The Los Angeles Times
Sunday, May 9, 1999
The Jackpot Economy
Widening wage inequality is not just a function of a better education
or great technological skill. Dumb luck may be even more important.
By DAVID FRIEDMAN
Amid soaring stocks and tightening labor markets, last month's
disclosure that U.S. wage growth fell to a 20-year low sharply
challenges popular justifications for this decade's staggering income
inequality. It's time to refocus on one of the era's most striking
developments: the unprecedented cleansing of working-class concerns
from America's once-progressive politics.
The widespread, but surprisingly unexamined idea that
technological change chiefly accounts for rising global poverty,
falling real wages and astounding wealth concentration highlights the
new political elitism. Wealth inequality, it turns out, is just the
birth pain of the Information Age. The PC revolution heavily rewards
Internet savvy and punishes those with "old economy" skills:
construction workers, aerospace engineers, service employees, farmers
and the like. Worldwide assets naturally flow to the high-tech elite.
Huge wealth differentials are the result.
Part of this "technology story" is undeniably true. Even in the
booming United States, let alone struggling Asia or Central Europe,
wage inequality is dramatically growing.
According to Economic Policy Institute economist Jared Bernstein,
median inflation-adjusted U.S. wages fell by 3.1% during 1989-1997.
Hourly pay, meanwhile, stagnated or fell for the bottom 60% of the
U.S. work force, including 80% of all male workers. Real wages fell by
6.7% for male workers and rose by just 0.8% for women, about one-tenth
as fast as in the 1980s. U.S. poverty rates rose to nearly 14%,
historically quite high, while middle-class wealth fell by 3%.
Concurrently, the share of total national wealth held by the top
1% of U.S. households ballooned from 37.4% to 39.1%. The wealthiest
10% of all households pocketed nearly 90% of the profits from the
'90s' stock-market run. Average corporate executive pay has doubled
since 1989 and is now a record 116 times what a typical worker earns.
There's little evidence that a microchip-induced "technology
shock" unique to the 1990s can even remotely account for all this.
Research by Bernstein and colleague Lawrence Mishel shows that
technology's impact is now a less significant factor affecting wages
and is actually more favorable to many lower-wage workers than in
previous decades. Productivity rates, which should be exploding if the
computer revolution were generating huge returns for high-tech skills,
grew no faster in the 1990s than in the 1980s; they are now lower than
in the precomputer 1950s and 1960s.
More telling still, throughout the 1990s, average starting wages
for college graduates, the most technically advanced and
computer-literate workers, fell by a stunning 10%. Newly minted
biologists, chemists and physicists saw their starting salaries
plummet from 11% to 14.5%. Offers to computer programmers dropped by
more than 9%, and from 2% to 3% for new computer scientists and
engineers.
These findings decisively contradict claims that education and
computer-related skills explain contemporary wealth disparities.
But if the technology story is so weak at explaining wage
inequality, why is it so popular? In previous decades, after all,
"trickle down" and other rationales for wealth inequality were
relentlessly attacked.
What's different today is the unparalleled influence that a new,
fabulously privileged elite--including Web-site and computer gurus,
actors, directors, media magnates and financial power brokers--wields
over the mainstream left. To be sure, the wealthy, such as the
Kennedys or Roosevelts, long played influential roles in U.S.
progressivism. Never before, however, have their interests been so
dominant, yet less scrutinized.
Cheered by a star-struck media, the new elites have redirected
the left's focus from working-class survival to matters of suburban
"livability." Welfare was easily expendable, but racial and gender
preferences even the wealthiest might claim were religiously defended.
Hundreds of thousands of manufacturing jobs were sacrificed by a
Democratic administration so that bargain-basement luxuries could be
imported.
Everyone seemed to win. As the stock market rose during
1993-1997, the super-rich got even wealthier and paid taxes at far
higher rates than if the same income were spread among more people.
According to the Congressional Budget Office, had U.S. wealth
distribution stayed the same as in 1993, the country would still
suffer a multibillion-dollar federal deficit. Instead, the budget
miraculously balanced.
The technology story conceals what, in many ways, is an
old-fashioned jackpot economy. Great wealth flows to the few corporate
executives, celebrities, professionals and Internet hustlers who catch
the fancy of cash-flush U.S. investors. It's much nicer to attribute
good fortune to better education, or a high-tech revolution, than to
low interest rates, global impoverishment, social connections and dumb
luck.
Hollywood, the epicenter of U.S. faux progressivism, dramatically
illustrates how working-class interests are undermined by the left's
elitist agenda. In the early 1990s, filmed entertainment was evolving
into what many thought would be a true "new" economy: a dense network
of highly collaborative, flexible companies that collectively produced
high-quality products for global distribution. The industry's
resulting job growth and high skills and wages helped lead Southern
California from recession.
The Jackpot Economy upset these trends. Exploiting investors'
gullibility and celebrity infatuation, Hollywood's "above the line"
talent--big-name directors, actors and writers--demanded and
increasingly got exorbitant fees for their services. This upward flow
of wealth came at the expense of the "below the line" craft and
blue-collar work force, whose share of production budgets steadily
fell. Wages and job growth contracted. Employment security and work
conditions worsened.
America's most self-consciously liberal industry inaugurated a
classic labor squeeze. Hollywood's heavily unionized work force made
repeated concessions, often in the face of threats to move production
to low-wage, subsidized and nonunion locations like Canada and
Australia.
To date, however, the progressive media have largely ignored
these realities. Rank-and-file union members like Michael Everett, an
L.A. County Federation of Labor delegate, were shocked when the left's
flagship journal, the Nation, ran a gossipy, cream-puff series about
Hollywood. "Had even one of the contributors bothered to check beneath
the surface glitz," he laments, "they would have discovered a factory
town in deep distress."
Politicians supported by Hollywood similarly balk at questioning
the disparate bargaining power and locational opportunism their
patrons employ against the working class. Most want to dangle
subsidies of their own, a strategy that would likely provoke a new
bidding war with other states and countries. Even worse, locational
subsidies perversely transfer public revenues badly needed for other
purposes to an already wealthy elite.
Does it matter if U.S. progressives care less about a chicken in
every pot than latte for all who can afford bone china? Although it's
possible to disagree about ultimate policies, America sorely needs an
authentic working-class politics.
The dramatic deflation of overseas economies that has accompanied
the U.S. economic boom, for instance, is breeding potentially severe
future consequences. China's intransigent example--aggressively
unequal trade exploiting huge labor-cost differentials, a closed
economy and overt military espionage--is gaining currency as the
preferred response to U.S. hubris. A working-class politics would
force U.S. leaders to more carefully consider trade, labor, social and
security issues that the jackpot-happy elite all too readily ignores
or downplays.
It's also unclear how most Americans will react when the good
times end and the technology story no longer pacifies. As upward
mobility is increasingly truncated by elite-dominated politics, and
working-class concerns are treated as fringe issues by both political
parties, social unrest is a real possibility.
That's the problem with a jackpot economy. The glitter and
excitement surrounding inconceivably big payoffs seem so seductive, so
achievable. Yet, it's only in the make-believe world of a heavily
guarded casino that almost everyone can lose, and the house always
wins, without serious consequences.*
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David Friedman, a Contributing Editor to Opinion, Writes Frequently on
Economics and Development
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