really good ideas to be more productive than ever. Businesses can be far more streamlined and productive and this means more money to the people who run them relative to the rest of the population. Fewer and fewer people can create more than ever before and therefore wealth is accumulating at the top. Surely, there are other factors but I think technology is far and away the most important factor to this trend.

Ok, before I address this I'll just point to the post directly above yours which addresses the issue of technology and shows that the affect is negligible.