Technology and Inequality

The Happy Myth

by DEAN BAKER

 

The people who have been the winners in the massive upward redistribution of income over the last three decades have a happy story that they like to tell themselves and the rest of us: technology did it. The reason why this is a happy story is that technology develops to a large extent beyond our control.

None of us can decide exactly what direction innovations in computers, automation, or medicine will take. Scientists and engineers in these areas follow their leads and innovate where they can. If the outcome of these innovations is an economy that is more unequal, that may be unfortunate, but you can’t get mad at the technology. This is why the beneficiaries of growing inequality are always happy to tell us that the problem is technology.

There is another story that can be told. In this story the upward redistribution of income was a conscious policy by those in power. This story points to a number of different policies that had the effect of redistributing income upward. For example, exposing manufacturing workers to direct competition with low-paid workers in the developing world, while protecting highly educated professionals (e.g. doctors and lawyers), would be expected to lower the wages of both manufacturing workers and the large number of workers who will compete for jobs with displaced manufacturing workers.

Central banks that target low inflation even at the cost of higher unemployment will also increase inequality. When a central bank like the Fed raises interest rates to slow the economy and reduce inflationary pressures, it is factory workers and retail clerks who lose their jobs, not doctors and lawyers. Even an economist can figure out that this will depress the wages of the former to benefit the latter.

And when a government adopts a one-sided approach to enforcing labor laws, so that courts intervene to benefit management and weaken unions, it will reduce workers’ bargaining power. This will mean lower pay for ordinary workers and higher corporate profits and pay for those at the top.

These and other policy changes over the last three decades can explain the massive upward redistribution that we have seen over this period. In this story there is no happy coincidence about the upward redistribution of income. It was done by human hands with the finger prints of the 1 percent everywhere.

But people involved in policy debates often have difficulty seeing these fingerprints. That is the context in which we have to understand the report that the OECD released on inequality at the end of last year. While this volume contained much interesting data and useful analysis, the main villain in its inequality story was technology.

This led to the happy conclusion that those calling the shots were not responsible. As decent caring human beings they had ideas about how to redress the harm that technology had caused, but this was only because they were good people. There was no sense of undoing the damage brought about by deliberate policy.

On closer examination it turns out that the OECD technology story is wrong. Ananalysis by my colleague at the Center for Economic and Policy Research, David Rosnick, found that they appeared to have made a mistake in their analysis substituting a coefficient on a cyclical technology variable for the coefficient of the trend technology variable. Essentially, their results (and ours) found that spending on technology may influence inequality over the course of a business cycle, but that the increase in spending on technology over the last three decades had no impact on inequality over this period.

The OECD analysis did find that lower unionization rates and weaker labor protections contributed to inequality; although this rise was offset by the impact of an increasingly educated workforce. On net, their analysis explained none of the rise in inequality they identified.

Our analysis found that the growth of the financial sector could explain much of the rise of inequality over this period. The rise in the financial sector share of compensation was strongly associated with a rise in inequality. This is not surprising. The huge paychecks of the Wall Street crew have to come from somewhere and our analysis indicates that it came from those below the 90th percentile in the income distribution. The growth of the financial sector is in turn a story of too-big-to-fail insurance and having the government look the other way in the face of financial sector corruption, as we see most recently with the LIBOR scandal.

In short, the OECD struck out in trying to produce a volume that supported the benign technology caused inequality story. When done correctly their analysis does not support this conclusion. Our modification of their analysis fingers the financial industry as a major villain in the inequality story.

If we are serious about reducing inequality, reining in the financial sector must be a big part of the plan. And, a tax on financial speculation would be a great place to start.

Why Is the TPP Such a Big Secret?

 by Tim Robertson, Huffington Post

This week in Dallas, negotiations for what's likely to be the largest Free Trade Agreement (FTA) in U.S. history will continue in near total secrecy, despite growing demands for an open process. The darkness surrounding the talks isn't surprising, considering the American public's increasing disapproval of FTAs and the laundry list of corporate handouts under discussion. What is surprising is United States trade representative Ron Kirk's growing crackdown on public involvement, despite claims of "unprecedented transparency."

The Trans-Pacific Partnership Free Trade Agreement (TPP) is being negotiated as a nine country FTA between the U.S., Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. Canada, Japan and Mexico are all expected to join talks, and many see more Pacific Rim countries including China and Russia eventually signing on. With floundering WTO talks, the TPP could very well establish U.S. trade policy for the next generation, yet all talks are happening behind closed doors and public influence has been increasingly suppressed.

Just this February, during unannounced TPP meetings in Los Angeles, the USTR apparently strong-armed the host hotel into canceling a health group-sponsored luncheon seeking to expose how Big Pharma's patent rights demands challenge AIDS treatment worldwide. Meanwhile, 20th Century Fox, itself lobbying for severe copyright measures, were permitted to give trade negotiators a multi-hour tour of their film-production facilities.

This lopsided allocation of influence has been standard for the TPP. Corporations and their lobbyists have seen consistent access to the negotiations -- about 600 corporate advisors can review and comment on working TPP texts -- and trade negotiators from partner countries.

The Washington International Trade Association's "World Trade Reception" for Trans-Pacific FTA negotiators featured the A-Team of corporate lobby groups and some of the most powerful corporations in the U.S. hobnobbing amongst trade ministers, with nary a voice for the public, unions, environmental or public health groups.

So, what exactly is the USTR hiding? Well, there are quite a few damning secrets:

Secret No. 1: The TPP is covertly attacking the same internet freedom rights that spurred online protests over ACTA and SOPA.
Secret No. 2: The TPP would make it more enticing for corporations to offshore jobs by opening our market to Vietnamese labor, which has significantly lower average wages than China.
Secret No. 3: The TPP could be a death sentence to patients with AIDS, tuberculosis, and other treatable diseases around the world.
Secret No. 4: The TPP would ban capital controls and impose limits on financial regulation, including post-recession checks on firm size and risky investments.
Secret No. 5: Americans hate FTAs! Recent polls have found more than twice as many Americans think FTAs hurt than help, and 69 percent of Americans think they cost jobs, which they do.

The list goes on, as there are 26 separate negotiating chapters, covering issues as diverse as labor, environmental, and procurement rules, which just drew the ire of 69 Members of Congress.

Congress has also lamented the continued secrecy of the negotiations. After proposing Senate amendments forcing TPP transparency, U.S. Sen. Ron Wyden (D-Ore) told Kirk, "I feel very strongly with respect to TPP about getting the proposals that you're looking at... online so that the public can have a chance to be heard on it," during a March Senate Finance Committee hearing.

None of this has dissuaded the USTR from the non-democratic nature of the talks. Starting in Dallas, he's actually doubling down by eliminating the day-long stakeholder presentation program, leaving civil society just a side tabling session.

The only way the corporate shopping list that is the TPP can get past public scrutiny is if no one ever hears about it. Fortunately, activists are fighting back May 8 to 18 in Dallas, and an online petition has already garnered thousands of signatures calling on Kirk to release TPP proposals.

We've learned from past FTAs that exposure to the light of democracy can stop them in their tracks. The TPP is no different. Please help return democracy to trade talks by signing the petition and sharing this article.

The Texas Unmiracle

The text overlay isn't very clear. It says:  READ MY LIPS: NO NEW TEXANS!

August 14, 2011 | New York Times
By PAUL KRUGMAN

As expected, Rick Perry, the governor of Texas, has announced that he is running for president. And we already know what his campaign will be about: faith in miracles.

Some of these miracles will involve things that you’re liable to read in the Bible. But if he wins the Republican nomination, his campaign will probably center on a more secular theme: the alleged economic miracle in Texas, which, it’s often asserted, sailed through the Great Recession almost unscathed thanks to conservative economic policies. And Mr. Perry will claim that he can restore prosperity to America by applying the same policies at a national level.

So what you need to know is that the Texas miracle is a myth, and more broadly that Texan experience offers no useful lessons on how to restore national full employment.

It’s true that Texas entered recession a bit later than the rest of America, mainly because the state’s still energy-heavy economy was buoyed by high oil prices through the first half of 2008. Also, Texas was spared the worst of the housing crisis, partly because it turns out to have surprisingly strict regulation of mortgage lending.

Despite all that, however, from mid-2008 onward unemployment soared in Texas, just as it did almost everywhere else.

In June 2011, the Texas unemployment rate was 8.2 percent. That was less than unemployment in collapsed-bubble states like California and Florida, but it was slightly higher than the unemployment rate in New York, and significantly higher than the rate in Massachusetts. By the way, one in four Texans lacks health insurance, the highest proportion in the nation, thanks largely to the state’s small-government approach. Meanwhile, Massachusetts has near-universal coverage thanks to health reform very similar to the “job-killing” Affordable Care Act.

So where does the notion of a Texas miracle come from? Mainly from widespread misunderstanding of the economic effects of population growth.

For this much is true about Texas: It has, for many decades, had much faster population growth than the rest of America — about twice as fast since 1990. Several factors underlie this rapid population growth: a high birth rate, immigration from Mexico, and inward migration of Americans from other states, who are attracted to Texas by its warm weather and low cost of living, low housing costs in particular.

And just to be clear, there’s nothing wrong with a low cost of living. In particular, there’s a good case to be made that zoning policies in many states unnecessarily restrict the supply of housing, and that this is one area where Texas does in fact do something right.

But what does population growth have to do with job growth? Well, the high rate of population growth translates into above-average job growth through a couple of channels. Many of the people moving to Texas — retirees in search of warm winters, middle-class Mexicans in search of a safer life — bring purchasing power that leads to greater local employment. At the same time, the rapid growth in the Texas work force keeps wages low — almost 10 percent of Texan workers earn the minimum wage or less, well above the national average — and these low wages give corporations an incentive to move production to the Lone Star State.

So Texas tends, in good years and bad, to have higher job growth than the rest of America. But it needs lots of new jobs just to keep up with its rising population — and as those unemployment comparisons show, recent employment growth has fallen well short of what’s needed.

If this picture doesn’t look very much like the glowing portrait Texas boosters like to paint, there’s a reason: the glowing portrait is false.

Still, does Texas job growth point the way to faster job growth in the nation as a whole? No.

What Texas shows is that a state offering cheap labor and, less important, weak regulation can attract jobs from other states. I believe that the appropriate response to this insight is “Well, duh.” The point is that arguing from this experience that depressing wages and dismantling regulation in America as a whole would create more jobs — which is, whatever Mr. Perry may say, what Perrynomics amounts to in practice — involves a fallacy of composition: every state can’t lure jobs away from every other state.

In fact, at a national level lower wages would almost certainly lead to fewer jobs — because they would leave working Americans even less able to cope with the overhang of debt left behind by the housing bubble, an overhang that is at the heart of our economic problem.

So when Mr. Perry presents himself as the candidate who knows how to create jobs, don’t believe him. His prescriptions for job creation would work about as well in practice as his prayer-based attempt to end Texas’s crippling drought.