Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Income Inequality Page 1 of 5

Making the Rich and Powerful Work for Everyone

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On April 12, 2021

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The philosopher John Rawls suggested that the only ethical society is one which we design before we know what position we will hold in it. If you don’t know whether you’ll be born the child of janitor or a billionaire, black or white, you may view social justice differently than when you know that your parents both went to Harvard or Oxford.

Rawls’s point is just in the sense that though none of us choose our parents, very few of us are able to see the world except through our own eyes. What I am going to suggest is something different: A society works best if it treats people the same, no matter what position they hold. This is hardly a new position. The idea that everyone should be treated equally is ancient and many a war has been fought over it. But despite a fair bit of progress, we don’t really understand what equality means, how it works, and why it works.

Let’s have an example. Based on international testing, at the time of this writing, the Finnish education system is arguably the best in the world. Its students do better than those of any other nation.

What is interesting about the Finnish school system, though, is this: When they decided to change how it worked, they did not set out to try and make it the best in the world. Instead their goal was to make it so that everyone was treated the same. Their goal was not excellence, their goal was equality. Somehow, along the way, and very much to their surprise, it also became arguably the best school system in the world.

There are a number of reasons for this, the main one being a well-established fact: People who are treated as lesser don’t perform as well and are less healthy–even after you take into account other factors.

But another reason is that if you are rich or powerful, you can’t buy your child a better education. Testing results between schools are not made public and the very few private schools are not allowed to use selective admissions. In a system where your child will be treated the same as every other child, you must make sure that every child receives an excellent education, otherwise your child may not receive one.

Let’s engage in another thought experiment. In the United States, airport security is extremely intrusive. Recently, new procedures for physical examinations were put in place which include touching the genitals (I’ve personally experienced it and it definitely included genital contact, albeit with my clothing on.) Most security experts consider this to be security theatre, along with such things as taking your shoes off and the new 3D scanners. They believe that the two most important improvements in airline security were locked cockpit doors and passengers knowing that if they remain passive and allow hijacking, they could all wind up dead.

Coincidentally, the 2000s have seen an explosion in the use of private jets. The most powerful, rich, and important people no longer fly on the same airplanes as the hoi polloi and, as a result, they do not go through the same security screenings.

Do you think that if the most important people in the US had to endure the same security as ordinary Americans that it would be as intrusive as it is? How many billionaires would have to be groped before something was done?

While we’re on the subject of private jets, consider the following: A private jet still has to use a runway. If a private jet is using the same public airport you are, it takes up a take-off or landing slot. Next time you’re waiting for a take-off slot, or wondering why your flight is delayed, think on that. Less than ten people on a private jet are holding up over a hundred people on a passenger jet.

No part of society will continue to work properly if the powerful and rich have no interest in its doing so. There are three parts to this:

  1. If there is a public system, there cannot also be a private system which can be used to opt out of the public system.
  2. If there are limited resources, whether those are airplane flight slots at airports or medical care, then no one can be allowed to use either wealth or power to jump the queue, nor must they be allowed to use more resources than those without power or money.
  3. Any part of the economy where there is a monopoly or an oligopoly must either be publicly run or must be heavily regulated for quality, level of profits, and reinvestment.

(Ian-a fundamental article, originally published March 31st, 2015. As it will be unfamiliar to most current readers, re-upped.)

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Meritocracy? What Meritocracy?

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On December 12, 2018

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From Saez, Chetty, et al

So, unless you think that genetic potential is that unequally distributed (and can explain eras where this chart did not apply, as in the post-WWII decades), you can pretty much forget “meritocracy.”

Meritocracy is just a way of saying, “We test for the things the middle and upper classes have the resources to prepare for their children.” And that’s before we get to the extra opportunities having wealthier parents gives one simply from network effects.

Fairness and justice are obviously big issues, but just as bad is that many of these people might contribute in a huge way, and are never given the opportunity.

Stephen Jay Gould once said:

“I am, somehow, less interested in the weight and convolutions of Einstein’s brain than in the near certainty that people of equal talent have lived and died in cotton fields and sweatshops.”

These days, McDonalds, Walmarts, and Amazon warehouses…

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The “Missing” Inflation Shows Up as Hyper-inflation

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On November 16, 2017

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In things that rich people buy.

Ever since the financial crisis, there has been a lot of screaming about inflation. Screaming that it should show up, with all the money being created by central banks and, privately, and isn’t.

But it is.

A painting of Christ by the Renaissance master Leonardo da Vinci sold for a record $450 million at auction on Wednesday, smashing previous records for artworks sold at auction or privately.

New York, London, and Vancouver real estate, along with a number of other cities (China’s printing more money than anyone else), is also where it showing up.

And it’s showing up for ordinary people, not as hyper-inflation, but as high inflation of some things. Whatever the figures show, anyone who buys food knows that food prices have been going up faster than normal wages for quite some time.

But mostly it is showing up at the top end, in things that rich people bid up. $450 million is damn near half a billion, the ability to blow that amount of money on a single painting is absolutely crazy, no matter who the painting is by. It could not have happened even 20 years ago, and did not happen even ten years ago.

The rich are floating on an ocean of money, and they have nothing to spend it on that really matters, so it’s going to third homes, real estate, speculation and conspicuous luxury consumption (which is what that painting is).

As an aside, one of the ways to deal with off-shore tax haven money is for the major economies to not allow it back into their countries without high taxation. It’s great that you have a few billion in an offshore haven, but you can’t spend it there. If you want to bring it back or use it as collateral then just make them pay taxes on it. 90 percent is a good rate.

What, they won’t bring it home at that tax level? Then fuck’em. You can’t buy anything that matters in most tax havens, and no one wants to live there. Let it rot, uselessly, there.

 

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Book Review: The Spirit Level

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On August 21, 2017

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Given all the controversy around inequality, this is a must read book.

About three-quarters of it is what I call “proving the obvious”–that inequality is, in fact, bad in every way imaginable.

Inequality correlates to almost every bad social metric you can imagine. Health, lifespan, performance, violence, happiness, and so on. The more unequal a society, holding other stuff even, the worse the society is to live in.

It really is that simple, and The Spirit Level goes to ludicrous lengths to provide the evidence, because in our society the ludicrously obvious is disputed by people with a lot of money.

But The Spirit Level also has some non-intuitive information to share, of which the most interesting to me was that high inequality is bad for the people at the top. People in, say, the top one percent in a more equal society are better off than those in the top one percent in a more unequal society–even though those in the latter would have more money.

You’d think having more money would mean that you “win,” but, in fact, your life span is shorter, you are more unhealthy, and you are more unhappy than those in the same relative position in a more equal society.

Another interesting fact is the performance effect of being unequal: Simply being told they are lesser destroys people’s performance. This is quite robust. You can test them, then tell them they’re unequal, test them again, and see it happen.

The causes of inequality’s other effects are hard to tease out, but the most likely reason is stress: Being unequal is stressful. It’s more stressful for people on the bottom, constantly worried and being ordered around, but it’s stressful even for those on top. The more unequal the society, the more people below you are stressed and angry and the more you have to do to defend your situation.

And, of course, unhappy people just aren’t nice to be around, and if your society systematically makes people less happy, that’s going to feed back into you, because you live in the society.

I really do think everyone should read this book. It’s not that it’s earth-shattering, it’s that it makes you one hundred percent confident that, yes, inequality is just bad, whether or not the people at the bottom have a TV.

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Why Inequality Is Intrinsically Bad

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On January 3, 2016

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For most of human existence, humans lived in hopelessly egalitarian societies. Hunter-gatherer bands, and even early agricultural communities, were very egalitarian.

If you want to go evolutionary, humans evolved in egalitarian surroundings. We were not chimpanzees, living in terrible authoritarian structures full of fear.

Inequality is interpreted by humans as a THREAT. This causes a chronic fight or flight response, which causes health and performance issues.

This is true even of the people on the top of the hierarchy. Those who have more power or money fear those below them.

The data on this, which is extensive in the book The Spirit Level is unambiguous. Even when people’s needs are met, the more unequal a society, the more unhealthy everyone is and the more unhappy they are.

Those who feel lower on the totem pole also perform worse than they would otherwise would. Remove the feeling of inequality, and they perform better.

This is before we get to the social effects, which are pernicious. Those at the top of the heap distort politics to keep themselves at the top of the heap, and engage in repression.

In middle agricultural societies like Egypt, and even late ones like medieval Europe, you see vast amounts of resources going into ideology, which is to say religion. The Pharoah is a God, he owns everything. Medieval kings (and beyond) have the “Divine Right of Kings”, they are chosen by God. The Indian caste system, and even Confucianism (slightly better because you can lose the mandate of Heaven), are other examples.

What would Egypt have been like if all the resources which went into making Pharoah look like GOD, had gone into general welfare? It was a vastly rich society, which produced floods of crops; the wonder of the ancient world.

All inequality is, in part, the result of an ideological push. When we examine societies transitioning to higher inequality, it always includes the creation of an ideology which justifies it.

This is because all power within a human society (not between societies) is ideological at base. It may be enforced by men with weapons, but if those men stopped believing in the justifying ideology, or, in many cases, if most of the subjects stopped believing in it, the inequality would end. Power over people requires power over their imaginations, over what they think is right, their ideas about the natural order, and so on.

The 1980s were the “Greed is Good” decade. What followed was the most unequal industrialized society in modern history–but the ideology came first.

You must convince humans that large amounts of inequality are justified.

This is patent nonsense in most cases. The bankers, who are the best paid people in our society, destroyed more value than they created in the 2000s, even by their own accounting methods. Compensation has nothing to do with real value, and at this point it is probably negatively correlated. A teacher or nurse produces far more value than almost all bankers. Indeed, so does a janitor or a garbage collector. Not that this is difficult to pull off, as bankers, frankly, produce negative value.

The rich, as a class, are parasites. They arrogate to themselves the right to give permission for others to do things. That being the case, their only existential justification is if more beneficial work occurs because of their “management” than would otherwise. In the history of the world, this has been more rare than not.

Inequality is thus a political and organizational negative. It ensures that more effort goes into unproductive and destructive activities, which are of benefit to very few.

Inequality is unhealthy, makes people unhappy, and distorts politics in terrible ways.

These negatives are intrinsic to inequality. Beyond a relatively low level, there is no such thing as “good” inequality.

More on this in future pieces, including discussing the “incentive effect.”

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Tunnels of the Underclass

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On November 7, 2015

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My parents were rich, then poor, then middle class during my life. My father both made and lost a fortune in his thirties and forties. I went to an elite private school, paid for partially by the UN. Then, I spent my twenties poor, often ill, and, on occasion, was only saved from the street by the kindness of friends.

When I think of class issues, I think of them in terms of corridors. In every gleaming office tower, they are there, in every upscale marble, glass, and steel mall—they are there. They are dark concrete, engrimed, lit by harsh fluorescent lights behind steel cages, streaked with the residue of years of waste. They are the corridors that the service staff use: the maintenance staff, the cleaners, the truck drivers, the blue collar guys who cart the heavy boxes and fixtures around. They are ugly, and often they stink.

The most disgusting set of corridors I ever encountered was in the Chateau Laurier. For those who don’t know, the Chateau Laurier is an old hotel connected by tunnels to Parliament Hill in Ottawa itself. It is one of the hearts of power in Canada. And the sub-basement has a smell that is something between rotten meat and acrid cheese with something acid and chemical cutting through it. I quite literally gagged the day I delivered food meant for the gullets of the rich to the old majestic Chateau, that magnificent palace whose opulent restaurants are but feet from a stench laid down for decades.

It’s that squalor that underlies the worlds of both opulence and sterility–the opulence of the upper class, the sterility of the middle classes’ office buildings. It’s those corridors in which those who earn little more, and sometimes less, than minimum wage work. For Lord save the clean, little people–in their white shirts and ties, their buffed oxfords, and their clean fingernails–save them from seeing the people who do the work that keeps their white walled world clean and running, the people who keep the air conditioning and the heat on, the carpets clean, and the light fixtures working.

The trolls come out at night as the offices empty. Once the daytime denizens are gone, they come scurrying out from their tunnels and are allowed to move through the offices; so as not to offend the others with the sight of their sweating for a living or dealing with dirt and garbage. And when the daytime denizens do see you, if you are one of those night-time trolls, they don’t see you. Their eyes don’t track you, they move right over you as if you were a piece of moving furniture—an appliance. They will only approach reluctantly if they need something. After they’ve gotten what they wanted, whacked the machinery, as it were, you usually find you’ve gone back to being an invisible appliance with whom eye contact is to be avoided at all costs. And you are paid in scraps. For your labor, you receive a pittance compared to those whose fingernails are clean, whose work involves the strain of typing on a keyboard, attending meetings, and picking up the phone.

That’s my second world, that world of tunnels. It’s a world I inhabit no longer, but it’s a world that haunts me, that I know exists alongside the antiseptic office world. Those corridor dwellers are the ones whose labor makes that new, office world possible—they are the trolls of the modern world, who come out at night, or who scurry through tunnels in the day, never to be seen by those whom their work supports. If seen, they must be ignored.

And they are.

And so I listen to John Edwards and I marvel that he dares speak of the unspeakable, of the great fear—not just of the middle class, but of all Americans. For we choose not to look at that which we fear. It’s not that we fear the working poor, or their humbler cousins, the broken, those who don’t even have job, much less a bad job. What we fear in them is that we might see people like ourselves.

For, to feel secure, in our beautiful world, we must believe that there is something fundamental that makes us different from the poor and the broken. We must think, “Ah, but I’m smarter,” or “I work much harder,” or, less gratifying but still good, “I have a better eduation than they do.”

We must think, then, “I am more valuable than them, I am different, what happened to them could never happen to me! I’m different! I am!”

We cannot see them as humans like us. That many of them work hard, or worked hard when they were allowed to. That most are not stupid, and that many are no worse educated than we. (And isn’t that the easiest thing to fix anyway? As though if everyone had a high school diploma, or a B.A., or a Ph.D., there would be jobs for them all.)

But I worked among them, lived among them, was one of them, and I know they work as hard, indeed harder, than most of the soft office workers whose lives they make easy. And I remember the screams from the soft, pampered bewildered sots when something went wrong in their pristine worlds and their inability to pick up a heavy box, or use a plunger on a toilet, or confront someone violent. Oh, yes, they disdained the goblins, but they’d coming running for our help fast rather than soil those soft hands.

And yes, this sounds bitter. And yes, it is. And yet, I’ve long moved on from that world. My hands are the soft ones now, I’ve not picked up a shovel in over a decade.

But I don’t think that what I do is somehow innately more deserving than someone who cleans toilets for a living, or who sits at a security desk and patrols to make people safe, or who digs ditches, or who… but why go on, make your own list of the underpaid and under-appreciated.

And so I listen to John Edwards and I know why he lost twice. People don’t like you when you make them look at the other side, at the dark fate that may await them one day if they’re a little unlucky; if their company downsizes, if they’re 45 and the company wants a youngster, or if some guy in China is willing to do their job for one-tenth the wage.

Like the way the middle class says about death “she passed away,” we don’t want to look firmly in the face of poverty and see that the face is our face, that its fate echoes ours. If seen, it must be ignored.

Mustn’t it?

(A Reprint, and now kicked back to the top from 2010 re-publication.)

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In France, There Is a Cost to Executives for Laying People Off

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On October 11, 2015

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This is mild compared to what happened to managers in the early twentieth century, mind you:

Union activists protesting nearly 3,000 proposed layoffs at Air France stormed the headquarters during a meeting Monday, zeroing in on two managers who had their shirts torn from their bodies, scaled a fence and fled under police protection.

There are two great problems with our attitude towards violence today. The first is that we condemn it as “bad,” but permit it for people who abuse it. What we really mean is that violence by the state is ok, but violence by anyone else isn’t. You can justify that when the state doesn’t abuse its monopoly on violence (much), but that’s hard to do for most states.

The second is that we fail to recognize non-violent actions that have horrid consequences as serious. Laying off thousands of people has serious consequences for those people–consequences that are much more serious than having some clothes shredded.

We lock up “violent criminals,” but we hardly even bother to lock up most white collar criminals and, when we do, they get off lightly, as a rule. No one went to jail for the financial crisis, despite the fact that the fallout from that is far worse than a hundred serial killers each killing ten people.

I don’t like violence. But neither do I like going hungry. I don’t like homelessness. I don’t like millions of people in refugee camps. I don’t like—well, add to the list as you please.

Corporations are given a very valuable set of privileges by the government, including protection of their owners and officers from a wide range of normal liability for financial losses, negligence, and, indeed, in effect, criminal actions. Effective immortality and a wide range of tax advantages allow corporations to do things no actual person can do.

These privileges are granted because it is presumed that corporations are in the interest of society.

When a corporation does not act in the interest of society, the law allows it for it to be dissolved. This is done routinely to small corporations, but almost never to large corporations.

Corporations have multiple responsibilities: to shareholders, to employees, to customers, and to society as a whole. Officers and managers in corporations receive extra compensation (a lot of extra compensation, though less in France than in the US) in exchange for, presumably, taking on extra responsibility and being more skilled (or something, I’m often unsure what) than line employees.

I don’t know the specifics of Air France’s situation. Perhaps the layoffs truly are required.

If so, whose responsibility is that?

Barring an Act of God it is hard to make the case that it isn’t the responsibility of management. No? They are paid to be responsible, after all, and they are supposed to be competent.

The buck stops somewhere. If it doesn’t stop with a company’s management and officers, it stops nowhere.

Equally important is the fact that we keep precisely, and only, the rights (which includes property and jobs) that we are able and willing to fight for. Any other rights we have in excess will eventually be taken away from, awaiting only someone with enough power to gain the opportunity and motive to do so.

This is the real law of the jungle. Nothing. You have no rights, no possessions. Nothing. Everything you “have” is because it was at one point in the interest of others that you have it. Once it is no longer in their interest, watch out.

Union negotiating, in whatever form, is about making sure that management, officers, and society understand that taking what union members have incurs a cost. Air France may continue with layoffs, but be sure that a message has been received, and will be taken into account.

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No One Who Hasn’t Sold Their Soul Can Afford a Home in London

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On June 3, 2015

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And that’s why London is losing its soul and becoming an uninteresting place to live:

London housing price to earnings ratio

London housing price to earnings ratio

From 2.6 to 9.1.

This is a government choice. It is related to allowing the financial sector to take over London’s economy, with fake profits driving out real profits. It is related to the withdrawal from social housing. It is related to a decision to allow foreigners to buy real-estate they don’t live in most of the year. It is related to tax policy. It is related to the deliberate priming of the mortgage and housing markets by the central bank.

London is where the jobs are in England, but you can’t afford a home there if you’re an ordinary person and not attached to one of the various money hoses.

This same dynamic is playing itself out in world-cities worldwide: from Vancouver and Toronto in Canada, to New York, to Paris, to San Francisco, and so on. There are too many rich people, too many poor people, and too much pump priming from the central monetary authorities. If you live in the “rich sub-economy,” which can just mean being a retainer, you’re golden. If you don’t, you’re forced out.

There aren’t that many cities the global rich actually want to live in, play in, have vacation homes in, or retire to. There also aren’t that many financial centers in the world. Those cities that are both (like New York and London) are becoming impossible to afford the fastest, but so are all the “world cities.”

The irony of this is that huge real-estate prices drive up rents for businesses, and the interesting businesses (like book stores and one off retail outlets) are driven out of business. The artists, intellectuals, rebels, and so on that made places like New York, San Francisco, and London interesting are also driven out. The rich, being largely uninteresting and useless at anything but sucking from money-tits, make cities boring and sterile; they destroy much of what attracted them to a city in the first place.

What is left are expensive restaurants and overpriced chain fashion outlets: soulless and boring.

The rich, in numbers, are locusts, destroying what they think they value.

 

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