Archeconomics

archangelI made up the term “archeconomics.” I’m using “arch” in the sense of “first principles” — e.g., as in “archetype.” An “arch” is the larger version of the smaller expressions of itself — e.g., not just a villain but an arch-villain, not just an angel but an archangel. Life goes big when an arch-something is at work:  experience expands beyond circumstance, meaning magnifies, significance is exaggerated.

Archeconomics is therefore the larger story behind economics.

I ended last week’s post by referring to the larger story behind the rentier economy. As usually happens when I’m on a research trail, several commentaries have appeared in my various feeds lately that look beyond the usual opinionated mash of current events and instead address over-arching ideas and issues. All of them deal in one way or another with the current status and possible future of the liberal worldview — an arch-topic if there ever was one.

The term “liberal” in this context doesn’t refer to political liberal vs. conservative, but rather to historical liberalism, which among other things gave us post-WWII neo-liberal economics. Mega-bestselling author Yuval Noah Harari describes this kind of liberalism in his latest book 21 Lessons for the 21st Century:

“In Western political discourse the term “liberal” is sometimes used today in a much narrower sense, to denote those who support specific causes such as gay marriage, gun control, and abortion rights. Yet most so-called conservatives also embrace the broad liberal worldview.

“The liberal story cherishes human liberty as its number one value. It argues that all authority ultimately stems from the free will of individual humans, as expressed in their feelings, desires, and choices. In politics, liberalism believes that the voter knows best. It therefore upholds democratic elections. In economics, liberalism maintains that the customer is always right. It therefore hails free-market principles. In personal matters, liberalism encourages people to listen to themselves, be true to themselves, and allow their hearts — as long as they do not infringe on the liberties of others. This personal freedom is enshrined in human rights.”

If you read Harari’s books Sapiens and Homo Deus. you have a sense of what you’ll find in 21 Lessons, but I found it worth reading on its own terms. Two recent special magazine editions also take on the fate of liberalism:  Is Democracy Dying? from The Atlantic andA Manifesto for Renewing Liberalism” from The Economist. The titles speak for themselves, and both are offered by publications with nearly two centuries of liberal editorial perspectives.

Another historical liberal offering from a conservative political point of view is “How Trumpism Will Outlast Trump,” from Time Magazine. Here’s the article’s précis:

“These intellectuals are committed to a new economic nationalism … They’re looking past Trump … to assert a fundamental truth: whatever you think of him, Donald Trump has shown a major failing in the way America’s political parties have been serving their constituents. The future of Trump’s revolution may depend on whether this young group can help fix the economy.”

Finally, here’s a trio of offerings that invoke environmental economics — the impact  of the global ecology on global economics being another archeconomics topic. The first is a scientific study published last week that predicted significant environmental degradation within a surprisingly short time. Second is an article about the study that wants to know “Why We Keep Ignoring Even the Most Dire Climate Change Warnings.” Third is last week’s announcement that the winner of this year’s Nobel Prize in Economics is an environmental economist.

Some or all of those titles should satisfy if you’re in the mood for some arch- reading.

Next time, we’ll return to plain old economics, with a look at how the low income social strata is faring in all the dust-up over rentiers and economic inequality, robotcs and machine learning, and the sagging paycheck going to human labor.

The Great Gatsby Lawyer

How okay are we, really, with the right of everyone (a) to make as much money as they want, and (b) to spend it any way they like? If we would limit (a) or (b) or both, then how and why?

Consider for a moment what your (a) and (b) responses have been to the upward mobility stories we’ve looked at so far:  Richard Reeves, Matthew Stewart, Steven Brill. Travie McCoy. David Boies, Eric and I. Now consider this story from an article in Above the Law:

“[P]ersonal injury attorney Thomas J. Henry threw a lavish bash to celebrate his son, Thomas Henry Jr.’s, 18th birthday. And the price tag for the Gatsby-mixed-with-burlesque-themed fête? A cool $4 million.

“To rack up such a hefty bill, the event had lots of performers which included showgirls, aerial performers, art installations, and contortionists (oh my!). Plus, there were musical performances and celebrity guests.

“And don’t think the over-the-top party was the only gift the birthday boy received:

“The star of the party, who sat on a throne-like chair when he wasn’t dancing, was given a fully loaded blue Ferrari, an IWC Portugieser Tourbillion watch and a custom-made painting from Alec Monopoly.

“Henry’s work as a trial attorney is obviously pretty lucrative. The big payouts he’s been able to secure for his clients have made him a member of the Multi-Million Dollar Advocates Forum.[1]

“Henry is known for throwing giant parties. Just last year, he spent $6 million for his daughter’s quinceañera. I guess we know which one is really daddy’s favorite.”

The writer telegraphs her attitude about the story with the article’s tone and with the understated lead line, “this seems extreme.” Apparently she would cast a vote for limitations on (b). When I’ve shared the story with friends, the response is usually stronger than “this seems extreme.”

I wonder why. Maybe it’s because this looks like a case of conspicuous consumption, which never goes down well. Economist/ sociologist Thorstein Veblen coined the term in his 1889 book, The Theory of the Leisure Class, to describe how the newly prosperous middle class were buying things to communicate their move up the social ladder. The neighbors were rarely impressed — that is, until they made their own purchases, and then the game turned into keeping up with Joneses.

The conspicuous consumption shoe might fit here:  Mr. Henry’s website tells a bit of his upward mobility story — German immigrant, raised on a farm in Kansas, etc. Or maybe there’s something going on here that transcends his personal story. In that regard, the term “affluenza” comes to mind.

“The term “affluenza” was popularized in the late 1990s by Jessie O’Neill, the granddaughter of a past president of General Motors, when she wrote the book “The Golden Ghetto: The Psychology of Affluence.” It’s since been used to describe a condition in which children — generally from richer families — have a sense of entitlement, are irresponsible, make excuses for poor behavior, and sometimes dabble in drugs and alcohol.”

From an article by Fox News. See also these descriptions from CNN and New York Magazine.

Definitions of the term come loaded with their own biases, judgments, and assumptions. This is from Merriam-Webster:

Affluenza: the unhealthy and unwelcome psychological and social effects of affluence regarded especially as a widespread societal problem: such as

feelings of guilt, lack of motivation, and social isolation experienced by wealthy people

extreme materialism and consumerism associated with the pursuit of wealth and success and resulting in a life of chronic dissatisfaction, debt, overwork, stress, and impaired relationships

And this is from the popular PBS series that came out shortly after The Golden Ghetto:

Af-flu-en-za n. 1. The bloated, sluggish and unfulfilled feeling that results from efforts to keep up with the Joneses. 2. An epidemic of stress, overwork, waste and indebtedness caused by dogged pursuit of the American Dream. 3. An unsustainable addiction to economic growth.

Affluenza teenAffluenza made quite a splash in the estate planning world where I practiced, spawning a slew of books, CLE presentations, and new approaches to legal counseling and document design. Affluenza went mainstream in 2014 with the highly-publicized trial of Ethan Couch, the “Affluenza Teen,” when a judge reduced his sentence on four counts of intoxicated manslaughter and two counts of intoxicated assault after an expert witness testified that his wealthy upbringing had left him so psychologically impaired that he didn’t know right from wrong.

For a great number of my clients, that their kids might catch affluenza was their worst nightmare.[2] Their fear suggests this consensus to Thomas Henry’s partying habits:

(a) it’s okay to make all the money you want,

(b) but it’s not okay if you use your money to make your kids a danger to themselves and to others.

I wonder — would it temper our rush to categorize and judge Mr. Henry if we knew his philanthropic history and philosophy? This is from his website:

“Mr. Henry’s overall philosophy is that helping others when you have the good fortune of being successful is not an elective decision but a mandatory decision. People who achieve success have a duty to help others.”

That statement closely mirrors the beliefs of Robber Baron Andrew Carnegie. We’ll look at that next time, along with the perceptions of other 0.01 percenters about the social responsibilities of wealth.

[1] The Forum’s website says that “fewer than 1% of U.S. lawyers are members,” which appropriately signals Thomas Henry’s position in the economic strata.

[2] I used to tell my clients that if I had a dime for every time a client said, “I don’t want my money to ruin my kids,” I would have been a rich man. That was hyperbole, of course:  a dime each time wouldn’t have made me rich. On the other hand, a million dollars each time might have made me a billionaire. A billion is a BIG number.

Rebel Without A Cause

Continuing with David Graeber’s analysis of Eric’s job experience from last time:

“What drove Eric crazy was the fact that there was simply no way he could construe his job as serving any sort of purpose.

“To get a sense of what was really happening here, let us imagine a second history major–we can refer to him as anti-Eric — a young man of a professional background but placed in exactly the same situation. How might anti-Eric have behaved differently?

“Well, likely as not, he would have played along with the charade. Instead of using phony business trips to practice forms of self-annihilation, anti-Eric would have used them to accumulate social capital, connections that would eventually allow him to move on to better things. He would have treated the job as a stepping-stone, and this very project of professional advancement would have given him a sense of purpose.

“But such attitudes and dispositions don’t come naturally. Children from professional backgrounds are taught to think like that from an early age. Eric, who had not been trained to act and think this way, couldn’t bring himself to do it.”

James-Dean-Rebel-Without-A-Cause-Movie-PosterLike Eric, I couldn’t bring myself to do it either — although it was not so much that I couldn’t, it was more a case of not knowing how. I was bright enough, had a knack for the all-important “likeability factor” with clients and colleagues, and worked with lots of clients and other professionals who were members of the Red Velvet Rope Club. But like Eric, I remained on the outside looking in, and I spent a lot of time feeling envious of others who fit in so easily. Those dynamics dogged the early years of my law career. In time, a general sense of inadequacy became depression, which I compensated for by nursing a rebel-without-a-cause attitude.

My experience didn’t have to be that way. Consider, for example, the story of super-lawyer David Boies. Like Eric and me, Boies was also born to working class parents and grew up in a farming community, but that’s where the resemblance ends. Chrystia Freeland introduces him this way in her book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (2012):

“As the world economy grows, and as the super-elite, in particular, get richer, the superstars who work for the super-rich can charge super fees.

“Consider the 2009 legal showdown between Hank Greenberg and AIG, the insurance giant he had built. It was a high-stakes battle, as AIG accused Greenberg, through his privately-held company, Starr International, of misappropriating $4.3 billion worth of assets. For his defense, Greenberg hired David Boies. With his trademark slightly ratty Lands’ End suits (ordered a dozen at a time by his office online), his Midwestern background, his proud affection for Middle American pastimes like craps, and his severe dyslexia (he didn’t learn how to read until he was in the third grade), Boies comes across as neither a superstar or a member of the super-elite. He is both.

“Boies and his eponymous firm earned a reputed $100 million for the nine-month job of defending Greenberg. That was one of the richest fees earned in a single litigation. Yet, for Greenberg, it was a terrific deal. When you have $4.3 billion at risk, $100 million — only 2.3 percent of the total — just isn’t that much money. Further sweetening the transaction was the judge’s eventual ruling that AIG, then nearly 80 percent owned by the U.S. government, was liable for up to $150 million of Greenberg’s legal fees, but he didn’t know that when he retained Boies.”

What did Boies have that Eric and I didn’t?

Well, um, would you like the short list or the long?

Boies is no doubt one of those exceptionally gifted and ambitious people who works hard enough to get lucky. I suspect his plutocrat switch was first activated when his family moved to California while he was in high school, and from there was exponentially supercharged by a series of textbook upwardly mobile experiences:  a liberal arts education at Northwestern, a law degree from Yale, an LLM from NYU, joining the Cravath firm and eventually becoming a partner before leaving to found his own firm.

That’s impressive enough, but there’s more to his story:  somehow along the way he was transformed into the kind of person who belongs — in his case, not just to the 9.9% club, but to the 0.1 %. Yes, his human capital was substantial, but it was his personal transformation that enabled him to capitalize (I use that term advisedly) on the opportunities granted only by social capital.

And now, if the 9.9 percenters we heard from a couple weeks back are correct, the pathway he followed is even more statistically rare (if that’s even possible) than when he travelled it — in part because of an economic principle that’s at least as old as the Bible.

We’ll talk about that next time.

Eric and Kevin’s Most Excellent Career Adventures

thermos

 

lunch bucket

 

David Graeber’s book Bullshit Jobs is loaded with real-life job stories that meet his definition of “a form of employment that is so completely pointless, unnecessary, or pernicious that even the employee cannot justify its existence even though the employee feels obliged to pretend that this is not the case.” One of those stories rang a bell:  turns out that “Eric” and I had the same job. The details are different, but our experiences involved the same issues of social capital and upward mobility.

Eric grew up in a working class neighborhood, left to attend a major British university, graduated with a history major, landed in a Big 4 accounting firm training program, and took a corporate position that looked like an express elevator to the executive suite. But then the job turned out to be… well, nothing. No one would tell him what to do. He showed up day after day in his new business clothes and tried to look busy while trying in vain to solve the mystery of why he had nothing to do. He tried to quit a couple times, only to be rewarded with raises, and the money was hard to pass up. Frustration gave way to boredom, boredom to depression, and depression to deception. Soon he and his mates at the pub back home hatched a plan to use his generous expense account to travel. gamble, and drink.

In time, Eric learned that his position was the result of a political standoff:  one of the higher-ups had the clout to fund a pet project that the responsible mid-level managers disagreed with, so they colluded to make sure it would never happen. Since Eric had been hired to coordinate internal communication on the project, keeping him in the dark was essential. Eventually he managed to quit, kick his gambling and drinking habits, and take a shot at the artistic career he had envisioned in college.

My story isn’t quite so… um, colorful… but the themes are similar. I also came from a strong “work with your hands” ethic and was in the first generation of my family to go to college, where I joined the children of lawyers, neurosurgeons, professors, diplomats, and other upper echelon white collar professionals from all 50 states and several foreign countries, At the first meeting of my freshmen advisory group, my new classmates talked about books, authors, and academic disciplines I’d never heard of. When I tackled my first class assignment, I had to look up 15 words in the first two pages. And on it went. Altogether, my college career was mostly an exercise in cluelessness. But I was smart and ambitious, and did better than I deserved.

Fast forward nine years, and that’s me again, this time signing on with a boutique corporate law firm as a newly minted MBA/JD. I got there by building a lot of personal human capital, but my steel thermos and metal lunch bucket upbringing was still so ingrained that a few weeks after getting hired I asked a senior associate why nobody ever took morning and afternoon coffee breaks. He looked puzzled, and finally said, “Well… we don’t really take breaks.” Or vacations, evenings, weekends, or holidays, as it turned out.

A couple years later I hired on with a Big 4 accounting firm as a corporate finance consultant. My first assignment was my Eric-equivalent job:  I was assigned to a team of accountants tasked with creating a new chart of accounts for a multinational corporation and its subsidiaries. Never mind that the job had nothing to do with corporate finance…. Plus there were two other little problems:  I didn’t know what a chart of accounts was, and at our first client meeting a key corporate manager announced that he thought the project was ridiculous and intended to oppose it. Undaunted, the other members of the consulting team got to work. Everybody seemed to know what to do, but nobody would tell me, and in the meantime our opponent in management gained a following.

As a result, I spent months away from home every week, trying to look busy. I piled up the frequent flyer miles and enjoyed the 5-star accommodations and meals, but fell into a deep depression .When I told the managing partner about it, he observed that, “Maybe this job isn’t a good fit for you.” He suggested I leave in two months, which happened to be when our consulting contract was due for a renewal. Looking back, I suspect my actual role on the team was “warm body.”

Graeber says that, at first blush, Eric’s story sounds like yet one more bright, idealistic liberal arts grad getting a real-world comeuppance:

“Eric was a young man form a working-class background.. fresh out of college and full of expectations, suddenly confronted with a jolting introduction to the “real world.”

“One could perhaps conclude that Eric’s problem was not just that he hadn’t been sufficiently prepared for the pointlessness of the modern workplace. He had passed through the old educational system … This led to false expectations and an initial shock of disillusionment that he could not overcome.”

Sounds like my story, too, but then Graeber takes his analysis in a different direction:  “To a large degree,” he say, “this is really a story about social class.” Which brings us back to the issues of upward mobility and social capital we’ve been looking. We’ll talk more about those next time.

In the meantime, I can’t resist a Dogbert episode:

Dilbert

The End of Horatio Alger

“I know perfectly well that men in a race run at unequal rates of speed. I don’t want the prize given to the man who is not fast enough to win it on his merits, but I want them to start fair.”

Teddy Roosevelt

horatio algerIn economic terms, a fair start is about equal opportunity. There’s no more enduring version of that particular ideal than the rags-to-riches story codified into the American Dream by Horatio Alger, Jr. during the Gilded Age of Andrew Mellon, John D. Rockefeller, Cornelius Vanderbilt, Andrew Carnegie, and the rest of the 19th Century Robber Barons. If they can do it, so can the rest of us, given enough vision, determination, hard work, and moral virtue — that was Alger’s message. And according to Roughrider Teddy and politicians like him, government’s job is to guarantee equal opportunity for all, then get out of the way and let the race to riches begin.

These days, however. it seems as though the notion of a fair start is a thing of the past — so says Richard V. Reeves in his book Dream Hoarders, which we looked at briefly last time. Reeves begins by confessing that his disenchantment over the demise of the Horatio Alger ideal will no doubt seem disingenuous because he didn’t grow up American and is now a member of the Red Velvet Rope Club himself:

As a Brookings senior fellow and a resident of an affluent neighborhood in Montgomery County, Maryland, just outside of DC, I am, after all, writing about my own class.

I am British by birth, but I have lived in the United States since 2012 and became a citizen in late 2016. (Also, I was born on the Fourth of July.) There are lots of reasons I have made America my home. But one of them is the American ideal of opportunity. I always hated the walls created by social class distinctions in the United Kingdom. The American ideal of a classless society is, to me, a deeply attractive one. It has been disheartening to learn that the class structure of my new homeland is, if anything, more rigid than the one I left behind and especially so at the top.

My new country was founded on anti-hereditary principles. But while the inheritance of titles or positions remains forbidden, the persistence of class status across generations in the United States is very strong. Too strong, in fact, for a society that prides itself on social mobility.”

Reeves also wrote a Brookings Institute monograph called Saving Horatio Alger: Equality, Opportunity, and the American Dream, in which he said the following:

Vivid stories of those who overcome the obstacles of poverty to achieve success are all the more impressive because they are so much the exceptions to the rule. Contrary to the Horatio Alger myth, social mobility rates in the United States are lower than in most of Europe. There are forces at work in America now — forces related not just to income and wealth but also to family structure and education – that put the country at risk of creating an ossified, self-perpetuating class structure, with disastrous implications for opportunity and, by extension, for the very idea of America.

The moral claim that each individual has the right to succeed is implicit in our “creed,” the Declaration of Independence, when it proclaims “All men are created equal.”

There is a simple formula here — equality plus independence adds up to the promise of upward mobility — which creates an appealing image: the nation’s social, political, and economic landscape as a vast, level playing field upon which all individuals can exercise their freedom to succeed.

Many countries support the idea of meritocracy, but only in America is equality of opportunity a virtual national religion, reconciling individual liberty — the freedom to get ahead and “make something of yourself” — with societal equality. It is a philosophy of egalitarian individualism. The measure of American equality is not the income gap between the poor and the rich, but the chance to trade places.

The problem is not that the United States is failing to live up to European egalitarian principles, which use income as a measure of equality. It is that America is failing to live up to American egalitarian principles, measured by the promise of equal opportunity for all, the idea that every child born into poverty can rise to the top.

There’s a lot of data to back up what Reeves is saying. See, e.g., this study from Stanford, which included these findings:

  • Parents often expect that their kids will have a good shot at making more money than they ever did.
  • But young people entering the workforce today are far less likely to earn more than their parents when compared to children born two generations before them, according to a new study by Stanford researchers.
  • A new study co-authored by Stanford economist Raj Chetty describes an economic portrait of the fading American Dream; growing inequality appears to be the main cause for the steady decline

Reeves and Stanford’s researchers aren’t the only ones who feel that way. We’ll hear from a couple others next time.

Nose Pressed Up Against the Glass

nose against the glass

You’re on the outside looking in. What you want is only a window pane away, but it might as well be on Mars. Novelist Maria E. Andreu captures the feeling:

wuthering heights“There is a wonderful scene in the 1939 film version of Wuthering Heights… in which Heathcliff and Catherine sneak on to the grounds of the Linton house at night. The Lintons, the rich neighbors, are having a grand party. Heathcliff and Catherine watch through the window, unseen. It’s exactly what’s meant by ‘nose pressed up against the glass,’ watching but not being able to participate.

“You can see a lot in their faces as they watch the others dance. Catherine, the daughter of a landed ‘gentleman,’ gets a look that lets you know that she’s intrigued, beginning to want to let go of her wild childhood and take her place in the Lintons’ world. Healthcliff, the servant who adores Catherine, knows that even if he could stop being poor, he would never belong there. He will always be watching from outside the glass.”

Nose pressed up against the glass — it’s an enduring image in literature and in life. Ms. Andreu continues:

“I’ve thought about this scene a lot. I’ve used the image in my writing. It illustrates how I’ve felt sometimes, able to see ‘the good life’ but not able to live it. Most of my life, the Heathcliff in me has weighed heavy inside my heart.”

But then one day the magic happened, and suddenly she found herself transported to the other side of the window pane:

“Yesterday, I got a rave review for my novel that comes out in a month and a half. In my email, I got an invitation to a launch party for another author’s book. I packed to go to a book signing and remembered I needed an extra outfit for an industry cocktail party and the ‘members only’ dinner afterwards with people from my publishing house.

“If that’s not being inside the party, I don’t know what is.

“Someone has opened the door of the party for some fresh air, seen me lurking, and extended a hand of friendship to let me in. It is an unbelievable feeling. I live a life of impossible splendor, of magical beauty, of infinite luck. And I am so deeply grateful.”

We’d feel the same way, if we ever got so lucky. (Assuming we’ve been working hard enough to get lucky — here’s The Quote Investigator on where that saying came from.)

hard work luck

In economic terms, the distance between Heathcliff and the Lintons is a matter of social capital. Ryan Avent, author of The Wealth of Humans, distinguishes between human capital and social capital. Human capital, he saredys, is a particularly focused and useful form of knowledge that an individual gains through education, hard work, experience, on-the-job training, etc. It’s the hard work part of the formula. Social capital, on the other hand, is the opportunity part, and it’s not just personal, it’s cultural. Avent says it’s “like human capital… but is only valuable in particular contexts, within which a critical mass of others share the same social capital.”

red velvet rope 2

For those not already in the social capital club, converting human capital into social capital requires upward mobility. Ms. Andreu’s upward mobility moment was getting her “members only” invitation — official permission to duck under the red velvet rope and join an exclusive gathering where she could schmooze the “others [who] share the same social capital.” Heathcliff, on the other hand, never got his upward mobility moment. As a result, there wasn’t just a glass window pane between him and the Lintons, there was a glass ceiling.

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Nose pressed against the glass… glass ceiling… we’ve heard those expressions before. Nowadays, another glass metaphor has entered the economic lexicon:   the “glass floor, which protects the upper middle class against the risk of downward mobility.” (My emphasis. The quote is from Dream Hoarders:  How the American Upper Middle Class is Leaving Everyone Else in the Dust, Why That is a Problem, and What to Do About It by Richard V. Reeves.)

Hoping to move up? Afraid of moving down? These days, it’s hard to do either. And if you’re hoping to move up, there’s one additional, elusive element required for membership in the red velvet club:  the notion of identity — the need to be the kind of person who belongs there. In this short video (click the image below), Michael Port, author of the bestseller Book Yourself Solid, asks, “What makes [red velvet rope people] who they are?” He answers that it’s “their quality, their characteristics, their personality — things that are innate, are part of who they are as people, not necessarily their circumstances.”

red velvet rope

We’ll be looking lots more at upward mobility and social capital in the weeks to come.

Does A Rising Tide Still Float All Boats?

OLYMPUS DIGITAL CAMERA

The world’s post-WWII economic surge was founded on the idea that macroeconomic advances benefit everyone equally — i.e., that “a rising tide lifts all boats” (a phrase widely attributed to JFK, which his speechwriter apparently borrowed from a local New England chamber of commerce). This idea is a hallmark of the neoliberal economic model.

Whether the aphorism still holds today is predictably a subject of highly polarized economic debate — see e.g. this June 9, 2014 LA Times article. My own research leads me to conclude that the idea worked powerfully for decades, began to break down in the 70’s and 80’s (as we’ve seen in prior posts in this series), and since then has begun to fail as remarkably as it once succeeded.

This week and next, I’m going to quote extensively from The Wealth of Humans:  Work, Power, and Status in the Twenty-First Century (2016), by Ryan Avent, a senior editor and economic columnist for The Economist, whose analysis runs like this:

  • Neoliberal economic policy did in fact lift all boats from the early post-war years through its heyday in the 70’s and 80’s.

“The last generation, during which the digital revolution’s first powerful effects made themselves felt, was an era of remarkable political moderation and consensus. The period began, in the 1970s and 1980s, with a liberalizing impulse across a broad range of countries… As global markets integrated, politics in most rich democracies coalesced around support for market-oriented economies, global openness and progressive social goals. It was a pleasant sort of era for the cosmopolitan, technocratic elite:  the believers in the notion that the market, lightly tended, offered the best route to global prosperity and peace.”

  • It especially raised national economies and benefited the wealth and income of individual wage-earners — especially in countries where government-centric models such as social democracy and communism had previously been in charge.

“[T]he nature of economic growth shapes political priorities… Political momentum for economic liberalization in the 1970s and 1980s emerged as typical voters lost confidence in the ability of the more statist economic policies to raise long-term living standards.

“The outcome of that liberalization differed substantially across countries. In China and India, liberalization delivered on its promise. In China, especially, a generation of rapid growth succeeded in elevating a large middle class out of poverty. China’s economic pie grew massively.”

  • But in the past few decades, continued allegiance to neoliberal policy has had the reverse effect, resulting in disproportionate benefits and rapidly growing economic inequality — especially in the USA and other nations where it was most entrenched.

“In the rich world, things worked differently. In 2014, the inflation-adjusted income of the typical American household was just 7 per cent higher than it was in 1979. By contrast, the income of a household in the 95th percentile of the income distribution grew 45 per cent over that period.”

  • Since the 80’s, the “lifts all boats” paradigm has not kept pace with the altered economic dynamics brought on the technological revolution, resulting in a shift in wealth creation and sustainable income away from wage-earners.

“[T]he world economy operates on a framework very much rooted in an industrial, scarcity-bound world. The interaction of that world with the technological advances of the digital era have landed labour in a trap. The digital revolution generates fantastic labour abundance; that abundance contributes directly to downward pressure on the wages of the typical worker. It also reduces the bargaining power of labour relative to other, scarcer factors, allowing those factors to capture outsize share of the gains from growth.”

  • Continued allegiance to the paradigm is currently undermining the concept of working for a living.

“We now have new economic challenges, and the former labor/wage model is no longer producing equitable results. Job-based economic security and prosperity is being left behind.

“Low pay for the great mass of workers is distributionally unfair. It undermines support for the market-based economic system that enables sustained economic growth.

“We might not care so much about these inequities if the digital revolution were reducing the costs of all the many things the typical household wants to buy, from steak dinners to adequate housing to a top-flight university education. But cost reductions have so far been highly uneven:  massive for some things, such as digital entertainment, completely absent for others, such as homes in nice neighborhoods.”

This analysis essentially restates that of economist Guy Standing, which we looked at over the past two weeks.

Arent concludes by saying, “This process will not end without a dramatic and unexpected shift in the nature of technology, or in the nature of economic institutions.” Change on that level means shifting long-standing, deeply entrenched societal paradigms. More on that next time.