Tag Archives: wealth inequality

Jobs, Basic Income, Post Scarcity, and all that Jazz

There have been a smattering of wealth inequality/economics articles lately:

THREE GREAT ARTICLES ON POVERTY, AND WHY I DISAGREE WITH ALL OF THEM

Economics Has Failed America

Scott goes on about the unrealistic expectations of trying to teach everyone high-IQ skills, when biology imposes barriers to such hopes:

The QZ article warns that it might create a calcified “perpetually under-employed stagnant underclass”. But of course we already have such an underclass, and it’s terrible. I can neither imagine them all learning to code, nor a sudden revival of the non-coding jobs they used to enjoy. Throwing money at them is a pretty subpar solution, but it’s better than leaving everything the way it is and not throwing money at them.

It’s hard enough teaching young people algebra; coding is many magnitudes harder. A frequently voiced concern that the cognitive requirements to perform entry-level labor may rise to a sufficiently high threshold that it excludes too many people from the labor market. This may mean that while the total number of jobs does not fall, the IQ requirement rises. Another issue is the ‘hollowing out‘ of the middle, where there are too many low-paying jobs and lucrative creative-class jobs, but not enough middle-income ones. ‘Luddite Fallacy’ and ‘Lump of Labor’ may ignore job pay or cognitive demands.

As I explain in The Economics Debate: Jobs and Automation and Coming to Terms With Our New Economy, however, there is reason for hope:

New technologies seem to spawn jobs for all skill levels. Cars are much more complicated the carriages, yet there are jobs for all intelligence levels, from people who clean the interiors of cars to those who solve differential equations to model airflow. Also, the fruits of economic progress tend to be shared with everyone, even with rising wealth inequality, in the form of better technologies, larger social safety nets, and rising standards of living, as “Nathaniel_Bude” points out (this is such a good comments that I pasted the entire thing):

“Cost of living” is a misleading term, because the cost of staying alive has gone up much less. 1 kg of rice still costs about $1 in rich areas, rich people only choose to buy much more expensive food. And similar reasoning applies to all the other “necessities” that people somehow manage to spend so much less on in poor areas than in rich areas
.
But this increase in spending has absolute benefits. Homes with screen windows, non-leaky roofs, clean tap water, and flushing toilets – that are all factored into “cost of living” here – really can make the difference between early death and long life. It is not a “red queen’s race”. Rich people do not need these things any more than poor people. Poor people need them just as much, but can’t afford them.
So there have been huge benefits from rising GDP, and there would be huge benefits to raising levels of consumption in the poorest areas toward the levels typical in the developed world. Which is why it frankly offends me to discuss handing out more money to the poorest people in the richest areas.

Especially when there is a better alternative. Negative income taxes at the low end (like the earned-income tax credit) are not zero sum! They directly redistribute to the relatively poor, while incentivising more work and greater labor force participation rate, which raises their total income even more; and fuels economic growth, which produces a bigger pot of money that we can tax and redistribute as we see fit (like, say, to the absolutely poor).

The poor benefit as much as rich from new technologies, and new technologies create deflationary forces on prices and raise living standards. There’s perhaps a misconception that capitalists only cater to the rich. However, capitalists want to make their innovations and services as accessible to as many people as possible, provided capitalists can turn a profit. Consider an experimental cancer drug, for, say, liver cancer. Should it become successful, the potential market is enormous – tens of billions of dollars a year or even more. It does drug companies no good to restrict cures to the very richest.

From QZ: QZ: The universal basic income is an idea whose time will never come

I’ve written about the UBI here and here.

Regarding the UBI, some thoughts and ideas:

1. Means testing the basic income: those who are deemed unsuitable for a UBI are excluded.

2. Compliance: those who abuse or fritter their income are bumped back to regular welfare. If a UBI is supposed to replace most welfare, a UBI recipient going on welfare indicates a failure of the program.

3. Find ways to reduce living expenses, making a UBI more effective.

In “Average is Over”, economist Tyler Cowen floats the idea of the unemployed, unable to adapt to a changing economy, moving to low-cost regions or ‘camps’, subsiding on inexpensive food and cheap entertainment. Automation wrought by technology may make enough goods cheap enough that such a post-scarcity society may be possible. These ‘camps’ may be a much cheaper alternative to rent, which can be very expensive.

People could leave the camps when they have the financial means or motivation to do so, but the location of the camps may make getting work difficult unless the work is online or on the camp itself. It may end up resembling something like Kiryas Joel.

The resurgence of nuclear families are another possibility. Millennials living with their parents longer to save money, for example. Families would form multi-generational domiciles or clans, passed-down from one generation to the next, rather than everyone splintering off.

4. Unfortunately, a UBI will not make much of dent in healthcare or education, given that those can easily cost tens or even hundreds of thousands of dollars a year for a single person.

5. Will a UBI replace the minimum wage? Eliminating the minimum wage could be deflationary, auguring well with #3.

The future will be one where there is an abundance of free time, for all socioeconomic levels, with fewer hours worked, a shrinking labor participation rate, and possibly even a shorter workweek. There is a tendency among some on the ‘left’ to want to ‘put everyone to work’ when it’s not necessary or possible.

Even if there is enough abundance created by technology and a generous, paternalistic ‘elite’ to give everyone, both working and permanently unemployed, a comfortable standard of living that would rival that of kings 500 years ago, people may still complain about wealth inequality and lack of fulfillment, because someone will always have more. Studies have shown that relative wealth is as important, if not more, than absolute wealth (also known as big fish in a little pond vs. being a small fish in a big pond). That’s why a solution involving camps may be effective, by lumping everyone together and thus eliminating class envy.

Post scarcity also won’t provide status, ‘ownership’ ,or ‘participation’. The paradox, I suppose, is that you have all this technology and economic expansion, but the average person’s contribution to the process is becoming less and less. People generally want to believe that they are valued, that they have some sort of ‘agency and purpose’, that they have some sort of ‘stake’ in society, that they are contributing, and that they have some form of control. A post-scarcity ‘system’ will need to provide and or emulate those things.

The Wealth Inequality Obsession

There have been more articles than usual about social science issues such as wealth inequality, ‘the 1%’, student loans, offshoring wealth, and so on. I counted ten such articles on Hacker News in the past week alone, all of them viral:

Wealth doesn’t trickle down – it just floods offshore, research reveals (2012)
The 1% hide their money offshore – then use it to corrupt our democracy
What if the problem of poverty is that it’s profitable to other people?
Congratulations You’ve Been Fired
The Blue State Model: How the Democrats Created a “Liberalism of the Rich”
Classism in America
The Housing Market in San Francisco and Ideas to Fix It
More Than 40% of Student Borrowers Aren’t Making Payments
A Basic Income Is Smarter Than a Minimum Wage
How Uber, AirBnB, and the Sharing Economy Avoid Sharing the Wealth

These are just the ones that made it to the front page. There are probably many more.

Economics is a social science, meaning that it affects everyone, from rich to poor, to students and professionals, whereas the ‘hard’ sciences such as string theory or astronomy, while interesting, are mostly confined to laboratories. Favorite discussion topics include student loan debt, rent being too high, STEM vs. liberal arts, the rich not paying their ‘fair share’, wealth inequality, and so on. These debates are almost everywhere online, but seem to be most concentrated in ‘rationalist’ communities.

But why so much debate? I think at the individual level, once essential needs are met (food, housing, employment), you begin to look beyond the purview of your personal economic situation to problems on the outside, whether it’s the rich having too much of the poor having too little.

There also seems to be an ‘activist personality’ involved too – a need to fix the world, to right perceived wrongs. Why are some rich people not paying their ‘fair share’? How can we help people who are displaced by automation? Why do so many students have so much debt, poor job prospects, and what can be done about it? Can a basic income work? And so on.

But I think after a certain point, enough is enough. We need to come to terms with the fact that:

In a free society, some will have more than others, and some will be better than others:

Maybe some rich people don’t pay as much as they should (or as much as you wish they would). Maybe you dislike and or morally object to how they made their money. Tough.

The labor market is competitive and difficult.

Jobs will be lost but also created by new technologies.

Capital gains reward investment and risk taking.

Life is unfair. Mark Zuckerberg became immensely wealthy with Facebook, even though the idea may not have been exclusively ‘his’. Is this fair? Maybe. Maybe not. It doesn’t matter.

Incentives matter. You punish the rich too much and they may not stick around to create jobs, instead moving money and jobs offshore.

The rent in the Bay Area is high, and homes are expensive, and there isn’t much you can do about it.

Sometimes the world can be maddeningly complicated, confusing, and unfair, and we need to let go. By the time you have finished reading this sentence, a couple hundred people will have died, a student loan will have gone into default, and someone will have lost their job. I’m not dismissing other people’s hardships, but you’ll drive yourself mad worrying about it.

Perspective is needed: the poor of America are economically better-off than the poor in other countries. From the Daily Caller Bernie’s Poverty Delusion: America’s Poor Are Richer Than Europe’s Middle Class:

Data from the U.N. agency UNICEF, shows that the US has a lower child poverty rate than other first-world countries, such as Spain and Israel. But Sanders is incorrect on a more fundamental level when claiming Europeans are better off than Americans thanks to a host of social programs and entitlements.

And finally, for many these social science topics, unlike the hard sciences, there aren’t clear-cut answers. Which I guess is why there is so much debate.

Web 2.0 & the Economy: It’s Different This Time, Part 2

In the past month, there have been a plethora of doom and gloom articles about web 2.0, Silicon Valley, the economy, and start-ups. In this series, I address some of the major concerns, arguing that perhaps the negativity is not all warranted.

Part 1

From Amerika.org: The coming dot-com 3.0 collapse: Google, Apple, Facebook, Amazon and Twitter

Everyone has been predicting tech bust 2.0 since 2009, and they keep being wrong. The post-2008 tech boom – which includes web 2.0, Facebook, Google, Uber, Amazon, and Silicon Valley – is more permanent than cyclical or transitory. Like the Bitcoin boom, it has also defied all predictions of it demise. It’s not like 2000 or 1929 where the is going to be a deafening implosion. Instead, the exiting trends that are established, such as valuations going up, will continue. The arguments for tech bubble 2.0 are less convincing than the arguments for a continuation of the boom.

Fred Wilson, in his predictions for 2016 writes:

Markdown mania will hit the venture capital sector as VC firms follow Fidelity’s lead and start aggressively taking down the valuations in their portfolios. Crunchbase will start capturing this valuation data and will become a de-facto “yahoo finance” for the startup sector. Employees will realize their options are underwater and will start leaving tech startups in droves.

As a VC expert, I’m surprised Fred doesn’t realize these markdowns are strategic (possibly tax related), not because of reduced investor demand. There is zero evidence of Snapchat shares changing hands at reduced valuations.

Crunchbase will start capturing this valuation data and will become a de-facto “yahoo finance” for the startup sector. Employees will realize their options are underwater and will start leaving tech startups in droves.

Fred is being sensationalist here. I don’t see any of that happening, except for the deterioration low-quality ‘unicorns’ like Jawbone, GoPro, and Fitbit.

A someone who has followed financial markets for years and written thousands of words and hundreds of essay on the matter, I’m pretty good at being right, at separating doom and gloom hype from reality

In an earlier article about Theranos, I give examples of how the media predicting failure:

Whether it’s Tesla, Uber, Theranos, or or any other successful start-up, the left are like bloodhounds drawn to the scent of failure of the successful, even when such failure does not actually exist. The liberal media is so desperate for the successful to fail that they have to make stuff up, turning molehills into mountains.

There are many more…

In 2005-07, the leftist media dismissed Facebook as a fad like Myspace. After being wrong there, then, in 2012, the left said Facebook was doomed because the stock fell after the IPO, and that Facebook would not be able to monetize mobile users. The stock is up 300% since then, and mobile advertising growth is crushing expectations:

In 2011, the liberal media sensationalized a story about an AirBNB renter vandalizing an apparent. What was overlooked or ignored in the anti-AirBNB sensationalism is that the vast majority of rentals are without incident.

The event happened, which is a terrible blow to the company’s reputation. The confusion seems to be around whether or not Airbnb will compensate her for her losses. The company at first said no, then said yes, and clarified that they made the offer last month when it happened, not in response to the PR storm yesterday.

Terrible blow? lol more like a hiccup. The valuation of AirBNB has since surged 500%. So has growth.

The problem is there is no accountability. Pundits can just shoot their mouths off, making unsubstantiated comments that are later proven wrong and no one calls them out on it.

Google has some obvious weaknesses. Its ad revenue per page has been declining for years because the internet is now coated in ads, and very few people on the internet actually buy anything. This has caused sites to become clickbait in order to draw in enough traffic to get a decent income from the lower-paying ads they now run; this in turn causes a concentration of traffic on relatively few sites. That puts us right back in the place where we were with old media where six big companies ran the show, and this has decreased the value of the internet as a news source.

Google has been unstoppable since launching its ad platform in early 2000, with a monopoly contextual ads and duopoly in mobile advertising (shared with Facebook). Cost per click keeps rising, and it seems like virtually all commercial websites have Google ads. As for ad blindness, what a lot of skeptics don’t understand is that adverting is most effective for 60% or so percent of the general population who have IQs between 80-110 and will keep clicking ads, which is a lot of people and a lot of clicks.

Second, there are two people who buy ads: small buyers who are looking for a quantifiable ROI (sales, leads), and large buyers that are looking for ‘mind share‘, where the ROI is harder to quantify. An example or the former is someone selling an ebook report or collecting emails, and the latter is, for example, a movie studio buying ads to promote a Summer blockbuster. The studio doesn’t care if visitors buy anything or not (the movie trailer doesn’t have any way to buy anything); they just want to blast their movie promo everywhere, and will pay a lot to do so. Same for those expensive car ads you see everywhere. Ford doesn’t expect anymore upon seeing their ad to immediately rush out and buy a truck, but instead to merely consider Ford as an option when shopping for a new automobile.

Right now, as of February 9th 2016, Snapchat announced a deal with Viacom – a very deep-pocket advertiser looking to spread ‘mind share’. Now we can see how Snpachat will live up to its $15+ billion dollar valuation, which I predict will rise as high as $30-60 billion within the next year or two.

Facebook wallows in weakness as well. It has tons of users because people can access it from at phones or on the job. The problem is that these people, beyond a few product categories, do not represent consumers. They are there to screw around. As a result, while Facebook and other social media have many users, they do not have many buyers. It’s not even clear that ads on these sites attract eyes from people who want to buy the products, which is why the ads are getting more random and more frequent, becoming a genteel form of spam. Twitter suffers the same problem.

Hardly, as I show above regarding Facebook’s huge growth in advertising revenues. Facebook, unlike the doomed Myspace, appeals to an older demographic who have more purchasing power than teens. But even sites such as Snapchat and Instagram, that appeal to younger demographics, are not having trouble finding advertisers, who are willing to spend millions of dollars promoting clothes and other products to this large demographic (mind share). As part of the boom in mobile and video advertising, Instagram revenue is projected to surge:

Also, as I explain above, a lot of online advertising is to build ‘mind share’, with the intent of merely nudging people to consider a brand, not to actually make an immediate purchase.

And from the WSJ: Tech Startups Face Fresh Pressure on Valuations

The one for Square is off only 20% from the private round vs. the Dec. 31st close. It hasn’t moved that much, and it’s too soon to assume it’s under pressure. Most of the valuations gains were made in the years leading up to the IPO, as companies are going public later and later. That could explain why some of the post-IPO gains seem stunted.

The author mentions the worst companies that even I, web 2.0 bull, would never invest in. He mentions box.net but ignores dropbox. No mention of Air BNB, Uber, Snapchat, Slack. Although these aren’t public, there is an investor bias against hardware, but such a bias is warranted given the storied history of once high-flying hardware companies eventually soaking investors due to profit margin compression, competition, or becoming fads or obsoleted, examples being Sony, Atari, Garmin, Nintendo, Sega, Fitbit, Nokia, Motorola, Gopro, Jawbone, Skull Candy, Research in Motion, and many more.

Yeah, there is valuation pressure, but for companies that aren’t very good. This is evidence investors are becoming smarter and more selective, whereas in the 90′s a company like Fitbit would have had a PE ratio of 500 instead of 50, which is what it is right now.

Some more shoddy reporting for the from the WSJ: As Angel Investors Pull Back, Valuations Take a Hit

On AngelList, a crowdfunding site aimed at such investors, the average valuation for a company receiving funding reached $4.9 million for two quarters last year, its highest level in five years. But valuations dropped to $4.2 million in the fourth quarter, the lowest level since early 2012. Dow Jones VentureSource data shows that deals involving angel investors fell by 16% last year.

It seems like a big deal until you realize there is a huge variance in prices and that 2012 isn’t very long ago. The biggest and most successful ones such as Snapchat, Uber, Air BNB, Dropbox, and Pinterest seem to be doing just fine.

It’s easy to separate the potential winners from the losers. As mentioned before, start-ups that deal with hardware and other physical stuff tend to fare much worse than apps, websites, and software. For example, Fitbit, Skullcandy, Jawbone, and Gopro have all performed poorly. Now jawbone got the axe, raising money at half its 2014 valuation. Had VCs heeded my simple strategy of avoiding hardware, a lot of pain could have been avoided. Hardware is just too difficult to get off the ground. Costs are too high, and tangible products are vulnerable to becoming fads of commoditized.

From the New York Times: Expect Some Unicorns to Lose Their Horns, and It Won’t Be Pretty

Haven’t we been ‘expecting’ this since 2012, yet the biggest, most successful unicorns keep going up in value.

For all the hype and doom about Square stock, the price is back to where it was when it began trading a month ago, although it has fallen 20% in recent weeks.

But this is a good opportunity for employees to understand the risks of stock options, but it’s not like the world is coming to an end. Such risks have always existed.

My prediction is by the end of 2016, we’re still going be seeing record high valuations for the top unicorns.

Re: Wealth Inequality

Paul Graham’s wealth inequality essay is generating considerable discussion. Seth Bannon rebuts, How Paul Graham gets it wrong in “Economic Inequality, arguing that Graham is attacking a straw man; however, Seth Bannon fails to actually make a substantive case that wealth inequality is bad for the economy.

In the essay, his overarching point seems to be that an ever-increasing level of economic inequality is a necessary function of living in a healthy society where wealth is created for the benefit of all and innovation flourishes. Further, he argues that attempts to limit such inequality would mean “ending startups.” Neither argument stands up to scrutiny.

There are many studies that demonstrate negative effects of economic inequality[1]. Bill Gates gave an excellent summary of the argument against unchecked levels of economic inequality[2]:

High levels of inequality are a problem — messing up economic incentives, tilting democracies in favor of powerful interests, and undercutting the ideal that all people are created equal.

Capitalism does not self-correct toward greater equality — that is, excess wealth concentration can have a snowball effect if left unchecked.
Governments can play a constructive role in offsetting the snowballing tendencies if and when they choose to do so.

His source for #1 is an article from the NYT about how wealth inequality can be bad for your health, but this is not really an economics argument. By ‘negative effects’ I was expecting an article about how wealth inequality is bad for the economy. It’s almost misleading.

Source #2 is link to a review by of Bill Gates of Piketty’s Capital in the Twenty-First Century, which is also unconvincing. In the review, there aren’t any substantive economics arguments or studies about how wealth inequality is bad, and I think Seth Bannon demonstrates the argumentative fallacy of the ‘appeal to authority’ by mentioning Bill Gates as if the presence of his name alone is sufficient as an argument. If would have been helpful if Bannon had cited a passage or from from the long essay, pertaining, specifically, about how wealth inequality is bad for the economy, but I can’t really fault him because such evidence is actually hard to come by. There is no consensus by economists that rising wealth inequality bodes poorly for the US economy as measured by actual data such GDP.

High levels of inequality are a problem — messing up economic incentives, tilting democracies in favor of powerful interests, and undercutting the ideal that all people are created equal.

Capitalism does not self-correct toward greater equality — that is, excess wealth concentration can have a snowball effect if left unchecked.

Governments can play a constructive role in offsetting the snowballing tendencies if and when they choose to do so.

These are all hypotheticals about how wealth inequality could be bad – not actual data that shows wealth inequality is stunting growth.

Furthermore, a lot of the arguments posed by Piketty and the rest of the left (that wealth inequality leads to crisis, that wealth inequality stunts economic growth – or – that dynastic wealth is permanent) are easy to refute or are at least unconvincing, and it doesn’t help the left that some of the data in Piketty’s book may have been fabricated. The credibility blow due to the revelations of this potential fraud seem to have undercut the hype, and no one talks about his book anymore.

In 2014, the IMF released a report about how “inequality is damaging to economic growth”.

“We find that higher inequality seems to lower growth. Redistribution, in contrast, has a tiny and statistically insignificant (slightly negative) effect.”

However, correlation is not causation. Often countries that are in turmoil or transitioning will also have high income inequality. So while wealth inequality and crisis can coexist, wealth inequality does not cause the crisis. America had high wealth inequality in 2007 leading up too the recession, but wealth inequality did not cause the banking problem and recession – reckless lending standards and other factors did.

At the very least, there may be insufficient data to conclude high wealth inequality is bad for the economy.

Paul Graham: Economic Inequality and The Refragmentation

Tech VC heavyweight and hugely influential blogger Paul Graham posted two new essays:

Economic Inequality

The Refragmentation

These essays are almost the same in that they deal with trends and paradigm shifts affecting post-2008 America, specifically about society, capitalism, start-ups, and wealth inequality.

The meta-discussion is almost as interesting as the topic itself. These essay went hugely viral online yesterday, getting hundreds of comments and votes each. It helps they were written by Paul Graham, who is very influential, but also the subject matter itself: economics as it pertains to post-2008 America, which squares with the ‘great economics debate’* that is raging online now.

Related: The Great Debate: Automation, Jobs, Wealth Inequality, Basic Income, Post Scarcity

Economics is a social science, which means, to some extent, it affects everyone, allowing anyone to participate in the debate. Wealth inequality touches everyone, including the rich, who are often blamed for wealth inequality.

People have observed how much thing have changed in this ‘new era‘ we find ourselves in, and they want explanations as well as solutions: like how to find work without much job experience, how to not get fired, how to make money without a traditional job, how to find meaning in life, and so on. The explanations for why or how the economy has changed are easy to elucidate, but solutions are harder to come by. Such solutions, is they exist, may not be what people want to hear.

The trend, I predict, is that wealth inequality will become almost the same as IQ inequality. IQ is more much important today than a generation ago in influencing individual economic outcomes. 100 years ago in an economy dominated by manual labor, the difference between a 90 IQ and 120 IQ wasn’t that important, but now it is.

The reality is that people are failing behind because of low IQs in an economy and society where intellect is becoming increasingly valued, as I explain in The Great Decoupling.

To repeat myself, people are falling behind because of low IQs and the winner-take-all economy that enriches some, but doesn’t leave a whole lot for everyone else. Today’s hyper-meritocracy is amplifying the socioeconomic ramifications of individual cognitive differences such that a person with an IQ >110 is much more likely to succeed than someone with an IQ <90, whereas decades ago the disparity wasn't so obvious. Yeah, It's a well-worn argument, but it's probably the most applicable, succinct answer I can think of. As long as we keep asking the same questions (why is there so much inequality, etc..) there's no reason why the answer should suddenly change.

The solution, on the other hand, is harder than the explanation because you have to account for incentives and politics. Too much welfare and the incentive to work is gone. A solution that is too 'radical' may be roadblocked by politics. No one really knows the best solution, and that's why this is such a big debate. So many people realize that this is one of the most pressing issues of the 21st century. How are we going to develop a compromise or solution that handles automation-related jobs loss and inequality. Some propose a basic income; others want redistribution; others wants more spending on education, and so on...

Another problem is ‘mass education’. The skills taught in school, which a couple generations ago were good enough to get a decent job, have become saturated. In the early 20th century, a much smaller percentage of the population could read and write proficiently; now (percentage-wise) many more can:

In the past thirty years, literacy rates have surged in the developing world, possibly creating downward pressure on wages for many jobs that involve writing and numeracy. The solution is that economic forces create more jobs (to keep up with the supply of educated labor), the result being a sort of homeostasis, which was stable until recently, but now equilibrium may have broke – the result being too many educated people and not enough jobs.

Literacy rates and real wages rose together, until the latter peaked in the early 80′s. The early 80′s may have been ‘peak school’, where the benefits of mass education paid off, now the ROI is less.

However, ‘real compensation’ has also surged, suggesting that employers are making up the difference in more benefits:

Perhaps education needs to be reformed, with more emphasis on teaching skills that employers are seeking. Teaching the kids to code could be a start, but then you run into the limitations imposed by the Bell Curve (coding is hard). Segregating the smart kids to learn high-ROI skills like STEM is a good idea, but then certain people will complain about discrimination. Public schools spend inordinately more money on special education than on the gifted, even though both are represented equally on the Bell Curve – what a waste.

This passage from the ‘Refragmentation’ essay stood out:

In the early 20th century, big companies were synonymous with efficiency. In the late 20th century they were synonymous with inefficiency. To some extent this was because the companies themselves had become sclerotic. But it was also because our standards were higher.

Huh? His memory must have stopped in 2000 at the peak of the dotcom bubble. Everything has become much more efficient (both in the stock market and in corporate america) and competitive, with droves of college graduates applying for jobs that can be completed by high-school dropouts.

The 2008 recession gave employers a great excuse to thin the herd, and keep it thin long after stock prices and earnings made new highs. There were too many people being overpaid to do jobs that could otherwise be automated, outsourced, or simply eliminated.

Today the low-paying service sector dominates, as the labor force becomes bifurcated with the ‘creative class’ or ‘cognitive elite’ on one extreme everyone else on the other. In spite of visas and outsourcing, STEM still offers the best career prospects:

There is also a small hump in the middle for cushy government jobs, which pay well, have a lot of benefits, and many don’t require much intellect or education to attain.

As for wealth inequality, most people understand it’s an unavoidable byproduct of capitalism and economic progress. People who produce more economic value, directly or indirectly, tend to make more money. That’s why wealth inequality as a political issue is never a winner, because people want to help each other get rich, not tear each other down by waging class warfare. Also the argument that high wealth inequality is bad for the economy – as opposed to just neutral – is tenuous at best. Rather than attacking job creators with higher taxes and regulation, a better approach is to create economic conditions that are conducive to job creation.

The ‘endgame’ is that a lot of these people who are treading water will continue to draw government aid, hence having a negative or near-negative effective tax rate, meaning that they consume more in benefits than they produce in economic value. The welfare state will continue to expand.

However, the good news is that utility due to new technologies is surging, allowing workers to get more ‘bang’ for their buck, even if real wages stay stagnant. Technology and globalization act as deflationary forces, making many things cheap and abundant. In the 50′s, for example, a worker had to save for months to buy a black and white TV that only had a handful of channels; nowadays, a middle low-income worker can buy a considerably better TV with just two weeks’ worth of income.

I discuss these trend in more detail in the three-part “capitalism & crisis” series:

Post-2008 Capitalism: A Guide, Post-Labor Capitalism, Collapse can wait

and some more here The Hivemind, Immigration, and IQ

* There are three ‘great debates’ raging online right now: Gamergate vs. SJWs, a ‘digital’ twist on the age-old left (SJWs) vs. right (gamers) divide; the second debate is about to economics – specifically about job loss, wealth inequality, basic income, and automation; and the third is about college, STEM vs. liberal arts, and whether college is necessary or not.

Wealth Inequality Not a Big Concern

‘Capitalism, Tradition and Traditionalism’ – An Overview

. The Reactionary sees no problem with wealth inequality, which reflects differences of aptitude, however the people at large will be prone to complaints of wealth inequality if their entire world is centered around capital, that which they may be unsuccessful at accumulating. Marx himself said that communism could never have gotten its start had capitalism not done away with the older system, which was able to effectively distract from common economic hardship.

Wealth inequity between the top .1% and everyone else keeps widening, especially in the past three decades, yet public opinion of wealth inequality is unchanged since 1985:

Predictably, democrats are more concerned about wealth inequity than republicans:

The fact fact that public opinion hasn’t changed in over three decades is more of a reflection of America’s persistent left/right divide, which has remained proportionally unchanged for decades, with approximately half the country holding conservative economic views and the other half more liberal.

Many people understand that wealth inequality is an inevitable byproduct of economic progress. People who produce more economic value are rewarded in the marketplace with more wealth than those who produce less. Those who create a lot of indirect economic value are rewarded the most, examples being entrepreneurs like Steve Jobs and Bill gates, whose inventions have created millions of jobs and hundreds of billions of dollars in economic activity, both directly and indirectly. Donald Trump, for example, is the highest polling candidate in the GOP primaries despite being much wealthier than his opponents. Revolution occurs when fundamental needs are unmet, typically due to economic collapse, not because of class envy. In addition to other factors, the October Revolution (food shortages due WW1) and French Revolution (flour war) were engendered by economic collapse resulting in shortages of food and hyperinflation. Although wealth inequality is high, it’s not like people are starving; in fact, there is so much abundance there is an obesity crisis and many people are choosing not work.

Some on the right want to see a more ‘holistic’ or ‘nicer’ version of capitalism, but what does that mean? It’s like saying you want to see a ‘nicer’ version of evolution. It doesn’t really work that way. Capitalism, like evolution, is autonomous, as a way of converting inputs (money, labor, etc) to achieve an outcome or state that is more efficient than what proceeded it.

Debunking More Wealth Inequality BS

Income inequality’s sick joke: A rising tide only lifts luxury yachts

Well, no kidding; if you take a chunk of wealth from the rich and give it to the poor, the poor will indeed see an immediate rise in wealth and sending power, but is that the best approach to economic policy? Or will spreading the wealth lead to more equality, but less overall economic growth and wealth creation, making the entire country poorer? The article never answers that, probably because the truth is not what that author wants to hear: that actual empirical evidence showing rapidly widening wealth inequality is bad for overall economic growth is pretty much nonexistent. If Nobel laureates cannot offer an evidence based argument for redistribution instead of a sentimental or hypothetical one, then it probably doesn’t exist.

Without enough poor and middle-class families consuming their products, businesses had fewer customers, and less revenue.

Record high consumer spending and record profits & earnings for S&P 500 companies refutes this. Furthermore, the wealthiest 10% contribute 50% to consumer spending, also known as the Pareto Principle. Then you have globalization and the booming BRIC middle class and booming exports which makes the US middle class less relevant in the overall macro picture. So, even with record wealth inequality, consumer sending isn’t falling, but is actually expanding.

Europe, which many on the left praise for it’s egalitarianism, is actually in a borderline recession versus America.

The GPD of the European Union has flatlined, while US GDP keeps chugging along:

America clearly leads the pack:

Of course, the left blames austerity for Euorpe’s weak GDP, but despite austerity, social spending has not declined between 2009 and 2013:

and

A common argument among the left is that cutting social programs will reduce GDP growth and push the US economy into a recession, yet in 2013, France allocated 33% of its GDP to social programs and the U.K. allocated 25% versus 20% for the USA, but France and the U.K. have much weaker growth.

So austerity has not reduced entitlement spending in Europe, and compared to the USA, high entitlement spending has not helped Europe’s growth prospects in the aftermath of 2008.

Furthermore, according to the Office for Budget Responsibility, (OBR)the UK is more by lack of private capital investment than austerity.

The Office for Budget Responsibility (OBR) said on Wednesday that while spending cuts and tax rises had likely harmed growth more than originally assumed, it had been the “almost complete absence” of the OBR’s expected contribution from private investment – particularly from business – that explained the £100bn shortfall in its forecast for UK nominal gross domestic product (GDP) – or the value of the economy in cash terms – since June 2010.

In capital expenditures, the USA leads the pack yet again:

Back to the Salon article…

The growth rate of the 1960s to 1970s was rapid and equitable.

Law of large numbers; it’s easier to grow a smaller economy than a huge one like the US is presently. Compared to Japan and Europe the US , which has a bigger economy, is growing faster. Second, you cannot prove if the falling rate of growth is due to wealth inequality or the law of large numbers; it’s intellectually dishonest to imply it’s only attributable to wealth inequality when you have no actual empirical data that corroborates with your implication.

If we want to have a productive discussion about wealth inequality, we must first have an honest one and disabuse the misconceptions, fallacies, and wishful thinking.

More Bullshit by Business Insider

The prophets of doom are at it again, this time with yet another beseeching article about how rising consumer spending cannot coexist with falling income.

Consumer spending is around all-time highs as a share of U.S. GDP, while labour income is at multidecade lows, he explained. “This has been wonderful for corporates: consumer spending boosts revenue, while labour costs are the corporate sector’s largest single cost. Rising consumer spending and falling wage share of GDP is great for profit margins.

But this peculiar trend is obviously not sustainable.

We already debunked a very similar article to this a few weeks ago written by Henry Blodget. There is not a single economic theory that says this is unsustainable. There are hunches that it could, but no empirical evidence that it actually is. These premonitions of doom reflect the wishful thinking of the author instead of economic reality. For example, 60% of S&P 500 profits come from overseas. There’s billions of people in the emerging market middle class buying stuff produced by S&P 500 companies. Then there’s rapidly growing wealthy class – both in the US and global – that consume much more than the lower classes. This is the Pareto Principle that the top 20% do 80% of the consumption, as indicated by the pie chart below:

Consumption has become more concentrated among the rich since 2005. This is why supply side economics is successful, by creating incentives for the rich since they are are so invaluable to the functioning of the economy.