Extrapolating a single, small downtick as a reversal of a trend? That's honestly pretty sloppy, Noah. You, of course, have qualified your thesis with a "might," but the tone here is still a little too much one of vindicated optimism for a case that's actually pretty weak.
Look at the inequality graphs you shared. Were they smooth lines trending upward without interruption until now? You could have taken a slice out of the same graphs at 2001-03 or 2007-09, where inequality fell far more dramatically (due to recessions/bear markets), as "evidence" of a reversal, too. And yet you didn't. Because you know that the *secular trend* continued right after both declines, didn't it?
Nor did you note the similar-sized declines in inequality during the early 90s. Because, again, they were just temporary blips in the super-cycle of increasing wage/wealth inequality from the 1970s through now.
Now, aren't we now in a similar such (at least technical) recession?
Conversely, what if you had written this same essay between 2020-21? I didn't hear that much about Piketty then, either. Did you? Despite the fact that inequality by some measures shot up faster than anytime in my lifetime. A ripe moment, especially, for "r>g!" Maybe Piketty's relative absence was because there were certain other things for Twitter people to talk about at that time, and not because his thesis was discredited or overstated by reality (quite the opposite)? Maybe in 2022, when inflation and the largest war in Europe since WWII became the primary concerns of the commentariat, we also have had other things to focus on? Maybe our attention is somewhat capricious and not meritocratic? (Did we talk about Climate Change much? Does that mean it's no longer happening?)
No, Geoff. I am not extrapolating a single small downtick. Inequality of income and wealth stopped rising around 2013; that is a decade ago now. It is now 2023. The trend until now has NOT been one of rising inequality. That was the trend until 10 years ago. The change was 10 years ago.
The historical pattern since the 1980s has been falling inequality as the bottom of the economy gets a boost during booms, but most, if not all, of those gains are lost in the ensuing recession. Some time back, I did a historical graph of the top 5% incomes versus the bottom 20% incomes, and $13K per year (in 2017 dollars) seems to be the magic reset line. We were last down there in 2012. Meanwhile, high end salaries ratchet up repeatedly.
Did you look at the chart? Over the last 40 years, high end salaries have ratcheted up while low end salaries have returned to a set point. It often takes more than a single recession to return low end salaries to that point, so we'll have to wait a bit and see whether this happens again or if the pattern has changed.
Workers getting some more non-real-inflation adjusted hand-to-mouth wages is not a real case of "inequality decreased". Especially with all kind of accounting tricks to hide the real situation on the ground.
This sort of "drop of inequality" is like someone like Musk makes 500 million on a bullish stock market rumor and losses 500 million in a falling market - in a day. Did their wealth and standing in society actually change in any relevant way?
The actual wealth inequality remaining is huge, greater than any time in US history, and still there. Not to mention that this "reversal" comes after a period of unprecedented profits...
Even if a two-billion-aire becomes a mere single-billion-aire because of the stock market, they're still above any imaginable economic related hardship, economically sorted out for 10 generations of progeny, with dozens of ultra expensive tangible assets all around the world, with diversified portfolio and property investments, with huge influence on society and politics, and with tens of thousands of people under their direct control (as employee, owner, etc.).
If on the other hand a 50K a year worker gets to 35K a year (or gets unemployed for a while, or has some medical issue or such), they have to severely downsize their life, their kids education, give up the mortgaged house and rent, or even become homeless, even dead because of lack of medical coverage, the hardship might break their family, end them depressed, and worse. Not some theoritical point: happens to millions every year. Most Americans can't even afford to have a spare $1000 for an emergency.
Dube has shown that wages for the people at the bottom of the distribution have increased since the pandemic struck (and they certainly increased in the late 2010s as well).
There's at least million of women out of work still, after the pandemic. Mostly because they're doing unpaid work. Like taking care of ailing elders (more after the pandemic, with long Covid and assorted ill health effects from not being able to get adequate health care in a timely manner). Or taking care of children, since child care (more expensive after the pandemic) would take up all their earnings. I would wager that if you take out of the workforce the people who earn less (women, compared to men), you would get an increase of the average. Whether that is an decrease of inequality it really debatable, I would rather say no, it's not.
Nick, I think this is wrong. I would say you're conflating inequality as an economic measurement (which, if it declines, will nearly always do so in small, unsatisfying increments - and which will never speak to, say, the relative-precarity issue you raise in your last paragraph) and inequality as a justice issue (which can be taken in a lot of directions, as you take it). Noah means the former - he's taking the movements he cites as indications of a possible change in the US Gini coefficient or some other measure - and with such measures "better" means "better," or there's no point in tracking them. At any income distribution other than a flat one there will be more vulnerability at the bottom than at the top, and the question of what to do about this is an important one. But it doesn't mean that improvement in real incomes at the low end don't matter.
I'm with you! The Realtime Inequality website used as a source in the article is fascinating and has many variables that can be used for analysis. I clearly shows that at the end of the last quarter the actual average wealth of the lowest 50% (!) of the US wage-earners over 20 years of age is $937. That means ALL of their wealth for a $1000 emergency, not just savings. Inequality and living at the margins are defining features of the US and demonstrate for me the true nature of capitalism as a foundation for a social system. "Why, look, the lowest 50% had wage gains this year, that shows things are getting better!" Well, even a 5% bump on a $15/hr wage only means a new wage of $15.75. Still not a way to add wealth when inflation is 7-8%.
I’m biased as someone who was raised middle class and is now close to 1% in earnings and net worth but I’m not convinced inequality is definitely a bad thing as long as the floor is high. Is anyone better off because Musk has lost $133B in stock valuation this year? Rich people getting richer has never bothered me. Child poverty and crime related to underdeveloped communities and racism does bother me.
The federal government increased the Child Tax Credit an average of $1,300 per kid (From $2K to $3K or $3.6K depending on age of child). https://tinyurl.com/dhr48shm
Elon Musk's $133 billion could have paid for those $1,300 in additional payments to continue flowing to impoverished families with children for an additional 8.8 years.
So, yeah, inequality is a bad thing because we could be using the infinite ceiling of a handful to, as you pointed out, raise the floor for millions.
Sure, wealth is ephemeral and Musk never really had that $133 billion because if he actually tried to sell off all that stock, the price would have continued to tumble. But I, for one, think it's worth trying to turn billionaires' ephemeral wealth into tangible improvements for the poorest families in our community.
Whether or not we pass a child tax credit, and how much that credit amount to, is a political question. The idea that we could pay for it by a wealth tax on unrealized stock gains from americas richest is pure fantasy. When billionaires lose billions on paper due to stock market declines, it may look good for the inequality charts, but millions of middle class people are hurt too. It’s not a coincidence that when Musk and Bezos were at their richest, my 401k was at an all time high.
At the very least, progressives need to be careful not to be anti-growth. Anyone who lived through Soviet Ukraine or post-Chavez Venezuela can vouch that universal famine is not a superior alternative to nutrition inequality.
I don’t understand all of this discussion as well as I would like, but I do appreciate your courage and putting your thoughts out here. You seem real human. :-)
I don't think a wealth tax is politically feasible, but we might raise the top marginal tax rate. I don't think we could get it up to 90%, the rate when the US had its period of highest growth and lowest inequality, and we've seen tax increases set off economic growth in more recent years.
Higher marginal tax rates would change a lot of the wealth calculus. If you watch a movie from the 1960s, like the comedy, The Wheeler Dealers, one thing you notice is the omnipresence of the tax code in making one's business decisions. Back when taxes were 90% for short term and 45% for long term income, return on investment looked a lot different from the way it looks today. One of the jokes in the movie involved James Garner, the wheeler dealer protagonist, buying the taxi taking him into Manhattan from the airport and, in a great win-win deal, leasing it back to the driver.
But, think about it. If you are an executive today and you can squeeze a dollar an hour out of a thousand full time workers, you can take home 2/3 * $40K = $26.7K a week. That's a nice weekly bonus for management even if it gets split with the shareholders. At a 90% tax rate, that's $4K. It's barely worth bothering. Even your shareholders would agree since they had to pay 90% on dividends. It would be better to keep the money in the company and buy more efficient burger grills or amp up the advertising. That would raise the value of the company and those capital gains would only be taxed at 45%. That's why higher taxes led to higher wages and more investment, and, honest to God, rich people in that era were not reduced to soup kitchens and flop houses.
A tax on inherited wealth would be eminently politically feasible and a winner of votes. Just is not proposed by left politicos because, well, they love their children too. Can't blame them. But doesn't mean it's not feasible.
I’m open to increasing the highest marginal tax rate but I think we should be honest about the fact that it isn’t going to lead to utopia or European style public services or put much of a dent in inequality.
Agreed. Doing a better job of taxing the rich would probably balance the budget IF it was coupled with a spending freeze; it wouldn't pay for any additional spending without also raising taxes on the middle class.
This applies to everyone who has a 401K. We are all in the same boat.
The loss in securities values doesn't affect you directly. Unless and until you realize your 401K into cash income. Then a market downturn is effectively a reduction in salary and standard of living.
Yeah, but one reason the market is down is because the Fed increased interest rates. That's good for you if you are drawing cash income from your 401K.
My point is we’re all in the same boat, including the billionaires. I don’t care if billionaires keep getting richer as long as I do well too. I’d much prefer Musk be worth $300B and the stock market be at all time highs even if this means the inequality charts look bad
I'd use the boat analogy the old-fashioned way; if the rising tide is lifting all boats, is it a bad thing that some boats are being lifted much, much more than others?
Populist conservatives like Trump have had success with working class voters by being pro-growth, rather than anti-inequality.
Yeah, but not all of those boats are still floating and a lot of them are seriously leaking. The problem isn't the rising tide, it's the inequality of boats. Worse, in reality there is just one boat. It's just that only a handful of people are allowed on deck or the superstructure, and an awful lot of them are stuck in the bilge and orlop.
We need a Bechdel Test for Trump narratives. This comment wouldn't pass it.
To pass the Trump Test:
1. The conversation must not deny Trump's racism.
2. If the conversation does not deny Trump's racism, the conversation must not deny the salience of Trump's racism.
Salience is more complex because it's not intuitive. But salience is important because racism is a scary, uncomfortable topic and once it's introduced, commentary tends to want to explain it away. Like through economic arguments (Coates, Mutz, et al roundly disprove economics) or by adding gratuitous nuance like pointing out other characteristics like sexism and anti-semitism or ideology (by reducing identities to categories, we cognitively tend to sort and count them rather than compare them, or see how these -isms intersect).
You can’t turn Musk’s personal market cap into food; kids can’t eat Tesla shares.
We don’t know how much cash you can purchase with those nor how much food you could buy with the cash, but it’s a lot less than his quoted wealth; in both cases the prices you see are marginal and are going to seriously move against you.
(Also shows the problem with a wealth tax - it’s inflationary, but usually you expect taxes to be disinflationary.)
Severe inequality is corrosive to the civic values of a republic . It’s leads the rich to think of themselves as oligarchs, not citizens. It leads ordinary citizens to think that the game is rigged, possibly that the game is inevitably rigged, and once that happens people start looking for ways to rig it based on sex, or skin color, rather than “merit”.
I’m not saying I want to live in an oligarchy. Sever inequality is bad, but we have a very large middle and upper middle class in the US. I don’t mind that there’s a massive gap between the middle class and the richest guy in the world.
If I gave you $5,000 a day, every day, from the time Christopher Columbus sailed the ocean blue in 1492 until today ... you would still not be a billionaire.
There's not a massive gap between the middle class and the richest handful of men on Earth ... there's an impossible, galaxy-wide, yawning abyss between the two.
I understand the math. My point is, I don’t care about billionaires existing as long as I personally have opportunities to build wealth and live a good life. And today I do have those opportunities.
I agree. Others being rich does not in itself harm me. The only thing that matters is alleviating the suffering of the poorest. We should do what we can to do that - the question is whether redistribution will actually help feed the poor, or if it will destroy our ability to continue producing value.
And the active interference with earnings and the massive trillion-dollar-plus levels of redistribution and social engineering empower an autocracy. Just saying.
Actually, there is some harm done when a disproportionate amount of wealth is owned by a small, extremely rich cohort. Poverty is not an absolute measure, but a relative one, it's justified by status competition. The higher the consumption by the very wealthy, the higher the aspirations of the less wealthy, leading to a whole group of people devoted to selling luxury items. This leads to a type of inflation that directs resources to things that don't contribute to society as a whole. When there was less inequality, people didn't feel obliged to have exorbitantly expensive weddings, to have their children go to private schools, to live in super-exclusive neighborhoods. The urge to have and maintain a higher status will always exist, but less distance between the middle class and the top 1% contributes to the perception of poverty by the bottom 50%.
Yeah, in practical terms wealth is concentrated discretionary power over the time and lives of other people and over real resources.
The best argument for tolerating high wealth inequality is some version of "this set of institutional arrangements produces the best overall quality of life for the most people." IMO, current levels of wealth inequality are not justifiable on those grounds - we had decades after WWII with comparable or higher growth and much lower wealth inequality under different public policies/institutional arrangements.
At extreme levels of wealth inequality, it's a joke to say that a polity is a "democracy" or particularly "free" in a positive sense (i.e. "people have the actual ability to live the kind of lives they want"). At extreme levels of wealth inequality most of the important decisions about the present (i.e. current production process and distribution of incomes) and about the future (i.e. investment) are made by a small proportion of the society (the wealthy), within authoritarian institutions (private enterprises) that the wealthy dominate. And that's before considering the outsize ability of the ultra-wealthy to corrupt/subvert formal political institutions/electoral politics.
Wealth is relative but poverty is not. It’s defined as lacking the financial resources and essentials for a minimum standard of living and something like 7% of the US lives in poverty. This term does not refer to people stretching to send their kids to private schools.
> Is anyone better off because Musk has lost $133B in stock valuation this year?
Probably! Inasmuch as it's deprived Musk of money to inflict harmful policies by pumping his wealth into the political process or corporate ownership, then yes. And inasmuch as it's deranged Musk enough to make him act out in entertaining ways, then again yes. And inasmuch as it's stopped people taking Musk's vaporware about solving traffic and housing us all on Mars (and so on) seriously, that's also liable to make the rest of us better off.
Great post, Noah. Two figures brought me, late in life, to economics: Piketty and Robert Solow. The first I even attempted to read in French during business travel in the early 2010s. The second makes me want to ask about a contested word in economics: "instability."
Growth theory emerged out of depression era musings about business cycles and economic instability (Roy Harrod) and anxieties in the US around achieving "full employment after the war" (Evsey Domar), with Solow intervening in the (more optimistic) 50s to point out that the long-term growth story suggested a more reverting-to-growth-trend kind of stability in industrial economies than the earlier writers imagined. The growth trends he described were composites of immense, ongoing, productivity-enhancing structural change (driven by technological improvement).
Post-Keynesians (and leftist historians and social thinkers), on the other side, continued to pound the instability drum, pointing to shocks and crises, showing more interest in the unemployment rate than GDP, and emphasizing the precarious side of the "Great Transformation," both nationally and internationally. Eric Hobsbawm, in a very late interview, spoke of the "last 20 or 30 years, which have been globalization under the sign of uncontrolled free markets, have produced not only inequality but also enormous instability: rapid booms, dramatic slumps, and transformations, unpredictable and rapid."
My question is whether there is anything tangible behind the instability/stability argument beyond this left/mainstream split or a glass half-empty/half-full take. Maybe between economists and non-economists (especially journalists) it has something of a generalization vs particularist flavor. But is there any common working definition of economic stability or instability? I've not seen it.
has anyone studied impact of increased job-hopping on productivity and by extension job market tightness? anecdotally i work in a field where new hires are basically useless the first 6 months (at least) and only reach peak productivity a couple years after starting. Having more churn hurts a lot in such a scenario and forces hiring even more people which creates more job market tightness and job hopping etc. May not be representative maybe lower-wage jobs ramp up much faster dunno.
Yeah I'd say the kinds of jobs with a 6-month learning curve tend to skew very white-collar and higher paying.
The white-collar job market is fucky in plenty of different ways, so it would be difficult to isolate any impact of job-hopping. The stereotypical Twitter addict is, after all, someone required to be sitting at their work computer for 8 hours/day but only has 1-2 hours of real work to do, and spends the other 6-7 hours just looking busy.
I'm not a Piketty fan, but this seems like grasping at straws even to me.
From the graph here: in 1985, the bottom 50% held just 2% of the wealth in America. In 2022, they hold about 1.5% of the wealth in America. In 1985, the top 10% held 63% of the wealth in America; today they hold 70%.
While the last few years have been a welcome shift in the right direction, we must not use that to obscure the multi-generational reality of falling living standards for the vast majority of our fellow citizens.
May be - will depend on factors external to this story, namely capitalism's unsustainable exploitation of nature - when the system cannot grow anymore it will no longer be capitalism.
The only form of goods production that arises spontaneously is capitalism, and the only way to take spontaneity out of goods production is through central planning. Mandatory employee co-ops et al would still require central planning.
Once again, you throw around the term "non sequitur" pretty often for someone who doesn't actually understand what it means.
I challenged you to explain the flaw in my understanding of "non sequitur" (https://noahpinion.substack.com/p/inequality-might-be-going-down-now/comment/11603780) and you couldn't do it. Meanwhile, you don't know what "central planning" means; "Mandatory employee co-ops" do not amount to central planning. (It's not clear you understand what "spontaneously" or "capitalism" mean, either, but one example suffices to document your ignorant projection.)
Everything that is not centrally planned need not be capitalism. However, to my mind the interesting aspect of the 6-steps cycle is how we collectively learn by passing through it. As the system breaks down do we learn about the inherent causes - something that makes the next cycle different, f.ex. by introducing central planning instead of letting the market allocate everything?
"Everything that is not centrally planned need not be capitalism."
Yes it does, because goods production happens for 1 of 2 reasons:
1) for profit
2) because someone in power demanded it be done
Taking shoes as an example, shoes will either be manufactured so they can be sold at a profit, or because a central planning committee assigned some people the task of manufacturing shoes.
No, you're incorrect and John Mutt Harding is correct on the substance here. Your two reasons are obviously not the only reasons to produce goods (perhaps most obviously, one could make goods for oneself), and the two reasons you do give aren't mutually exclusive (some, probably most, production in capitalist enterprises takes place both for profit AND because someone in power — a boss — demanded it).
It's hard to accept that inequality is going down in any meaningful way since the divide is so great, to begin with. According to the EPI, in 2020, top CEOs earned 351 times more than the typical worker. CEO pay has increased by 940% since 1978, whereas typical worker pay has increased by 18.1%.
Capitalism excels in telling producers what goods are in demand and at what price levels. This allows for an efficient distribution of resources and quick responses to market changes. Capitalism fails at the distribution of income - where a few are extremely wealthy, but the majority work paycheck to paycheck.
This unequal distribution allows a small number of people to be very rich and exercise political power far in excess of their absolute numbers. Highly paid lobbyists, dark money donations to politicians, and money hidden in off-shore accounts and non-profit foundations further mask the activities of the wealthy.
This wealth and power have subverted religious institutions into becoming political pawns, allowing some states to make voting by certain minorities very difficult, and facilitated the stacking of the Supreme Court with a fundamentalist group of people who are out of step with mainstream America.
Please don't suggest that Supreme Court is only interpreting the law, and it is up to Congress to pass new laws. These unelected people, with their powerful backers, are making the laws that apply to all of us.
The slight downward movement in the spread of wealth is meaningless in the face of entrenched power. Our tax laws are skewed toward protecting the wealthy, and with a limited inheritance tax, the power of the wealthy increases with each generation.
Not only is there a wealth gap, but there is a power gap between the rich and the rest of us. Our democracy is in peril, not only from external enemies, of which we have some powerful ones but from within by people who only care about their own positions at the top of the pyramid.
I don’t know if the diagnosis of Piketty was totally wrong, the US had a coup de etat, you know? It also had an orange monkey due to votes of poor white people. So did the US have a crisis? Yes! Was it because of inequality? I don’t know, but my gut feeling is that inequality played a part indeed.
One of the things that makes me suspicious of economic explanations for Trumpism is remembering that in the Sixties, the white working class turned right at precisely the time when they'd never had it so good.
True. Ezra Klein is among the most famous of a school of thought who calls 1964 "the Great Sundering." The signing of the Civil Rights Act was the big bang for the modern American right. Trumpism was the culmination of what began after 1964.
There's a reason why "eCoNoMiC aNXieTy" is written by blue tribers in the Mocking Spongebob cant.
The urtext of Trumpism has to be Ta-Nehisi Coates declaring Trump to be the "first White president." Obviously, all but one U.S. president was White. What he meant by the title of his essay was that he predicted that Trumpism is going to pivot the Republican party to the embitterment and anxieties of whites as a race.
The best part of his essay was the data he showed to argue that Trump won Whites, period. Any other demographic filter applied, and it holds true. Trump won White men and women in every income bracket. In every level of education. In every state, even in the blue states like California, New York and Illinois where he lost badly. There were more Trump voters in blue states than in some red states where he won handily.
This is also what UPenn political scientist Diana Mutz found in her research, a scholarly rendering of Coates' essay, "Status threat, not economic hardship, explains the 2016 presidential vote."
I never understood Krugman's willingness to defend the Piketty thesis.
This is literally the guy who predicted the Asian financial crisis (and was ridiculed for it by people like Alice Amsden) because he saw that constant growth in capital per worker was unsustainable: at some point, the marginal increase in depreciation costs eats up the gain in labor productivity.
So why didn't he call out Piketty for completely ignoring depreciation?
There's a massive blindspot here in that you haven't mentioned the largest economic stimulus package ($1.9 trillion), way larger than Obama's post-2008, which at the time was unprecedented and shockingly large. A more realistic narrative would be that Covid has forced Western governments to intervene massively in order to support the stability of the system, which can barely be called capitalist anymore (definitely not "laissez-faire"). A more interesting approach would be to consider what might have happened to inequality without covid and the subsequent interventions. There's no evidence to suggest it would have reduced without government intervention (though of course it's possible that in this counter-factual scenario progressives may have won the argument and obtained substantial intervention in order to reduce inequality, even without covid as the driver).
I am glad that you mention towards the end of the post that this could ultimately be a result of one of those extraordinary forces in action especially with COVID-19 recession and the sudden overheating of the economy. This could ultimately be a temporary trend, even if it extends to over a decade of no major growth in inequality. Hard to believe this, in any way, is going to show us that inequality is meant to decline or the r>g is not going to hold in the long-run
I hope that Thomas Piketty’s books (his 2nd volume is interesting too) will be a part of the public discourse, even if inequality has abated for a while. His arguments are strong, built on loads of data, and favor long term thinking.
Perhaps there are natural mechanisms by which inequality is mitigated in a modern capitalist economy. And perhaps we are seeing the beginning a persistent reversal. But we should inoculate ourselves against wishful thinking — in the absence of strong evidence to the contrary, the last few years are just as likely to be a short detour on the path to unacceptable inequality.
We should remember just how dramatic the wealth redistribution of WW2 was. It’s hard to imagine anything like that happening in the natural course of economic growth.
I do wish there was a less volatile measure of wealth than summing current asset valuations. Something like percentage of productive capital owned by the top 1%, measured by the output of the assets (revenue) or the return of the assets (earnings). This would fluctuate with GDP or GDI rather than the stock market, so it would give a different perspective. Maybe this already exists?
People focused on wealth inequality seem most animated by the unfair accumulation of financial assets at the very top percentiles. But this focus on the rich leads to the oddly vacuous conclusion that when the US stock market crashes, wealth inequality in the US decreases.
So, the increasing concentration of financial assets is a real issue, but is there evidence that this is harming the middle and lower classes economically? As a measure of standard of living, the inflation-adjusted personal consumption expenditures per household rises decade after decade.
And, of course if our concern is the economic well-being of the lower quintiles there is some low hanging fruit, like universal health care.
The evidence is in the relative lack of wage growth in the face of rising productivity over the last 40 years. Even if there are absolute improvements, this iniquity destroys the incentive structure. You can see how this works if you read Chayonov's The Theory of the Peasant Economy. Peasants optimize, but in a very limited sphere that distorts the economy and the cohesiveness of the society. A modern state needs modern citizens if only so it can have effective soldiers in a modern war. This was a problem in Russia in the early 19th century. Russia kept getting its ass kicked, and one big reason was the its soldiers were peasants not citizens. That's one big reason the Tsar sold Alaska to pay to free the serfs. By World War II, Russia had an army of citizens.
Through history, people have complained about peasants. They are stubborn, stupid, worthless and the like. They rarely discussed why the peasants were that way, though they took advantage of the reasons as it usually served their purposes. Modern business wants peasants, but it needs citizens. It's hard to motivate peasants as they have limited incentives. Why work one's ass off for a year and get a candy bar for your trouble? Why innovate and get a pat on the back and laid off at the next downturn while the company does well exploiting your idea? That's why we've seen the bifurcation in the economy.
We increasingly have a nation divided into peasants and citizens, and we have the politics to show for it. On the right, there is a vision of a nation of nobility and peasants, and, on the the left, there is a vision of a nation of citizens. Is the increasing wealth of the nobility and the resultant adoption of the peasant attitudes harming anyone? A lot depends on how much we care about future growth, military strength and our society's potential.
Businesses are whining these days about the lack of workers. The labor participation rate is dropping. It appears to be largely due to two causes: people over 55 leaving the work force, voluntarily or involuntarily; and women with children leaving the workforce.
The women with children leaving the workforce is an easy calculation - we made it several decades ago when we had kids. Ran the numbers on childcare costs and it made no sense for my wife to work at the lower wages she was getting compared to me. The net additional income would have been miniscule with substantial added stress. So she stayed home. So you either pay women more or pay for childcare costs. Otherwise they will stay out of the workforce.
The over 55 category is more complex as some people truly don't want to work anymore; others have enough income and assets so you need to offer substantial pay to entice them to work; and then you have systematic bias against elderly in the work force so they are often the first to be laid off which makes re-entry harder especially if "over-qualified".
In the end, we are in a period where the demographics are such that companies generally need to pay more to entice workers to come back to work. That is a massive mental hurdle for many business owners used to being able to treat workers as serfs. They are also struggling with the wage reset where that incremental wage needs to get paid to everybody to avoid the serfs revolting, so the marginal incremental cost has to get multiplied by all the workers. Many business owners are simply not willing to take that hit to the bottom line.
I note that S&P 500 profit margins are still close to all-time highs (10%-13% depending on measure). Prior to 2006, 8% was a high level. So businesses are now used to the highest profit margins in the past century. They are not going to give that up easily. So the money is there to give the workers - it is just a matter of increasing costs. The very high profit margins are also why I think the stock market could drop 40%+ without a significant recession because it is priced for all time high profit margins. Just dropping back to normal margin range on the same revenue would likely be a 40%+ haircut. However, businesses will likely react violently by cutting staff to reduce costs to maintain revenue. But that will then feed back as reduced demand and revenue.
Extrapolating a single, small downtick as a reversal of a trend? That's honestly pretty sloppy, Noah. You, of course, have qualified your thesis with a "might," but the tone here is still a little too much one of vindicated optimism for a case that's actually pretty weak.
Look at the inequality graphs you shared. Were they smooth lines trending upward without interruption until now? You could have taken a slice out of the same graphs at 2001-03 or 2007-09, where inequality fell far more dramatically (due to recessions/bear markets), as "evidence" of a reversal, too. And yet you didn't. Because you know that the *secular trend* continued right after both declines, didn't it?
Nor did you note the similar-sized declines in inequality during the early 90s. Because, again, they were just temporary blips in the super-cycle of increasing wage/wealth inequality from the 1970s through now.
Now, aren't we now in a similar such (at least technical) recession?
Conversely, what if you had written this same essay between 2020-21? I didn't hear that much about Piketty then, either. Did you? Despite the fact that inequality by some measures shot up faster than anytime in my lifetime. A ripe moment, especially, for "r>g!" Maybe Piketty's relative absence was because there were certain other things for Twitter people to talk about at that time, and not because his thesis was discredited or overstated by reality (quite the opposite)? Maybe in 2022, when inflation and the largest war in Europe since WWII became the primary concerns of the commentariat, we also have had other things to focus on? Maybe our attention is somewhat capricious and not meritocratic? (Did we talk about Climate Change much? Does that mean it's no longer happening?)
No, Geoff. I am not extrapolating a single small downtick. Inequality of income and wealth stopped rising around 2013; that is a decade ago now. It is now 2023. The trend until now has NOT been one of rising inequality. That was the trend until 10 years ago. The change was 10 years ago.
The historical pattern since the 1980s has been falling inequality as the bottom of the economy gets a boost during booms, but most, if not all, of those gains are lost in the ensuing recession. Some time back, I did a historical graph of the top 5% incomes versus the bottom 20% incomes, and $13K per year (in 2017 dollars) seems to be the magic reset line. We were last down there in 2012. Meanwhile, high end salaries ratchet up repeatedly.
http://www.kaleberg.com/wagesandshare/top5-vs-bot20.jpg
We had a boom in the late 2010s and another since the pandemic, and in neither of those booms has inequality ratcheted up.
Did you look at the chart? Over the last 40 years, high end salaries have ratcheted up while low end salaries have returned to a set point. It often takes more than a single recession to return low end salaries to that point, so we'll have to wait a bit and see whether this happens again or if the pattern has changed.
Workers getting some more non-real-inflation adjusted hand-to-mouth wages is not a real case of "inequality decreased". Especially with all kind of accounting tricks to hide the real situation on the ground.
This sort of "drop of inequality" is like someone like Musk makes 500 million on a bullish stock market rumor and losses 500 million in a falling market - in a day. Did their wealth and standing in society actually change in any relevant way?
The actual wealth inequality remaining is huge, greater than any time in US history, and still there. Not to mention that this "reversal" comes after a period of unprecedented profits...
Even if a two-billion-aire becomes a mere single-billion-aire because of the stock market, they're still above any imaginable economic related hardship, economically sorted out for 10 generations of progeny, with dozens of ultra expensive tangible assets all around the world, with diversified portfolio and property investments, with huge influence on society and politics, and with tens of thousands of people under their direct control (as employee, owner, etc.).
If on the other hand a 50K a year worker gets to 35K a year (or gets unemployed for a while, or has some medical issue or such), they have to severely downsize their life, their kids education, give up the mortgaged house and rent, or even become homeless, even dead because of lack of medical coverage, the hardship might break their family, end them depressed, and worse. Not some theoritical point: happens to millions every year. Most Americans can't even afford to have a spare $1000 for an emergency.
Dube has shown that wages for the people at the bottom of the distribution have increased since the pandemic struck (and they certainly increased in the late 2010s as well).
Check this out:
https://twitter.com/arindube/status/1595606927303925760
There's at least million of women out of work still, after the pandemic. Mostly because they're doing unpaid work. Like taking care of ailing elders (more after the pandemic, with long Covid and assorted ill health effects from not being able to get adequate health care in a timely manner). Or taking care of children, since child care (more expensive after the pandemic) would take up all their earnings. I would wager that if you take out of the workforce the people who earn less (women, compared to men), you would get an increase of the average. Whether that is an decrease of inequality it really debatable, I would rather say no, it's not.
Nick, I think this is wrong. I would say you're conflating inequality as an economic measurement (which, if it declines, will nearly always do so in small, unsatisfying increments - and which will never speak to, say, the relative-precarity issue you raise in your last paragraph) and inequality as a justice issue (which can be taken in a lot of directions, as you take it). Noah means the former - he's taking the movements he cites as indications of a possible change in the US Gini coefficient or some other measure - and with such measures "better" means "better," or there's no point in tracking them. At any income distribution other than a flat one there will be more vulnerability at the bottom than at the top, and the question of what to do about this is an important one. But it doesn't mean that improvement in real incomes at the low end don't matter.
I'm with you! The Realtime Inequality website used as a source in the article is fascinating and has many variables that can be used for analysis. I clearly shows that at the end of the last quarter the actual average wealth of the lowest 50% (!) of the US wage-earners over 20 years of age is $937. That means ALL of their wealth for a $1000 emergency, not just savings. Inequality and living at the margins are defining features of the US and demonstrate for me the true nature of capitalism as a foundation for a social system. "Why, look, the lowest 50% had wage gains this year, that shows things are getting better!" Well, even a 5% bump on a $15/hr wage only means a new wage of $15.75. Still not a way to add wealth when inflation is 7-8%.
See my dissenting response to Nick.
I’m biased as someone who was raised middle class and is now close to 1% in earnings and net worth but I’m not convinced inequality is definitely a bad thing as long as the floor is high. Is anyone better off because Musk has lost $133B in stock valuation this year? Rich people getting richer has never bothered me. Child poverty and crime related to underdeveloped communities and racism does bother me.
The federal government increased the Child Tax Credit an average of $1,300 per kid (From $2K to $3K or $3.6K depending on age of child). https://tinyurl.com/dhr48shm
That change helped drive child poverty down 40% (https://tinyurl.com/2mvn2jyf)
There are about 11.6 million kids living in poverty in the US. (https://tinyurl.com/bdcscmmy)
Elon Musk's $133 billion could have paid for those $1,300 in additional payments to continue flowing to impoverished families with children for an additional 8.8 years.
So, yeah, inequality is a bad thing because we could be using the infinite ceiling of a handful to, as you pointed out, raise the floor for millions.
Sure, wealth is ephemeral and Musk never really had that $133 billion because if he actually tried to sell off all that stock, the price would have continued to tumble. But I, for one, think it's worth trying to turn billionaires' ephemeral wealth into tangible improvements for the poorest families in our community.
Whether or not we pass a child tax credit, and how much that credit amount to, is a political question. The idea that we could pay for it by a wealth tax on unrealized stock gains from americas richest is pure fantasy. When billionaires lose billions on paper due to stock market declines, it may look good for the inequality charts, but millions of middle class people are hurt too. It’s not a coincidence that when Musk and Bezos were at their richest, my 401k was at an all time high.
I think the pro-growth message is a good one and I don’t think it has to be exclusive to republicans
At the very least, progressives need to be careful not to be anti-growth. Anyone who lived through Soviet Ukraine or post-Chavez Venezuela can vouch that universal famine is not a superior alternative to nutrition inequality.
Your fallacy is: non sequitur. In an already high-income country, non-growth doesn't mean "liv[ing] through Soviet Ukraine or post-Chavez Venezuela".
Venezuela was a decently well-off country until it wasn't.
I don’t understand all of this discussion as well as I would like, but I do appreciate your courage and putting your thoughts out here. You seem real human. :-)
I don't think a wealth tax is politically feasible, but we might raise the top marginal tax rate. I don't think we could get it up to 90%, the rate when the US had its period of highest growth and lowest inequality, and we've seen tax increases set off economic growth in more recent years.
Higher marginal tax rates would change a lot of the wealth calculus. If you watch a movie from the 1960s, like the comedy, The Wheeler Dealers, one thing you notice is the omnipresence of the tax code in making one's business decisions. Back when taxes were 90% for short term and 45% for long term income, return on investment looked a lot different from the way it looks today. One of the jokes in the movie involved James Garner, the wheeler dealer protagonist, buying the taxi taking him into Manhattan from the airport and, in a great win-win deal, leasing it back to the driver.
But, think about it. If you are an executive today and you can squeeze a dollar an hour out of a thousand full time workers, you can take home 2/3 * $40K = $26.7K a week. That's a nice weekly bonus for management even if it gets split with the shareholders. At a 90% tax rate, that's $4K. It's barely worth bothering. Even your shareholders would agree since they had to pay 90% on dividends. It would be better to keep the money in the company and buy more efficient burger grills or amp up the advertising. That would raise the value of the company and those capital gains would only be taxed at 45%. That's why higher taxes led to higher wages and more investment, and, honest to God, rich people in that era were not reduced to soup kitchens and flop houses.
A tax on inherited wealth would be eminently politically feasible and a winner of votes. Just is not proposed by left politicos because, well, they love their children too. Can't blame them. But doesn't mean it's not feasible.
I’m open to increasing the highest marginal tax rate but I think we should be honest about the fact that it isn’t going to lead to utopia or European style public services or put much of a dent in inequality.
Agreed. Doing a better job of taxing the rich would probably balance the budget IF it was coupled with a spending freeze; it wouldn't pay for any additional spending without also raising taxes on the middle class.
There’s no merit in balancing the budget, that’s an accounting identity and doesn’t say anything real about the state of the economy.
Has your 401K become your fixed income yet?
This applies to everyone who has a 401K. We are all in the same boat.
The loss in securities values doesn't affect you directly. Unless and until you realize your 401K into cash income. Then a market downturn is effectively a reduction in salary and standard of living.
Yeah, but one reason the market is down is because the Fed increased interest rates. That's good for you if you are drawing cash income from your 401K.
My point is we’re all in the same boat, including the billionaires. I don’t care if billionaires keep getting richer as long as I do well too. I’d much prefer Musk be worth $300B and the stock market be at all time highs even if this means the inequality charts look bad
I'd use the boat analogy the old-fashioned way; if the rising tide is lifting all boats, is it a bad thing that some boats are being lifted much, much more than others?
Populist conservatives like Trump have had success with working class voters by being pro-growth, rather than anti-inequality.
Yeah, but not all of those boats are still floating and a lot of them are seriously leaking. The problem isn't the rising tide, it's the inequality of boats. Worse, in reality there is just one boat. It's just that only a handful of people are allowed on deck or the superstructure, and an awful lot of them are stuck in the bilge and orlop.
[Sigh]
We need a Bechdel Test for Trump narratives. This comment wouldn't pass it.
To pass the Trump Test:
1. The conversation must not deny Trump's racism.
2. If the conversation does not deny Trump's racism, the conversation must not deny the salience of Trump's racism.
Salience is more complex because it's not intuitive. But salience is important because racism is a scary, uncomfortable topic and once it's introduced, commentary tends to want to explain it away. Like through economic arguments (Coates, Mutz, et al roundly disprove economics) or by adding gratuitous nuance like pointing out other characteristics like sexism and anti-semitism or ideology (by reducing identities to categories, we cognitively tend to sort and count them rather than compare them, or see how these -isms intersect).
You can’t turn Musk’s personal market cap into food; kids can’t eat Tesla shares.
We don’t know how much cash you can purchase with those nor how much food you could buy with the cash, but it’s a lot less than his quoted wealth; in both cases the prices you see are marginal and are going to seriously move against you.
(Also shows the problem with a wealth tax - it’s inflationary, but usually you expect taxes to be disinflationary.)
Severe inequality is corrosive to the civic values of a republic . It’s leads the rich to think of themselves as oligarchs, not citizens. It leads ordinary citizens to think that the game is rigged, possibly that the game is inevitably rigged, and once that happens people start looking for ways to rig it based on sex, or skin color, rather than “merit”.
I’m not saying I want to live in an oligarchy. Sever inequality is bad, but we have a very large middle and upper middle class in the US. I don’t mind that there’s a massive gap between the middle class and the richest guy in the world.
If I gave you $5,000 a day, every day, from the time Christopher Columbus sailed the ocean blue in 1492 until today ... you would still not be a billionaire.
There's not a massive gap between the middle class and the richest handful of men on Earth ... there's an impossible, galaxy-wide, yawning abyss between the two.
I understand the math. My point is, I don’t care about billionaires existing as long as I personally have opportunities to build wealth and live a good life. And today I do have those opportunities.
Jackie, about 8 billion other people want the same things you do.
If everyone is wealthy, no one is wealthy.
What if you put the $5000s into $SPY?
That's not a well-posed counterfactual: for 500 years from 1492, $SPY didn't exist.
I agree. Others being rich does not in itself harm me. The only thing that matters is alleviating the suffering of the poorest. We should do what we can to do that - the question is whether redistribution will actually help feed the poor, or if it will destroy our ability to continue producing value.
I don't find your position coherent; you're essentially saying that you find severe inequality to be bad but you don't mind it.
Inequality in wealth is also always an inequality in power and a great inequality in power pulls us towards autocracy.
And the active interference with earnings and the massive trillion-dollar-plus levels of redistribution and social engineering empower an autocracy. Just saying.
Actually, there is some harm done when a disproportionate amount of wealth is owned by a small, extremely rich cohort. Poverty is not an absolute measure, but a relative one, it's justified by status competition. The higher the consumption by the very wealthy, the higher the aspirations of the less wealthy, leading to a whole group of people devoted to selling luxury items. This leads to a type of inflation that directs resources to things that don't contribute to society as a whole. When there was less inequality, people didn't feel obliged to have exorbitantly expensive weddings, to have their children go to private schools, to live in super-exclusive neighborhoods. The urge to have and maintain a higher status will always exist, but less distance between the middle class and the top 1% contributes to the perception of poverty by the bottom 50%.
Yeah, in practical terms wealth is concentrated discretionary power over the time and lives of other people and over real resources.
The best argument for tolerating high wealth inequality is some version of "this set of institutional arrangements produces the best overall quality of life for the most people." IMO, current levels of wealth inequality are not justifiable on those grounds - we had decades after WWII with comparable or higher growth and much lower wealth inequality under different public policies/institutional arrangements.
At extreme levels of wealth inequality, it's a joke to say that a polity is a "democracy" or particularly "free" in a positive sense (i.e. "people have the actual ability to live the kind of lives they want"). At extreme levels of wealth inequality most of the important decisions about the present (i.e. current production process and distribution of incomes) and about the future (i.e. investment) are made by a small proportion of the society (the wealthy), within authoritarian institutions (private enterprises) that the wealthy dominate. And that's before considering the outsize ability of the ultra-wealthy to corrupt/subvert formal political institutions/electoral politics.
Wealth is relative but poverty is not. It’s defined as lacking the financial resources and essentials for a minimum standard of living and something like 7% of the US lives in poverty. This term does not refer to people stretching to send their kids to private schools.
I'm not saying poverty isn't bad. I'm focusing on the problems created by the other end of the scale.
> Is anyone better off because Musk has lost $133B in stock valuation this year?
Probably! Inasmuch as it's deprived Musk of money to inflict harmful policies by pumping his wealth into the political process or corporate ownership, then yes. And inasmuch as it's deranged Musk enough to make him act out in entertaining ways, then again yes. And inasmuch as it's stopped people taking Musk's vaporware about solving traffic and housing us all on Mars (and so on) seriously, that's also liable to make the rest of us better off.
Great post, Noah. Two figures brought me, late in life, to economics: Piketty and Robert Solow. The first I even attempted to read in French during business travel in the early 2010s. The second makes me want to ask about a contested word in economics: "instability."
Growth theory emerged out of depression era musings about business cycles and economic instability (Roy Harrod) and anxieties in the US around achieving "full employment after the war" (Evsey Domar), with Solow intervening in the (more optimistic) 50s to point out that the long-term growth story suggested a more reverting-to-growth-trend kind of stability in industrial economies than the earlier writers imagined. The growth trends he described were composites of immense, ongoing, productivity-enhancing structural change (driven by technological improvement).
Post-Keynesians (and leftist historians and social thinkers), on the other side, continued to pound the instability drum, pointing to shocks and crises, showing more interest in the unemployment rate than GDP, and emphasizing the precarious side of the "Great Transformation," both nationally and internationally. Eric Hobsbawm, in a very late interview, spoke of the "last 20 or 30 years, which have been globalization under the sign of uncontrolled free markets, have produced not only inequality but also enormous instability: rapid booms, dramatic slumps, and transformations, unpredictable and rapid."
My question is whether there is anything tangible behind the instability/stability argument beyond this left/mainstream split or a glass half-empty/half-full take. Maybe between economists and non-economists (especially journalists) it has something of a generalization vs particularist flavor. But is there any common working definition of economic stability or instability? I've not seen it.
has anyone studied impact of increased job-hopping on productivity and by extension job market tightness? anecdotally i work in a field where new hires are basically useless the first 6 months (at least) and only reach peak productivity a couple years after starting. Having more churn hurts a lot in such a scenario and forces hiring even more people which creates more job market tightness and job hopping etc. May not be representative maybe lower-wage jobs ramp up much faster dunno.
Yeah I'd say the kinds of jobs with a 6-month learning curve tend to skew very white-collar and higher paying.
The white-collar job market is fucky in plenty of different ways, so it would be difficult to isolate any impact of job-hopping. The stereotypical Twitter addict is, after all, someone required to be sitting at their work computer for 8 hours/day but only has 1-2 hours of real work to do, and spends the other 6-7 hours just looking busy.
I'm not a Piketty fan, but this seems like grasping at straws even to me.
From the graph here: in 1985, the bottom 50% held just 2% of the wealth in America. In 2022, they hold about 1.5% of the wealth in America. In 1985, the top 10% held 63% of the wealth in America; today they hold 70%.
While the last few years have been a welcome shift in the right direction, we must not use that to obscure the multi-generational reality of falling living standards for the vast majority of our fellow citizens.
Inequality is still high. That does not mean it rises inexorably.
You conclude by:
"this demonstrates not the fundamental instability of democratic capitalist systems,
but their fundamental self-correcting stability."
Do you really think capitalism will last forever?
Consider the following story of market societies development cycle in six steps:
1.
Markets emerge in an equitable setting and
grow by creation of institutions that
secure easy access to broad groups.
The opportunities of market exchange push
up economic growth and well-being as long as the
fruits of growth are fairly evenly distributed.
2.
As markets become dominant - especially the
markets for land, labour and capital -
inequality grows in a slow process as
ownership of land and capital concentrates.
3.
As inequality grow, economic growth initially continues,
but to a lesser degree get translated into broad well-being.
Purchasing power stagnates for large parts of the population.
Shrinking demand and declining profitability
shift investments to financial markets away from productive sectors.
4.
Wealth is instead used to acquire political leverage through
patronage and buying political positions.
Through their dominance in financial markets and their role
as creditors of the state
the wealthy acquire key positions in the fiscal regime,
bureaucracy and finance.
5.
Over time markets become less open and
equitable, through both large wealth owners’
economic weight and their ability to skew the
institutional organization.
Productive investments declines and the economy stagnates.
Economic inequality rises further,
feeding into growing political inequity and social unrest,
resulting in coercion, rebellion and breakdown.
6.
After breakdown the process starts to build up anew from a position
of more equal distribution of wealth and power.
Step 6 tends to end up capitalist all over again though.
May be - will depend on factors external to this story, namely capitalism's unsustainable exploitation of nature - when the system cannot grow anymore it will no longer be capitalism.
If goods production is not centrally planned, then it's still going to be capitalist.
No, that's a non sequitur, since goods production can take place in an economy that's neither capitalist nor centrally planned (https://en.wikipedia.org/wiki/Market_socialism#Late_20th_century_and_early_21st_century).
The only form of goods production that arises spontaneously is capitalism, and the only way to take spontaneity out of goods production is through central planning. Mandatory employee co-ops et al would still require central planning.
Once again, you throw around the term "non sequitur" pretty often for someone who doesn't actually understand what it means.
I challenged you to explain the flaw in my understanding of "non sequitur" (https://noahpinion.substack.com/p/inequality-might-be-going-down-now/comment/11603780) and you couldn't do it. Meanwhile, you don't know what "central planning" means; "Mandatory employee co-ops" do not amount to central planning. (It's not clear you understand what "spontaneously" or "capitalism" mean, either, but one example suffices to document your ignorant projection.)
Everything that is not centrally planned need not be capitalism. However, to my mind the interesting aspect of the 6-steps cycle is how we collectively learn by passing through it. As the system breaks down do we learn about the inherent causes - something that makes the next cycle different, f.ex. by introducing central planning instead of letting the market allocate everything?
"Everything that is not centrally planned need not be capitalism."
Yes it does, because goods production happens for 1 of 2 reasons:
1) for profit
2) because someone in power demanded it be done
Taking shoes as an example, shoes will either be manufactured so they can be sold at a profit, or because a central planning committee assigned some people the task of manufacturing shoes.
No, you're incorrect and John Mutt Harding is correct on the substance here. Your two reasons are obviously not the only reasons to produce goods (perhaps most obviously, one could make goods for oneself), and the two reasons you do give aren't mutually exclusive (some, probably most, production in capitalist enterprises takes place both for profit AND because someone in power — a boss — demanded it).
Impressive work. Thanks for writing this. Loved this and will take it to my notes. I may be a socialist, but I agree with you.
It's hard to accept that inequality is going down in any meaningful way since the divide is so great, to begin with. According to the EPI, in 2020, top CEOs earned 351 times more than the typical worker. CEO pay has increased by 940% since 1978, whereas typical worker pay has increased by 18.1%.
Capitalism excels in telling producers what goods are in demand and at what price levels. This allows for an efficient distribution of resources and quick responses to market changes. Capitalism fails at the distribution of income - where a few are extremely wealthy, but the majority work paycheck to paycheck.
This unequal distribution allows a small number of people to be very rich and exercise political power far in excess of their absolute numbers. Highly paid lobbyists, dark money donations to politicians, and money hidden in off-shore accounts and non-profit foundations further mask the activities of the wealthy.
This wealth and power have subverted religious institutions into becoming political pawns, allowing some states to make voting by certain minorities very difficult, and facilitated the stacking of the Supreme Court with a fundamentalist group of people who are out of step with mainstream America.
Please don't suggest that Supreme Court is only interpreting the law, and it is up to Congress to pass new laws. These unelected people, with their powerful backers, are making the laws that apply to all of us.
The slight downward movement in the spread of wealth is meaningless in the face of entrenched power. Our tax laws are skewed toward protecting the wealthy, and with a limited inheritance tax, the power of the wealthy increases with each generation.
Not only is there a wealth gap, but there is a power gap between the rich and the rest of us. Our democracy is in peril, not only from external enemies, of which we have some powerful ones but from within by people who only care about their own positions at the top of the pyramid.
Have you seen Brazil's per capita gdp ? It's almost half what it was in 2010.
Lula was in tears tonight recounting people holding signs "please help me". in 2022.
I loathe neoclassical economics, and the psychopaths at the IMF and World Bank who oversee all this misery.
Sleep well.
False. Brazil's per capita GDP is about 6% lower than in 2010.
https://ourworldindata.org/grapher/gdp-per-capita-worldbank?tab=chart&stackMode=relative&time=2010..latest&country=~BRA
I don’t know if the diagnosis of Piketty was totally wrong, the US had a coup de etat, you know? It also had an orange monkey due to votes of poor white people. So did the US have a crisis? Yes! Was it because of inequality? I don’t know, but my gut feeling is that inequality played a part indeed.
One of the things that makes me suspicious of economic explanations for Trumpism is remembering that in the Sixties, the white working class turned right at precisely the time when they'd never had it so good.
True. Ezra Klein is among the most famous of a school of thought who calls 1964 "the Great Sundering." The signing of the Civil Rights Act was the big bang for the modern American right. Trumpism was the culmination of what began after 1964.
There's a reason why "eCoNoMiC aNXieTy" is written by blue tribers in the Mocking Spongebob cant.
The urtext of Trumpism has to be Ta-Nehisi Coates declaring Trump to be the "first White president." Obviously, all but one U.S. president was White. What he meant by the title of his essay was that he predicted that Trumpism is going to pivot the Republican party to the embitterment and anxieties of whites as a race.
https://www.theatlantic.com/magazine/archive/2017/10/the-first-white-president-ta-nehisi-coates/537909/
The best part of his essay was the data he showed to argue that Trump won Whites, period. Any other demographic filter applied, and it holds true. Trump won White men and women in every income bracket. In every level of education. In every state, even in the blue states like California, New York and Illinois where he lost badly. There were more Trump voters in blue states than in some red states where he won handily.
This is also what UPenn political scientist Diana Mutz found in her research, a scholarly rendering of Coates' essay, "Status threat, not economic hardship, explains the 2016 presidential vote."
https://www.pnas.org/doi/10.1073/pnas.1718155115
On the anniversary of the insurrection, Robert Pape in Foreign Policy profiled who exactly the people were that stood back and stood by.
https://foreignpolicy.com/2022/01/06/trump-capitol-insurrection-january-6-insurrectionists-great-replacement-white-nationalism/?fbclid=IwAR1LoTb9ehe4AFW5igI0TlU6tLJIWj_DKc0_PW8OGtiQzPgDvB5j_3XFUsQ
None of them were the "forgotten man", but your status-anxious asshole boss.
I never understood Krugman's willingness to defend the Piketty thesis.
This is literally the guy who predicted the Asian financial crisis (and was ridiculed for it by people like Alice Amsden) because he saw that constant growth in capital per worker was unsustainable: at some point, the marginal increase in depreciation costs eats up the gain in labor productivity.
So why didn't he call out Piketty for completely ignoring depreciation?
Because depreciation is irrelevant. The overall trend matters, not temporary setbacks...
There's a massive blindspot here in that you haven't mentioned the largest economic stimulus package ($1.9 trillion), way larger than Obama's post-2008, which at the time was unprecedented and shockingly large. A more realistic narrative would be that Covid has forced Western governments to intervene massively in order to support the stability of the system, which can barely be called capitalist anymore (definitely not "laissez-faire"). A more interesting approach would be to consider what might have happened to inequality without covid and the subsequent interventions. There's no evidence to suggest it would have reduced without government intervention (though of course it's possible that in this counter-factual scenario progressives may have won the argument and obtained substantial intervention in order to reduce inequality, even without covid as the driver).
I am glad that you mention towards the end of the post that this could ultimately be a result of one of those extraordinary forces in action especially with COVID-19 recession and the sudden overheating of the economy. This could ultimately be a temporary trend, even if it extends to over a decade of no major growth in inequality. Hard to believe this, in any way, is going to show us that inequality is meant to decline or the r>g is not going to hold in the long-run
I hope that Thomas Piketty’s books (his 2nd volume is interesting too) will be a part of the public discourse, even if inequality has abated for a while. His arguments are strong, built on loads of data, and favor long term thinking.
Perhaps there are natural mechanisms by which inequality is mitigated in a modern capitalist economy. And perhaps we are seeing the beginning a persistent reversal. But we should inoculate ourselves against wishful thinking — in the absence of strong evidence to the contrary, the last few years are just as likely to be a short detour on the path to unacceptable inequality.
We should remember just how dramatic the wealth redistribution of WW2 was. It’s hard to imagine anything like that happening in the natural course of economic growth.
I do wish there was a less volatile measure of wealth than summing current asset valuations. Something like percentage of productive capital owned by the top 1%, measured by the output of the assets (revenue) or the return of the assets (earnings). This would fluctuate with GDP or GDI rather than the stock market, so it would give a different perspective. Maybe this already exists?
Thanks for the article!
People focused on wealth inequality seem most animated by the unfair accumulation of financial assets at the very top percentiles. But this focus on the rich leads to the oddly vacuous conclusion that when the US stock market crashes, wealth inequality in the US decreases.
So, the increasing concentration of financial assets is a real issue, but is there evidence that this is harming the middle and lower classes economically? As a measure of standard of living, the inflation-adjusted personal consumption expenditures per household rises decade after decade.
And, of course if our concern is the economic well-being of the lower quintiles there is some low hanging fruit, like universal health care.
The evidence is in the relative lack of wage growth in the face of rising productivity over the last 40 years. Even if there are absolute improvements, this iniquity destroys the incentive structure. You can see how this works if you read Chayonov's The Theory of the Peasant Economy. Peasants optimize, but in a very limited sphere that distorts the economy and the cohesiveness of the society. A modern state needs modern citizens if only so it can have effective soldiers in a modern war. This was a problem in Russia in the early 19th century. Russia kept getting its ass kicked, and one big reason was the its soldiers were peasants not citizens. That's one big reason the Tsar sold Alaska to pay to free the serfs. By World War II, Russia had an army of citizens.
Through history, people have complained about peasants. They are stubborn, stupid, worthless and the like. They rarely discussed why the peasants were that way, though they took advantage of the reasons as it usually served their purposes. Modern business wants peasants, but it needs citizens. It's hard to motivate peasants as they have limited incentives. Why work one's ass off for a year and get a candy bar for your trouble? Why innovate and get a pat on the back and laid off at the next downturn while the company does well exploiting your idea? That's why we've seen the bifurcation in the economy.
We increasingly have a nation divided into peasants and citizens, and we have the politics to show for it. On the right, there is a vision of a nation of nobility and peasants, and, on the the left, there is a vision of a nation of citizens. Is the increasing wealth of the nobility and the resultant adoption of the peasant attitudes harming anyone? A lot depends on how much we care about future growth, military strength and our society's potential.
Businesses are whining these days about the lack of workers. The labor participation rate is dropping. It appears to be largely due to two causes: people over 55 leaving the work force, voluntarily or involuntarily; and women with children leaving the workforce.
The women with children leaving the workforce is an easy calculation - we made it several decades ago when we had kids. Ran the numbers on childcare costs and it made no sense for my wife to work at the lower wages she was getting compared to me. The net additional income would have been miniscule with substantial added stress. So she stayed home. So you either pay women more or pay for childcare costs. Otherwise they will stay out of the workforce.
The over 55 category is more complex as some people truly don't want to work anymore; others have enough income and assets so you need to offer substantial pay to entice them to work; and then you have systematic bias against elderly in the work force so they are often the first to be laid off which makes re-entry harder especially if "over-qualified".
In the end, we are in a period where the demographics are such that companies generally need to pay more to entice workers to come back to work. That is a massive mental hurdle for many business owners used to being able to treat workers as serfs. They are also struggling with the wage reset where that incremental wage needs to get paid to everybody to avoid the serfs revolting, so the marginal incremental cost has to get multiplied by all the workers. Many business owners are simply not willing to take that hit to the bottom line.
I note that S&P 500 profit margins are still close to all-time highs (10%-13% depending on measure). Prior to 2006, 8% was a high level. So businesses are now used to the highest profit margins in the past century. They are not going to give that up easily. So the money is there to give the workers - it is just a matter of increasing costs. The very high profit margins are also why I think the stock market could drop 40%+ without a significant recession because it is priced for all time high profit margins. Just dropping back to normal margin range on the same revenue would likely be a 40%+ haircut. However, businesses will likely react violently by cutting staff to reduce costs to maintain revenue. But that will then feed back as reduced demand and revenue.