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.

Bus Riding Economists

Lord, I was born a ramblin’ man
Tryin’ to make a livin’ and doin’ the best I can[1]

A couple economists took the same bus I did one day last week. We’ll call them “Home Boy” and “Ramblin’ Man.”. They made acquaintance when Ramblin’ Man put his money in the fare box and didn’t get a transfer coupon. He was from out of town, he said, and didn’t know how to work it. Home Boy explained that you need to wait until the driver gets back from her break. Ramblin’ Man said he guessed the money was just gone, but the driver showed up about then and checked the meter — it showed he’d put the money in, so he got his transfer. Technology’s great, ain’t it?

Ramblin’ Man took the seat in front of me. Home Boy sat across the aisle. When the conversation turned to economics, I eavesdropped[2] shamelessly. Well not exactly — they were talking pretty loud.

viet nam vets

Ramblin’ Man said he’d been riding the bus for two days to get to the VA. That gave them instant common ground:  they were both Vietnam vets, and agreed they were lucky to get out alive.

miley-large

Ramblin’ Man said when he got out he went traveling — hitchhike, railroad, bus, you name it. That was back in the 70’s, when a guy could go anywhere and get a job. Not no more. Now he lives in a small town up on northeast Montana. He likes it, but it’s a long way to get to the VA, but he knew if he could get here, there’d be a bus to take him right to it, and sure enough there was. That’s the trouble with those small towns, said Home Boy — nice and quiet, but not enough people to have any services. I’ll bet there’s no bus company up there, he chuckled. Not full of people like Minneapolis.

Minneapolis! Ramblin’ Man lit up at the mention of it. All them people, and no jobs. He was there in 2009, right after the bankers ruined the economy. Yeah, them and the politicians, Home Boy agreed. Shoulda put them all in jail. It’s those one-percenters. They got it fixed now so nobody makes any money but them. It’s like it was back when they were building the railroads and stuff. Now they’re doing it again. Nobody learns from history — they keep doing the same things over and over. They’re stuck in the past.

Except this time, it’s different, said Ramblin’ Man. It’s all that technology — takes away all the jobs. Back in 09, he’d been in Minneapolis for three months, and his phone never rang once for a job offer. Not once. Never used to happen in the 70’s.

And then my stop came up, and my economic history lesson was over. My two bus riding economists had covered the same developments I’ve been studying for the past 15 months. My key takeaway? That “The Economy” is a lazy fiction — none of us really lives there. Instead, we live in the daily challenges of figuring out how to get the goods and services we need — maybe to thrive (if you’re one of them “one-percenters”), or maybe just to get by. The Economy isn’t some transcendent structure, it’s created one human transaction at a time — like when a guy hits the road to make sense of life after a war, picking up odd jobs along the way until eventually he settles in a peaceful little town in the American Outback. When we look at The Economy that way, we get a whole new take on it. That’s precisely what a new breed of cross-disciplinary economists are doing, and we’ll examine their outlook in the coming weeks.

AmericanaIn the meantime, I suspect that one of the reasons we don’t learn from history is that we don’t know it. In that regard, I recently read a marvelous economic history book that taught me a whole lot I never knew:  Americana: A 400-Year History of American Capitalism (2017)  by tech entrepreneur Bhu Srinivasan. Here’s the promo blurb:

“From the days of the Mayflower and the Virginia Company, America has been a place for people to dream, invent, build, tinker, and bet the farm in pursuit of a better life. Americana takes us on a four-hundred-year journey of this spirit of innovation and ambition through a series of Next Big Things — the inventions, techniques, and industries that drove American history forward: from the telegraph, the railroad, guns, radio, and banking to flight, suburbia, and sneakers, culminating with the Internet and mobile technology at the turn of the twenty-first century. The result is a thrilling alternative history of modern America that reframes events, trends, and people we thought we knew through the prism of the value that, for better or for worse, this nation holds dearest: capitalism. In a winning, accessible style, Bhu Srinivasan boldly takes on four centuries of American enterprise, revealing the unexpected connections that link them.”

This is American history as we never learned it, and the book is well worth every surprising page.

[1] From “Ramblin’ Man,” by the Allman Brothers. Here’s a 1970 live version. And here’s the studio version.

[2] If you wonder, as I did, where “eavesdrop” came from, here’s the Word Detective’s explanation.

Race Against the Machine

For the past several years, two MIT big thinkers[1] have been the go-to authorities in the scramble to explain how robotics, artificial intelligence, and big data are revolutionizing the economy and the working world. Their two books were published four and six years ago — so yesterday in the world of technology — but they were remarkably prescient when written, and have not diminished in relevance. They are:

Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy (2012)

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (2014)

Click here for a chapter-by-chapter digest of The Second Machine Age, written by an all star cast of economic commentators. Among other things, they acknowledge the authors’ view that neoliberal capitalism has not fared well in its dealings with the technological juggernaut, but in the absence of a better alternative, we might as well continue to ride the horse in the direction it’s going.

While admitting that History (not human choice) is “littered with unintended… side effects of well-intentioned social and economic policies”, the authors cite Tim O’Reilly[2] in pushing forward with technology’s momentum rather than clinging to the past or present. They suggest that we should let the technologies do their work and just find ways to deal with it. They are “skeptical of efforts to come up with fundamental alternatives to capitalism.”

David Rotman, editor of the MIT Technology Review cites The Second Machine Age extensively in an excellent, longer article, “How Technology is Destroying Jobs.” Although the article is packed with contrary analysis and opinion, the following excepts emphasize what many might consider the shadowy  side of the street (compared to the sunny side we looked at in the past couple posts). I added the headings below to emphasize that many of the general economic themes we’ve been talking about also apply to the specific dynamics of the job market.

It used to be that economic growth — including wealth creation — also created more jobs. It doesn’t work that way any more. Perhaps the most damning piece of evidence, according to Brynjolfsson, is a chart that only an economist could love. In economics, productivity—the amount of economic value created for a given unit of input, such as an hour of labor—is a crucial indicator of growth and wealth creation. It is a measure of progress. On the chart Brynjolfsson likes to show, separate lines represent productivity and total employment in the United States.

For years after World War II, the two lines closely tracked each other, with increases in jobs corresponding to increases in productivity. The pattern is clear: as businesses generated more value from their workers, the country as a whole became richer, which fueled more economic activity and created even more jobs. Then, beginning in 2000, the lines diverge; productivity continues to rise robustly, but employment suddenly wilts. By 2011, a significant gap appears between the two lines, showing economic growth with no parallel increase in job creation. Brynjolfsson and McAfee call it the “great decoupling.” And Brynjolfsson says he is confident that technology is behind both the healthy growth in productivity and the weak growth in jobs.

A rising economic tide no longer floats all boats. The result is a skewed allocation of the rewards of growth away from jobs — i.e., economic inequality. The contention that automation and digital technologies are partly responsible for today’s lack of jobs has obviously touched a raw nerve for many worried about their own employment. But this is only one consequence of what ­Brynjolfsson and McAfee see as a broader trend. The rapid acceleration of technological progress, they say, has greatly widened the gap between economic winners and losers—the income inequalities that many economists have worried about for decades..

“[S]teadily rising productivity raised all boats for much of the 20th century,” [Brynjolfsson] says. “Many people, especially economists, jumped to the conclusion that was just the way the world worked. I used to say that if we took care of productivity, everything else would take care of itself; it was the single most important economic statistic. But that’s no longer true.” He adds, “It’s one of the dirty secrets of economics: technology progress does grow the economy and create wealth, but there is no economic law that says everyone will benefit.” In other words, in the race against the machine, some are likely to win while many others lose.

That robots, automation, and software can replace people might seem obvious to anyone who’s worked in automotive manufacturing or as a travel agent. But Brynjolfsson and McAfee’s claim is more troubling and controversial. They believe that rapid technological change has been destroying jobs faster than it is creating them, contributing to the stagnation of median income and the growth of inequality in the United States.

Meanwhile, technology is taking over the jobs that are left– blue collar, white collar, and even the professions. [I]mpressive advances in computer technology—from improved industrial robotics to automated translation services—are largely behind the sluggish employment growth of the last 10 to 15 years. Even more ominous for workers, the MIT academics foresee dismal prospects for many types of jobs as these powerful new technologies are increasingly adopted not only in manufacturing, clerical, and retail work but in professions such as law, financial services, education, and medicine.

Technologies like the Web, artificial intelligence, big data, and improved analytics—all made possible by the ever increasing availability of cheap computing power and storage capacity—are automating many routine tasks. Countless traditional white-collar jobs, such as many in the post office and in customer service, have disappeared.

New technologies are “encroaching into human skills in a way that is completely unprecedented,” McAfee says, and many middle-class jobs are right in the bull’s-eye; even relatively high-skill work in education, medicine, and law is affected.

We’ll visit the shadowy side of the street again next time.

[1] Erik Brynjolfsson is director of the MIT Center for Digital Business, and Andrew McAfee is a principal research scientist at MIT who studies how digital technologies are changing business, the economy, and society.

[2] According to his official bio on his website, Tim O’Reilly “is the founder and CEO of  O’Reilly Media, Inc. His original business plan was simply ‘interesting work for interesting people,’ and that’s worked out pretty well. O’Reilly Media delivers online learning, publishes books, runs conferences, urges companies to create more value than they capture, and tries to change the world by spreading and amplifying the knowledge of innovators.”

The TED Inequality All-Stars

Economic inequality is so important to a thorough look at happiness on and off the job that, before we leave the topic, I decided to provide an all-star lineup of TED talks on the subject, from a variety of perspectives. We’ve heard from the first two before, but not the last three.

TED Chrystia Freeland

This is Chrystia Freeland, journalist turned politician. We’ve heard a lot from her book Plutocrats already. Her political biases are evident in this talk.

TED Thomas Piketty

Thomas Piketty, economist and professor at the Paris School of Economics, literally wrote the book on the subject — a 600-page runaway bestseller Capital in the Twenty-first Century. He talks fast enough to get through much of his book in this talk. I’ve quoted him before, too.

TED Paul Tudor Jones

Paul Tudor Jones II is the billionaire founder of hedge fund Tudor Investment Corporation and a philanthropist. Here’s a sample:

“[Capitalism is] a system I love because of the successes and opportunities it’s afforded me and millions of others.

“Higher profit margins do not increase societal wealth. What they actually do is they exacerbate income inequality, and that’s not a good thing.

“This next chart, made by The Equality Trust, shows 21 countries from Austria to Japan to New Zealand. On the horizontal axis is income inequality. The further to the right you go, the greater the income inequality. On the vertical axis are nine social and health metrics. The more you go up that, the worse the problems are, and those metrics include life expectancy, teenage pregnancy, literacy, social mobility, just to name a few. Now, those of you in the audience who are Americans may wonder, well, where does the United States rank? … Yes, that’s us, with the greatest income inequality and the greatest social problems, according to those metrics.

“Now, capitalism has been responsible for every major innovation that’s made this world a more inspiring and wonderful place to live in. Capitalism has to be based on justice. It has to be, and now more than ever, with economic divisions growing wider every day.

“I’m not against progress. I want the driverless car and the jet pack just like everyone else. But I’m pleading for recognition that with increased wealth and profits has to come greater corporate social responsibility.

“‘If justice is removed,’ said Adam Smith, the father of capitalism, ‘the great, the immense fabric of human society must in a moment crumble into atoms.’”

TED Richard Wilkinson

Public health researcher Richard Wilkinson studies the social and health effects of income inequality. In his writing and in this talk, he offers piles of statistical evidence from worldwide studies on a wide variety of social issues including life expectancy, social mobility, math scores, literacy rates, infant mortality, homicide and incarceration rates, teenage pregnancies, levels of trust, obesity, mental illness, drug and alcohol addiction, mental illness, school bullying, violence, high school drop-out rates, and more. In this talk, he returns often to three points that seem to be commonly cited in inequality research and commentary:

  1. There is a strong statistical link between these social issues and economic inequality.
  2. Conventional economic measurements such as GNP per capita, gross national income, and national income per person fail to recognize this link; and
  3. The problem of inequality at its core revolves around relative inequality (the human trait of comparing what I have to what you have).

TED Nick Hanauer

Nick Hanauer is another plutocrat — a “proud and unapologetic capitalist” — who has founded and funded 30+ companies across a range of industries, including aQuantive, which Microsoft bought for $6.4 billion. He openly loves his yacht and private jet, but fears for the future if economic inequality is left unaddressed:

“What do I see in our future today, you ask? I see pitchforks, as in angry mobs with pitchforks, because while people like us plutocrats are living beyond the dreams of avarice, the other 99 percent of our fellow citizens are falling farther and farther behind. In 1980, the top one percent of Americans shared about eight percent of national [income], while the bottom 50 percent of Americans shared 18 percent. Thirty years later, today, the top one percent shares over 20 percent of national [income], while the bottom 50 percent of Americans share 12 or 13. If the trend continues, the top one percent will share over 30 percent of national [income] in another 30 years, while the bottom 50 percent of Americans will share just six.

“You see, the problem isn’t that we have some inequality. Some inequality is necessary for a high-functioning capitalist democracy. The problem is that inequality is at historic highs today and it’s getting worse every day. And if wealth, power, and income continue to concentrate at the very tippy top, our society will change from a capitalist democracy to a neo-feudalist rentier society like 18th-century France. That was France before the revolution and the mobs with the pitchforks.

“Fellow plutocrats, I think it may be time for us to recommit to our country, to commit to a new kind of capitalism which is both more inclusive and more effective, a capitalism that will ensure that America’s economy remains the most dynamic and prosperous in the world. Let’s secure the future for ourselves, our children and their children. Or alternatively, we could do nothing, hide in our gated communities and private schools, enjoy our planes and yachts — they’re fun — and wait for the pitchforks.”

Next time we’ll look at the complex nature of real economics for real people in the real world.

Economic Inequality Statistics

My research on economic inequality consistently turns up three key points:

  1. since the 80’s, there has been an ever-widening gap in incomes and capital ownership between the rich and poor,
  2. the gap has been growing at an accelerating rate, especially since the year 2000, and
  3. this phenomenon is worldwide.

So what?

As I’ve mentioned before, many U.S. economists and policy-makers greet those findings either with indifference or as a clarion call to defend endangered capitalism, while their international counterparts find them alarming. We’re talking about them here because it turns out that economic inequality has a lot to do with happiness and meaning at work. (Stay with me — we’ll get there, we’re just taking the scenic route.)

We all know that it’s easy to mold statistics to fit opinions — here’s a neurologist’s take on Why People Can’t Agree on Basic Facts. Any stats we look at here will have been pre-sorted, pre-analyzed, and pre-interpreted. My goal today is to provide a sampling of statistics from a variety of global sources — starting with a quote about how the new global super-rich are a bunch of economic data curve busters, which makes finding honest data even harder.

plutocrats“The skew toward the very top is so pronounced that you can’t understand overall economic growth figures without taking it into account. As in a school whose improved test scores are due largely to the stellar performance of a few students, the surging fortunes at the very top can mask stagnation lower down the income distribution.

“Consider America’s economic recovery in 2009-2010. Overall incomes in that period grew by 2.3 percent — tepid growth, to be sure, but a lot stronger than you might have guessed from the general gloom of the period. Look more closely at the data, though… and it turns out that average Americans were right to doubt the economic comeback. That’s because for 99 percent of Americans, incomes increased by 0.2 percent. Meanwhile, the incomes of the top I percent jumped by 11.6 percent.”

Plutocrats:  The Rise of the New Global Super Rich and the Fall of Everyone Else (2012), by Canadian journalist and politician Chrystia Freeland.

kwak“Across the developed world, vast fortunes are again ascendant. In the United States, the top 1 percent take home a larger share of total income than at any time except the late 1920’s. The total wealth of the world’s billionaires has quadrupled in the past two decades (even when the definition of “billionaire” is adjusted for inflation).

“In the 1950’s, a typical CEO of a large company took home as much money as twenty average employees; today he makes as much as two hundred workers.”

Economism (2017), by UConn law professor James Kwak.

the wealth of humans“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.”

The Wealth of Humans:  Work, Power, and Status in the Twenty-First Century (2016), by Ryan Avent,  a thoroughly Anglicized American who works as a senior editor and economic columnist for The Economist.

the fourth industrial“[C]ompare Detroit in 1990… with Silicon Valley in 2014. In 1990, the three biggest companies in Detroit had a combined market capitalization of $36 billion, revenues of $250 billion, and 1.2 million employees. In 2014, the three biggest companies in Silicon Valley had a considerably higher market capitalization ($1.09 trillion), generated roughly the same revenues ($247 billion), but with about 10 times fewer employees (137,000).”

The Fourth Industrial Revolution (2016), by German engineer and economist Klaus Schwab, Founder and Chairman of the World Economic Forum.

Prior to the 2017 World Economic Forum annual meeting of world leaders, U.K.-based Oxfam International issued a report that offers a fascinating slant on Schwab’s comments. According to the report:

“Eight men now control as much wealth as the world’s poorest 3.6 billion people… The men — Bill Gates, Warren Buffett, Carlos Slim, Jeff Bezos, Mark Zuckerberg, Amancio Ortega, Larry Ellison and Michael Bloomberg — are collectively worth $426 billion.”

As reported by CNN.

“By contrast, half the planet’s population, some 3.6 billion people, have a combined wealth of $409 billion.”

As reported by The Mirror Online (the U.K.’s “intelligent tabloid”).

Not only are the Elite Eight collectively worth more than the lower half of the world’s entire population, each individual member of the group is worth more than the combined market capitalization of Detroit’s three largest companies 27 years ago. The Mirror also noted this about the study:

“The report found that between 1988 and 2011 the incomes of the poorest 10% increased by just $65, while the incomes of the richest 1% grew by $11,800 – 182 times as much.”

A couple years ago, Credit Suisse’s Global Wealth Report 2015 reported that half of the world’s assets were controlled by the top 1% of the global population, while the lower half owned less than 1%.

There’s plenty more where all of that came from. In fact, there’s such an abundance of global data and opinion on the topic that, if nothing else, it’s probably safe to conclude that economic inequality either really is a problem or, even if it’s not, a whole lot of people around the world sure seem to think it is.

We’ll continue our economic inquiries next time.

Taboo Economics

Last time, University of Connecticut law professor James Kwak challenged us to upgrade our Econ 101 understanding of economics. I’ve spent the past year doing that, and have come across what appears to be the one single issue that will instantly and absolutely shut down all further inquiry. It is the ultimate economics taboo — the quickest way to destroy any hope of further learning or discussion. Taking it head on is like signing up for a an adventure tourism trip into the Labyrinth, live Minotaur included.

No thanks, I’m pretty sure I’ve got something going on that night.

It’s especially taboo if you’re an American — economists around the rest of the world talk about it all the time with a sense of urgency, like it’s something we need to get on right now if we know what’s good for us. More on that in a moment. But first, what is it? In a word,

Inequality

Karn_The_Minotaur_Boss

Uh-oh. I think I just heard the footfalls of a really large, really nasty creature.

Understanding economic inequality is the key to Economics 2017. Trouble is, the topic threatens the very bedrock of a country founded on this premise:

“We hold these truths to be self-evident: that all men are created equal.”

we are the 99%In the USA, “equal” means “anybody can make it here.” It is the land of Horatio Alger. To suggest that public policy — where the study of economics is played out — might include income inequality on its agenda is to throw Alger’s rags-to-riches enthronement of hard work, determination, courage, and honesty under the bus. Questioning those values is un-American by definition — the province of the Occupiers, who we all know finally had to give up and get a real job.

And so it goes.

You think I’m exaggerating? Read this NY Times op-ed piece from earlier this summer, then read these two completely polarized responses. The writer who started the exchange is a Brit who writes for the Brookings Institute and wrote a book entitled 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 Itwhich pretty much tells you everything you need to know, doesn’t it? About as surprising as finding this lesson plan primer on economic inequality on the PBS website.

And so it goes.

As the NY Times exchange makes clear, the issue isn’t so much economics, it’s the complete, total, utter American rejection of anything resembling a class system — a yoke we threw off with those Declaration of Independence fightin’ words. Which is why, these days, if you’re an European or Asian economist you’ll talk about inequality with a sense of urgency, but if you’re an American you won’t talk about it all — unless you’re a foreign-trained economist teaching at a prestigious U.S. university, which doesn’t really count. See the analysis of the USA vs. the Rest of the World Economic Divide in Why So Few American Economists Are Studying Inequality, The Atlantic, Sept. 13, 2016. (The article’s killer opening line is “In recent years, it’s been European scholars who have written the blockbuster papers on the topic.” “Blockbuster papers”? Seriously? Are we talking about economics here?)

Which is why it takes a Frenchman to write an international blockbuster (there’s that word again) economics book that takes 600 geeky pages to reckon with economic inequality. (Google Thomas Piketty’s Capital in the Twenty-First Century — it’s all over the capital 21st centuryplace.)

I mentioned the book to a friend who’s a hedge fund manager. He’s the most dedicated to the study of economics person I know. His comment? “Piketty didn’t talk about benefits.”

That was it.

We can let the topic of income inequality send us scurrying to the safety of Econ 101, or we can brave the Minotaur. We’ll enter the Labyrinth next time.

By the way, the reputed lefty Brookings Institute and its equally reputed righty arch-rival American Enterprise Institute actually collaborated on a 2015 study called Opportunity, Responsibility, and Security: A Consensus Plan for Reducing Poverty and Restoring the American Dream. And if the BI is given to favoring its own touchy topics, the AEI isn’t afraid to tackle its own controversial counterparts, as I learned while squirming my way through The Inequality Taboo. I’ll just leave it there for now.