Ooooh, No Dean, No…..

There is no dispute that there has been a massive upward redistribution of income over the last quarter century.

Now I normally quite like Dean Baker: he knows his onions and while our world views are radically different his campaign to try and get journalists to understand numbers rather parallels my own mocking of those who don\’t. But that\’s an outrageous statement, worthy only of the most mouthbreathing type of class warrior.

I would be astonished if anyone either literate or numerate would actually agree with it, far from admit that there is no dispute, that there has been an upward redistribution of income. For if here had been, we should see that those at the bottom were getting lower incomes now than they were.

And as people like Paul Krugman (with whom Dean has co-authored at least one paper, so a reasonable authority to use here) keep telling us, this isn\’t true. Incomes may have been flatlining for 30 years (well, wages actually, not total compensation, so even that\’s pretty dodgy as evidence) but they haven\’t been going down.

Now what is true is that the rich have been getting richer faster than the poor have been getting richer. That is, we\’ve not actually had  "redistribution" of income, we\’ve had the new income being created distributed in an uneven manner. Inequality is increasing, yes, but that isn\’t the same as stating that the poor are getting poorer.

The NYT is anxious to tell us that a big part of the upward redistribution was just “basic economics.” It tells readers that:

“One reason for the change is basic economics. In a global, high-technology economy the most successful workers can be more productive and can play on a bigger field.”

Is that so? How about the fact that in a global, high-technology economy the “most successful” workers face a much bigger group of competitors who can depress their wages. Isn’t that also “basic economics”?

As I\’ve been a big supporter of that argument that the NYT puts forward I have to say that I agree with it. One thing that strikes me though is that this is the first time I\’ve seen anyone other than myself actually advance it (shows I\’m not reading enough, obviously).

In more detail it goes roughly like this. The increases in income inequality seem (if we believe the Piketty and Saetz numbers) to be largely driven by strongly rising incomes in the top 1%….indeed, in the top 0.1%, even 0.01%. Now it\’s not all that difficult to hold the thought that there are some people who can not only compete on the national stage, they can also do so on the global. Stephen Spielberg\’s $220 million a year is clearly not funded by the fact that he is one of the best filmakers in the US: rather, by the fact that he is one of the best in the world. I think I\’m right in saying that Hollywood\’s overseas takings have in recent years passed domestic for the first time. Tiger Woods\’ $100 million a year  would  not be funded purely by the US market for golfers and endorsements: it requires avid golfers in Taiwan, Dubai, the UK, to also be passing over the occasional dime or two. So those global superstars are indeed powering away from the rest as a result of globlisation: not because of any import effects but rather because they can export their goods and services to 6 billion, not 300 million.

The answer to the second part is that yes indeed, this is basic economics: we have been seeing it in programming for example. That there are millions of such (OK, tens of thousands perhaps) in India, Russia etc, willing to program for some fraction of extant American programming wages has indeed depressed US such wages. So? That doesn\’t change the fact that those capable of bestriding the globe, collect global instead of national rents for their scarce talents, have, as a result of globalisation, been able to do so.

The fact is that CEOs and other highly paid workers have seen their pay explode in ways that is not matched by the most highly paid workers in Europe, Japan, and other wealthy countries.

This isn\’t quite true. Income inequality has been rising within every country (as opposed to global, which has been falling, with all the usual caveats about Concept 1, 2 and 3) which rather supports the globalisation argument. It is, as the word suggests, a global phenomenon, as is the rise in national income inequality (the simplest way to see this is to look at the Gini for OECD countries over time…I would direct you but I\’m on dial up at present).

Perhaps one trivial example. If I were confined to writing for only UK outlets (as would pretty much have been true before the internet) my income from said writing for this year just ending would be around UK median income, perhaps a little lower. As I\’ve been able to write for US outlets as well (in the same way that Dean now writes for The Guardian….damn Yankees, coming over here and stealing our jobs!) and more directly for US readers and advertisers my income has been about twice US median household income.

There are indeed effects from globalisation which are making average incomes lower than they otherwise would be, the result of being able to import labour contained in goods from other, lower waged, countries, but I don\’t think enough is made of the point that if, as we are consistently told, the rise in inequality is concentrated in the effects the very top of the income distribution has on such distribution and averages, then exports are more likely to be the explanation than imports. Hmm, no, maybe that\’s too strong a statement. That not enough attention is being paid to the possible effects of those exports as opposed to the income effects might be better.

It is very much a debatable question as to whether there is anything intrinsic to the economy that lead to the explosion of inequality in the last quarter century.

Well, as above, I think Dean\’s got it the wrong way around. There\’s not much debate that globalisation is increasing within country inequality, and it really is debatable as to whether there\’s been an upward redistribution of incomes.

4 comments on “Ooooh, No Dean, No…..

  1. Tim,

    “I don’t think enough is made of the point that if, as we are consistently told, the rise in inequality is concentrated in the effects the very top of the income distribution has on such distribution and averages, then exports are more likely to be the explanation than imports.”

    What’s being exported? Through offshoring, principally labour.

    Glad to see you’re coming round to the beliefe that globalisation (whatever it really is0 is nothing more than Stephen Roach’s ‘global labour arbitrage’.

    Tim adds: Martin, I’m not quite sure you’ve got this. Offshoring means we’re exporting “jobs”, not labour. In fact, it means that we’re importing labour, contained in the goods and services which we purchase from abroad. Take me as an example. I am “offshore” as far as the UK is concerned. I export my labour to both the UK and the US. Those editors who buy writing from me are importing my labour.

    Those blokes in The City, when they get paid millions for organising, say, an oil deal in Russia: they are exporting their labour. When Robbie Williams makes an album in London which then sells in the US: he’s exporting his labour. My point is that globalisation means that those who can indeed beat the world at what they do have more opportunites to export said labour and this is (one of the) driver of rising income inequality.

  2. To be fair, over the last ten years (in the UK, USA, Ireland, Spain etc) there has been a massive transfer of wealth from people who don’t own land/houses to people who do.

  3. Would like to understand Mark’s statement. Non-homeowners in the US would be the lower 20 to 30 % of income segment (for the most part). How could there be a massive transfer of wealth from those how have so little to transfer in the first place?
    The Spiegel in Germany lead with an inequality article last week and mostly failed to point out that the real position is that the rich are getting richer faster that the poor are getting richer, rather than the rich are taking from the poor.

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