The Economist has a wonderful blog post from “Democracy in America” tearing apart an argument by a conservative columnist for the New York Times
DAVID BROOKS argues that analogies between today’s America and that of the Progressive era are misplaced, and Progressive-era solutions ill-suited to modern times, because today’s America faces challenges it didn’t face back then. For example, today inequality is rising:
Moreover, the information economy widens inequality for deep and varied reasons that were unknown a century ago. Inequality is growing in nearly every developed country. According to a report from the Organization for Economic Cooperation and Development, over the past 30 years, inequality in Sweden, Germany, Israel, Finland and New Zealand has grown as fast or faster than inequality in the United States, even though these countries have very different welfare systems.
So, what was happening with inequality a century ago? In the 19th century, as basically everyone has always recognised, the budding industrial economy created very large increases in inequality.
The Gini coefficient on taxable wealth in Massachusetts increased from 0.734 in 1820 to 0.907 in 1900, and in Ohio it rose from 0.806 in 1830 to 0.864 in 1900 (Steckel 1994).
But maybe Mr Brooks meant to refer to the beginning of the 20th century? What was happening with income inequality from, say, the point when we can start consulting income-tax data, in 1913? Well, the share of pre-tax income earned by the top 1% of American households went from 18% in 1913 to 24% in 1928, pretty much exactly the same thing that happened again in America between 1993 and 2007.
Lovely – cutting with links, facts, and above all an understanding of the linkages between the multitudes of factors that make up modern societies that Brooks’s simplistic understanding clearly misses.
David Brooks tries to say that the recent increases in inequality are unique and are due to recent efficiency gains leading to changes in individual productivity. But as the DIA post points out that is complete bollocks (except he does it far more politely than that). Extreme improvements in efficiency and therefore individual productivity have been going on throughout the 19th and 20th centuries. We have been through the productivity increase cycle many times over the last 200 years.
Multi-factor productivity growth was highest between 1928-1950, and in general was much higher from 1890-1950 than from 1980 on, though it has picked up again since 1996.
Like most “progressives”, I think that rising inequality is a symptom of the inability of societies coping with the rapid changes in productivity rates. When we get rapid improvements in productivity there are more people thrown out of their jobs. Pretty much what we are seeing today.
In the past this has lead to rising inequalities and recessions rapidly falling into depressions as the wealthy hoover up surplus wealth without putting it into new enterprises. Meanwhile the jobless and underemployed tighten their belts and the economies stall through lack of customers apart from a small group of extremely wealthy – who start sliding backwards as their customers diappear. This is characterised by a rapid reduction in the velocity of money in the economy. It is a negative sum system that ultimately beggars everyone and leads to extremely frightening political consequences.
The general solution that evolved through the first half of the 20th century was twofold. Firstly the state redistributed wealth from the wealthy back into the economy through taxation of various kinds. This redistribution was largely used to upskill the working population through government interventions in the market to form new industries by subsidies or infrastructure development of retraining. This has been shown to work at both reducing the crippling wealth inequalities, and to cause the formation of new industries and employment. But it does stick in the craw of conservatives and capitalists who have an emotional dislike for realising how dependent their prosperity is on the prosperity of others.
In the current ‘recession’ (which is looking more and more like a depression to me), the main response to date has been to simply prevent banks and financial institutions failing. That needed to be done. However very little has been done to deal with the consequences of changes in productivity. Instead what we get is standard response of conservatives everywhere when they don’t like ideas. It isn’t the lack of jobs, lack of investment capital for new industries,or the poor training – they blame the victims of productivity increases for “moral” issues.
The rest of Mr Brooks’s column criticises high rates of out-of-wedlock births and other vague indicators of moral malaise. “Bad habits have accumulated. Interest groups have emerged to protect the status quo,” he writes; apparently interest groups did not attempt to protect the status quo in 1911. “The job is to restore old disciplines, strip away decaying structures and reform the welfare state,” he finishes. This leaves him open to the riposte “no it’s not”, a rebuttal against which his column has failed to provide any evidence.