Why Income Inequality Isn't About Preserving Jobs

A college friend of mine posted this article in the Guardian, by the creator of The Wire, on the drivers of economic inequality. It's a flash flood of an argument, a passionate and unintimidated review of why we can't expect capitalism to solve our social problems, even as it solves many of our economic ones. I enjoyed reading it and parts of it were terrific.

I think the bit that I liked the best is this:

If you watched the debacle that was, and is, the fight over something as basic as public health policy in my country over the last couple of years, imagine the ineffectiveness that Americans are going to offer the world when it comes to something really complicated like global warming. We can't even get healthcare for our citizens on a basic level. And the argument comes down to: "Goddamn this socialist president. Does he think I'm going to pay to keep other people healthy? It's socialism, mother****er."

What do you think group health insurance is? You know you ask these guys, "Do you have group health insurance where you …?" "Oh yeah, I get …" you know, "my law firm …" So when you get sick you're able to afford the treatment.

The treatment comes because you have enough people in your law firm so you're able to get health insurance enough for them to stay healthy. So the actuarial tables work and all of you, when you do get sick, are able to have the resources there to get better because you're relying on the idea of the group. Yeah. And they nod their heads, and you go "Brother, that's socialism. You know it is."

And ... you know when you say, OK, we're going to do what we're doing for your law firm but we're going to do it for 300 million Americans and we're going to make it affordable for everybody that way. And yes, it means that you're going to be paying for the other guys in the society, the same way you pay for the other guys in the law firm … Their eyes glaze. You know they don't want to hear it. It's too much. Too much to contemplate the idea that the whole country might be actually connected.

Granted, I think most people have a slightly more sophisticated register of complaints -- the idea that encouraging people to overuse the healthcare system will disincentivize good behavior, that dependence on the wealth of others means people won't allocate the correct part of their resources to preserving their own health, etc. etc. -- even if all of it washes out when you do the longhand math. I don't think it's outright obliviousness. But it's got punch.

So as I said, this is in many ways a really good article. What I think would make it better is a more nuanced view of the relationship between labor, equity and growth -- in particular, there's some incomplete reasoning in the part of the article my friend quoted, which reads as follows (preceding paragraph included):

I'm utterly committed to the idea that capitalism has to be the way we generate mass wealth in the coming century. That argument's over. But the idea that it's not going to be married to a social compact, that how you distribute the benefits of capitalism isn't going to include everyone in the society to a reasonable extent, that's astonishing to me.

And so capitalism is about to seize defeat from the jaws of victory all by its own hand. That's the astonishing end of this story, unless we reverse course. Unless we take into consideration, if not the remedies of Marx then the diagnosis, because he saw what would happen if capital triumphed unequivocally, if it got everything it wanted.

And one of the things that capital would want unequivocally and for certain is the diminishment of labour. They would want labour to be diminished because labour's a cost. And if labour is diminished, let's translate that: in human terms, it means human beings are worth less.

Okay, this is where I think we can make the biggest correction. The first paragraph? Absolutely. Couldn't agree more, as I'll expand on later. But in the second and third bits, I think we lose sight of the mechanics by which we actually grow.

apologies to un-self-aware patriots.
via knowyourmeme

The thing to remember is that in a political climate where Job Creation! is the only thing anyone's talking about, there is a headlong rush to artificially inflate industries that are no longer the most effective ways to, as Simon puts it, "create mass wealth." This is the knee-jerk policy reaction to the idea that labor should be diminished because it's a cost: no! we say, it should be promoted! We should build a stronger labor base by creating a bunch of jobs!

The problem is this: the improvement in our quality of life is in most ways a result of technological production multipliers. According to Robert Solow's Nobel Prize-winning work, economic growth in the early 20th century was due more to sci/tech innovations than to capital investment or growth in the workforce. The machines that make our cars faster than people, well, it's true that it puts auto workers out of work, but it also makes cars cheaper, which gives more people cars and the auto industry a broader customer base; that also allows for more investment in the auto industry, which may not counteract the potential loss in labor, but it results in the same amount of money in American pockets being able to acquire more wealth. (Econ nerds: I'm not gonna get into inflation and interest rates here, because even taking those into account we still see growth in whatever Consumer Price Index we choose. Correct me if I'm wrong.) Economic growth always looks a little like this: while we obviously care about the employment rate, we might not want to be primarily concerned with the number of people working in a particular industry, but rather with the participatory leverage afforded the people working in that industry. And anyway, it increasingly looks like the minimum wage doesn't affect employment rates much in the U.S., so we're already set to lift the floor in that regard.

This is why Bangladesh is almost entirely employed by the garment industry right now -- it's a better economic engine than subsistence farming, but they don't yet have access to the more lucrative industries that are available here and elsewhere in the developed world. They may soon, however, as the increased income due to the greater workforce production makes Bangladeshis able to seriously contemplate education, entrepreneurship, and the greater opportunities that follow. South Korea looked in the 70's like Bangladesh does today, and now look at them.

The point is this: as economies advance, they (in theory) should replace the harder, more dangerous, more repetitive jobs with healthier, safer, more fulfilling and self-directed ones. We ABSOLUTELY need a better social compact, because as the economy advances and that turnover occurs, people working in jobs at the "bottom" will be more vulnerable than people working in jobs in the middle or the top. There's some (inconclusive) reason to believe income inequality is not just unjust, it actually hurts economic growth (or at least, it doesn't help), and forgetting either point means we do ourselves and our most needy a huge disadvantage. However, the social compact also can't freeze the economy in place by refusing to shift toward more humane, more productive opportunities for fear of losing the Triangle Shirtwaist Factories of the world -- it just has to ensure that, as we  produce more growth and make possible a higher standard of living, that everyone has the opportunity to REACH that standard of living, even when they're at a disadvantage. Otherwise, we'll create a more equitable society, but we'll stop making progress as a country.

These countries had similar growth over the same period. So.
Hacker & Pierson (2010), via MotherJones

By the way, that increased wealth should also give us the opportunity to engage in work lifting the rest of the world out of poverty, as well as those Americans who have been left out of the social compact up to this point. You don't need to be a Marxist to see that. The social compact is about fairness, but fairness is also about what works. Unfair systems eventually either collapse or get brought down by Simon's proverbial riot-brick, whether monarchy, slavery or every step in the fight for civil rights -- and that's because people who are oppressed do have value. They continue to be worth not less, but more. An economy that's fair is an economy that harnesses all its members' potential, that gives them the greatest part of the world they can get, and that includes mechanisms that ensure we help each other to do so. That's how we grow.

So to Simon I would say this: fairness matters, both morally and practically. Labor unions are important, as is advocacy for the disadvantaged and disenfranchised in every city and state, and in every year. But part of the reason a social compact, a supportive safety net, is so necessary is that economic growth isn't equally fair to everybody. We need to recognize that if we want to grow, we need to be sure we are fair to the people who lose out, and help them get back where they want to be.

So I want policymakers to stop obsessing over job creation, or fearing backlash when jobs are lost to technological advancement, because in many ways artificial job creation is just a totally inadequate substitute for a deteriorating social safety net, and the connectedness and mutual understanding that it represents. Don't save or create already-obsolete jobs for poor people -- help poor people live well and get good jobs.


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As a footnote, check out the work my former classmates did on the "skills gap" in Wisconsin. It turned out that the dominant political narrative in the state, that there weren't enough technically skilled people for a 21st century labor market, may be backwards -- we may have such a top-heavy group of skilled people that everyone is working in a job they're overqualified for, and people who are actually best suited for lower-skill jobs just get pushed out of the economy entirely. So we also need to be careful to research where those people who are screwed by economic turnover are, what their lives look like, so that we can put our support where it needs to go.

As a second footnote, if you want to REALLY go down the rabbit-hole, you can read some thoughts about what happens when you let ideas with a capitalist flavor spill out of economics into social policy. This is a review of a book by a scholar I'm a fan of, Bernard Harcourt, in the Harvard Law Review; but not only is it a neat summary of Harcourt's theories on how free-market capitalism encourages high levels of incarceration (no, seriously!), but it's an even-keeled look at the related literature as well. I did not know this was a thing, and I'm even more surprised that it doesn't sound completely crazy when it gets into the nitty-gritty of labor markets.