Is increasing economic inequality inevitable without catastrophe?

Parent Cafe
1

https://www.theatlantic.com/business/archive/2017/02/scheidel-great-leveler-inequality-violence/517164/
http://press.princeton.edu/titles/10921.html

Of course, the extreme levels of inequality as found in Latin America and pre-communist Russia do not seem to be all that great even for the wealthy (and induce the despondent everyone else to follow revolutionary demogogues who may not necessarily be selling anything better). But, if Scheidel’s argument is correct, only catastrophic events where everyone suffers and becomes poorer significantly reduce economic inequality (because many of the wealthy end up as poor or dead as everyone else). Peaceful political policy making may only be able to somewhat slow down or speed up the increase in economic inequality in this case.

Some of the anxiety of the middle and upper middle class that seems to be expressed on these forums may be in implicit recognition of the trend toward greater economic inequality – i.e. the idea that the middle and upper middle class and their descendents will mostly fall into the lower classes of an increasingly unequal economy, with only a few being able to move into the ruling class.

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I think it is fair to say that extreme wealth often comes with the side effect of invincibility, and this makes perfect sense when you think about it… If you possess significant, and secure wealth, you are less likely to feel the survival instinct that naturally (and involuntarily) comes with being poor, or being a member of the fickle working-class.

The ‘ruling class’ are generally made up of those with significant and secure wealth, and since they are the ones making the rules, well… you can connect the dots.

With that being said, some income inequality is healthy, and necessary.

3

Great post.

I would tend to agree with this article. As was highlighted, history is filled with civilizations that followed a similar path. America is no different and one can already see our side into demise. Personally I think we are just a larger picture of what happened in Greece. Once people stop believing in us and the dollar, we too will crash like Greece did. China is a cash cow and will prosper while we wither on a vine of debt. Our best days are behind us. The lower and middle classes are just trying to hang on. We are so desperate to hang on that we now add college debt to our kids with the hopes that they can break out of the cycle and have a better life or at least a classical middle class lifestyle.

All super powers fall. America will be no different.

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Usually it takes major disasters for there to be significant change. During the 1920’s economists and social observers pointed out the inequality of wealth in the US and how that was a big problem, that the boom of cash companies brought in for example to expand businesses and the like were expanding into a market that didn’t have demand, because too much of the wealth was going to too few people. One of the things they don’t teach about US history was just how bad it was by the 1932 election and the level that people were willing to go to, congress seriously for example offered FDR ‘extraordinary’ powers, basically giving FDR power normally in their hands, to try and do something, and FDR himself had a speech he never gave (to the American legion) that basically hinted at the possible need for a military back coup to allow him to do what he needed to do. In the end things did happen, things that lastingly changed the country, because of that crisis (as a side note, Stalin had an economist, his name escapes me, who Stalin asked if he thought that the US would have a revolution, presumably a communist one…and the economist came back and told him he didn’t think so, that what would likely happen is the US would in some ways take things out of the socialist/communist playbook in terms of government programs and such, but they would adapt it into the capitalist economy…Stalin wasn’t happy (supposedly had the guy shot), but he was right, that is pretty much what happened.

Without getting into the detailed politics, it usually takes a major crisis for this kind of thing to happen, though, and in one sense looking at the current landscape I am somewhat pessimistic that anything like this would happen soon, the divisions have been engineered to be so big to preclude any real action IMO, but then again, as bad as 2008 was, as bad as some of the things are in this economy making the future gloomy, we have not come anywhere near the depths of horror that was the Great Depression, and it would take that kind of thing I suspect to truly allow some kind of major change on the order that would be needed.

I personally think that the income inequality we are seeing is a major problem, lots of economists from all ends of the spectrum think so as well, and what is especially disturbing to me is like the 1920’s, much of this is based in wealth based on stock prices which in a lot of ways is a big part of the problem, the very things that boost stock price are also the things that IMO are leading towards the inequality of income, much like the 1920’s the paper wealth of stock is choking out the increase in cash wages that drives the economy, and people should be concerned. I don’t think there is anything wrong with income inequality, my problem is how the inequality comes about, if it is as in the 19th century where robber barons made a ton of money basically using workers like slaves and manipulating the financial markets, or these days where what stock analysts think is more important than doing the right thing for a company’s long term benefit. Income inequality drives people forward, but there comes a point where that drive switches from aspiring to do better and becomes greed, pure and simple, and that is a problem.

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Well, greed seems to be part of human nature, regardless of what level of economic inequality there is.

What may be more of a problem with extreme levels of economic inequality is that it tends to come with lower levels of economic mobility. In other words, the economy shifts to become less of a meritocracy where even those born into the lower classes have a chance to move up to one where your economic outcome is largely inherited from that of your parents. Such an economy tends to be less efficient in the long term as talent born into the lower classes is more likely to be wasted, while popular discontent at the economic situation increases. Such popular discontent may manifest itself into various unpleasant political movements, such as racist ones that see some other racial/ethnic/religious group as the enemy that is stealing jobs from the common people, or far-left-economic-ideology ones with unrealistic expectations of how the economy can be organized. There can also be other social ills like high levels of crime and corruption.

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History says increasing inequality = disaster.

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Thanks for posting this @ucbalumnus. I didn’t actually read the link, to be honest. I am amazed this post has 198 views whereas some of these other trivial “hey, girlfriend” posts have 5.5 thousand. I agree with Mass’s post that we are basically a bigger version of Greece, and have said the exact same thing to people I work with, and have the exact same concern about when people will stop “believing” in the US and buying US debt so that the bloated government can make ends meet. When that happens the interest rates needed to attract investors to our debt will balloon and that is going to cause the kind of pain and suffering in this country that you don’t want to see. We have deficits and debt and we are a country of morons being run by even bigger morons.

That is my honest opinion.

I think the root causes of our decline as a nation is going to be pure laziness. People want the government to wipe their butts, literally, they want the government to get them jobs and pay for their education, and everything else but they absolutely do not want to pay for the taxes need to pay for it all. Oh yeah, they want the government to pay for health care also. It is a “right.” Yet another entitlement. Why not? How can one more entitlement hurt at this point?

There probably be a limited nuclear war which will lead to a bigger one. It will probably start with some bozo country like North Korea and then escalate with the US vs China or Russia or something similar. We almost have no choice but to help other countries across the world pay for their defense yet we have very few real allies across the world. We have far more countries who hate us with a passion than we have friends. We also have numerous bribes under the guise of “aid” to numerous places across the world to keep people in line which is like building a caste on the sand in low tide.

People just don’t want to earn things anymore. Not the majority anyway. People want instant gratification on almost anything. I guess I am a little bit dark about our nation’s future. But that is the way I see it. The fact that we already owe $20T in debt and have so many problems, we have a failing education system that is too expensive and ineffectual, we have inner cities that are war zones, we have major problems in basic things like the police forces, etc etc it is just really hard to picture things getting better for my kids than they are for me. I totally agree with the comments that we have to work harder and harder but still need debt to have a middle class standard of living and no one seems to be even talking about it all. It’s the new normal.

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A big part of the problem is the way that our electoral process has evolved. One cannot run for office without huge economic support from wealthy backers. Elected officials then are obligated to enact legislation that helps the wealthy, often at the expense of the poor.

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The more things change the more they stay the same imho . . .

The one question I have is what will happen in modernized nations where fewer and fewer people work thanks to automation?

Is there an analogous moment in history for that scenario?

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Not true in 2014, though the enemies got more press than the friends, and it does not take many enemies to cause a lot of trouble.
http://www.pewglobal.org/2014/07/14/chapter-1-the-american-brand/

However, if US policy causes opinion in the world to become less friendly, the situation could get a lot worse for the US.

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@southfloridamom9:
What we are seeing is unprecedented, and no one is talking about it. When some talk about the rise of automation and AI taking away jobs (which is the cause already of major distruptions, for all people go on about jobs going to the third world, a lot more have been lost to automation) they make it seem like it is a ‘new industrial revolution’, but that isn’t true. The prior industrial revolutions did cause disruptions, craft builders lost their jobs when factories and mass production happened, other jobs were lost in the digital age but in many ways the technology and its distruptions created new jobs where machines and people worked side by side. If AI for example does what some are claiming, that it can take over a lot of white collar jobs (for example, intelligent systems that can recode themselves), or automate things like medicine, then it will be taking away jobs and not creating many…

There is a kind of battle, that a friend of mine called the battle between Gordon Gecko and Star Trek, ie if jobs disappear, including highly skilled white collar jobs, will we transition to a world where people can do what they want, not have to work, because in a sense everything is free and they can concentrate on what drives them, or are we heading into a world where those running things see this as an opportunity to make more and more money by eliminating jobs? You might answer that that isn’t practical, that those who have the Gordon Gecko view of things understand that they make money when people buy their goods or services, but has that, for example, stopped manufacturers like Nike and Apple from building products in low cost third world countries whose workers cannot even hope to afford the products they make? Yes, goods will get cheaper and cheaper as you have cheaper production, whether automation or cheap human labor, but what happens when you have goods that are cheap and no one can afford even those cheap prices? Take a look at what is happening to low end retailers, and it tells a story I think.

The mania around stock price has driven a lot of this IMO, when we talk about CEO salary for example, 90% of that is based on stock based compensation, and stock prices are driven higher when companies cut cost, and their largest cost is labor, pure and simple.

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New jobs are being made, but the labor markets are increasingly becoming walled off with higher barriers to entry, making it more difficult to change and retrain for a new type of job. Higher barriers to entry include increased credentialism (e.g. requiring BA/BS degrees for jobs that do not need either the general skills indicated by a BA/BS degree or specific skills based on the content of a BA/BS degree major), more jobs requiring professional licensing, and the cost of education (in both money and time) increasing for the student (this includes both the general cost of education as well as the trend toward requiring more education for some professions, such as the relatively recent increase in educational requirements for accounting and occupational therapy, and law and medicine in decades past).

The pace of change in labor markets may also be increasing. Combined with the increasing cost of changing and retraining to new jobs, that points to a bleaker outlook for the future, and more downward than upward mobility for the current middle class.

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I disagree with the author’s assurance that we needn’t worry about ‘The four leveling forces’:

Technology has not made mass warfare obsolete when irrational regimes control the technology. And it is naïve to suggest that advances in genetics have done anything to reduce our vulnerability to pandemic disease. In fact, emergence of incurable infectious disease, especially multi- drug resistant bacteria, is probably one of the biggest threats to humanity in the next century. Gutting the NIH will only amplify this threat.

I am not nearly as pessimistic with respect to the future of the USA. Education is still the most effective tool against income inequality and we have the world’s best educational system. Those who don’t want a college degree will see minimum wage rise to $15/hour, which approaches a living wage for a two income family. Birth control is freely available and the Age of the Old White Male oligarchy is having its final hurrah. The next generation of movers and shakers are smart, equipped with social conscience and very diverse.

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AI has been slow to deliver. Google translate is laughably bad in many cases. We still don’t have level 4 autonomous vehicles. Translation and driving are both tasks, which don’t require much creativity or even complex problem solving. True AI, which can replace human judgment, problem solving, and creativity, is likely 3-4 decades away at the least.

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@momsquad:
I wish I could be more optimistic, this line in particular:
"
The next generation of movers and shakers are smart, equipped with social conscience and very diverse."

That raises a real question, are they? Are the silicon valley entrepeneurs any different than past generations in terms of caring about the wider world, or are they the same. While for example Mark Zuckerberg is used as an example of someone who at least seems to be trying to change things, for every one of him, what about the head of Uber who comes off as a sleazeball? How about the scores of kids coming out of places like Wharton and Harvard business school, are they going to be socially conscious or will they be all full of the metrics and the stockholder management that is the dominant philosophy out there? Are they going to be worried about the impact of their decisions, or will they have the mentality that they are doing their jobs, they are successful, and if people fall by the wayside 'well, that is what happens when things happen, some people win, others lose?". I wish I could be optimistic, but from what I see the movers and shakers of the next generation aren’t all that much different than the ones before them, they talk big about being socially conscious and whatnot, but in the end it seems like what they create or what they do is about personal gain and benefit while talking the party line about responsibility. I work in a building with quite a few financial firms, and I see the young kids coming to work there fresh out of top business schools and such, and judging by their conversations and the way they talk in the elevator, they could be any corporate type from any time and place.

@roethlisburger:

Language translation is not simple, most human languages on the Chomsky hierarchy are context sensitive languages, and if you take a language like English it is not a mechanical process, even with so called ‘regular grammar’ languages like Romance languages, large elements are contextual. As far as driving being simple tasks, it appears simple because we aren’t aware of the many sub conscious elements that go into human learning, the muscle memory and actions in our neural net that we aren’t aware of. Not to mention that the biggest problem automated driving systems face is having to drive with human drivers, who don’t drive as well or rationally as they claim to, the person driving with their legs while eating, the woman putting on makeup, the person who discovers his exist it coming up and scoots across 4 lanes of traffic, etc, all make it a complex problem.

The thing about AI is that it is very much like an iceberg, what you see is only what is visible, but much of the foundation is already out there, you just don’t know about it, fully automated factories. For example, people love the vision of Wall Street with these idiots snorting coke in shirt and tie (think of “the Wolf of Wall Street” or “Wall Street”), rough talking traders yelling and screaming, etc. The problem with that is that is 30 years out of date, much of the trading these days is done by algo systems, and the so called buy side firms (institutional investors) are doing more and more of their fund management using automated systems, that aren’t what they were in the past, running off standard models, the big firms now have systems in some cases that are using machine learning to basically ‘learn’ from what is happening in the markets, and change their operating models to fit what they see. Most systems of course are plain old "algo’ systems, running off fixed models, but they are being replaced.

You also are forgetting technological acceleration, 25 years ago the internet was a curiousity to many people, 25 years ago most businesses were still using leased lines for their communications, today the overwhelming majority of traffic is going over the internet. No, AI isn’t going to replace all jobs anytime soon, but it is going to heavily affect some areas in big ways much sooner than 3 or 4 decades out, I think self driving trucks are going to be here within 5-10 years, I think that people like research analysts, brokers, traders and fund managers are going to be increasingly gone, thinks like corporate tax analysis that today corporations like GE have huge departments to handle, will likely be done via large scale AI systems.

Put it this way, if 10 years ago or so you had predicted what smartphones were going to do, the impact they have had across the board, people would have laughed at you, today people have the power of a supercomputer 15 years ago sitting in their hands.

It is true they have been hyping AI for as many years as the term has been around, and that a lot of what they promised still has not come about (kind of reminds me of nuclear fusion technology, always seems to be 10-15 years out), but the reality is that AI is used in all kinds of things you wouldn’t even think about, it is more the frog in the pot of water thing than jumping into the boiling pot. There is an interesting chicken and egg thing here to me, after reading Sebastian Junger’s book (well, really a novella, it is only 80 pages) called “Tribe”, the economic dislocation of many have caused a societal schism, division, whatever you want to call it, at a time when you would hope people pull together and realize they have a common cause, instead they are more and more divided, and this doesn’t bode well because on the part of those who will benefit greatly from AI taking over jobs will say “I got mine, that is all that matters”, and those displaced, angry, will be looking for scapegoats to blame and any messiah they can grasp onto, rather than coming together and demanding that they have a right to a good life, too.

BTW, even if the impact of AI is decades away, even if it won’t affect many of us, it will affect our kids and grandkids, that is another problem with many, they don’t seem to care what will come for their descendents and only focus on today.

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This is a little bit of an exaggeration. An iPhone 7 Plus might be capable of 100 Gflops. Supercomputing broke the teraflop barrier in 1996. There’s some indication, https://www.technologyreview.com/s/601441/moores-law-is-dead-now-what/, this exponential growth in computing power is slowing down.

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@musicprnt , this story gives me optimism:
http://www.latimes.com/local/education/la-me-campus-conversations-usc-student-president-20170508-htmlstory.html

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Sounds like this young man is going to do amazing things @momsquad! Thanks for the cheery link! I needed one!

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I’ll choose an era of rising economic inequality over the slaughter of millions every time. Do you want economic inequality or equal misery?

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I think that if we are concerned about the likely causes of a catastrophe, rising inequality might be one thing to think about but it is not in the top 5 concerns.