Income Inequality Damages Resilience

A very creative and insightful piece by Steve Randy Waldman on income inequality makes the case that social resilience in a productive modern society is greatly weakened by an aristocratic/feudal income structure.

It’s hard to summarize. Here’s how it starts:

I think there is a tradeoff between inequality and full employment that becomes exacerbated as technological productivity improves. This is driven by the fact that the marginal benefit humans gain from current consumption declines much more rapidly than the benefit we get from retaining claims against an uncertain future.

Comments:

  1. I'm not really sure the facts fit the argument. That piece is sort-of arguing that the megarich are hoovering up all the cash. But, e.g. http://solutions.powersimsolutions.com/Ranking/HistoricalPerspective.aspx says they only have about 50% of (US household) wealth, if I've read it right. So there is lots left over for everyone else.

  2. William, you have to understand, you live in one of the last enclaves of civilization. I think it gives you a happily skewed view of what is going on.

    The point of the article is not how the resources are allocated in times of plenty, but how everything will work when they dry up. In particular, this sense of wealth as an ever-widening series of insurance policies makes a great deal of sense. In America, where if you don't make the first tier you are essentially left for dead when you get a chronic ailment, and where if you don't make the second tier, your children are daily subject to random atrocities, this is quite palpable. It also explains the behavior of my late father, who genuinely expected communists or Nazis at any moment, and who had odd ways of hoarding capital as a consequence. It's not about power at all, despite the movies. It's about fear.

    It amounts to the privatization of security/sustainability. (The right and left wing names for the same concept, I think.) And this privatization greatly reduces collective security in proportion as the disturbance gets larger.

  3. Well, note that they are trying to use their theory to explain post-2008 economics.

    Also, they are using a model whereby "hoarded" wealth is locked up and is useless. I'm not convinced that works. Clearly if you hoard food, it isn't available to anyone else. But if you hoard money by stuffing it into a bank account, then its available to the bank to loan out.

  4. Regarding the article's reference to the 2008 episode, I thought the point was not so much to explain the near-collapse as to show how it fit in with the pattern.

    Regarding banks and money, the availability of money is not the point. The point is that in a bidding war, relatively small amounts of money become worthless. The example I would use is how Haitians and Egyptians cannot compete with American cars for calories on an open market when there are crop shortfalls.

    At a couple of layers up from there, and more in keeping with the spirit of the link, I find myself quite satisfied with my access to luxuries. I travel, I go to various spectacles, I have nice cameras and musical instruments, my air conditioner is reliable, I have a wide variety of extraordinary restaurants and groceries that I habitually visit. Yet I remain at risk of losing access to health care, and very much at risk of losing quality of health care. It is the latter, not the former, that keeps me from quitting my job and freelancing. So my position fits exactly in with what is being described.

    And I have seen similar behaviors among much wealthier people, as the article describes.

    The point here is that the dominant value of money in a walthy society is how many firewalls you can erect between yourself and disaster, NOT how many toys you have to play with in the interim.
    The motivation for amassing wealth in the modern society is not primarily desire but fear.

    And this privatization of what ought to be the public function of security diminishes sustainability. Everyone focuses on their respective personal risks and not on collective risks. So collective planning collapses.

    I would actually go further than the article did in one respect - the idea that this insecurity-building is effectively built into the system by the growth imperative. Going from a thirty cent dinner to a three dollar dinner is enormously motivating, going form there to a thirty dollar dinner is very satisfying, and going from there to a three hundred dollar dinner is, to most people, not something one is inclined to make a habit of. Demand, that is to say, (and McCarthy, oddly, often alluded to this) saturates.

    But fear doesn't. So in a world of plenty that is addicted to growth, fear is perhaps necessary. This suggests to me that the decline of the public sector is necessary for growth, not just in relative but in absolute terms.

  5. William Connolley --- Money stuffed in a canvas bag is not available. Indeed, that is almost what at least US banks are doing with funds on deposit; there is little lending due to, as I undeerstand it, fear on the part of the bankers.


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