An Uneven Recovery: Rich Getting Richer, Everyone Else Poorer

Evidence continues to build regarding the growth and persistence of inequality in America. The Pew Research Group, one of the nation’s most trusted sources on social and demographic trends, has published a sobering report that illustrates the disparity of the economic recovery: not only were poor and middle-class people disproportionately affected by the recession, but they’ve since been disproportionately disadvantaged in the recovery (indeed, even among the wealthiest Americans, the super-rich outpaced the “average rich”). Continue reading

Geography and Prosperity

Apparently, Mitt Romney has mischaracterized the views of Jared Diamond, a scientist who is best known for his argument that geography is a major determinant of a society’s development. Whereas Romney emphasized culture and the physical characteristics of the land, Diamond’s thesis is more complex and nuanced. As he clarifies in the New York Times:

Just as a happy marriage depends on many different factors, so do national wealth and power. That is not to deny culture’s significance. Some countries have political institutions and cultural practices — honest government, rule of law, opportunities to accumulate money — that reward hard work. Others don’t. Familiar examples are the contrasts between neighboring countries sharing similar environments but with very different institutions. (Think of South Korea versus North Korea, or Haiti versus the Dominican Republic.) Rich, powerful countries tend to have good institutions that reward hard work. But institutions and culture aren’t the whole answer, because some countries notorious for bad institutions (like Italy and Argentina) are rich, while some virtuous countries (like Tanzania and Bhutan) are poor.

A different set of factors involves geography, which embraces many more aspects than the physical characteristics Mr. Romney dismissed. One such geographic factor is latitude, which has big effects on wealth and power today: tropical countries tend to be poorer than temperate-zone countries. Reasons include the debilitating effects of tropical diseases on life span and work, and the average lower productivity of agriculture and soils in the tropics than in the temperate zones.

A second factor is access to the sea. Countries without a seacoast or big navigable rivers tend to be poor, because transport costs overland or by air are much higher than transport costs by sea.

A third geographic factor is the history of agriculture. If an extraterrestrial had toured earth in the year 2000 B.C., the visitor would have noticed that centralized government, writing and metal tools were already widespread in Eurasia but hadn’t yet appeared in the New World, sub-Saharan Africa or Australia. That long head start would have let the visitor predict correctly that today, most of the world’s richest and most powerful countries would be Eurasian countries (and their overseas settlements in North America, Australia and New Zealand).

The reason is the historical effect of geography: 13,000 years ago, all peoples everywhere were hunter-gatherers living in sparse populations without centralized government, armies, writing or metal tools. These four roots of power arose as consequences of the development of agriculture, which generated human population explosions and accumulations of food surpluses capable of feeding full-time leaders, soldiers, scribes and inventors. But agriculture could originate only in those few regions endowed with many wild plant and animal species suitable for domestication, like wild wheat, rice, pigs and cattle.

In short, geographic explanations and cultural-institutional explanations aren’t independent of each other. Of course, not all agricultural regions developed honest centralized government, but no nonagricultural region ever developed any centralized government, whether honest or dishonest. That’s why institutions promoting wealth today arose first in Eurasia, the area with the oldest and most productive agriculture.

So wealth and development have more to do with deterministic circumstances than with any intellectual, moral, or cultural superiority on the part of a given society. Obviously, sociocultural values matter to some extent, and their influence varies from nation to nation. But the point is that we can’t ignore the role that sheer luck  has played in allowing some civilizations to prosper while others of similar potential languish.

What does this mean for Americans? Can we assume that the United States, blessed with temperate location and seacoasts and navigable rivers, will remain rich forever, while tropical or landlocked countries are doomed to eternal poverty?

Of course not. Some tropical and subtropical countries have become richer despite geographic limitations. They’ve invested in public health to overcome their disease burdens (Botswana and the Philippines). They’ve invested in crops adapted to the tropics (Brazil and Malaysia). They’ve focused their economies on sectors other than agriculture (Singapore and Taiwan).

Conversely, geographic advantages don’t guarantee permanent success, as the growing difficulties in Europe and America show. We Americans fail to provide superior education and economic incentives to much of our population. India, China and other countries that have not been world leaders are investing heavily in education, technology and infrastructure. They’re offering economic opportunities to more and more of their citizens. That’s part of the reason jobs are moving overseas. Our geography won’t keep us rich and powerful if we can’t get a good education, can’t afford health care and can’t count on our hard work’s being rewarded by good jobs and rising incomes.

This would also explain the disparity in wealth that exists within societies as well. Those citizens born in neighborhoods or regions that lack resources, strong institutions, infrastructure, and opportunity are going to be worse of than those born in more prosperous parts of the country. Hard work and good values will only get them so far unless there is necessary public investment – hence why the most developed states in the world also display the highest commitment to building up public institutions.

Hard Work and Wealth

A lot of wealthy executives (among others) claim that anyone can get as rich as them with enough hard work. But there are two problems with this argument.

First, it suggests that income and wealth always correlate with work ethic. So, the implication is that all rich people are hardworking while anyone who is poor is lazy. But there are plenty of people born into wealth who did nothing to deserve it, and many more people who work hard their whole lives and never become wealthy.

Second, these business elites run companies that require the perpetual existence of a low class labor force. They will always seek workers that can be paid poorly for doing menial but vital work. So clearly, not everyone can make it through hard work. The system they support will always demand cheap and exploitable labor, whether it’s here or in some other part of the world.

The Ways We Don’t Talk About Wealth

Wealth and money are touchy subjects in most societies. Americans are unique for being relatively passe about ostentatious displays of prosperity, as well as for tolerating high income inequality (indeed, we have the largest gap between rich and poor in the developed world).

But even in our (in)famously money-obsessed society, discussions about one’s income or class – the latter of which many Americans deny the existence of – can be very tricky, especially in light of the economic recession and subsequent focus on socioeconomic inequality. There’s increasing talk about class warfare and a political system beholden to the wealthy; about whether the rich should be taxed more and whether their greater wealth obligates them to “pay a fair share” – the definition of which opens up a whole other can of worms.

Charlotte Shane of The New Inquiry wrote an interesting piece about the way Americans, rich or otherwise, discuss wealth, and what that says about us both psychologically and as a society. Her longish article is a good read, but what stuck out most for me was the following assessment:

Having a lot of money creates a sense of responsibility — or at least, it should — as well as vulnerability. The knee-jerk “I’m not rich” refrain is fundamentally a denial of that responsibility, a deflection: I’m not the problem, though I may be implicated in a problematic system. There are people of far greater worth who are far more culpable.

Does having more money, whether your earned it or not, obligate you to pay more in taxes, share more with your workers, or give more to charity? In a system that allows for such astronomical inequality, is there really such a thing as being wealthy solely through fairness and hard work? Does lots of money come with lots of responsibility to your society? While chewing on this, consider a few other interesting points highlighted by Shane:

Witnessing richness usually means witnessing a profound loss of perspective. An infamous study in early 2011 found that 42 percent of American millionaires didn’t “feel” rich. In 2009, it was 46 percent.  Back in my 40k days, a friend (also a sex worker) commented to me that she was running out of things to buy. I was too, but that’s because we were both operating on our former 12k-a-year, minimum wage appetites, and those would soon morph into a hunger to match the harvest. Years ago, someone told me once that if he were to pursue his passion, he would be a physics professor. I asked him why he wasn’t. He replied that professors only made $90k a year to start, maybe $110,000, and “you can’t live on that.” The average American household income at the time was $50,000.

It’s well established that as families ascend through income brackets, so too do their tastes and spending habits, meaning that one’s lifestyle always feels more average than extravagant. As wealth accrues, it creates a new normal, again and again as required. My current annual income brings a pleasant blindness; I don’t have to actively worry about my finances, and I can be impulsive and carefree in how I spend. While in some respects I remain resolutely frugal, even downright cheap, it’s mostly a matter of principle (or neuroses.) I’ve been good about saving from the beginning, so when I sit down to check my bank statements and I see the numbers of what sits in my account, I’m always surprised. Aside from fraud-check sessions, I never bother to look at my balance. When a bank rep asked me last year if I was planning to buy a house with my savings, it took me at least a full minute to digest his question.

Speaking honestly about money is among the last remaining taboos in contemporary American discourse. Politics, religion, assaultive crimes, sexual proclivities, family secrets, and even health problems (including those involving bowel movements) will all be more warmly received into a conversation than the topic of what everyone in the conversation earns. It’s shockingly bad manners to bring it up. But even social censure isn’t trusted as a powerful enough deterrent: some companies contractually forbid employees to disclose their compensation to colleagues. (It’s obvious how this benefits employers, most notably when gender discrimination is at play.)

It appears that being rich – or poor – does in fact alter one’s psychology and social relations. This may seem obvious enough, given that our values and perspectives are clearly shaped by our environment and experiences, which in turn become influenced by your level of wealth.

But I think most Americans are hesitant to accept that money, or lack thereof, can indeed change your personality and behavior. What you make influences who you hang out with, what you do, what kind of things you enjoy, and even your perception of reality (research is revealing an increasing geographical divide between different classes, to the extent that rich and poor live on very different physical worlds).

The same applies to societies as a whole: entire cultures are changed by wealth. Witness the age-old struggle between modernity – resulting primarily from industrialization and higher incomes – and traditional, often simpler, ways of living. While wealth has given us many comforts, it also seems to make us more stressed, busy, and materialistic.

Granted, it’s not like we were better off poor; it’s just that having all this money seems to have done far less good than we would expect. Infrastructure is still crumbling, education and healthcare are still a mess, and politics seems to have actually worsened through the infusion of untold billions. This country, to say nothing of the world at large, is beset by all manner of problems that never seem to have enough funding. Whether it’s the cure for cancer or the need to raise crop yields, it always comes down to a lack of investment. Trillions of dollars are sitting in bank accounts across the world, or displayed all around us through superfluous luxury and over-consumption, and we can’t seem to find the will or resources to fix these problems.

So for all our tireless pursuit of commercial prosperity, both as individuals and as a society, we seem far and away from creating the better world that such capital can make possible. We’re not willing to foot the bill or make the necessary sacrifices, even if we could still live in relative comfort while doing so. Maybe that’s why we don’t talk about wealth: in the end, our ethics and sense of responsibility remain little changed despite the burgeoning potential to seem them through.

Daily News Wire 07/11/12

The global economic crisis is taking a toll on Europe’s already low fertility rates. Like many wealthy countries, the nations of Europe have experienced rapidly aging populations that are putting a strain on their public finances (due to higher social security costs) and their economies (due to fewer young people in the labor force). Things were starting to turn around until recent economic troubles forestalled many couple’s plans to start a family (or to even marry in the first place).

The only countries that have managed to maintain what’s known as replacement fertility – which ensures stable population growth – are Iceland, Ireland, the UK, and France (though others like the Netherlands, Norway, and Sweden come close). With France (so far) being the only large country on the continent that is growing steadily, will the balance of power shift from shrinking (though still dominant) Germany?

And although the US still has a healthy fertility rate, one wonders how long it will last in the face of persistent economic malaise. Will the current crisis lead to a similar plummeting in the birth rate? How will this bode for the future, in which more retirees will put continued pressure on our public finances?

And while we’re on the subject of a recession, what exactly makes a country wealthy? For decades, the gold standard for determining a nation’s prosperity has been Gross Dom estic Product (GDP), which measures the market value of a country’s final goods and services. When in it’s measured in a per-capita basis – in other words, divided by a country’s population – it gives a rough estimation of a given society’s standard of living. Alternative or complementary measurements include the Human Development IndexGross National Income, and the recently developed Better Life Index (none of which I have the time to elaborate on, sadly).

Each of these metrics is imperfect or incomplete in its own way, but they provide the best idea of what a country’s overall wealth and prosperity is. Aside from the technical difficulties in measuring wealth, there’s also the wider philosophical problem of how we define it: is the worth of a country’s goods and products an accurate indicator of its population’s standard of living? Does it accurately convey the resources available to everyone?

The United Nations has recently introduced another metric – inclusive wealth – which measures wealth as a total of three resources: people (namely their education and skills), physical asset (roads, machinery, buildings, etc), and natural resources (land, minerals, and the like). Needless to say, the results are interesting: some countries that rank highly in GDP are much lower in inclusive wealth (although only 20 nations have been studied this far). The same can be said when comparing the other tools listed above: some countries that rank low in GNI nonetheless have a higher rate of human development for example.

I personally prefer to put all these tools side-by-side and compare where a given country lies overall, since the variations are usually not all that drastic. To make things more complicated, there is a nascent movement to measure “Gross National Happiness” – which opens up a whole other can of worms. If we can’t even figure out what makes a nation rich or prosperous, finding an objective and universal marker for happiness will be even more challenging. It’s fitting that figuring out what makes us happy or wealthy is so elusive.

Finally, The Nation challenges the popular notion – resurrected by Mitt Romney’s campaign – that business experience has any bearing on one’s effectiveness as President of the United States. I for one have grown weary of this argument. There’s no doubt that the presidency should (ideally) entail numerous skills and experiences.

But running a business is very different from running a country. It’s tempting to think that ties to the private sector will somehow inform your economic policy, but economics and business are two very different disciplines, and what’s good for businesses may not be good for the average American. After all, most corporations are making record profits, or at the very least performing healthily, but that hasn’t had much effect on our stagnating incomes, anemic job growth, and meager benefits.

The Mentality of the Rich

As socioeconomic and political inequality continues to rise in this country, it seems that our society is increasingly being split along two very different realities. Indeed, the rich and poor seem to live on different worlds – literally.

Aside from life experiences that are poles apart, America’s various economic classes are less and less exposed to one another personally (a worrying trend I’ve discussed before). All this manifests through the pervasive psychological and ideological divide that we see across the public sphere, from our media to our political discourse.

It’s also apparent in the arguments made by the very wealthy, and their supporters, in defense of their fortunes and the widening income gap. Critics of inequality, as well as the lower classes as a whole, are accused of not working hard enough themselves, being too envious of other’s success, or even displaying ingratitude for the contributions of upper class.

In fact, anyone who has a problem with the current socioeconomic status quo is considered, implicitly or otherwise, “un-American” (a malleable pejorative if there ever was one).

It’s un-American to worry about inequality or demand a fairer economic system because such concerns defy this nation’s deeply-held values of hard work, individual accountability, and economic liberty. The non-wealthy simply aren’t not tapping into the equalizing opportunities afforded by our presumably free-market. Rather, they want to impose a European-style welfare state, yet another affront to our superior – nay, exceptional – way of doing things.

To be fair, there are plenty of nuances on both sides of this debate. Lest anyone think I’m oversimplifying things or being unfair, let me make it clear that I’m merely focusing on a particular segment of society – obviously, not all wealthy people think this way, nor are all their critics sensible advocates of social justice. So for any rich folks reading this, rest assured, I don’t think you’re a monster by virtue of being financially fortunate, and I’m not rallying an angry mob to take your property.

In any case, I’m wrapping up this post earlier than expected due to a lack of time and energy. I will, however, leave you with a wonderful article from, of all places, Cracked.com (which I’ve recommended before as a pretty good source for knowledge, despite its humorous tone and appearance).

The piece, titled “Six Things Rich People Need to Stop Saying” by David Wong, pretty much analyzes and rebuts some of the prevailing arguments I alluded to earlier. I think the writer makes some valid points, as it even gets into the often overlooked psychological dimension of this whole issue. Please share your own views on this, whatever your socioeconomic class.

Income Inequality and Economic Growth

There seems to be no shortage of articles discussing the problem of wealth/income inequality. This is to be expected given the well-documented and increasing gap between rich and poor. But is such disparity really a problem in and of itself? If most people are otherwise getting by, why does it matter if some individuals make more than others, relatively speaking?

Well, because there’s evidence that too wide of a gap, for too long, can lead to economic stagnation. A recent article in Mother Jones cites one major study, following by several others, that confirms this:

According to the study, making an economy’s income distribution 10 percent more equitable prolongs its typical growth spell by 50 percent. In one case study, Berg looked at Latin America, which is historically much more economically stratified than emerging Asia and also has shorter periods of growth. He found that closing half of the inequality gap between Latin America and Asia would more than double the expected length of Latin America’s growth spells. Increasing income inequality has the opposite effect: “We find that more inequality lowers growth,” Berg says. (See bottom chart.)

Berg and Ostry aren’t the first economists to suggest that income inequality can torpedo the economy. Marriner Eccles, the Depression-era chairman of the Federal Reserve (and an architect of the New Deal), blamed the Great Crash on the nation’s wealth gap. “A giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth,” Eccles recalled in his memoirs. “In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped.”

Many economists believe a similar process has unfolded over the past decade. Median wages grew too little over the past 30 years to drive the kind of spending necessary to sustain the consumer economy. Instead, increasingly exotic forms of credit filled the gap, as the wealthy offered the middle class alluring credit card deals and variable-interest subprime loans. This allowed rich investors to keep making money and everyone else to feel like they were keeping up—until the whole system imploded.

It makes sense, in retrospect. Too much wealth at the top means less capital elsewhere, which means less overall spending, investment, and growth. Imagine how much stronger the economy would be if more people had higher spending power and a greater stake in our economy? Consumer demand is what drives growth, but such consumption is overwhelmingly dependent on a smaller number of people, it’s only going to get us so far.

But the question becomes: how do we close the gap? How do we keep income from being too concentrated? What policies would promote greater income and wealth group in the middle and working classes?

Poverty in a Consumer Society

 

Its doubtless that being poor is not easy. Though money isn’t everything, it certainly helps. Worrying about food, shelter, and healthcare – to name only the barest of necessities – can take a horrible toll on one’s psyche and dignity. Indeed, I think that’s an aspect of poverty that often get’s overlooked: struggling to survive is bad enough, for obvious reasons, but what about the sense of insecurity, humiliation, and fear?
 
I’ve discussed the overall psychological aspect of poverty before, so at this point I’m more concerned about the plight of the poor within a specific context: our heavily materialistic consumer society.
 
The United States is unequaled in the sheer number and variety of luxuries that pervade its marketplace. We have products, services, and options that don’t exist in many parts of the world, or even in many wealthy nations. In fact, most of the defining brands of modern consumer societies worldwide – Coca-Cola, McDonalds, Nike, and Apple, to name only a few – are American in origin. We invented or refined the mass production (and thereby consumption) of food, film, automobiles, and other goods. Our success as a society, and our unrivaled projection of soft power, is perhaps most attributed to our entrepreneurial and economic acumen.
 
Setting aside the cultural hegemony that America retains over most of the globe – an issue to be discussed in a future post – one has to consider: what’s it like to be left out of such a society? In a country where advertisements and commercials pervade every interaction and activity with unparalleled creative marketing – from TV ads, to web adverts, to billboards – how does one cope with the pressure to take part?
 
One has to consider the social pressures as well – peers and coworkers buying the latest gadgets, enjoying higher quality goods, or joining one another to dine out or watch a film; people who can afford cruises and vacations, nice homes, doctor’s visits, and their own transportation. You see it in the glamour of popular culture, which at the very least portrays comfortably middle-class families with the stereotypical amenities of the “average American.”
 
Thus, you don’t have to be explicitly press-ganged into participating in the latest wave of consumption, which nowadays occurs with relentless frequency: you see it all around you, in some form or another, and can’t avoid the alienation at not being a part of it. You either take on the subsequent debt, or experience the palpable sense of exclusion and degraded self-esteem.
 
The American Dream that defines our ideal state of existence in this society is ultimately a consumptive one. It’s all about reaching a state of material and financial prosperity, a condition seen as representative of personal and professional success. Being impoverished is a result of individual failure, a sign of capriciousness, negligence, or laziness (if not all of the above). If you can’t attain the dream, you’re not only left out of a universally idyllic condition, but you’re made to feel responsible for it. You didn’t work hard enough. You’re ill-disciplined. You’re probably a welfare sponger or drug abuser. It’s literally insult to injury.
 
This isn’t to say that all poor people are victims of cruel misfortune, as we’ll always find cases of people who did in fact lead themselves to ruin (though even then we must ask what other factors might have lead to this self-destruction). But not every poor person is a parasite, delinquent, or free rider – indeed, the overwhelming majority are not. It’s a testimony to the aloofness between the “haves” and the “have nots” that so many people would prescribe to such a callous and inaccurate view. Poverty, like most social ills, is far to complex for such crude caricatures.
 
I’m also not suggesting that the poor are all miserable wretches, or that dignity cannot coexist with financial hardship. By my own accounts, most people of modest means are only more emboldened to improve their lot in life, and to find their meaning and sense of worth elsewhere (as we all should). But that doesn’t make the hardship any better. Some would say that life’s obstacles build character and impart valuable lessons. True as that might be, it’s a flawed way of justifying inequity. We don’t need to struggle from day-to-day to count our blessings or develop integrity.
 
People in most of the world may have it much worse than our poor do – and even then, there are some areas of this country that are exceptions – but that doesn’t make social dysfunction any less troubling. It’d be as absurd as claiming that blacks during the Civil Rights movement should just accept their unjust conditions, since those in Apartheid South Africa have it comparatively worse.
 
Ultimately, I’m not rallying against materialism, wealthy people, or capitalism. I’m not really rallying against anything. I just want to point out the painful juxtaposition that exists between our pervasive consumerism, and the large class of Americans who remain painfully separated from it, with all the psychological and personal consequences that follow. It’s cruel enough to be poor, but it’s crueler still to be poor in the midst of inescapable material temptations that remain out of reach. Perhaps that’s why most of the world’s most unequal societies, including our own, have higher rates of social problems.