Income inequality
As explained in today’s online NY Times:
As the financial crisis wanes, economists are shifting their attention toward a more subtle, possibly more upsetting crisis in the United States: the significant increase in income inequality.
Now most of the article is bunk because the “economists” are clueless about the causes of the problem and thus clueless about solutions. But the problem is real, and the reason is because there is an oversupply of labor relative to capital. The oversupply of labor is caused by:
1. Globalization of the labor markets. Not only is all manufacturing outsourced (with China being the most prominent country), lots of jobs that need to be done in this country are being given to a seemingly infinite supply of immigrants. All of the corporate IT departments in New York City are predominantly Indian.
2. Increasing economic importance of industries where the rewards are winner-take-all, enabled by new technologies. (For example, the world only needs one desktop operating system, and the guy who winds up owning the profits from that monopoly becomes a multi-billionaire.)
The coming robot revolution will make these problems a lot worse. Robots theoretically should improve our lives by removing the drudgery of manual labor, but unless we can think of new ways to distribute the goods and services created by the robot economy, the result will be increased income inequality far beyond what we are seeing now.
Charles Murray “Income inequality and IQ”:
http://www.mega.nu/ampp/murray_income_iq.pdf
Florida resident
January 15, 2013 at 8:45 am
for an excellent vision of the problems coming with a robot economy, read this short story (novella?) http://marshallbrain.com/manna1.htm one solution to the oversupply of labor would be allowing overt discrimination in favor of men, against married women and the return of single women to the secretarial pool. it amazes me i never see (outside the man-o-sphere) any discussion of the notion that MAYBE doubling the workforce overnight with the entre of women into every sphere of endeavor just might have depressed wages and increased competition for the limited number of jobs.
dana
January 15, 2013 at 8:48 am
Yeah, but it greatly increases the household income at the top in dual income households. Consider a man who makes $200k. Back in the day, his family would live on that. Now, his wife makes about the same.
I give you much of the source of income inequality. The top two quintiles of income average two incomes per household. The middle two average one, and the bottom averages zero.
As Lion says, only the rich can afford to work.
not too late
January 15, 2013 at 5:05 pm
Consider a man who makes $200k. Back in the day, his family would live on that. Now, his wife makes about the same.
This is quite true; I’ve written about it before, wondering why on earth a man who makes that kind of money would want anything besides the traditional wife that he can clearly afford. Whatever the answers may be (I can think of several), this does help explain why income-inequality is not necessarily as grave as it may seem. I worked with an ER doc last summer whose radiologist wife spent $17,000 on lawn furniture. I thought, “You morons”. But really, when you’ve got that kind of money, what else can you do but waste it? I’m here to tell you that if you’re not in the top 20% of income earners, you’re not really missing much.
Samson J.
January 16, 2013 at 8:43 pm
Yes. The “liberation” of women has had many unintended and neative consequences. One is divorce. Another is obesity. When women can’t cook or don’t have the time their kids are more likely to be fat.
Nicolai Yezhov
January 18, 2013 at 8:58 pm
Another contributing factor to inequality can be illustrated by myself and my sisters: I’m an ER doctor and married a surgeon. We earn a 1% combined family income. Three of my sisters are single moms, each earning so little as to qualify for Earned Income Tax Credit.
Prior to the 1980s families typically had one earner; the divergences magnify when women enter the labor force.
jz
January 15, 2013 at 9:11 am
Inequality of brains and motivation lead to inequality of income… gee, who could have predicted that!
Tarl
January 15, 2013 at 1:24 pm
No one doubts that dummkopf, but the level of inequality is higher than it’s been in 90 years. Is this because the difference between people is larger?
Nicolai Yezhov
January 18, 2013 at 9:02 pm
Smartphones and other pacifying dopamine releasing technologies can only stave off the upcoming sharp increases of violence from income disparity for so long. As income disparity rises and as the pacifying effect of technology wears off, resentment and anger will continue to build. Humans often compare themselves to others, and as the low proles’ ability to acquire goods decreases while Nurses’, Doctors’, BigLaw attorneys’, certain civil servants’, etc ability to acquire goods increases, there’s going to be some violence. Not necessarily the poor attacking the rich, but also the poor attacking each other as well. Anger and resentment often leads to all kinds of seemingly senseless forms of violence.
Forget trying to be “fair” or allowing the market take care of itself, politicians need to be proactive about finding ways to pacify the increasing masses of people whose economic situation is worsening for the sake of having a civil society. The notion that if you are poor, you just have to work harder, smarter, better, more efficiently, etc and you will be wealthy too, needs to end now. Also, the idea that “life is unfair, so tough luck” needs to end now. That is unless you don’t mind living in large-scale ghettos with small safe islands. And you don’t mind a lower quality of life full of distrust of other people and high anxiety, which is a type of life that compromises the immune system and makes one more susceptible to all sorts of health ailments.
bobo
January 15, 2013 at 9:14 am
1. Capital sure doesn’t think there is an oversupply, they say more more more.
2. Have we seen income inequality figures that are controlled for age? It’s kind of misleading to compare 18 year olds with people who have been working for 30-40 years.
Anonymous
January 15, 2013 at 9:24 am
You forgot to mention defacto open borders. A large portion of American income inequality has been driven by immigration, especially illegal immigration.
Demographic change, even outside of immigration, is also part of the equation. We have a situation where the wages of whites are increasing, the wages of blacks are increasing, the wages of hispanics are increasing, but because the racial mix is changing, overall wages are flat or declining. If you could somehow devise a statistic that corrected for racial change, inequality is NOT increasing.
Buzzcut
January 15, 2013 at 10:50 am
If machines are doing all the hard work, why are we still bickering about socialism? I don’t care if great grandpa built this country, he’s long gone. Your family has done little since the early 1900s except live off of rents. However, when it comes to physical labor that is required in industries such as construction and mining; let those who work keep their earnings. Don’t socialize construction or mining, socialize Wall ST.
Beefcake the Mighty
January 15, 2013 at 11:14 am
Income inequality is vast in countries like the USA and Brazil where the differences is human capital from person to person are vast.
In places where the differences in human capital are much less, e.g. Scandinavia or Japan, income inequality is not so vast.
Large swathes of the US population have both (a) few skills and (b) behavioral issues which combine to make them less than zero employment value.
Dan
January 15, 2013 at 11:16 am
You’ve forgotten that homogeneity leads to a politics that reduces income inequality. You’ve forgotten that the Mediterranean is more homogeneous than Japan or Scandinavia yet income inequality is almost as great as it is in the US.
Nicolai Yezhov
January 18, 2013 at 9:06 pm
The Times has to be careful to focus just on taxation and the rich getting richer aspect since they have spent years supporting the policies that lead to income inequality like open borders. The other problem is that the winner take all industries are pretty information centric, and the Times is a nexus of information and part of the knowledge transmission system. The Times will focus on taxation. They and their side cannot admit in writing any cupalbility in the rising income inequality, which was to prtoect their big money contributors and boost their voting coalition.
SOBL1
January 15, 2013 at 11:29 am
Parapundit has also been focusing on the upcoming robot revolution. It will bring myriad benefits to society, but will also cause unimaginable destruction of jobs. I guess my questions to the new labor paradigm are threefold:
1) How do we ensure that we fall on the “haves” side, i.e., how do we ensure that we have a job as robots are rolled out in many industries? Randall Parker argues that we should continually be educating ourselves to ensure that a dumb robot can’t easily replace us.
2) What do we do with the “have nots”? In my opinion they don’t possess the mental capacity to handle the non-robot jobs. Lion has suggested having them play video games to keep them idle and subdued. I’m thinking that the government will have to do constant TVA projects that can hire massive amounts of these people. Thus, the “have nots” will be occupied, earn their wage, and we have investment into our infrastructure.
3) How do we invest in order to gain from the upcoming revolution? I’m thinking that the “haves” will segregate themselves even more in gated communities as they become richer and the have-nots stay in projects à la Latin America. That means private-security firms will grow in demand. Lifestyle centers with main streets will continue to mushroom. Concierge medical service.
What am I missing?
DdR
January 15, 2013 at 11:36 am
Why should the havenots be “employed” at all? Is continually educating oneself just to stay employed a virtue? Especially considering that one’s employer or boss may not have to do this. Is it a virute to try to make oneself into a commodity?
Nicolai Yezhov
January 18, 2013 at 9:09 pm
“Robot economy” makes one sound like a weirdo. It makes others think that you think the Jetsons are in the foreseeable future. IMO, a much better name for it is automation economy.
Portlander
January 15, 2013 at 11:42 am
1. “Robot economy” sounds way cooler than “automation economy.”
2. In the future, I do hope that there will be humanoid robots that can do stuff like clean the house and cook for you.
Lion of the Blogosphere
January 15, 2013 at 11:47 am
It won’t happen.
Too many underemployed underclass workers will be there to work for $4 an hour under the table.
Does Bloomberg use a Roomba?
Firepower
January 15, 2013 at 12:26 pm
Funny how the liberal media all seemed to trout out the “income inequality” issue at roughly the same time. Yeah, there’s not near enough jobs around for stupid people anymore. And this is really a problem, if you have lots of stupid people in your family.
caroljm36
January 15, 2013 at 11:52 am
This is an assoiation only. It isn’t a justification or an explanation. It is a justification and explanation only for a stupid person.
Nicolai Yezhov
January 18, 2013 at 9:11 pm
“Experts” say between 20 and 40 percent (I personally think more) of income inequality in the U.S. is solely due to women choosing to bear children out of wedlock. The problem is made worse by the fact that low-IQ women are more likely to do this, but Charles Murray notes that the idiocy is making its way up the IQ chain for all but the truly smart.
An interesting New York Times article: http://www.nytimes.com/2012/07/15/us/two-classes-in-america-divided-by-i-do.html?_r=2&pagewanted=all&
ColRebSez
January 15, 2013 at 12:30 pm
Murray is a retard. Out-of-wedlock today is only a legal designation. It doesn’t mean black women having babies and not even knowing who the father is. Mother and father may live together as if they were married or may be married yet separated. Look at the figures on bastardy in Scandinavia.
Nicolai Yezhov
January 18, 2013 at 9:14 pm
As this graph shows, the Gini coefficient has been increasing in the US since 1967 (http://en.wikipedia.org/wiki/File:The_US_Gini_Coefficient_for_Household_Income_(1967_-_2007_).png).
Here’s an article from the NYT about Philips Electronics moving a factory back to the Netherlands from China (http://www.nytimes.com/2012/08/19/business/new-wave-of-adept-robots-is-changing-global-industry.html?pagewanted=all). The reason? Robotics. The robots can make items faster and more cheaply than the low-wage Chinese laborers.
I wonder what is going to happen as the robot revolution progresses. Clearly, low-wage laborers are going to get hammered. The few humans who work in these plants will be mid- to high level programmers and engineers. As with Philips, these facilities will be built in First World countries. What is going to happen in countries such as China as factories depart and there is no more demand for their cheap labor? Their entire economy is largely dependent on this model. What will they do when no one wants it any more?
Black Death
January 15, 2013 at 1:59 pm
You probably need someone to watch over the robots, which is high-skill blue collar labor similar to being an auto mechanic.
Lion of the Blogosphere
January 15, 2013 at 2:03 pm
A robot that needs a human to watch it is a poorly designed robot.
Tarl
January 15, 2013 at 2:23 pm
I totally don’t get this concern about robots. The people getting hammered are the journalists. I mean when a major magazine sells for a dollar(not a copy, the whole dang company) you have problems. I could see Artificial intelligence wrecking havoc in call centers and other areas before manual labor gets hit. Is the concern income inequality are wealth inequality? There are many older wealthy people who never had high incomes and there are high earners who don’t save much. Generally, I have concerns about the future but intractable unemployment isn’t one of them.
mark
January 15, 2013 at 2:49 pm
I’ve become much more open to the idea of protectionism, both through immigration limits and limits on imports and exports. Yes, I understand this will lead to higher prices for goods and labor. Still, I would be willing to pay higher prices at Walmart if the people around me were using money they earned on a job and not from government handouts. The government borrowing massive amounts of money, and giving it to the poor so they can go to Walmart and buy a load of Chinese-made crap has got to end.
steve
January 15, 2013 at 4:01 pm
This is a good article in the marxist Jacobin magazine about possible ways the future might turn out when we reach the point where the economy does not require human labor. The author makes some points that will be familiar to LotB readers.
As a Czech I must say that you have shown great taste picking the lion picture
Michal
January 15, 2013 at 6:26 pm
It just occurred to me that the economic advantages of automation of human labor follows a Laffer curve: After an optimal level of replacing humans with robots, any economic gains from automation begin to decline. This is because if 100% human labor – absolutely everything from ditch digger to Fortune 500 CFO & CEO – is automated then there would be no economic activity because no human on earth would be getting income from work. So there must be a “sweet spot” percentage of the labor force that can be automated after which automation, ironically, brings economic activity to a complete halt.
The Undiscovered Jew
January 15, 2013 at 10:43 pm
I doubt it – trade will stll exist, as will comparative and absolute advantage between different people’s robots. So economic activity (ie. trade) will keep occurring, and comparative advantage will keep being exploited. It’s hard to see how economic activity could just halt under those circumstances.
ntk
January 16, 2013 at 4:02 am
Actually I think that it hits a singularity pretty quickly. Currently many people go through the automated checkout at the grocery store to avoid interacting with cashiers. Let’s say that it is the year 2100 and I am rich. I still have to have a few people do things here and there, but for the most part my estate is run by robots. My goal would be to invest in new robots to ruthlessly eliminate any dependency that I have one human labor. If I achieve that goal I no longer have to interact with undesirable people, I’ve achieved total freedom. I would be a living god in a robot heaven. I would only interact with friends and family, no more having to interact with lesser humans.
T
January 16, 2013 at 11:16 am
I doubt it – trade will stll exist,
A 100% automated workforce would have no trade because no humans would be earning a salary.
and I am rich.
You wouldn’t be rich because your job would be done by a robot in 100% automated workforce.
The Undiscovered Jew
January 18, 2013 at 12:04 am
The attack on economists here is ignorant.
Every year they produce multiple empirical studies on the changes in and causes of inequality of income and wealth, often with extremely high quality data sets and statistical analysis thereof.
There are really two separate changes. First, there is a slow and steady increase in inequality across the income spectrum. The 40th percentile falls a little more behind the median every year.
The second is the income and wealth of the very rich has been increasing into the stratosphere.
Pillow
January 15, 2013 at 7:40 pm
Ultralow interest rates are speeding up the robot takeover. Right now if a $700,000 robot can replace a $50,000 a year worker, it is easy to make a profit buying the rebot. That would not be the case if corps were paying 7-10% for loans like was common 10 years ago.
That cheap financing is ironically coming from the Chinese with their insane 50% savings rate.
Pillow
January 15, 2013 at 7:58 pm
A 50% savings rate is not insane. In fact anything less (for those who can afford it) is irresponsible. You never know how long you’re going to live, so you don’t know how much you are going to need. Furthermore you never know when your children or grandchildren are going to fall on hard times, so again you never know how much you need. Furthermore the more you save the better your life will be in the future: if you save more than others you will move up the ladder in society, and if everyone saves the whole society will be raised up.
T
January 16, 2013 at 11:20 am
There’s also the supply side of the labor market. A few friends and acquaintances all extremely qualified (ivy league, professional degrees, PhDs) decided not to work, at least temporarily. For some reason or another (not enough self-actualization generally, too long hours), they prefer to use their time for themselves and for the time being live on savings and taxpayers’ money… I find it actually good that a person can do this nowadays, but it does underline the point: even people who can make 200k+ per year (some, even more), decide not to work. Extended unemployment and other benefits makes life nicer for people out of job. The standard of living is way higher than it used to be in the 70′s and before, and even skilled people sometimes decide to take a break for a while.
T
January 15, 2013 at 8:23 pm
I’ve been calling myself T on this blog for quite some time. I don’t mind if you call yourself T, but be prepared to be confused with me.
T
January 16, 2013 at 11:22 am
Mass immigration of third world immigrants is the biggest factor increasing income inequality. Third world immigrants won’t assimilate into any modern society because they evolved in social environments that favor cognitive characteristics such as low IQs, weak future time orientation, inability to wait to satisfy base urges, very high tolerance for corruption among their political/authority figures and poor civic mindedness, among other factors.
Modern economies need populations that have traits consistent with a healthy middle class such as average IQs of at least 95, good future time orientation, high civic mindedness, and low levels of tolerance for corruption among their leaders.
For these irrefutable Evolutionary reasons the assimilation of third world immigrants is impossible and the immigrants will be in a perpetual state of anger against more successful whites because non-white third worlders are maladapted to modernity.
The Undiscovered Jew
January 15, 2013 at 10:37 pm
Tell that to the wealthy Whites who love to exploit these 3rd worlders. I assume programmers from India are these people as well. Being paid below average and living partly on gov’t assistance is better than the living conditions back home.
Just Speculating
January 17, 2013 at 12:32 am
Tell that to the wealthy Whites who love to exploit these 3rd worlders.
The wealthy aren’t SWPLs. SWPLs, who love minorities the most, work at jobs that pay poorly compared to the private sector where the wealthy are. The wealthy tend to be yuppie/country club Republicans (Wall Street donations overwhelmingly favored Mitt Romney). It’s the SWPLs working for peanuts at Teach for America, newspapers, and other artistic fields where promotion depends much more on value transference than the most clubbish corporations.
The Undiscovered Jew
January 18, 2013 at 12:02 am
>>For these irrefutable Evolutionary reasons the assimilation of third world immigrants is impossible and the immigrants will be in a perpetual state of anger against more successful whites because non-white third worlders are maladapted to modernity.
Will serve us right for what will happen. I just hope I live long enough to see the payback. Will be fun to watch.
Daniel
January 16, 2013 at 12:50 am
I don’t want to sound too “zero hedge” but do people really think the financial crisis is waning? This is surprising to me as I really don’t see much clear evidence of it. I could accept that we are accepting our post GFC world as normality now, but waning suggests that some sort of recovery has happened.
Chris
January 16, 2013 at 8:12 pm
And this is invisible to most, including the whole of the elite as far as I can tell, because the terms of the pseudo-science economics are abstract. One of these terms is “employment”, but employment at what? This isn’t a question. The hypertrophy of the bs sectors have disguised the real level of unemployment. Now chopping up salad greens and packaging them is manufacturing.
Nicolai Yezhov
January 18, 2013 at 8:55 pm