Inequality and Opportunity

Is our problem that the very rich have too much money? Or that the rest of us don't have enough?


Last week Ezra Klein observed that,

The top 1 percent, for instance, has gone from capturing about 8 percent of the national income to 18 percent. But there’s no obvious skills differential between workers in the top 1 percent and the workers directly beneath them. It’s not like hedge fund managers are the only guys able to use Excel.

Matt Yglesias and Alex Tabarrok push back, arguing that modern technology has enabled the very best to leverage their success in a way that they couldn’t decades ago, simultaneously inflating the value of being number one and diminishing the value of being merely very good.

Klein responds that they’re right but the outcome reflects changed structure, not added value.

Kobe Bryant can make more money because the Chinese watch his basketball games and pay him to endorse their products (that’s not a random example, incidentally).

But saying that the rise in inequality is partly the result of technological change is not the same as saying it’s the result of skills-biased technological change. It’s not that satellite television has created a need for more basketball players and that need isn’t being filled. If that were the case, the answer would be easy: Train more basketball players. It’s that satellite television has made it much, much more lucrative to be one of the world’s top basketball players. It’s not about skills, but about the opportunity to make money. Training more basketball players won’t really help reduce inequality or spread opportunity in that world. Higher tax brackets for the super-rich, however, might.

Yglesias, not surprisingly, suggests the same thing in his post.  Tabarrok doesn’t mention it but I’ll go out on a limb and guess that he’d oppose the idea.

What’s particularly interesting to me, though, is this turn of phrase from Klein’s penultimate sentence:  “Training more basketball players won’t really help reduce inequality or spread opportunity in that world.”

These are, at best, loosely related concepts.

There’s the old joke about the Russian peasant jealous that his neighbor has two cows while he only has one.  Granted a wish by a genie, the peasant says:  “Kill one of my neighbors cows!”   That’s one way of reducing inequality.   But it makes the peasant’s life better only by comparison.

Should our focus really be on the problem of a handful of people getting much richer than the rest of us?  Or on giving more people the opportunity to make their lives better?

While higher tax brackets might be justifiable on other grounds, they’re unlikely to do much in the way of spreading opportunity.  They’d, by definition, reduce inequality, of course.   But it’s not clear what good that does anybody.

Now, I suppose, we could spend the additional revenue gleaned from such a policy (yes, there’s the Laffer curve to consider, but a politically salable hike would likely keep us on this side of it) in such a way as to create additional opportunity.   We could, say, beef up our high school vocational training system to get more kids the skills needed to get decent jobs.   I could be talked into paying more taxes for such a thing.

But too many “soak the rich” types seem mostly interested in killing one of Kobe Bryant’s cows.

FILED UNDER: *FEATURED, Economics and Business, , ,
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. john personna says:

    Taleb tells a long parable in The Black Swan which plays off some made up country names: Mediocristan and Extremistan. The idea is that there are certain domains where averages are very reliable (height of US males) and where they don’t describe things very well at all (income of US males).  It’s all the old clustering around the mean thing, versus the fat tail thing.

    I’ve talked here before about the Justin Timberlake effect.  It’s another way to tell the same story as above.  Well, more so, since while his talent was judged high, it wasn’t considered extreme or commensurate with his success.  In Extremistan the information cascades can favor random players.  Someone will become a star.  So, while incomes have lived in Extremistan, but with increasing connectivity we are getting even fatter tails.

    Opportunity?  I suppose everyone has a shot at playing off the connectiivty, and becoming in some small part a Timberlake.  Is that what we mean by opportunity though, or are we looking for the mean? Does higher income for a Timberlake mean lower income/opportunity for the average entertainer?

    I’d worry that it doesn’t bode well for the average non-star.
     
     

  2. john personna says:

    (And so yes, taxing the winners of the success lottery seems fair.)

  3. Dave Schuler says:

    We could, say, beef up our high school vocational training system to get more kids the skills needed to get decent jobs.

    The problem with this approach is that the shelf life of today’s highly specific job requirements is too short to enable the educational bureaucracy to respond on a timely basis.  I’d rather see a reduction of emphasis in the public schools in favor of paid apprenticeships partly supported by subsidy.  So, for example, I think we’re creating plenty of people with college degrees but not enough jobs that those people are qualified to take.  In my view the solution is to stop shotgun subsidy of college education in favor of something more targeted at actual employment.

  4. john personna says:

    So, for example, I think we’re creating plenty of people with college degrees but not enough jobs that those people are qualified to take.

    Remember, the data show job shortages in tech jobs while at the same time no call for softer (less unique) skills”

    “A recent report coauthored by Deloitte, Oracle, and the Manufacturing Institute reinforces the evidence this researcher has been writing about for the past decade: High-tech U.S. companies are suffering from a shortage of qualified skilled technical workers.”


    http://www.britannica.com/blogs/2010/03/us-job-shortage-or-skill-shortage/

  5. john personna says:

    And:
     

    “Blue collar jobs have taken a bad rap for quite some time, and young people have been encouraged to attend college rather than learn a skilled trade. Is it possible we have been perpetuating this trend by encouraging the commercialization of colleges in the name of progress? The age of technologies and communications has produced a hunger for more and more of everything.”

    http://www.associatedcontent.com/article/5726446/lack_of_skilled_workers_how_could_that.html
     

  6. Dave Schuler says:

    I think the situation is much more narrow than the “tech jobs” vs. “softer skills” dichotomy you’re setting up.  I think that very highly specific technical skills are being required, their shelf life is becoming increasingly short, and that’s a situation that the educational system is incapable of addressing.  That’s why my preferred solution is a deemphasis of college as such in favor of apprenticeship programs offered by business so they have incentives to cultivate the skills they need.

  7. john personna says:

    Well, I kind of feel you (Dave) and James as defenders of “degree, any degree.”  That might not be totally fair.  We might differ in … er … degree.
     
    I think “a deemphasis of college as such in favor of apprenticeship programs” is right for these times. But I think part of that means that we must slash the bad degree programs from our public college and university programs.  They are a waste for the public and a disservice to the student.

    I mean, they can’t both be true … that a degree is as valuable as ever, and that we should be deemphasizing them all the same.
     
     
     

  8. Gerry W. says:

    There are a number of problems going on here. The rich will always have an advantage either with knowledge, with money, or with tax laws that will keep and/or expand their wealth. The trick is what we can do to create prosperity for the middle class and the poor. And they are given the huge advantage taking advantage of China and other markets and also exploiting cheap labor.
    Here is another graph
    file:///Users/geraldwoodman/Documents/Jobs/gap%20graph.jpg
    We have been having this gap become wider over the last three decades. I think globalization and automation has played a big part. The other part is that our government has not recognized or has not figured out in what to do. We are still with the Bush tax cuts and that did not create the jobs, did not prevent a recession, and did not create prosperity and the gap between rich and poor is wider. Our country has gone more for ideology and not with pragmatism. We have not invested in our country for a long time, be it, infrastructure or preliminary science. We are also caught up with wars that adds nothing to our country and actually takes the eye off the ball to attend our business. We also have an older structure of capitalism than the new state capitalism that we see in China.
    We also see the same industries fighting over the same territory. For example, putting an extra chocolate chip in a cookie knocks out the other competitor. In a nearby town, there is O’Reillys, Autozone, and Advance Auto Parts in the same four block area. Someone will lose and the little guy will be out of a job.
    We also have little upward movement as there is no “new” industries to go to. Apple has their i phone and i pad built in China. Thirty years ago, these widgets would have been built here. And with globalization, we have simply lost middle class jobs. Merging 2 billion cheap laborers to 300 Americans, shows the advantage of cheap labor and big profits for the rich. Add automation and I know that I would not have the knowledge for those machines. And then you add lean principles that reduces the workforce, and there is little opportunity to get ahead.
    So, we are going to have to find out what the problems are and find solutions to those problems and political parties sitting on any ideology will not work. We can’t wish something to happen. And so far, both parties have no idea what to do to create jobs, wealth, and opportunity.

  9. Gerry W. says:
  10. James Joyner says:

    Well, I kind of feel you (Dave) and James as defenders of “degree, any degree.”  That might not be totally fair.

    That’s actually the exact opposite of our positions.  While Dave and I differ at the margins, we both think that “a college education for everyone” is an absurd mantra for a host of reasons.

    In this particular post, I’m throwing out the idea of vocational training at the high school level, for those unsuited to college or otherwise drawn to skilled crafts as one possible way of increasing opportunity.   Dave seems to like the goal but think that high schools are too bureaucratized to do it effectively, since they’d adapt too slowly to the needs of the marketplace.   I’m inclined to trust his instincts on this matter.

  11. Trumwill says:

    Dave, a couple of thoughts. First, I don’t know that apprenticeship deals all that well with the short shelf-life. It seems to me that one of the big problems is that employers expect their employees to come work for them perfectly trained. So if they do coding in C# and get a bunch of applicants who only know C++, their response is that there is a shortage of workers. As things continue to change rapidly, this will continue regardless of whether the person learned C++ in college or an apprenticeship. This is further complicated by the fact that a perceived shortage can be used to bring in foreign workers of which there is an excess of programmers that know any and every language you can possibly imagine.

    I had one former employer that demanded experience in a proprietary programming language that did not exist outside the company and demanded more experience in it than almost anyone on staff had. Once we talked to HR about it, they revised the ad, but that’s the sort of mentality that exists in tech. They want the most experience possible in the specific skills that they use. Sometimes for even entry-level positions. There is no desire to train at all. I think our employers have become spoiled in that regard and the education establishment encourages that mentality.

  12. steve says:

    Getting back to the original premise, I am concerned about the amount of wealth concentrated into the hands of very few people. That much wealth gets you entry and influence everywhere. It means that both government AND private enterprise decisions will be dominated by very few people. I would rather have our decision making spread out more, with ideas able to come from other people without large fortunes. Oligopolies dont last very long.
     
    I also think it important to maintain the appearance of upward mobility in our society. A two tiered society is not my ideal. Look at the countries around the globe that are generally associated with large wealth inequality. As Plutarch said…
     
    “An imbalance between rich and poor is the oldest and most fatal ailment of all republics.”

  13. Trumwill says:

    While I am mostly a believer that absolute wealth is far more important than relative wealth, I don’t think that the latter is irrelevant. Having significantly more wealth than someone gives you a degree of power over them. Their money can buy influence. They can collect property that can be used to drive up rents. They can use their deep pockets for a competitive advantage in the business world. Their having the money will drive people to try to please them at your expense.

  14. Steve Plunk says:

    For some it seems envy makes the world go round.
     
    While there may be a problem with the rich having more access politically is that a problem with the rich or is that a result of government being so big and powerful.  Shrink government and we would likely see the rich less concerned with it.
     
    In the mean time the rich hire people, invest money, and generally serve a purpose in the economy.  Taxing them more has proven to not create jobs but merely give an already bloated federal government more money to waste.  The rich are the creators of the wealth we all share while the government is the destroyer.  I’ll throw in with the creators.

  15. Dave Schuler says:

    I had one former employer that demanded experience in a proprietary programming language that did not exist outside the company and demanded more experience in it than almost anyone on staff had.

    I recall reading an ad back in late 1981:  “IBM PC expert required.  Must have 5 years experience” (the PC had been released earlier that year; nobody had five years of experience with it let alone expertise).

  16. steve says:

    “Taxing them more has proven to not create jobs but merely give an already bloated federal government more money to waste.”

    Our job creation post WWII has been at its worst with lower taxes on the wealthy. Could just be an association. Maybe not.

    “Shrink government and we would likely see the rich less concerned with it.”

    What I see as more likely is the top 1% taking another 10% with most of that going to those at the very top, that is our trend after all. A handful of very wealthy people vs a small weak government? I think they will be kingmakers, if they dont decide to play the role themselves (Fiorina, Whitman, Heinz, etc.). hey will sit atop their multinational corporations. They will never lose a dime as all losses will be socialized. Their kids will become an aristocracy.

    Steve

  17. sam says:

    Is our problem that the very rich have too much money? Or that the rest of us don’t have enough?
     

    In the immortal words of Buckaroo Banzai: No to the first, yes to the second.

  18. john personna says:

    That’s actually the exact opposite of our positions.  While Dave and I differ at the margins, we both think that “a college education for everyone” is an absurd mantra for a host of reasons.

    Where was our difference then?  I know I was more ready to call for reinvention of university education, but I think I was also more willing to lay blame on too many degrees in the wrong majors.

    I could read into this statement the idea that degrees are fungible:

    So, for example, I think we’re creating plenty of people with college degrees but not enough jobs that those people are qualified to take.

    Re. Trumwill, when CompSci degrees are ranked in the top ten for starting salaries, I’d say they aren’t a problem:

     
    http://www.payscale.com/best-colleges/degrees.asp

    Fully one third of US graduates 25-29 are working in low skills jobs.  What we want to know is what were those majors, and how soon can we stop producing so many of them.

    http://timiacono.com/index.php/2010/09/10/young-and-overqualified/

  19. Brummagem Joe says:

    To be in the top 1% of income earners in the country requires an income of $1,250,000 plus. The median income in the country is around $45,000. Those in the top 1% receive a disproportionate share of their income from investments which are only paying capital gains tax and therefore the overall effective tax take from the top 1% is just over 16%. This probably overstates it since reporting in this group is at around 70% versus the 99% rate for regular salary and wage earners. For some strange reason Jim at bottom considers this a satisfactory state of affairs despite the fact the top 1% incomes have rocketed over the last thirty years while 90% of the country has experienced little or no income growth. The other factor at play here is that most of the people in this 1% despite huge individual success stories actually inherited substantial wealth so that the US now has less social mobility than France! In the long run this is not a sustainable position economically or politically because if you follow it’s logic to its conclusion we’ll end up with the top 1% with 25%, 30%, 40% of national income. Long before it gets to 40% the pitchforks will have appeared.        

  20. Raoul says:

    “Soak the rich” – very nice- no bias there.  The bottom line is this: Fed expenditure is 20-22% of GDP and will grow inevitably due to population growth to about 25%. To Develop a tax system that recoups this certainly means the rich pay a higher rate. And this has nothing to do with Kobe.

  21. Trumwill says:

    John Personna,
     
    What I’ve run into is a desire on the part of employers to have all prospective employees to be able to jump in immediately and do the job without training. Coming out of school you have a lot of the most current and up-to-date skills. However, as Dave points out there is a shelf-life on these technologies and as long as employers are expecting people to be able to step right in and do the job, investing four years in a comprehensive education may not be the best allocation of resources compared to a more nimble system where people get precisely the education they need and then have money left over so 10 years down the road they can get a newer education with new skills… or a less nimble system where employers bite the bullet and train people to do the job that they need them for.
     
    Regarding the distinction between useful and useless degrees, this has been a hobby horse of mine for quite some time. We are of a very, very similar mind. The only reservation I have about it is that there are a lot of people that simply aren’t cut out for engineering or IT work. You can’t just push them in that direction and expect them to succeed. So what do you do? I think that vocational training of a much less expensive sort is better than a liberal arts degree more often than not, but… it’s not clear to me that there are enough jobs to go around at the moment for someone to be trained into. In a better job economy, nobody would care that you majored in Comparative Folk Dancing instead of a generic business degree. In an employer-friendly job market where there are not enough jobs to go around, it’s as good a way as any to cull the applications. So I’m not 100% positive that you can change their destiny by changing their majors except on the individual level (ie Junior majors in Business but everyone else sticks to Philosophy).
     
    These are counter-thoughts, though. By and large, I come from where you come from on the issue.

  22. john personna says:

    I think I’m really saying (to put it bluntly) choose a good major, or choose a good trade program, or don’t bother.
     
    The sad thing about that 1/3 underemployed is that they passed the program.  They got their degrees.  They weren’t the wash-outs.  But, somehow that wasn’t enough.
     
    (If you have a trust fund, by all means major in art history.)

  23. sam says:

    @Dave S
     

    That’s why my preferred solution is a deemphasis of college as such in favor of apprenticeship programs offered by business so they have incentives to cultivate the skills they need.
     

    Interestingly, the last company I worked for, a major computer manufacturer, followed just that plan. I was hired as an entry-level tech support engineer, as were many others at that time (this was in 1999). I had some experience in computers (and took some classes in Unix), and I have an advanced degree (though not in computer science — which wasn’t even a field when I graduated from college it was that long ago). But most of the folks I was with either had not gone to college or had not finished. The company hired us anyway and set about training us pretty rigorously.  And pretty intelligently — we began by fronting all calls in every aspect of tech support, kernel, storage, network, hardware, OS. We answered those we could, and those we couldn’t, we sent up to the specialized groups. After a stint as a utility infielder, so to speak, we “graduated” to one of the specialized groups. It was a very well-thought out apprentice program. And I think it worked really well.

  24. Brummagem Joe says:

    (If you have a trust fund, by all means major in art history.)

    It seemed to work out for Bernard Berenson some of whose letters I’ve just been reading.

  25. Joe R. says:

    Well then, all that’s left for us to do is to decide how much of the pie the top 1% get to keep!  And by us, I mean you.  Keep me out of it.