Income inequality in America has taken an enormous leap upwards since the mid-1980s, leaving us today with a society that is as unequal as America was in the pre-Great Depression Gilded Age.
Income inequality in America has taken an enormous leap upwards since the mid-1980s, leaving us today with a society that is as unequal as America was in the pre-Great Depression Gilded Age.
March 20, 2007 at 09:04 PM in Inequality | Permalink | Comments (1) | TrackBack (0)
Robert Waldmann proposes what sounds to me to be a better way to estimate the distribution of income from capital:
Robert's Stochastic thoughts: When one attempts to measure inequality, one faces the problem that much of the income of the very rich is... capital gains and the deeper problem that the variable of interest is income plus capital gains and not income or even income plus realised capital gains.... A standard approach to this problem is to report the distribution of income excluding capital gains and the distribution of income plus realised capital gains.
I have a suggestion for a third calculation....
In theory retained (reinvested) profits should show up as capital gains to shareholders. In (simplistic) theory realised capital gains should be a moving average of capital gains obtained year by year. In practice, the stock market bounces up and down insanely and realisations are, in the short run, extremely sensitive to changes in the tax code....
[A] simple way to assign retained earnings to individuals which is crude but might be useful. There are aggregate data on... [the] dividend payout ratio.... There are individual data on dividends received. Why not just divide dividends received by the dividend payout ratio? This will give dividend income plus the corresponding share of retained earnings owned as a shareholder. If there were not systematic differences in the dividend payout ratio of firms whose shares are owned by high and low income people, this will work fine. There are such systematic differences of course, but I doubt that they are huge....
This is a way to immunise estimates of the upper tail of the income distributions to changes in dividend payout without infecting the estimates with vulnerability to irrational exuberance....
[There are] tax shelters in which overstated depreciation of structures hides true income, and then when the structure is sold the hidden income appears as a capital gain. The amount of this activity fluctuated enormously.... When accelerated depreciation was introduced in 1981... it became huge... tax rates were cut and the practice was specifically banned in 1986.... The period after tax reform shows a huge spike in reported personal income of the richest 1%....
I would guess that true inequality increased even more than inequality of reported personal income in the period 1979-1986 as increasingly massive amounts were hidden from the IRS in this period. Similarly, I would guess that the huge increase in the share of the top 1% from 86 through 89 is largely the effect of a reduction in such sheltering...
March 20, 2007 at 09:04 PM in Inequality | Permalink | Comments (0) | TrackBack (0)
A Preliminary Inequality Reading List:
Thomas Piketty and Emmanuel Saez (2004), "Income Inequality in the United States, 1913-2002" http://elsa.berkeley.edu/~saez/piketty-saezOUP04US.pdf
Samuel Bowles and Herbert Gintis (2002), "The Inheritance of Inequality" http://www.umass.edu/preferen/gintis/intergen.pdf
Lisa Barrow and Cecilia Rouse (2005), "Does College Still Pay?" http://www.bepress.com/cgi/viewcontent. cgi?article=1097&context=ev
Paul Krugman (1993), "The Rich, the Right, and the Facts" http://www.pkarchive.org/economy/therich.html
Paul Krugman (1992), "Inequality and Ignorance" http://www.pkarchive.org/economy/IgnoranceInequality.html
Paul Krugman (1996), "The Spiral of Inequality" http://www.motherjones.com/news/feature/1996/11/krugman.html
Paul Krugman (2002), "For Richer" http://www.motherjones.com/news/feature/1996/11/krugman.html
Paul Krugman (2006), "Graduates vs. Oligarchs" http://www.truthout.org/cgi-bin/artman/exec/view.cgi/48/17995
Thomas Lemieux (2004), "Residual Wage Inequality: A Re-Examination" http://emlab.berkeley.edu/users/webfac/saez/e291_s04/lemieux.pdf
Orley Ashenfelter and Cecilia Rouse (1998), "Schooling, Intelligence, and Income in America: Cracks in the Bell Curve." November, 1998. http://www.irs.princeton.edu/pubs/pdfs/407.pdf
Cecilia Rouse (1997), "Further Estimates of the Economic Return to Schooling from a New Sample of Twins." July, 1997. http://www.irs.princeton.edu/pubs/pdfs/388revised.pdf
Claudia Goldin and Ceci Rouse (2000), "Orchestrating Impartiality: The Impact of Blind Auditions on Female Musicians,"American Economic Review, 90, no. 4 (September 2000): 715-741. http://www.jstor.org/view/00028282/ap000014/00a00030/0?currentResult=00028282%2bap000014%2b00a00030%2b0%2c01%2b20000900%2b9995%2b79999099&searchID=8dd55340.10893069360&frame=noframe&sortOrder=SCORE&[email protected]/018dd5534000501264bc2&dpi=3&viewContent=Article&config=jstor
Mark Thoma reads Edward Bellamy on inequality: http://economistsview.typepad.com/economistsview/2006/12/how_inequality_.html
Bookmarks on del.icio.us tagged with "inequality" by jbdelong: http://del.icio.us/jbdelong/inequality
February 07, 2007 at 09:37 PM in Inequality | Permalink | Comments (0) | TrackBack (0)
Second Gilded Age Cultural Studies Watch, or O Michael Berube! Thou Shouldst Be Blogging in This Hour!
In a Super Bowl commercial--a commercial that I thought was astonishing for a company that is in the process of a slow-motion layoff of half of its hourly workers--GM broadcast the Robot's Loser's Progress yesterday:
GM Reveals Its Obsession in Super Bowl XLI Ad - AutoMotoPortal.com: Everyone at General Motors obsesses about quality these days - even the robots in the assembly plants. During the CBS telecast of Super Bowl XLI on Feb. 4, GM will launch the next phase of a corporate campaign that began last fall with the introduction of the GM 100,000 Mile Warranty. A new 60-second TV spot, called "Robot," will tell consumers about GM's continuing focus on quality. Created with GM by Deutsch LA, the spot features a small robot that is part of a GM assembly line. Unfortunately, the robot makes a tiny mistake: it drops a screw. The line shuts down and the employees in the plant banish the little robot from the premises. The robot's anguish over its mistake helps to remind consumers that every 2007 GM car and light-duty truck is now covered by a 100,000 mile/five-year powertrain limited warranty, and illustrates GM's obsession about quality...
What AutoMotoPortal.com doesn't tell you is the robot's post-firing Loser's Progress: the robot works a succession of lower-paid jobs, gets increasingly depressed, and at the end of the commercial commits suicide by throwing itself off a bridge--before waking up and realizing that it was all a bad dream.
In another Super Bowl commercial, Kevin Federline dreams about being a rap star while in "reality" he works the fryolater at a fast-food restaurant:
BBC NEWS | Entertainment | Federline advert causes offence: A US advert starring Britney Spears' estranged husband, Kevin Federline, has angered a fast food trade group. The 28-year-old pokes fun at his stalled music career as he daydreams of hitting the big time while serving French fries at a takeaway. The National Restaurant Association says the advert suggests restaurant work is "demeaning and unpleasant". But advertiser Nationwide Mutual Insurance insists Federline is the only one being mocked.
The commercial will be shown on 4 February during the Super Bowl - US TV's highest-rated broadcast, commanding the highest fees for advertising. Rapper Federline, also known as K-Fed, launched his music career amid a blaze of publicity but only sold 6,500 copies of his debut album, Playing with Fire, in the first week of its release...
I am not imagining this, am I? The underlying background assumption of these commercials is contempt for the men and women who serve the fast food and work the loading docks and deliver the pizzas and staff the call centers of America, isn't it? The exectives of GM and Nationwide Insurance and their creative ad professionals think that denying the dignity of labor is the road to selling annuities and SUVs to the fiftysomethings with spare cash watching the Super Bowl, isn't it? This is a Sign of the Apocalypse for our current Second Gilded Age, isn't it? Or am I overreacting?
This is out-of-my-league. We need a Trained Professional Cultural... Studies Person... A Trained Professional Cultural Student... A Trained Professional Cultural Studier... We need Michael Berube or Bitch Ph.D. or Bad Subjects or The Valve here, as soon as possible.
Robot:
Federline: http://www.nationwide.com/nw/featured-ads/index.htm?WT.srch=1&WT.mc_id=bgs00023
February 07, 2007 at 09:36 PM in Film, Inequality, Social Democracy, Television | Permalink | Comments (0) | TrackBack (0)
For Project Syndicate http://www.projectsyndicate.org/. What kinds of inequality and how much we should worry about it depends on the counterfactual:
How much should we worry about inequality--on the global level, on the societal level, on the personal level? Answering that question requires that we first answer another question: "Compared to what?" What is the counterfactual, what is the alternative situation against which we are going to judge the degree of inequality that we see? Florida is a much more materially unequal society than Cuba. But the right way to look at the situation--if Florida and Cuba are our alternatives--is not to say that Florida has too much inequality, but that Cuba has much much too much poverty.
On the global level, it is hard for me to make the argument that inequality as one of the world's major political-economic problems. It is hard for me at least to envision changes in economic policies or in political arrangements over the past fifty years which would have transferred any significant portion of the wealth of today's rich nations of the global North to today's poor nations of the global South. I can easily envision changes that would have impoverished nations now in the rich North: Communist victories in the post-World War II elections in Italy and France would have done the job for those countries. I can easily envision changes that would have enriched nations now in the poorer South: the promotion of Deng Xiaoping to the post of China's paramount leader in 1956 rather than 1976 would certainly have done the job for China. But alternatives that would have made the South richer at the price of reducing the wealth of the North? I find those much harder to imagine, without a wholesale revolution in human psychology
On the personal level, it is also hard for me at least to make the argument that a great deal of political-economic worry should be spent on the problem that some people are richer than others. Some have worked harder; some have applied their intelligence more skillfully; some have been better people; some have been worse people; many more have just been lucky enough to be in the right place at the right time. But are there alternative political-economic arrangements that could make individuals' relative wealth closely correspond to their relative moral or other merit? I don't see what they might be. The addressable problems are those of poverty and social insurance, of safety net, not of inequality.
But on the level of individual societies, on the level of nations, I believe that inequality does loom as a serious political-economic problem. In the United States, the average earnings premium received by those with four-year college degrees over those with no college has gone from 30% to 90% over the past three decades. This is a matter of supply and demand: the skill requirements of the American economy have outstripped the educational system's ability to educate and train, skills acquired through formal education have become more relatively scarce as a factor of production, the education earnings premium has risen, and the income and wealth distribution has pulled apart. Ceci Rouse and Orley Ashenfelter of Princeton University report that they find no signs that those who receive little education do so because education does not pay off for them: if anything, the returns to an extra year of schooling appear greater for those who get little education than for those who get a lot. Odds are that a greater effort to raise the average level of education in America would have both made the country richer and produced a much more even distribution of income and wealth by making educated workers more abundant and less-skilled workers harder to find and thus worth more on the market.
Again in the United States, corporate CEOs and their peers and near-peers make ten times as much today relative to the patterns of a generation ago. They do not do this because a CEO's work effort level and negotiation and management skills are in relative terms ten times as valuable to a corporation today as they were to a corporation of a generation ago. They have risen because of a reduction in the ability of other corporate stakeholders to constrain the freedom of top managers and high financiers to direct the value added in their direction.
Similar patterns are found in other countries across the globe. Within each country, odds are that the increase in inequality that we have seen in the past generation is predominantly a result of failures of social investment and changes in regulations and expectations, and has not been accompanied by any acceleration in the overall rate of economic growth. For the most part, it looks like these changes in economy and society have not resulted in more wealth but in an upward redistribution of wealth: a successful right-wing class war. The easiest counterfactuals to imagine are those in which greater public investments in education and greater moral, legal, and cultural constraints on the freedom of action of those at the top produce an equal or greater amount of total wealth and income with a lower degree of inequality.
This kind of inequality should be a source of concern. Bill Gates, Paul Allen, Steve Ballmer, and the other hundred-millionaires of Microsoft are brilliant, hard-working, entrepreneurial, and justly wealthy. But only the first 5% of their wealth can have any justification as part of an economic reward system to enourage entrepreneurship and enterprise. And the last 95% of their wealth? It would create much more happiness and opportunity if divided evenly among the citizens of the United States or the world than if they were to consume any portion of it.
Moreover, an unequal society cannot help but be an unjust society. The very first thing that any society's wealthy try to buy with their wealth is a head start for their children. And the wealthier they are, the bigger the head start. Any society that justifies itself on a hope of equality of opportunity cannot help but be undermined by too great a degree of inequality of result.
In the United States, the problem of inequality has two dimensions: insufficient effort to educate, and insufficient control by other stakeholders' of the ability of the top 50,000 or so earners' discretion. In other countries the problem of inequality has these two but also other dimensions as well. In all it is something we should worry about, because we can see in our minds' eyes alternatives that would make for better, healthier, happier, and equally well-off societies.
February 02, 2007 at 01:05 PM in Inequality | Permalink | Comments (0)
The inheritance of inequality is strikingly large in America today: if the father's lifetime was 100% above the American average for his day, the son's lifetime income will on average be 65% above the American average for his day. That's a lot of inherited inequality. Is this unequal distribution of wealth, income, and status in the United States today the result of the fact that a genetic elite has risen to the top in a "fair" IQ-driven meritocracy?
No.
This high degree of inherited inequality isn't because high IQ genetic eliteness genes are being passed down from fathers to sons. As Samuel Bowles and Herbert Gintis (2002), "The Inheritance of Inequality," report:
The direct effect of IQ on earnings... presented in Bowles, Gintis, and Osborne (2002a)... is 0.15, indicating that a [one] standard deviation change in the cognitive score, holding constant... remaining variables... changes... earnings by about one-seventh of a standard deviation.... An estimate of the causal impact of childhood IQ on years of schooling... is 0.53 (Winship and Korenman 1999). A rough estimate of the direct and indirect effect of IQ on earnings... is then... 0.15+(0.53)(0.22) = 0.266....
h is the heritability of IQ.... The value cannot be higher than 1, and most recent estimates are substantially lower, possibly more like a half or less.... [C]ouples tend to be more similar in IQ than would occur by random mate choice.... [The] genetic correlation of parent and offspring [is] (1 + m)/2....
Using the values estimated above, we see that the contribution of genetic inheritance of IQ to the intergenerational transmission of income is (h2(1+m)/2)(0.266)2 = .035(1 + m)h2. If the heritability of IQ were 0.5 and the degree of assortation, m, were 0.2 (both reasonable, if only ball park estimates) and the genetic inheritance of IQ were the only mechanism accounting for intergenerational income transmission, then the intergenerational correlation [of lifetime income] would be 0.01, or roughly two percent the observed intergenerational correlation [of lifetime income between parents and children].
Two percent is simply not a large number. Factors that currently account for two percent of lifetime earnings inequality are simply not yet a big deal, and cannot be responsible for the fall in social mobility.
If there is ever to be a genetic elite, its members will surely exhibit two behavioral traits: a facility with math, and a near-intinctive tendency to do back-of-the-envelope quantitative checks of assertions.
Let me turn the microphone over to impeccably right-wing Jim Heckman, who comments on The Bell Curve:
The Book fails for five main reasons. 1. The central premise of this book is the empirically incorrect claim that a single factor - g or IQ - that explains linear correlations among test scores is primarily responsible for differences in individual performance in society at large.... There is much evidence that more than one factor -- as conventionally measured -- is required to explain conventional correlation matrices among test scores.... They do not emphasize how little of the variation in social outcomes is explained by AFQT or g. There is considerable room for factors other than their measure of ability to explain wages and other social outcomes. 2. In their empirical work, the authors assume that AFQT is a measure of immutable native intelligence. In fact, AFQT is an achievement test that can be manipulated by educational interventions. 3. The authors[']... implicit assumption of an immutable g that is all-powerful in determining social outcomes leads them to disregard a lot of evidence that a variety of relevant labor market and social skills can be improved. 4. The authors present no new evidence on the heritability of IQ or other socially productive characteristics.... [T]hey... [compare] IQ... [to] a crude measure of parental environmental influences. This comparison is misleading. It fails to recognize the crudity of their environmental measures and the environmental component that is built into their measure of IQ, which biases the evidence in favor of their position. Moreover, the comparison as they present it is intrinsically meaningless. 5. Finally, the authors' forecast of social trends is pure speculation... the social policy recommendations have an ad hoc flavor to them.... The appeal to Murray's version of communitarianism as a solution to the emerging problem of inequality among persons is a deus ex machina flight of fancy that is not credibly justified.
And take a look at http://www.j-bradford-delong.net/movable_type/2003_archives/001975.html as well.
January 19, 2007 at 10:54 AM in Inequality | Permalink | Comments (1) | TrackBack (0)
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