Coyote Blog has uncovered an article detailing the secret mechanism that is keeping you poor. It’s by Kevin Drum in the Washington Monthly. Drum begins by quoting Ezra Klein at The American Prospect:
The concern [is] that, through mechanisms we’re not entirely sure of,
the very richest are siphoning off the economic growth before it flows
through the middle and lower classes. The worry is about the
distribution of growth, but the suspicion is that the distribution is
being warped by the sheer level of inequality.
I love that phrase, "mechanisms we’re not entirely sure of." Not entirely sure of? That implies that we have a pretty good idea but we’re not completely confident we have it exactly right. When I asked a prominent editorialist at a major American daily how the rich are getting to keep everything for themselves he also confessed that the mechanism isn’t entirely clear. OK, but can you give me the vaguest idea of how this secret cabal is managing to keep everything and leave us with nothing? If you really believe this is true, don’t you want to have the BEGINNINGS of a theory as to how it’s being accomplished?
Drum continues:
I’m not sure this gets the mechanism quite right, though. There are two basic ways that unequal growth can happen:
The rich suck up vast amounts of income growth, and this
leaves very little money for the middle class. Thus, wages for the
middle class are stagnant or, at best, rising slowly.Middle class wages are kept stagnant, and this frees
up vast amounts of money from economic growth. The money has to go
somewhere, and it goes to the rich.Now, obviously, it doesn’t have to be one or the other. It could be
both. But I suspect there’s a lot more analytic power in #2 than in #1.
So Drum suspects that there is an unspecified mechanism that somehow keeps the wages of millions stagnant freeing up all that growth for the rich to nab. The metaphor is a buffet table where the middle class is cordoned off from the food, leaving the rich to feast at their leisure.
It’s a nice metaphor, but what does it have to do with the economic world you and I live live in, where people go to school, grow up, enter the job market and find work among millions of employers in competition with each other for our services? Yes, you can make the case that some sectors are less competitive than others. But what model or vision or theory of economic reality presumes a mystical mechanism that keeps millions of workers in thrall while somehow creating great wealth for others?
I can think of a few. Most of them have been discredited by time and events. But if you believe otherwise, you have to long for a revolution rather than tinkering with the minimum wage or the tax code.
But to be fair to Drum, he does try and flesh out "the mechanism" a bit:
But — government policies that affect #2 seem far more plausible. For
example: Appoint members to the Federal Reserve who are obsessed with
inflation and act to cool down the economy at the least sign that
average hourly wages are rising. Make it harder to form unions in new
industries, thus reducing the bargaining power of the working class.
Support free trade agreements that put downward wage pressure on
low-income workers. Support tax and deregulation policies that make
middle class jobs less secure.
Let’s take these one at a time:
Appoint members to the Federal Reserve who are obsessed with
inflation and act to cool down the economy at the least sign that
average hourly wages are rising.
I love the reference to hourly wages. They have been stagnant or growing very slowly. They are Exhibit A in the case that the average person is suffering while the fat cats feast. But average wages exclude benefits. Why would you use that measure as a measure of economic well-being? But the real problem with this first example is that if you cool down the economy when the little guy prospers, how do the rich get all the growth? There isn’t any to be had.
Make it harder to form unions in new
industries, thus reducing the bargaining power of the working class.
But the proportion of private employment that is unionized has been falling since the 1950’s. Is that likely to be the mechanism at work over the last 10 or 20 years? During the first part of the post-war era, unionization was declining and average wages were rising. That can’t be the mechanism.
Support free trade agreements that put downward wage pressure on
low-income workers.
Free trade could put downward pressure on wages of some workers. But they also lead to lower prices which lead to a higher standard of living. Besides, I thought we were worrying about all the workers other than the fat cats. If low-income workers are suffer, in the zero-sum game world of Mr. Drum, shouldn’t that benefit the middle class along with the rich?
Support tax and deregulation policies that make
middle class jobs less secure.
Not quite sure what he’s driving at there. Even so, less secure middle class jobs shouldn’t explain how the middle class gets nothing. They should just get something less often.
The real problem with these theories of inequality is that they fail to see that the income distribution is an emergent phenomenon rather than under someone’s nefarious control. Coyote Blog says it well:
What’s bizarre about all of these statements is it treats wealth,
and in this case specifically income growth, like a phenomena that is
independent of individuals and their actions. They treat income growth
like it is a natural spring bubbling up from the ground, and a few
piggy people have staked out places by the well and take all the water
before the rest of us can get any.Wealth and income growth comes from individual action. Most rich
people are getting more rich because they are intelligently investing
and taking risks with their capital, applying the output of their mind
to create new wealth. There is no (none, zero, 0) economic correlation
that says that if the rich get really rich, then there is less left
over for the poor.
