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Class Warfare, “Growth” & Inequality

June 12, 2012

The New Yorker on Class Warfare.

Americans are famously reluctant to adopt the language of class warfare, or even to acknowledge its existence. In its place, they have embraced the argot and imagery of individualism: The hardy frontiersman loading his family and his possessions into a single wagon; the industrious immigrant tending his grocery store or gas station sixteen hours a day; the spotty post-adolescent hunched over his laptop trying to create the next Facebook.

And, of course, the Horatio Alger narrative isn’t completely without foundation. Endowed by nature with fertile land, abundant minerals, and a hospitable climate, and endowed by its founders with democratic and pragmatic approach to politics, the United States has for centuries provided a ready platform for creativity, hard work, and material advancement. From the Irish and Italians to the Vietnamese and Koreans, successive waves of immigrants have moved from the city tenement to the suburban subdivision. Even today, many working-class Mexicans, Haitians, and people of other nationalities are risking their lives to get here.

But individualism is only part of America’s story: class conflict has always played a big role, too. The antebellum plantation economy was based on slavery, a legally sanctioned form of class warfare in which the workers had no rights. In the late nineteenth century, the rise of U.S. industrial might was marked by bitter, violent labor disputes, such as the great railway strike of 1877 and the deadly Homestead Strike of 1892. During the first three-quarters of the twentieth century, organized labor made great advances, many of which it has lost during the past thirty years.

Even when the economy is growing, there are constant conflicts about who gets what. The argument of free-market economists that productivity determines wages and profits is mistaken. Productivity determines the over-all size of the pie. How it is distributed depends on a variety of factors, including relative bargaining strength, international competition, labor laws, and the results of elections. Economics and politics aren’t separate spheres. (emphasis mine) They are two sides of the same coin, something that is particularly evident in the treatment of public-sector workers. With taxpayers footing the bill, every labor contract has political connotations.

Here are some telling little charts:

Productivity has surged, but income and wages have stagnated for most Americans. If the median household income had kept pace with the economy since 1970, it would now be nearly $92,000, not $50,000.

…Growth is back

…But jobs aren’t

I’m not going to parse the last two charts as there has been movement since 2010, but it is important to realize that we can have “growth” without either an increase in jobs or anything approaching an equitable distribution of the productivity gains.

This is my argument: I tend to hear people in the chattering class discuss inequality as if the big, bad socialists want to steal your hard earned money and give it to undeserving, lazy slackers. But redistribution policies are a very different issue. The core argument – that seemingly gets far less attention yet is far more important, for its effects and on the grounds of moral fairness – is the capture of productivity gains. There are a handful of arguments here, and I’d be happy to try and sort them out if anyone is interested, but they essentially come down to technology and whether or not the productivity gains were “earned” by workers or by increased capital investments?? That particular argument is a little bit of a red herring, but without it the entire edifice and pretense of “market efficiency” between labor and capital, without active work (formerly by unions) to re-balance the power distortions, crumbles into neo-liberal dust.

So, if I were to be just a little bit ruthless and go for the proverbial jugular, here is what I would say:

  • If union bargaining power declines and the “magical market & its invisible hand” allocates productivity gains in an increasingly skewed way, will we finally stop talking about “Free markets” like they exist and/or are inherently “fair?”
  • My read of both the “left” side of the economic arguments and the “right” side of the economic arguments can be simplified thus: Lefty wants to intervene in the market to make sure big distortions in efficiency don’t favor the wealthy. Lefty thinks fairer distributions lead to more stable growth. Righty says “no, no. no” inequality is a driving force of growth. These lefty distortions with policies that favor fairness actually rob us of growth. If we grew more, everyone would be better off.
  • We might be able to argue the relative evidence for the core left-right argument about which policies favor growth more (though I would argue both parties’ historical evidence is missing a key component – energy prices, but whatever) but what we can’t seem to argue is that as righty got his way, the distribution of said productivity growth has found its way – in increasing shares – into campaign donor McBillionaire’s pocket.
  • And then, of course, there is the whole absurdity of a system based on continued growth existing in the known physical universe for even 400 more years.
  • Thanks for playing. Game Over.
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From → Economics

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