Many Good Things Lead to Inequality

Growing inequality is a global phenomenon that has been going on for at least forty years. The fact that it has been taking place across so many different types of social and economic systems makes it difficult to identify the causes, propose solutions or even be certain that it is “problem” that should be solved.

Globalization Raises Most Boats, But Some Less

The economic rise of places like China, India and Brazil have lifted billions of people out of abject poverty. These countries are expected to narrow the gap with the developed world in coming decades, but the rise of the developing world has contributed to inequality elsewhere. Globalization means that workers from these places can supply goods to and compete with workers in Europe or the U.S. This makes American or European workers with low or easily copied skills less valuable and holds down their wage growth. On the other hand, since it lowers costs, it makes it easier for skilled or entrepreneurial individuals to operate. Essentially what globalization does is increase both opportunities and competition.

Globalization is a good thing. The richest, freest and most pleasant countries in the world are the most globalized (top five: Singapore, Ireland, Switzerland, U.S., Netherlands). But there are dark clouds for even the most silver of linings.

Who Should Sing Tenor?

Differentiation and diversity are also contributors to inequality. Diversity and inequality have overlapping definitions, with diversity being the PC way to express the concept. We should not be surprised to find inequality grow along with diversity in society. Varied inputs will produce variety outputs. Diversity is something our society values. Most of us are willing to give up some homogeneity and equality in return for it.

Differentiation is a little different. In this particular instance, it applies mostly to the labor force and it is growing rapidly. Anybody who worked in industry a generation ago, especially in a union shop, would know that differentiation among workers was low. Tasks were assigned based on seniority. In an unskilled or semi skilled work environment, which individuals do the job is not very important. As skill levels rise or as particular talents are required, this is no longer the case. The question of who should sing tenor in the choir is not one that can be settled by seniority. This is essentially the kind of question that is being asked everywhere.

One reason why our public schools do not always work well despite massive inputs has to do with lack of differentiation. Many districts insist on treating and paying everyone more or less the same. So all those Sopranists, Altos, Baritones and basses are trying to sing tenor. Of course, some don’t even bother trying anymore. Outside strongholds of leveling, however, differentiation is becoming much more common.

Experience is More Than The Name We Give Past Mistakes

I have not seen a good RECENT study of lifetime income comparisons. (If anyone has one I would welcome a link.) I suspect a lot of the income differentials would even out over a longer period. In my father’s generation (and still among less skilled workers) there was no income ladder, or it was really short. Where my father worked, there were two kinds of workers: new & experienced. After you worked there for three months, the union declared you experienced, so after one summer of loading cement bags with my dear old dad, I was his equal in experience as far the union, the company and the paycheck were concerned. I actually made more, since I worked longer hours.

Today income disparity between the experienced and novices has grown significantly. Where I work, we have interns who get paid nothing. Then we have some unskilled workers who will probably never make much more. But we also have people who are paid a little now, but will make more later. I make around six times as much as I did when I started. If my son came to work at my job, he certainly would not make as much as I did after three months. But is there really a problem with that sort of wage differential? Over a lifetime of work, it will even out, but in the meantime it encourages initiative or at least good behavior.

CEOs, Rock Stars & Basketball Players

I won't argue that the super high earners are worth what they are paid. I really cannot understand how a CEO whose firm is losing money can receive a bonus, let alone a high salary and I find many super rich entertainers offensive, but I do not really know what should be done about it. The same mechanisms that allow Snoop Dog to afford all those gold chains & teeth are those that make the modern economy free, diverse and prosperous.

And income is the key. A couple generations ago, most rich people lived off inheritances, property and trust funds – old money. If you look at this years top ten, none of that money is much older than I am (and I am really not that old).

Steven Spielberg earned $332 million last year. I don’t know if he is worth it. Howard Stern followed him with $302 million. I am pretty sure such a creepy guy is not worth that kind of coin, but his fans evidently disagree with me.

So I don't mind taxing these rich guy, fat cats. I will never attain their level of wealth and like most people I am vaguely envious of those better off than I am. I notice, however, that the highest paid entertainers, athletes and business people tend to be the most productive. I do not know what motivates them, but I am a little bit leery of taking it away.

Posted by Jack at October 31, 2006 5:44 PM
Comments
Comment #191976

Read “Confessions of an Economic Hitman”.

Posted by: David S at October 31, 2006 6:33 PM
Comment #191980

Jack, Interesting post. I beleive you hit the nail on the head regarding public schools and why some people suceed at learning and why some peiople fail to learn.

Posted by: j2t2 at October 31, 2006 6:50 PM
Comment #191999

Very interesting post Jack. I suspect the real reason why there is such huge disparity, at least among those who actually work, as opposed to creative types like Snoop and Speilberg, is self mastery or self discipline. (Just because I group them together, I don’t necessarily equate their talents or contributions) I have noted, in an industry (financial services) where everyone has the same chance to earn the big bucks, it’s not just, and indeed not always, the smartest ones who win big. The ones who win consistently are the ones who dedicate themselves to the tasks which have to be accomplished in order to be successful. And I as said above, i’ve noted that often these people are not the brightest starts in the firmament, sometimes in fact being intellectually lacklustre. But they know what they want, and they are prepared to do the things they need to to get what they want. And that’s what separates them from the herd.

Posted by: Paul in Euroland at October 31, 2006 7:54 PM
Comment #192008

Paul

Did you see the WSJ today? It talks about skilled Americans moving to Ireland to find work. Seem they like the lifestyle.

You are right about work v smarts. I read a book a while back called emotional intelligence. I didn’t like everything about it, but one of the main points was that emotional intelligence such as ability to put off gratification and work to a goal were the keys to success, not “book learning”.

Confessions of an Economic Hit Man is misleading and fiction. Too bad this guy makes so much money trashing his country’s reputation. Unfortunately, that is much too accepted today. Now that is someone who should have all his money taxed away.

Posted by: Jack at October 31, 2006 8:24 PM
Comment #192024

Jack,

Diversity and inequality have overlapping definitions, with diversity being the PC way to express the concept. We should not be surprised to find inequality grow along with diversity in society.
Are not, in fact, racial diversity and economic inequality two quite different concepts? You seem to equate the two here. Care to comment? Posted by: jrb at October 31, 2006 9:25 PM
Comment #192031

Jack, determination, perserverance, sacrifice, knowledge, skill, & luck are also some of the requirements to becoming sucessful, but without the 1 thing that really matters all that other stuff will just get you by. You must first of all find your calling to be sucessful, without that all else matters little. Those fortunate enough to find their calling early in life are the speilbergs of the world. Some find their calling later in life and unfortunately some never do.
That is what seperates the haves from the have nots. Once you find your calling, all obstacles are overcome and life moves forward for you.

Posted by: j2t2 at October 31, 2006 9:46 PM
Comment #192041

Jack-
Globalism is a culture, and like all cultures it’s got its range of behaviors which can and must be managed. If we assume by default that its beneficial, we’ll end up with a lot more enemies than we really need. We don’t need to surround ourselves in yet another bubble of ignorance that ends up killing Americans.

Posted by: Stephen Daugherty at October 31, 2006 10:14 PM
Comment #192043

j2t2,

You also have to be lucky enough to be born in a time in which your calling can pay off financially, if that, in fact, is your goal. I know several fine poets who will never be rich because the masses no longer value poetry. But, you know, they don’t care. They do what they have to do survive and write because they feel they don’t have a choice.

Posted by: Trent at October 31, 2006 10:19 PM
Comment #192053

Trent, Of course you are right, yet another difference between the haves and have nots financially speaking, but you never know whats in store perhaps after they are long gone their work will be valued and the great grandchildren rewarded.

Posted by: j2t2 at October 31, 2006 10:37 PM
Comment #192075

jrb

It depends if the diversity has a cultural component. Race itself is irrelevant as matching colors. One of the bogus diversity schemes is to have people of various races who have similar ideas and backgrounds. Harvard lawyers have more in common with each other, no matter what they color, than they have with others.

But diversity usually has a cultural component too. Cultural differences imply behavioral differences. If not, there is no difference, right? Behavior differences produce different results. So the economic, cultural and racial differences tend to overlap.

The most common diversity aspect involves language. If immigrants do not learn English to a high degree, they will probably remain poor and marginalized.


Stephen

I do not assume by default that globalism is beneficial. I observe that the most globalized places are the best off by almost all measures (health, economy, education). There are drawbacks to it, but the alternative, isolation, is much worse.

It is a matter of balance. I do not want to accept all parts, but probably most. Nations that cut themselves off go backwards.

j2t2 & Trent

I think that you can develop a calling. I started out in ancient history. There are not many good jobs in that. I got an MBA. I found that it was as much fun as history, once you got past the math. My point is that there is a range of possibilities based more on your skill set than what you think of your preferences.

I do not think we disagree. I am just trying to build on what you all said.

Posted by: Jack at October 31, 2006 11:19 PM
Comment #192081

Jack, you misssed the country with the largest GDP per capita: Bermuda.

Why Bermuda? Because there you can hide assets, avoid taxes and do all sorts of nonproductive tricks to make a killing.

However, some think Panama may be the next big tax haven, money laundering destination.

Remember Saint Warren Buffet, that generous old conservative from middle America? Well, not really, because Berkshire Hathaway is incorporated in beautiful Bermuda. Guess he’s not American Pie after all.

You said a couple of generations ago… the rich lived off Trusts and Inheritance, now it’s all new productive money? Really? Do have some basis for that belief? The Rothschilds and Rockafellers ain’t exactly digging for butts in ash cans.
They just think it’s tacky and stupid to appear on Lifestyles of the rich and and famous.

You are right that CEO’s now think of themselves as movie stars, but do they really have followings like entertainers and sports stars? Can they draw the crowds and ticket reciepts? Some probably can.
But don’t the Studios and Sports Team owners rake in even more dough and then slink down a dark alley so we won’t notice? Old money knows being flashy can lead to bad things, like revolutions.


Shhh! Don’t tell Americans the American dream is a con-job. The rich ARE different, they own you.

Posted by: gergle at October 31, 2006 11:33 PM
Comment #192088

Jack-
Forgive me for asking this, but what is globalism? Not the textbook or dictionary definition, but what does it involve, and what does it require of people? How are people using it? It just seems to me that all too many people, Republicans and Democrats alike, think of it as a distinct thing unto itself.

Posted by: Stephen Daugherty at November 1, 2006 12:06 AM
Comment #192104

Gergle

income gap

We need to think of the practical consequences of inequality, what causes it and what we can or should do about it.

Equality, in and of itself is not a desirable goal. Differences are unavoidable and sometimes beneficial. I think you and I share the prejudice against people who do not work, but we do need to examine the nature of work. Entrepreneurs or financiers might add a lot of value, but they are not the traditional working people.

The what to do about it question is important. Taxes do not work. I don’t think most billionaires really mind higher taxes. If you look at the county by county election map from 2004, you notice that the whole state of Idaho went for Bush EXCEPT the rich country around Sun Valley. The same goes for Wyoming and other red states with blue patches. They have ways to avoid taxes and/or they plan to give their money away anyway. Higher taxes will affect the almost rich a lot more.

The fact that this has been going on for many years in many different parts of the world indicates that it may not be a solvable problem. And as I wrote, it may not be a problem we need to solve. In the last 40 years, the world has become a lot richer and literally billions of people have been lifted out of poverty.

Stephen

People have written whole books on the meaning of globalism. The link I included has a good discussion. To me it just means increasing integration of world cultures and economy. The products we use come from all over the globe. We meet and interact with people from all over the world. It is not really something you can avoid. The relevance to this post is that it gives people more choices. With choice comes inequality.

Posted by: Jack at November 1, 2006 3:06 AM
Comment #192122

Jack-
Inequality will always be present. That’s no excuse to simply explain it away as the “natural” consequence of things. There are some inequalities that are more the result of people being tossed in the global pool without being able to swim.

Globalism is a philosophy, and like all philosophies it can be rejected and fought against. I’m all for the uniting of the world in a global village, but we have to recognize that for this process to run well, there must be give and take to it, and people must be able to address their greivances without being abused by states with greater economic power and a headstart on modernization.

Ultimately, we must bring a measure of prosperity to nations and peoples involved in globalism, or else our grand cosmopolitan scheme bites the dust in war, discord, and economic protectionism.

We should not treat globalism as if its a done deal. Until people accept themselves as part of a greater global culture, its globalism in name only. Inequality, when not created by the success of legitimate efforts, is the enemy of globalism. It is a demonstration that it is like all those previous predatory cultural invasions. We need people to look at the rich in their country and not say “He lives in that mansion because he works us to death for short pay to make American products” or “He’s there because he’s in good with the westerners” or other such stuff. They should be able to say “He’s there because he made this wonderful invention.” Or “He’s my boss and he pays well, so let him be rich, because I will be like him someday.”

Unless people can hope and dream of bridging the divide, globalism will only inspire resistance and hatred.

Posted by: Stephen Daugherty at November 1, 2006 8:10 AM
Comment #192154

Although Singapore is one of the wealthiest countries in Asia, the government is authoritarian and it was rated near the bottom in terms of freedom of the press. Globalization and greater economic freedom does not necessarily lead to greater political freedom.

Posted by: royotto at November 1, 2006 9:27 AM
Comment #192163

Stephen

The correlation is greater prosperity and less oppression goes with globalism. Correlation does not prove causality, but greater global integration certainly does not increase those abused you mention and seems to mitigate them.

Re equality, we are arguing past each other. I am not merely dismissing inequality as a necessary evil, I do not think it is an evil at all. It depends on its precise application. If you and I are poor college students each making $10 K a year and you get a job making $50K, we have greatly increased inequality. Is that bad? Or if someone figures out how to make something useful at half the price and so becomes twice as rich.

The “problem” of inequality has to do with social policy. We are willing to tolerate a lot of inequality if we think there is mobility and/or if the person deserves it. Otherwise not. It is essentially a management issue, not a moral one.

Creating equality of outcomes is not a goal I support, much less demand.

Posted by: Jack at November 1, 2006 9:56 AM
Comment #192165

Stephen

BTW you made a good point. I am not so much disagreeing as building on it. I am aware that my polemical style sometimes might not convey that.

Posted by: Jack at November 1, 2006 10:00 AM
Comment #192229

Jack-
I think globalism is one of these issues where it pays to get past the book cover and start reading the book itself.

Too many approach issues like this on broad general principles that the complexities tend to defeat.

In general, I’m a supporter of free markets, not in the market fundamentalist sense of no restricting regulation, but in the sense of their being rules and laws to ensure that competition, fair prices, fiscal transparency, and other means of improvement in the market are present. I don’t believe in the government setting prices or any of that garbage.

We don’t need to be compounding the misery in the world. The word America should accompany success and prosperity, peace and justice, for both Idealistic and pragmatic reasons. America lives and dies by its alliances. It prospers through connection.

Posted by: Stephen Daugherty at November 1, 2006 12:06 PM
Comment #192249

Stephen

I think we probably disagree about equality, but not about globalism. We got it. It is mostly a good thing, but there are problems, but it is not a option we can choose to accept or reject.

I talked to a guy in W. Virginia a while back about buying a new saw blade for his mill. The price had gone up a lot because of China. Globalization reaches way into the woods. On the other hand he was driving a Toyota truck, which he thought was the best you could get.

When you travel, you can access Internet almost anywhere. Information travels at the speed of light. This is all globalism.

As I said, i think it is a good thing, but I would do with the old saying, “What cannot be avoided should be welcomed.”

Posted by: Jack at November 1, 2006 12:38 PM
Comment #192296

Jack, I agree with your comments on globalism, it’s going to happen irregardless of what anyone does.

As to inequalities, I do believe it is the government’s to insure fair and equitable markets. That is something we are doing poorly at in a global sense.

A local issue that bothers me is the utility rates in Houston. We are paying double the US average and are the victim Texas “deregulation”. The local paper is not covering the story except in brief tangential pieces when groups like Public Citizen force their hand, and media like the NYT covers it better than the Chronicle. The secret is the “gaurantees” are to the energy providers and wholesalers, not the citizen/ consumers.

Posted by: gergle at November 1, 2006 2:11 PM
Comment #192363

Gergle

You know how I feel about energy prices.

I don’t think we should use the words fair and equitable. They are good things, but open to much interpretation. Markets should be consistent, transparent and ensure the rule of law.

Posted by: Jack at November 1, 2006 4:15 PM
Comment #192454

Jack, this is off topic, so I chose the least populated thread.

Robert Fagles’ translation of The Aeneid is to be released tomorrow! I hope it’s as fun as the Mandelbaum translation.

Story

Amazon

Posted by: Trent at November 1, 2006 7:51 PM
Comment #192496

Trent

Least populated thread? I am WOUNDED.

Posted by: Jack at November 1, 2006 9:02 PM
Comment #192509

You could write about Kerry’s silly joke. That’s seems to have gotten people exercised.

Posted by: Trent at November 1, 2006 9:26 PM
Comment #192532

Jack,

“Markets should be consistent, transparent and ensure the rule of law.”

Would you say efficient?

Posted by: jrb at November 1, 2006 10:14 PM
Comment #192957

jrb

They are efficient by nature if you ensure consistency, transparency and rule of law.

Posted by: Jack at November 2, 2006 9:33 PM
Comment #193013

Globalization in the context of jacks missive includes trade laws that allow moving companies overseas to take advantabe of low wages and favorable tax benefits. This benefits whatever third world country that offers the best breaks, i.e., taxes and other cushions.
The United States middle and lower classes lose jobs because of this Republic Administration and congress to lower taxes for the wealthy and apply these taxes to the overworked middle class in the form of additional fees and tolls and sales taxes.
We need change in this country to make living conditions what they once were and that is fair to the middle class and wealthy alike.

Posted by: john at November 3, 2006 6:20 AM
Comment #193035

Stephen:

There are some inequalities that are more the result of people being tossed in the global pool without being able to swim.

I don’t follow you. Are you saying that nations with more economic power are forcing their less economically powerful neighbors to compete in the marketplace before they are ready? Could you provide some examples?

Globalism is a philosophy, and like all philosophies it can be rejected and fought against.

I guess globalism can be a philosophy, but I consider it more of a process that came about as a result of the inevitable interdependence of nations competing for access to natural resources and markets. Are you saying that it should be rejected and fought against?

I’m all for the uniting of the world in a global village, but we have to recognize that for this process to run well, there must be give and take to it, and people must be able to address their greivances without being abused by states with greater economic power and a headstart on modernization.

Echos of Hillary here.

One world. One government. This has been the dream of non-conservatives since H.G. Wells wrote about it prior to World War I. Such a world would relegate the United States to third-world status within a generation. I, for one, am quite happy with the state of American exceptionalism in the world.

Ultimately, we must bring a measure of prosperity to nations and peoples involved in globalism, or else our grand cosmopolitan scheme bites the dust in war, discord, and economic protectionism.

Why do WE have to bring a measure of prosperity to the world? Why are non-conservatives so eager to take my hard-earned money and give it away to other people? Americans already freely donate billions of dollars to the needy overseas every year. The idea that other nations cannot achieve a measure of prosperity on their own is a condescending one, in my opinion.

Until people accept themselves as part of a greater global culture, its globalism in name only.

Hopefully, that will never happen. I don’t want to belong to a “greater global culture.” I’m unashamedly proud to be an American.

Posted by: Chris at November 3, 2006 9:31 AM
Comment #193051

John,

I’m not sure that there is anything the U.S. can realistically do to prevent companies from producing goods in other countries. In many ways it is the best illustration of supply vs. demand that you can get. Have a product that requires unskilled or semi-skilled workers to make it, and you go to where your costs (labor, land, etc.) is the cheapest.

In the 70’s and 80’s in the U.S., lots of manufacturing companies moved from the rust belt to the South where labor was cheaper. The same thing is going on now, only worldwide. Are their abuses of workers because of it? Yes. Should we rail against them? Yes. However, in lots of places people that starved now eat because of it, and that is not a bad thing.

Posted by: Rob at November 3, 2006 10:11 AM
Comment #194768

The Declaration of Independence did not create us equal, but gave us the opportunity to legally have an equal chance, different from being equal economically. Those who are better off will have their children attend schools that actually deliver an education, and that will be that. Some people are just more equal than others.

Posted by: Jessica at November 12, 2006 5:59 PM
Post a comment