Wednesday, March 6, 2013

Wealth inequality and capitalism's enemies

Source: The Economist, 10/13/2012

There's some video from 2012 on wealth inequality in America that's gone viral.  Capitalism's enemies - thanks in good part to vast numbers of un-businessmanlike armchair academics - have proven, shall we say, resourceful at coming up with ways to smear capitalism.  The recent and developing narrative holds that capitalistic market principles, without benevolent government intervention, lead in action to ever-increasing inequality (and, presumably, as a result, ever-increasing impoverishment of the non-rich).  I addressed this narrative around this time last year, pointing to a study by a couple ivy-league economists showing that in the past 40 or so years, not only has world poverty declined, but so has world income inequality.  Do you think any such data proves inconvenient to the scummy leftists hell-bent on attacking capitalism?

I encountered the pictorial graph above from doing a Google image search on "world gini index."  The search results provide a dizzying array of charts and graphs that could be used by any number of unscrupulous apologists for this or that political-economic ideology to twist the narrative to their liking.  What hardly at all seems to ever come up is data that conflicts with the graph above concerning world income inequality.  What's more, one who delves into the literature on this subject has to look long and hard for satisfactory explanations for the trend of rising inequality in some nations (such as the U.S.), since what we get from left-wing pundits and bloggers is the usual anti-capitalist stuff, and from right-wing pundits and bloggers a lot of silence or indifference to the subject of inequality.  ("The poor in America are rich compared to the poor in the developing world," is a common right-wing response - one that doesn't address the trend of rising inequality and - nowadays - stagnation or decline in the incomes of the American non-rich.)

One OECD paper provides eight distinct explanations that - quite surprisingly to Yours Truly - minimize the role of globalization, even though in the very paragraph discussing globalization there is mention that "companies have been investing more and more in other countries"!

The Conference Board of Canada covers the subject indepth.  A CTRL-F on "skill" will bring you to a paragraph discussing the role of high-skilled labor relative to low-skilled labor in an increasingly globalizing economy:
Market forces, particularly skill-biased technical change (SBTC) and increased globalization, are creating a rising demand for highly skilled labour. Edward Lazear, chairman of the U.S. President’s Council of Economic Advisors, explained this in a 2006 speech: “In our technologically advanced society, skill has higher value than it does in a less technologically advanced society.”10 As developed countries import more low-skilled-intensive goods and export more skills-intensive goods, jobs in low-skilled industries are lost in those developed countries.
To provide a fuller context, the article goes on to state:
However, not all researchers agree that market forces are at the root of all or even most of the rising inequality. For instance, in a paper published in the Journal of Labor Economics, David Card and John DiNardo argue that “contrary to the impression conveyed by most of the recent literature, the SBTC hypothesis falls short as a unicausal explanation.”11 An alternative explanation, put forward by economist Paul Krugman and others, is that the increase in inequality can be attributed to institutional forces, like declines in unionization rates, stagnating minimum wage rates, deregulation, and national policies that favour the wealthy.
(So, according even to at least one Nobel laureate, the trend is due in part to a shift away from less-capitalistic to more-capitalistic public policies.  What's unclear, to me, is how these policies don't reduce in more fundamental form to the influence of globalization.  From a businessman-like standpoint, non-unionized non-developed-country labor out-competes domestic unionized labor at the margins.  How are unions supposed to maintain their competitiveness in such a business climate?  Going to the benevolent government for help isn't going to stop the outflow of jobs.  But unionized labor is supposed to be more highly-skilled, right?  It all comes down to skill vs. cost, for one thing.  For another, given the dismal job America has been doing in the educational department, how can the U.S. see much growth in the highly-skilled industries?  Anyway, these are factors to consider that left-wing academics and the OWS crowd don't appear to pay much attention to, and certainly the failures of the American educational system don't reflect all that well on the educators.  (Whom are they going to blame for that?  It's not like the U.S. hasn't thrown enough money into its education system, before we even look at the fast-growing higher-ed-related student debt bubble.)  [EDIT 3/8/2013: I'm not satisfied with the analysis in this paragraph; needs more and better thinking to sort out what's what.  I can't escape the requirements of perfectivism!  For one thing, paying a mediocre (by MLB standards) ballplayer $1M a year to play third base for the Yankees is not going to help fill the team's need to be perennial playoff contenders, as much as paying $27M for its current third baseman does.  Same principle as it relates to the pay of unskilled vs. skilled labor, i.e., it's not a simple "skill vs. cost" equation, as companies usually need at least some people who produce what others can't, at any level of pay.  So what view am I supporting with this revision/edit, anyway?  Just why have unions gone into decline, aside from the easy Republican-are-meanies explanation?  Maybe I should defer to the specialist-economists for the time being....])

The Conference Board of Canada then uses two different world Gini index measures, one (not population-weighted) showing a rising Gini index (greater inequality) and the other (population weighted) showing a falling Gini index roughly in line with the graph above and with the findings of the two ivy-league economists. 

Now, as to capitalism's enemies, a few comments:

First, I don't know whether it's cognitive bias or intellectual dishonesty in any given case, but the opposition to capitalism seems to have become as much a dogmatic religion on the Left as the usual dogmatic religions have been so on the Right.  This isn't to say that the Right doesn't have its share of dogmatic ideologues on economics who in principle would never accept evidence that capitalism isn't so great.

Second, while the Gini index for America is somewhere in the 40s, depending on the specific measurement used, the world Gini index has been much higher than that for a very long time; where were the economic leftists all this time, decrying the world inequalities?  Why is it now such an issue to them?  If it's only because rising inequality accompanied by income stagnation among the non-rich hit home here in America that they started crying about it.  But think about it: decades ago, the income gap between the average American and the average person in China was so huge that it would take a certain cognitive selectiveness or - according to their on worldview - a staggering level of moral blindness to make a big deal about it all of a sudden now but not before.  That bespeaks of cognitive bias and/or disingenuousness about their real motives for concern about income inequalities.

Third, whatever people's ideological dispositions, the truly important thing is to get things right when it comes to the best economic institutions for people, what will make their (material) lives go best, and so on.  (It speaks to another cognitive bias of leftists that they are so heavily focused on material concerns to the exclusion of others.  Try watching MSNBC for a while and notice just how much time and attention is focused on economic concerns compared to their attention on, well, the spiritual ones.  Just have a look at the amount of attention paid these concerns in the works of the Left's favorite and most influential ideological figures.  When their attention does shift to the spiritual matters, it's often about how these matters should be removed from the public/government sphere but little in the way of how private citizens and communities could pick up the slack.  Anyway,...)  It's terribly important to get things right here because countless lives and well-beings hang in the balance.  If, based on a truly objective and comprehensive analysis, socialism (or, alternatively, capitalism) proved to be destructive of these ends, then honest people would certainly want to change their ideological affiliations for the sake of human betterment.  So.  In my case, I look at all the data that I've had available to me up to this point, and have to ask: could I honestly be an advocate of (socialism, or capitalism) at this point?

It's here that I should re-emphasize what my primary philosophical affiliation is, which goes deeper than politics and economics to the very core issues of human existence.  (I suppose, for a traditional Marxian, it doesn't go any deeper than the material aspects of our existence.)  My primary philosophical orientation is an Aristotelian and/or Randian one, that is to say a perfectivist or intellectualist-perfectionist one.  I think that a shit-ton of the problems facing the human condition can be dealt with most effectively, most economically, and most fundamentally at that level.  The intellect has primacy in human existence; it is the fundamental or primary driver of human affairs; the extent to which its potentialities are actualized is the extent to which human life is worth living (morally and existentially).  So, when, say, the schools are doing a piss-poor job of educating the students so that they can enter a high-skill profession, my primary focus is on fulfilling the needs of the intellect rather than calling for this or that change in economic policy.

That said, what can be said about the value of capitalism to human life, given the evidence?  Let's take the graph I posted above - the right side of it, that is.  Now, if a leftist were to interpret the data there for the time frame involved, I don't know what sensible anti-capitalist narrative could be constructed.  I might see some leftist ca. 1970 (assuming these data were readily available then) making the assertion that industrialization leads to greater and greater inequality - that, perhaps, the reason some countries industrialized was that in some way or other they exploited and impoverished the other countries.  (I do believe that this was in fact a commonly-employed leftist narrative for some time; hell, you can still hear it being used in opposition to "the multinational corporations" coming in to less-developed nations to "exploit" the labor and resources there, supposedly making the natives no better off while enriching the absentee corporate shareholders.)  But then things changed around 1970, and I don't know what an ideological leftist is supposed to make of it without looking like he or she is trying to interpret the data any which way possible as long as capitalism ends up looking bad.

What the data suggest to me, is that world inequality rose when some nations industrialized (or industrialized more) and others did not (or not as much).  Then, as more and more nations industrialized, particularly beginning around 1970, that world inequality basically leveled off (with a slight downward trend).  Also during that time, world population exploded, meaning not just rising incomes per capita but also many more capita.  And to cap it off, there appears nothing in this history that points toward some coming future push toward socialism, with this period being some necessary historical transition period exemplified by capitalism, as the traditional Marxian idea (a dogma, by this point?) would have it.

But if you look at the past couple hundred years, in the most fundamental terms employed in a neo-Aristotelian philosophy of history, what does this period show?  Something about the flourishing of human intellectual capacities not seen before in human history, perhaps?  It appears, unfortunately for Marxism, that a materialist conception of history could not account for such a historically revolutionary shift.  It probably comes as no surprise, however, to those familiar with a Kurzweilian-plus-Aristotelian understanding of history.  Of course, I'm always on the lookout for alternative explanations and theories that might best explain the available (or any new) evidence, but I'm not anticipating something much different than this (capitalism-friendly, neo-Aristotelian) one.

(After my previous posting, I had thought of making my next posting about the idea of "looking out for one another," though I don't know really what all there is to say about that beyond, "In a decent society people will look out for one another, should they fall on hard times or whatever, but it's not clear why the coercive force of government is necessary for that - certainly not as a default position."  So even in a capitalist society with some degree of income and wealth inequality, and some degree of economic instability and displacement associated with the process of "creative destruction," a virtuous/enlightened Jefferstotelian (Jeffersonian-Aristotelian) people would cooperatively engage (peacefully) to address individuals' Maslow-hierarchical needs as or when the need arises, in the most effective manner reasonably possible.  That would probably still involve the capitalists re-investing a great part of their earnings in business ventures, as they've already been doing aplenty in "other countries" as well as their own.  The primary key to a solution here is, as always, education - and what's needed first and foremost is a Jefferstotelian curriculum for the young'uns, not the usual array of leftist and socialist policy proposals (or the very un-Jefferstotelian right-wing ones, for that matter).)

1 comment:

  1. "And to cap it off, there appears nothing in this history that points toward some coming future push toward socialism.."

    There is no "left" or "right"... there is no
    "communism" or "capitalism" there is only ever a tiny faction that controls the state's monopoly on the use of force that makes the enormous wealth inequality possible.. in other
    words that protects the wealth of the few being
    confiscated by the majority. It has been this
    way since the beginning of time. Might makes right.
    In the coming future there probably will be a return to the -unmasked- might-makes-right-style of doing things.
    The cheap oil is gone..and so is the monstrosity called exponential took 5 decades to burn through a resource that needed millions of years to form.
    Enjoy these final moments of this warped economic system. It was a one time system based on a one time resource.
    Let's hope we in our final moments a last show some sapiens and don't take the planet with us when entropic decay sets in.