A new entry in the blame stakes, a description of our current arrangements as MarketWorld – something that neatly explains all that is wrong with that reality around us. The rich get all the benefits of whatever economic growth is going on, we peeps out here get the merest scraps if we get anything at all.
The problem with the diagnosis is that it’s drivel. Purest, ignorant, drivel.
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]A successful society is a progress machine. It takes in the raw material of innovations and produces broad human advancement. America’s machine is broken. The same could be said of others around the world. And now many of the people who broke the progress machine are trying to sell us their services as repairmen.[/perfectpullquote]Even that’s wrong. A successful society is one that allows, encourages even, that innovation. But that’s too subtle a point for the class warriors.
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]When the fruits of change have fallen on the US in recent decades, the very fortunate have basketed almost all of them. For instance, the average pretax income of the top 10th of Americans has doubled since 1980, that of the top 1% has more than tripled, and that of the top 0.001% has risen more than sevenfold – even as the average pretax income of the bottom half of Americans has stayed almost precisely the same. These familiar figures amount to three-and-a-half decades’ worth of wondrous, head-spinning change with zero impact on the average pay of 117 million Americans.[/perfectpullquote]That that’s the level of understanding of a three year old discovering that lips plus spittle equals bubbles. This part amuses:
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]American inventors create astonishing new ways to learn thanks to the power of video and the internet, many of them free of charge – but the average US high-school leaver tests more poorly in reading today than in 1992.[/perfectpullquote]Who runs the schools? Government. And this is thus a problem of a market based economic system?
However, let us think about this all the gains go to the rich peeps claim. That’s the underlying complaint, that we the peeps aren’t benefiting while they fly off in their Lears – actually, Gulfstreams as Lears are middle class these days – to their gated estates to escape our righteously pitchforked mob.
Take a slightly earlier example, the Walton family.
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Art Carden has written here about his various papers looking at the effect of WalMart on the communities that it enters. Good and useful work but I’d like to concentrate on two other pieces of economic analysis. The first is an entire sub-field of its own: what is the impact of low prices upon consumers? Usefully summed up by Jason Furman here (and he’s currently Chair of Obama’s Council of Economic Advisers. That doesn’t make him correct by definition, of course not, but it does mean he’s no lightweight and also that he’s not some rabid market fundamentalist neoliberal like myself). The basic point being that, while estimates do differ, consumers benefit from WalMart’s low prices by some $250 billion a year.[/perfectpullquote] [perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]This is what is known as the consumer surplus. It doesn’t show up in GDP because the consumer surplus simply isn’t counted as part of GDP. And that consumer surplus is almost certainly, at our sort of stage as an advanced economy, of greater importance to our lifestyles than any one other thing in the entire economy. The consumer surplus of WalMart is the difference between what we’d have to pay in the absence of WalMart as against what we do actually pay given the existence of WalMart. And the best guess is around that $250 billion a year. That’s what US consumers don’t have to pay for their groceries and tchotchke as a result of WalMart being out there in the market and competing.[/perfectpullquote]Further:
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]So, we get $250 billion a year and the Waltons, the inheritors of the man who started it all off, get $150 billion. We get more than they do: that sounds like a pretty good deal really. Except that is of course to grossly overstate what they are getting. That mountain of cash they’ve got is not an annual figure: that’s the capital value, their wealth, not the income from one year. Our benefit is what we save in one year. That value of WalMart stock is the net present value of everything that WalMart is expected to make in profits from now until eternity (although obviously we use a discount rate so that something 40 years out is given less importance than something next year). So we need to adjust our $250 billion figure in the same manner to make the two numbers comparable.[/perfectpullquote] [perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]The easiest way to do that is simply to ignore discounting and to also impose a 20 year time limit. Neither assumption is correct but it’ll give us a nice rough and ready guess at the capital value to us all of those annual savings. And the answer if we do it that way is that the current value of WalMart’s existence to the rest of us is $5 trillion. That’s the number that is comparable to that $150 billion family fortune. They’re both the net present values of future income streams which does indeed make them comparable even if that value to us is calculated in a much simpler manner than the way the stock market values WalMart.[/perfectpullquote] [perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]At which point it looks like we’re getting a massive bargain. We get $5 trillion and the people who made it happen only get $150 billion? Why aren’t we cheering in the streets over this rather than demonstrating in them about how awful it all is?[/perfectpullquote]Or if we want to talk about something a little more recent, Mark Zuckerberg:
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Recent research has shown that we’d have to pay people $1,000 a year to get them to give up Facebook. This was real research — people really did have to give up, and they really were paid. The results here weren’t out of line with other studies either. Various people have tried to measure the annual values of things we get for free like search engines, email, and so on. They have actual and real value, obviously, even if we’re not paying for them directly.[/perfectpullquote]…
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Imagine, just for a moment, that Zuckerberg’s got $100 billion (let’s not quibble about the actual number) and we’ve all got what we had before Facebook. Inequality has increased. Now think again, Zuckerberg’s still got the $100 billion, but the 2 billion of us out here who use Facebook have something that’s worth $1,000 a year to us, each. And that’s a capital value of what, $20,000 each, perhaps? It’s not obvious at that point that inequality has increased, and even if it has, we’re coming out of it richer ourselves.[/perfectpullquote]
[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Zuckerberg’s got $100 billion, and we, in aggregate, have trillions of dollars in new wealth from the same process. Even if we do think that inequality is a bad idea, and that it has also risen, a process which gives all of us trillions in value isn’t to be entirely rejected, is it? It’s most certainly not true in those circumstances that all the growth has gone to the rich.[/perfectpullquote]
The initial claim, from which all else flows, is that the rich are getting all the advance in society. This isn’t true, it’s drivel born of ignorance of the subject under discussion. Therefore all that flows from that original, failed, supposition is similarly drivel born of ignorance, isn’t it?
Nothing wrong with suppositions of course it’s just that it does help if they can stand up to a comparison with reality. As this one doesn’t.
Tim – This is excellent. Thanks for all the time and work you put in, and please keep it up.
the average pretax income of the top 10th of Americans has doubled since 1980, that of the top 1% has more than tripled, and that of the top 0.001% has risen more than sevenfold – even as the average pretax income of the bottom half of Americans has stayed almost precisely the same
This gets my goat: the assumption that it’s the same people. I bet half of all adult Americans alive in 1980 are dead, and those still alive are probably in a different income decile.
Not only that, note the careful use of “pretax”. The US has a rather progressive tax system that captures a large chunk of that income increase.