- Date published:
2:17 pm, December 29th, 2011 - 36 comments
Categories: Economy, history - Tags: conservative, david brooks, economist
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.
One important aspect of the 20 century social welfare compromise was matching wage increases to productivity. In the US, for example, wage growth in the core heavy metal industries was linked to productivity. In NZ the state linked a ‘living wage’ and general wage orders to economic coditions, including productivity rises. In this manner rising productivity was shared with the workers and simply not captured by capital. Rising living standards were ensured for the many.
The benefits of current rises in productivity are not flowing through the population but are being captured at the top of the socio-economic spectrum. A society ‘struggling’ to adjust to rising productivity must include meausres to spread the benefits around, not merely hope for some trickle down (in reality it’s trickle up).
Quite possibly you are correct however that doesn’t explain why some of the areas that had high productivity gains due to the deregulation of the economy starting in the 1980’s, (e.g. Telecommunication and Transportation for example), were generally the most Unionised and highly paid prior to the reforms. This would suggest that productivity was being inhibited rather than enhanced by the system.
high productivity gains due to the deregulation of the economy starting in the 1980′s, (e.g. Telecommunication and Transportation for example), were generally the most Unionised and highly paid prior to the reforms.
Absolutely nothing to do with de-regulation… and everything to do with the massive implementation of new automation technologies that was occuring at the exact same time.
Indeed if we look at the consequences of de-regulation in the finance industry; it’s obvious that the consequences have been a stunning destruction of wealth and productivity; while at the same time highly unionised and very well paid industries like the German automakers have remained exceedingly successful.
I’ve pretty much spent my entire adult life as tiny part of that revolution, and I can assure you the idea that somehow ‘market de-regulation’ was the principle drive of increased productivity in the last 30 years is a total… well myth.
“Productivity gains” are weasel words. The gains didn’t go to the laid off workers, nor to their communities wracked by unemployment nor to the country which lost strategic assets from its balance sheet. The gains all got offshored, and now the Government is subsidising broadband infrastructure for Telecom. How productive is that.
I think we used to call it Marginal Revenue Product of Labour…………………..?????
Firing workers tends to be more profitable than having them around.
No company that I know makes management decisions based on the ‘marginal revenue product of labour’.
Nah, but that’s how it is supposed to work.
If there had been any productivity gains in telecommunications since deregulation then we would expect to see two things:-
1.) Significant reductions in real prices
2.) An improved, high bandwidth network capable of supporting modern needs, ie, 100mbps broadband
We haven’t seen either of those things. We have seen Telecom rip ~$20b dollars out of the economy in profit, extra costs to the economy as multiple networks get built and the need for the government to step in and pay Telecom and others to bring the network up to speed. If deregulation and privatisation shows anything it’s that it’s very expensive and doesn’t achieve what all the people in favour of it say it will – Lines their pockets with our wealth though.
You are correct that it doesn’t explain productivity increases in certain sectors of the economy, and nor is it intended to. It reflects that we previously had mechanisms for ensuring rising productivity levels were spread amongst the many, not simply trapped by the few as we presently have.
But changing the subject, at least 2 answers have seemingly been provided. New technology has come about and in the 1980s anyway, thousands of state sector workers laid off which will show higher productivity per labour input.
Interesting arguments from both sides. What I find especially fascinating about this subject is that I very much doubt that the amount of direct income transfers from wealthy to poor has changed much over the last few decades.
For all the left’s bemoaning of a supposed cuts in support to the poorer sections of society I would argue that spending has been realitively consistent over the past few decades. Indeed if we have a look at the graphs in figures 2, 3, and 4 of this paper ,(http://ips.ac.nz/publications/files/99f91186d74.pdf), it should be obvious that the State’s expenditure on welfare as a percentage of GDP has been remarkable consistent over time.
Even the infamous ‘Mother of all Budgets’ didn’t seem to make much of a dent in this percentage figure. Certainly it is clear that prior to the economic reforms of the mid 1980’s Social welfare spending looks to be about 11 to 12 percent of GDP and that was about the extent of the spending in the late 1990’s.
What is also clear from those graphs is that the size of the State has been steadily rising over the last hundred odd years and it was only in the 1990’s that this started decreasing significantly. Yet the areas that led to this reduction weren’t obviously in one area and certainly not in cutting welfare. In fact it looks like a large part of the reduction is as a result in reduced financing costs.
So why do we have such an inequality problem then if we are essentially spending the same amount on welfare that we did thirty odd years ago before we were meant to have such an inequality issue? Well perhaps the answer to that is related to where we are spending that welfare money. Instead of reaching the people it should be targetted at , i.e. the bottom sections of society, it is being skimmed off by those who are better off. In short we are providing welfare to the middle and upper income groups via welfare programmes such as Working for Families and Superannuation.
This is why I am comfortable with Labour party policies such as increasing the age of entitlement to Syuperannuation and even imposing a Capital Gains tax. Coupled with more effective targetting of benefits to those who need them rather than those who don’t you might be able to reduce the social impacts for those on lower incomes.
Yet the areas that led to this reduction weren’t obviously in one area and certainly not in cutting welfare. In fact it looks like a large part of the reduction is as a result in reduced financing costs.
It was. I think at one point we were spending about a quarter of the governments revenue on interest – and this was on the governments interest rates. Fortunately the reduction in global interest rates helped a lot as did the reduction in inflation down to manageable levels. There may have been a impact from asset sales in the 80’s and 90’s. But is suspect when you looked at the nett costs of increased people on unemployment in areas without employment, I suspect it was minor and largely eaten up by middlemen.
But I wasn’t talking about welfare. The vast bulk of that is superannuation or highly variable based on a lack of jobs during recessions. A few minutes of reading on the latter will show that the numbers of people on long term benefits is minimal when there are jobs available. The problem is how to get those jobs.
The question is how do you get new industries created in times of depression to create jobs, when the wealth required to capitalize those industries is being held in a small population of increasingly risk adverse wealthy? We have been through this cycle numerous times in the last 200 years, and in the absence of new resources, it gets increasing more difficult for the “market” to it without a shove from the state.
It is the indirect transfers from the wealthy to the whole of society via infrastructure, incentives, and direct training that pay the dividends.
That is fascinating. So in lieu of direct transfers from wealthy to poor via welfare you think there is some other method involving Governmental support of business do you? I therefore presume you support the reimposition of high tarriffs and import substitution as the solution to this issue do you? The alternative is direct subsidisation of industry. This would require the renegotiation or outright withdrawal of NZ from a number of international trade agreements, (many of which were negotiated and signed under the previous Labour led government it has to be stated). I have yet to see a political grouping in Parliament seriously argue for this. It is a valid policy to pursue though, just not one I subscribe to. Why do you think no political party is pushing for this?
High import barriers, subsidies and other government protections were critical to the success of Japanese and South Korean auto, heavy machinery, ship building and high tech precision machining industries.
The US Govt continues to subsidise their pharmaceutical and military-industrial complex to the tune of trillions per year.
Government intervention and protection has also been critical to the success of the NZ ag/hort industry, including dairy.
Other countries understand that close co-operation between a country’s industries and its government is absolutely necessary for global success. Germany, USA, Japan, Taiwan, China, Singapore, South Korea all get this implicitly.
Why are we so slow.
Really? Of those charts, figure 3 is the only one that even mentions welfare. It seems to show around a 2 or 3% of GDP drop in welfare and GSF from 1994, which according to table 1 was 13.5% of GDP in 2008/9. So it would have been around 16% of GDP if it were “remarkabl[y] consistent”.
Oh, and when comparing us to the 1970s you need to factor in unemployment rates, union membership keeping wages reasonable, the opportunities provided by the education system at the time, and demographic changes / the entire gender politics thing. Plus, of course, the stuff we chose to ignore then like “domestic” violence.
I would expect the total payments for welfare to be relatively constant. Recent Labour Governments may raise things such as the UB slightly, but NACT always causes has many more unemployed.
Neither change the biggest welfare payments, super, by much.
Most likely this largely cancels out.
One extra factor I neglected to mention in NZ was the Awards system and relativities. A wage increase struck in one of the core Awards, like the metal trades, was passed through the economy by the mechanism of relativities (pattern bargaining) that saw productivity dividends flow through the working class.
Anything like that now?
If those productivity gains were truly being spread around the economy as you claim then there wouldn’t have been distortions requiring Government interventions to support productive sectors of the economy. This is the reason Farmers supported reforms that led to increased productivity in the transport sector as part of the Quid pro quo for removing direct subsidies such as SMP.
In a near zero growth environment, the more productivity gains we have, the higher unemployment will be.
Seems to me that higher relative incomes are more disproportionate in the non-productive sectors………………
The ponzi-financial and banking sector, particularly. Also amongst the financial asset ownership class.
Driving workers out of employment can be very profitable.
The Awards and relativities framework allowed econom ic gains to be sp[read around the economy. One of the determinants for Awards and GWOs was productivity.
Farmers didn’t support Roger Douglases reforms because all other farm export economies still haven’t reduced their subsidies.
If they supported ACT they would have voted for Dinosaur Dons Nicholson.
Gooseman road transport is still being subsidized heavily.
Productivity has increased 90% in the last 30 years, whereas wages for those on lower incomes have remained stagnant or decreased in real terms. We used to share the gains from productivity increases by raising wages, etc. But in the last 30 years, the rewards have been mostly sucked out of the economy by way of profits.
yeah like consultants, pr people, and general liggers and sausage roll abusers, all wrapped up in the sobriquet of nashnil gubmint parasites.
I don’t think the charge of propagating mass inequality is fairly laid against traditional “conservatives”, it is more the result of the neo-con / neo-lib movements who decided that the social contract was boring and getting super rich was much more exciting. Conservatism by definition puts great stock in history. The “Conservative” label has been greatly undermined by those with a (dominionist/evangelical/apocalyptic) religious agenda who forget the secular humanist foundations of democracy in the USA and elsewhere.
Nowadays we all understand conservatism to mean the Brit “Conservative” party, US Republicans, or NZ NACToid corporate drones. Their moralising about identity politics was conservative in tone but their economic acts (and wars) were devastatingly radical.
It’s the neocons, not the paleocons, who have screwed up the world.
Its the neoliberals, and especially the neocons, who are the corrosive fuckers.
Give me a ‘right wing conservative’ guy like Holyoake or Eisenhower any day.
Yeah well Eisenhower wanted to tell the military-industrial complex where too go. That took some balls
I wonder if in the time being until people stop over copulating and over populating the world the solution would come from down skilling so that more people would be involved in less production to waste the worlds resources. Somehow, and I don’t have a clue how, we have to get away from the system that relies upon increased production and find an equilibrium … but first we need fewer humans … and spare me all the rude words such common sense seems to bring from short sighted un-thinkers.
All the best for the New Year …..God help us all, or somebody ….something.
A steady state economy powering a steady state society. Anything else and we will be screwed…soon too.
The debunking handbook (pdf) discusses effective strategies for countering misinformation. Perfect for those wingnut moments.
‘Even smart conservatives in my experience are generally idiots because they think far too short term, fail to look at history and in the final analysis view everything from their own narrow short-term interests rather than those of society as whole. That is why despite my natural inclinations towards the right, I could never standing the sickening myth-remaking of history and the external moralising about other people that hypocritically concealed naked self-interest. David Brooks is just another example.’
Nice one Lynn – as you have said in the past you’re right leaning by heredity but left leaning intellectually (not exact words I know – forgive me) and thanks for having the balls to write this because for me right leaners in the main are short term thinkers who seem to operate on thinly disguised fear that by someone getting a slice of the pie too that they are somehow diminished.
*grin*. It isn’t really by heredity – there are quite a few manual workers and unionists in the family tree along with the assortment of entrepreneurs, managers, shopkeepers and tradespeople. But I do have quite that strong tendency to have extremely individualistic tendencies and confidence in my own abilities verging on outright arrogance that shows up here frequently – usually when I’m tongue-lashing a fool. That tends to predispose you towards the ‘right’ way of thinking. I was particularly enamoured of it when I was doing the MBA in the mid-80’s.
But there are different types of right leaners. The envy ones are almost the least of the problem. There are a lot of right leaners who intellectually see the issues but who have this interesting disassociation between understanding the issues, seeing how it will cause future problems, and feeling the responsibility for doing something about it in reasonable time frames. They tend to view everything as being someone else’s problem, usually the governments, while also decrying the government interfering in whatever they are doing. Kind of strange when they are the government….
This shows up most clearly in the climate change debate. I just find it kind of weird.
“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?”
Interesting year 1913. Also the year the Federal Reserve Act was unconstitutionally enacted.
Yes it is much easier to lean to the right. compound interest and all that, plus the psycholoigical satisfaction of bossing people around and last but not least professing to beleive in God so that it is all his fault.
and they are all so smug and smarmy.
so where are the f*cking jobs you nimnuls?
At the end of the day we exist in a modern quasi-feudal society. The majority of us devote our time to labour for the enrich of our boss/Corp aka The lord. Our spare time and capital is used to either rest or invest in our marginal scraps of the economy (I.e serfs got to farm thir own individual plots when not tendering their lordsfields).
Then we have the modern equivalent of guilds, allowing the major companies to dominate and control their respective markets.
And above it we have our modern version of the king and the royal court, which is place to make favours, give money for deals, and kid the lower classes that they might get a say.
Things haven’t changed much – we just have more food, better teeth, and most can read.