One more thought on the way we often discuss inequality. You’ll often see folk disturbed by inequality, or the growth thereof, say something along the lines of: “Last year, X percent of the growth in the economy/wealth/wages went to the top Y percent of the population.” Which makes it sound rather as though there’s some big aggregate number “economic growth” that then gets parceled out, either equitably or otherwise, to particular people. Nobody literally imagines this is how it works on reflection, of course, but I wonder if framing it that way doesn’t play a part in triggering the sense that this must be unfair somehow. Yet the aggregate growth is, after all, just the sum of all the wealth created by lots of individual people and organizations. The same situation, then, might sound rather different described in a more bottom-up way: “A, B, and C made $X doing Y, which represented an increase of Z percent over the previous year, while D, E, and F made…”
That’s too simple, in a sense, since what any one person or group can create depends on conditions across the economy; differences in bargaining power will affect the way jointly produced value is divided up within firms; and so on. But the “percent of growth” way of talking overcorrects too far in the other direction, treating growth only as a joint product without bothering much about the extent to which differential returns represent differential inputs. If we want to inquire into the justice of a distribution, shouldn’t we be looking at how it’s generated (and what might be fair or unfair about that process) rather than just the raw aggregate numbers?
5 responses so far ↓
1 Reality Man // Feb 16, 2007 at 2:49 am
To a certain extent this avoids the longer-range problem. When you have the large majority of Americans with no rise in real wages since the 1970’s while the top 1% or so see rapid income growth, you do have a problem. Productivity gains have not translated into rises in real wages for workers, which undermines one of the great and true arguments for capitalism and flexible labor markets. This isn’t capitalism, but a perversion of it. The Guilded Age wasn’t the height of capitalism, but where it stumbled and almost fell. Do we really need to go through stuff like that again?
2 asg // Feb 16, 2007 at 11:58 am
Except that the idea that real wages haven’t risen since the 1970s isn’t actually true in any meaningful sense; benefit growth is the most common rejoinder, but as lots of economists have pointed out, the measure used to make that judgment (the CPI) fails to take account of technological improvements, so it dramatically understates the actual increase in the standard of living that has occurred since the 1970s.
3 joeo // Feb 16, 2007 at 5:26 pm
I am with reality man. Income inequality is a real issue. Technological improvements doesn’t solve the income inequality problem.
Oddly, the technological improvements of the first half of the twentieth century (car, airplane, air conditioner, anti-biotics, telephone, radio and TV) have improved the standard of living more the technological improvements of the second half (computer, internet, ipods and biotech).
4 Reality Man // Feb 17, 2007 at 3:35 am
Most of the better economists I’ve seen who have tried to deny that real wages have been flat have made fools of themselves. The National Review guys have moved from denying it exists to asking if it’s important. Julian Sanchez not too long ago linked to Bhagwati’s piece blaming it on automization in manufacturing that has pushed people out of factory jobs, but did not deny it has taken place. Sure, we have cell phones, but does the current middle class take longer or more exotic vacations than their parents did? Do they on average really drive more cars? Are the houses bigger? Or do they just stock up on cheap stuff at Wal-Mart that is simply updating the old stuff (i.e., buying a cheaply-made big screen TV to replace an older smaller model)?
Has this trend even affected other industrial nations? The gadgets we buy in this country compared to Japan and Korea, among others, are pretty lame and passe’. I never see this cited as support for the idea real wages haven’t been mostly stagnant and I find that odd.
5 Gil // Feb 18, 2007 at 10:27 pm
Julian,
As some of these comments imply, I think you’re optimistic about the critics of inequality being interested in the relationship between inputs and outputs.
It’s about more than framing.