The Success Delusion

poverty snareHow did the social safety net turn into a poverty trap? It was a victim of the success of the job as an economic force.

Psychologists call it “the success delusion.” You do something and get a result you like, so you keep doing it, expecting more of the same. It keeps working until one day it doesn’t. Do you try something new? No, you double down — it worked before, surely it will work again. You keep doubling down until you’ve made a mess.

You’re a victim of your own success. If you could listen, hindsight would tell you that there was more to it than what you were doing, that a lot of what happened was you being in the right place at the right time. You might believe that or not, but what matters now is that the times changed and you didn’t.

That’s what happened to social welfare. 40 years of post-WWII economic success positioned the steady job as the cornerstone of economic prosperity and upward mobility. Then, in the 80’s and 90’s, about the time the job was starting to lose its economic vitality, policy-makers doubled down on it:  work had raised the welfare of the whole world since the days of the telegraph and railroad, and surely it was still the best route out of poverty. So now we had workfare instead of welfare, and, as we saw last time, social welfare became “a system of suspicion and shame.”


Standin’ in line marking time
Waiting for the welfare dime
‘Cause they can’t buy a job
The man in the silk suit hurries by
As he catches the poor old lady’s eyes
Just for fun he says, “Get a job.”

That’s The Way It Is”
Bruce Hornsby and the Range

Rutger Bregman sums it up this way:

“We’re saddled with a welfare state from a bygone era when the breadwinners were still mostly men and people spent their whole lives working at the same company. The pension system and employment protection rules are still keyed to those fortunate to have a steady job, public assistance is rooted in the misconception that we can rely on the economy to generate enough jobs, and welfare benefits are often not a trampoline, but a trap.”

Utopia for Realists (2017)

Guy Standing explains it this way:

“The period from the nineteenth century to the 1970’s saw what Karl Polanyi, in his famous 1944 book, dubbed “The Great Transformation.”

“The essence of labourism was that labour rights — more correctly , entitlements — should be provided to those (mostly men) who performed labour and to their spouses and children.

“Those in full-time jobs obtained rising real wages, a growing array of ‘contributory’ non-wage benefits, and entitlements to social security for themselves and their family. As workers previously had little security, this was a progressive step.

“Labourism promoted the view that the more labour people did, the more privileged they should be, and the less they did the less privileged they should be. The ultimate fetishism was Lenin’s dictate, enshrined in the Soviet constitution, that anybody who did not labour should not eat.

“The labourist model frayed in the 1980’s, as labour markets became more flexible and increasing numbers of people moved from job to job and in and of employment.

“To defend labour-based welfare, social democratic governments turned to means testing, targeting benefits on those deemed the deserving poor.

“The shift to means testing was fatal. As previous generations of social democrats had understood, benefits designed only for the poor are invariably poor benefits and stand to lose support among the rest of society.

“Ironically, it was mainly social democratic parties that shifted policy towards workfare, requiring the unemployed to apply for non-existent or unsuitable jobs, or to do menial, dead-end jobs or phony training courses  in return for increasingly meagre benefits.

“Today, we are living in a Second Gilded Age — with one significant difference. In the first, which ended in the Great Crash of 1929, inequality grew sharply but wages on average rose as well. The Second Gilded Age has also involved growing inequality, but this time real wages on average have stagnated or fallen. Meanwhile, those relying on state benefits have fallen further behind, many pushed into homelessness, penury and dependence on inadequate private charity.

“Since the 1980s, the share of income going to labour has shrunk, globally and in most countries of economic significance… The labour share fell in the USA from 53 per cent in 1970 to 43.5 per cent in 2013. Most dramatically, it slid by over twenty percentage points in China and also dropped steeply in the rising industrial giant of South Korea.

“Besides falling wages, there has been an increase in wage differentials and a less-documented decline in the share of people receiving non-wage benefits, such as occupational pensions, paid holidays, sick leave or medical coverage. Thus worker compensation, in terms of ‘social income,’ has fallen by more than revealed by wages alone.

“As a consequence of these developments, ‘in-work poverty’ has rocketed. In some OECD [Organisation for Economic Cooperation and Development — 34 industrialized member countries], including Britain, the USA, Spain and Poland, a majority of those in poverty live in households where at least one person has a job.

“The mantra that ‘work is the best route out of poverty’ is simply false.”

The Corruption of Capitalism (2017)

Not only are jobs doing a poor job at social welfare — for both employed and unemployed alike — but they are themselves an endangered species. More to come…

The Rentier Economy — Primer Part 1

rise of the rentiers

As we saw last week, the original Monopoly game — then known as The Landlord’s Game — offered a choice of two different games, one played under “Prosperity” rules and the other under “Monopoly” rules. The post-WWII economic surge was a real-life Prosperity game:  it generated a rising tide of economic benefit that floated all boats across all social classes. The surge peaked in the 1970’s, and since then the Monopoly rules have increasingly asserted themselves, resulting in, among other things, stagnant employee compensation (except for the top 10%) and rising returns to capital owners — the lion’s share paid in the form of rents. The latter reflects the rise of a “rentier economy.”

First, we need to define “rent”:

Economists use the term ‘rent’ in a special way. For them, rent refers… to the excess payment made to any factor of production (land, labor, or capital) due to scarcity.

The scarcity factor that gives rise to rents can be natural, as with the case of land.

But rents can also arise from artificial scarcity — in particular, government policies that confer special advantages on favored market participants.

The Captured Economy:  How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality, Brink Lindsey and Steven Teles (2017).

And “rentier”:

A rentier is someone who gains income from possession of assets, rather than from labour. A rentier corporation is a firm that gains much of its revenue from rental income rather than from production of goods and services., notably from financial assets or intellectual property. A rentier state has institutions and policies that favour the interests of rentiers. A rentier economy is one that receives a large share of income in the form of rent.

The Corruption of Capitalism, Why Rentiers Thrive and Work Does Not Pay, Guy Standing (2016)

Economists didn’t see the rentier economy coming. They especially didn’t foresee how government policy would create it. The following is from The Corruption of  Capitalism:

John Maynard Keynes, the most influential economist of the mid-twentieth century, famously dismissed the rentier as the ‘functionless investor’ who gained income solely from ownership of capital, exploiting its ‘scarcity value.’ He concluded in his epochal General Theory that, as capitalism spread, it would mean the “euthanasia of the rentier,” and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity value of capital:

“Whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital… I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work.”

Keynes was mistaken because he did not foresee how the neoliberal framework built since the 1980’s would allow individuals and firms to generate ‘contrived scarcity’ of assets from which to gain rental income. Nor did he foresee how the modern ‘competitiveness’ agenda would give asset owners power to extract rental subsidies from the state.

Eighty years later, the rentier is anything but dead; rentiers have become the main beneficiaries of capitalism’s emerging income distribution system.

The old income distribution system that tied income to jobs has disintegrated.

And this is from The Captured Economy:

The last few decades have been a perplexing time in American economic life. Following a temporary spike during the Internet boom of the 1990’s, rates of economic growth have been exceptionally sluggish. At the same time, incomes at the very top have exploded while those further down have stagnated.

As a technical matter, rent is a morally neutral concept. ,,, Nevertheless, the term ‘rent’ is most commonly used in a moralized sense to refer specifically to bad rents. In particular, the expression ‘rent-seeking’ refers to business activity that seeks to increase profits without creating anything of value through distortions to market processes, such as constraints on the entry of new firms.

Those advantages can also take the form of subsidies or rules that impose extra burdens on both existing and potential competitors. The rents enjoyed through government favoritism not only misallocate resources in the short term but they also discourage dynamism and growth over the long term. Their existence encourages an ongoing negative-sum scramble for more favors instead of innovation and the diffusion of good ideas.

Economists have had an explanation for the latter trend, which is that returns to skill have increased dramatically, largely because of globalization and information technology. There is clearly something to this explanation, but why should the more efficient operation of markets be accompanied by a decline in economic growth?

Our answer is that increasing returns to skill and other market-based drivers of rising inequality are only part of the story. Yes, in some ways the US economy has certainly grown more open to the free play of market forces during the course of the past few decades. But in other ways, economic returns are now determined much more by success in the political arena and less by the forces of market competition. By suppressing and distorting markets, the proliferation of regulatory rents has also led to less wealth for everyone.

To be continued.


Whatever Happened to Working For a Living? (Cont’d.)

“Politically, every transformation has begun
with a repudiation of the certainties of the previous age.”

– Economist Guy Standing

Last time, I quoted at length from economist Guy Standing’s analysis of how the notion of working for a living has historically fared under the social democracy and neoliberalism economic models. Prof. Standing believes that, as a result of the developments chronicled there, a new class system now dominates the working world. Again, I’ll quote from his book The Corruption of Capitalism (2016):

“Globalization, neo-liberal policies, institutional changes and the technological revolution have combined to generate a new global class structure superimposed on preceding class structures. This consists of a tiny plutocracy (perhaps 0.001 per cent) atop a bigger elite, a ‘salariat’ (in relatively secure salaried jobs, ‘proficians’ (freelance professionals), a core working class, a precariat and a ‘lumpen precariat’ at the bottom. The plutocracy, elite, salariat, and proficians enjoy not just higher incomes but gain most (or an increasing part) of their income from capital and rental income.

“The three classes below them gain nothing in rent. Indeed, increasingly they pay rent in some form to the classes above them. First, there is the shrinking proletariat, relying mainly on labour in stable, mostly full-time jobs, with schooling that matches the skills their jobs require. The precariat, which ranks below the proletariat in income, consists of millions of people obliged to accept a life of unstable labour and living, without an occupational identity or corporate narrative to give to their lives. Their employers come and go, or are expected to do so.

“Many in the precariat are over-qualified for the jobs they must accept; they also have a high ratio of unpaid ‘work’ in labour — looking and applying for jobs, training and retraining, queuing and form-filling, networking or just waiting around. They also rely mainly on money wages, which are often inadequate, volatile, and unpredictable. They lack access to rights-based state benefits and are losing civil, cultural, social, economic and political rights, making them supplicants if they need help to survive.

“This precariat is all over the world… For instance, more Americans today see themselves as in the lower classes. In 2000, according to Gallup polls, 63 percent saw themselves as middle-class and 33 percent as lower-class. In 2015, 51 percent saw themselves as middle-class and 48 percent as lower-class. Similar trends have been reported elsewhere.

“Below the precariat in the social spectrum is what might be called a ‘lumpen-precariat,’ an underclass of social victims relying on charity, often homeless and destitute, suffering from social illnesses including drug addiction and depression. … Their numbers are rising remorselessly; they are a badge of shame on society.”

Prof. Standing’s unique contribution to the conversation about work, happiness, and meaning is his identification of the new social strata. The balance of his analysis is not unique — as he says above, it has been reported “all over the world.” In the coming weeks, we’ll look at various implications of these findings:

  • The old job market’s last stand — “bullshit jobs”;
  • Whether the middle class is truly vanishing;
  • Whether a rising tide truly does float all boats;
  • Why this might be a good time for a new vision of utopia; and
  • Why law firms might want to make their next associate hire a robot.

And much more. Stay tuned.