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On 2014-01-27, at 5:56 PM, Gary MacLennan wrote: > > Which brings me to the key question, not "Why aren't the poor out in the > streets?", but why is *The Economist* asking it. A subsidiary question > here might be "why has a conservative organization like Oxfam highlighted > the fact that 85 people own 50% of the world's wealth?" For me that answer > is two fold. Always and always , power and privilege and the ability to > dominate is accompanied by fear. No rulers are without fear of those they > rule. > the second answer for me brings us back to consumption. the other side of > the Cato analysis is that there is not much of a consumption gap between > the rich and the poor, means in fact that there is under-consumption. > Imagine those 85 trillionaires pigging out all day long and I am sure they > do. There would still be a short fall in consumption. I agree, Gary, although judging from the following commentary in the same publication yesterday, "secular stagnation" resulting from anemic demand seems to outweigh their fear of social unrest in their home markets. As you'll note, the proposals to stimulate demand circulating among bankers, investors, politicians, and their advisors are equally anemic, and could hardly be otherwise since a real boost to purchasing power would require the revival of the trade unions and other mass organizations, vastly increased state spending on infrastructure and other public programs, and structural encroachments on ruling class power and property. All the movement to this point has been in the opposite direction, and so long as the corporations have been reaping record profits, they've seen no reason to panic. Although the article suggests they are worried about the long-term negative effects of automation, it omits mention of their more pressing immediate concern - that the financial crisis in the advanced capitalist countries may be spreading into China and their other profit centres in the new emerging markets which have kept the global system afloat so far. Of plutocrats and progressivism The Economist Jan 27th 2014 INEQUALITY was one of the big themes at the World Economic Forum in Davos last week. According to an annual survey published by the WEF, Davos types view the widening gap between rich and poor as the biggest risk facing the global economy over the next decade. In panel discussions and television interviews, it was de rigeur for businessmen to fret about the dangers posed by their ever-growing share of the pie. At one session 64% of the audience said wealth concentration was “corroding democracy”. An attention-grabbing factoid from Oxfam—that the world’s 85 richest people have more wealth than poorest 3.5 billion—went viral. Even the Pope sent a message that Davos Man should worry about distribution. The irony of a bunch of plutocrats tut-tutting about income concentration is rich. (Jon Stewart’s Daily Show did a fine lampoon). And much of the concern was cosmetic. Inequality was the second-highest risk in last year’s WEF survey, and nobody paid much attention. This year, with the global economy improving, Davos attendees could intone publicly about Important Issues. (“Mindfulness” was another fashionable subject.) Privately, bankers were much more exercised about the evils of regulation than wealth concentration. Nonetheless, the public fretting was not all fake. Business leaders are more aware than most of the scale and pace at which technology is reshaping the global economy. They recognise that the big economic shifts that have concentrated wealth—capital’s rising share of national income and the skewing of wage gains to those at the very top of the income ladder—are not just here to stay, but, thanks to the accelerating pace of digital innovation, may get worse. Ken Rogoff, a professor at Harvard University, told one panel that on current trends, Davos would soon be hosting the world’s first person with a $200 billion net worth. But it was hard to find any businessman optimistic about the prospects for Europe’s army of unemployed young, or America’s workers with only middling skills. CEOs from emerging economies tended to be more hopeful that growth would raise all boats. But in the aging, slower-growing rich world, Davos Man was not very optimistic about what lay ahead for the average Joe—and, by and large, that worried him. What should be done? That’s where Davos was deeply disappointing. A gathering that was filled with bold futurology—endless panels about medical innovations that will allow us to live to 150—was remarkably bereft of big thinking on how to broaden the gains from tomorrow’s growth. Politicians peddled palliatives. Businessmen worried about crude redistribution and lamented poor education, but had few ideas, never mind bold ones, about how better to prepare workers, broaden capital ownership, or raise tax revenue in a way that was both efficient and progressive. The most popular palliative amongst politicians seems to be the minimum wage. Barack Obama is pushing for a big rise in America’s federal wage floor (currently $7.25 an hour). Britain’s chancellor is prodding the Low Pay Commission (a technocratic body that advises on the minimum wage) to approve a rise above the rate of inflation. In Germany, a country that has never had a national pay floor, the new coalition government has pledged to introduce one in 2017. Politically, raising the minimum wage has an obvious appeal. It is popular, and it doesn’t cost any tax-payer money. Moreover, there’s now a biggish body of academic evidence that shows modest minimum wages (ie up to about 50% of the median wage) don’t have big negative effects on employment. That helps explain why businessmen have been fairly muted in their criticism. (And to the extent that there are complaints, they are louder in Germany than in America.) A modest minimum wage really won’t do much damage, and businessmen know it. But there may be another reason for the lack of grumbling that ought to give the politicians pause. Davos Man knows that if minimum wages rise too far, they will simply accelerate the innovation that automates the tasks low-skilled workers do. Logistics firms will use robots sooner. Security firms will rely more on computer algorithms than burly men watching closed-circuit cameras. Retailers will shift even faster to self-check-out machines. That’s why a palliative that relies more on tax credits to top up low-wage workers' earnings makes more sense than a higher minimum wage, and why Davos types ought to be pushing it. A few academics were doing just that. But not the businessmen. One reason is the worry that any conversation about the tax code will quickly degenerate into crude redistributionism. The Davos crowd worry that for politicians on the left the easy political answer to inequality is ever higher marginal tax rates at the top. They point to the 2013 Obama tax hikes, to Bill de Blasio’s push for a surcharge on New York’s richest, or the Labour party’s talk of reimposing the 50% tax rate in Britain. Fear of fuelling this soak-the-rich tendency leads to a bunker mentality about tax. Plenty of plutocrats will admit, in private, that there are distortions in the tax code from which they benefit disproportionately: American private equity moguls squirm when you mention the “carried interest” provision which allows them to treat their income as capital gains (and pay lower rates). They know that getting rid of exemptions would be both progressive and efficient (a problem that goes well beyond America). In private conversations a surprising number of people thought it made sense to tax capital gains at the same rate as income. It may be naïve to expect the wealthy elite to take the lead on tax reform. But in less zero-sum areas, such as education and training, surely the Alpine brainstorming could be bolder. Why can’t the technology pioneers team up with the government types to dream up radical new ways to reskill workers? The answer seems to be a combination of buck-passing, a silo mentality and the pettifogging bureaucracy of many governments. For all their complaints about the skills shortage, too many businessmen see education as the responsibility of government. Too many educators have scant knowledge of what kinds of skills businesses really need. Tech pioneers are too busy expanding their platforms to millions more users. And too many governments are hobbled by inefficiency. (Each one of America’s masses of duplicative and fragmented federal training programmes has its own rigid rules.) In principle, these obstacles can be overcome. Employers could learn from each other. And so could countries. Germany does quite well on links between education and employment. The Scandinavians are good at linking state support with the nudge to retrain. MOOCs (mass open online courses) are reinventing how such retraining might be done. The challenge is to put all this together. If the Davos crowd are serious about addressing inequality, that would be a good place for them to start. ________________________________________________ Send list submissions to: Marxism@greenhouse.economics.utah.edu Set your options at: http://greenhouse.economics.utah.edu/mailman/options/marxism/archive%40mail-archive.com
