House of Paine

the merit klass vs the exploiter klass

krug calls it the 80/20 fallacy

ie

well at least the upper twenty percent
of wage and salary earners
 are getting a nice raise 
 out of globalization

nope ...

====================


Graduates Versus Oligarchs

Why is America becoming a land of oligarchs
 and the insecure? Paul Krugman writes:

Graduates Versus Oligarchs
 - New York Times: 


What we're seeing isn't the rise 
of a fairly broad class of knowledge workers

. Instead, we're seeing 
the rise of a narrow oligarchy: 
income and wealth are becoming 
increasingly concentrated in the hands of a small
, privileged elite.

 I think of Mr. Bernanke's position, 
which one hears all the time,
 as the 80-20 fallacy.

 It's the notion that the winners 
in our increasingly unequal society 
are a fairly large group -- 
that the 20 percent or so of American workers
 who have the skills 
to take advantage of new technology 
and globalization 
are pulling away from the 80 percent 
who don't have these skills. 

The truth is quite different.
 Highly educated workers have done better
 than those with less education,
 but a college degree has hardly been a ticket
 to big income gains.

 The 2006 Economic Report 
of the President tells us 
that the real earnings of college graduates
 actually fell more than 5 percent
 between 2000 and 2004. 

Over the longer stretch from 1975 to 2004 
the average earnings of college graduates rose,
 but by less than 1 percent per year. 

So who are the winners 
from rising inequality? 
It's not the top 20 percent, 
or even the top 10 percent.

 The big gains have gone to a much smaller,
 much richer group than that.

 A new research paper 
by Ian Dew-Becker and Robert Gordon 
of Northwestern University,
 "Where Did the Productivity Growth Go?,"

 gives the details.
 Between 1972 and 2001 the wage and salary income
 of Americans at the 90th percentile 
of the income distribution 
rose only 34 percent,
 or about 1 percent per year.

 So being in the top 10 percent
 of the income distribution, 
like being a college graduate, 
wasn't a ticket to big income gains.
 But income at the 99th percentile rose 87 percent; 
income at the 99.9th percentile rose 181 percent;
 and income at the 99.99th percentile 
rose 497 percent.


Just to give you a sense
 of who we're talking about:
 the nonpartisan Tax Policy Center
 estimates that this year 
the 99th percentile will correspond
 to an income of $402,306,
 and the 99.9th percentile to an income 
of $1,672,726. 
The center doesn't give a number
 for the 99.99th percentile,
 but it's probably well over $6 million a year.... 
The idea that we have a rising oligarchy
 is much more disturbing.

 It suggests that the growth 
of inequality may have as much to do 
with power relations 
as it does with market forces.
 Unfortunately, that's the real story.
 Should we be worried about 
the increasingly oligarchic nature 
of American society?
 Yes, and not just because 
a rising economic tide has failed
 to lift most boats. 

Both history and modern experience
 tell us that highly unequal societies 
also tend to be highly corrupt. 
There's an arrow of causation
 that runs from diverging income trends 
to Jack Abramoff and the K Street project

. And I'm with Alan Greenspan,
 who... has repeatedly warned 
that growing inequality
 poses a threat to "democratic society." 

=======================

here's the delong pudge factor :

Say, rather,

 that five things are going on:

The rise of a very powerful,
 successful, exploitative upper class. 

Further increases in inequality 
as the tax and transfer system 
becomes less progressive. 


Increases in risk that threaten
 to move middle-class families 
sharply downward 
in the wealth distribution.


Skill-biased technical change 
that sharply raises the benefits to education. 


Holes in the safety net--
the fall in the value of the minimum wage, 
time-limited welfare,
 and so forth. 


now the deluge ....


Color me not surprised. It seems that the best days of this particular republic may be behind us.

Posted by: craigie | February 27, 2006 at 10:25 PM 

I'm willing to believe that there is a problem here, but I think the college evidence is pretty thin: "Highly educated workers have done better than those with less education, but a college degree has hardly been a ticket to big income gains. The 2006 Economic Report of the President tells us that the real earnings of college graduates actually fell more than 5 percent between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average earnings of college graduates rose, but by less than 1 percent per year."

The problem with statements like this in a discussion about technical skills is that not all college degrees have anything to do with technical skills. Some do, some don't. There are lots of degrees which don't do much in the technical realm. It would be unsurprising to me if they end up more similar to the otherwise unskilled than the otherwise skilled when you want to talk about technology oriented gains in income. 

And I say this as someone with a BA in English literature. 

Posted by: Sebastian Holsclaw | February 27, 2006 at 10:51 PM 

The fascinating thing about this is that we are in what appears to be in uncharted waters in human history. In previous times when we had this sort of situation (eg pre French Revolution with aristocrats paying zero tax) those in the majority had precious little to lose by overthrowing the system. What we have now is a bulk of the population with mortgages and bearable lives --- there will be plenty of anger at unfairness, but few people willing to risk what they have to change the system violently. And the system won't be changed peacefully;it never is.
The one saving grace is that the plutocracy may have over extended their grasp, not within the US, but outside it. As we've all mentioned before, who knows how this will play out.

One thing no-one has mentioned. I fully expect we will start to see many articles about how inequality is a good thing. "Extreme wealth is like high grade, low entropy energy; it can be used to do all sorts of new things like create visionary companies. Wealth diluted across the middle class is like the thermal room-temperature energy surrounding us --- comfortable but basically good for nothing apart from keeping you warm."

Posted by: Maynard Handley | February 27, 2006 at 11:32 PM 

"The problem with statements like this in a discussion about technical skills is that not all college degrees have anything to do with technical skills. Some do, some don't. There are lots of degrees which don't do much in the technical realm. It would be unsurprising to me if they end up more similar to the otherwise unskilled than the otherwise skilled when you want to talk about technology oriented gains in income."

I doubt the distribution of college degrees changed much in favor of non-technical degrees. The problem here is more likely that the population of college graduates expanded, so that less technically skilled people who didn't go to college in '75 now do. Although both of those things can be controlled for and maybe the were in the Report.

Posted by: ogmb | February 27, 2006 at 11:47 PM 

"What we have now is a bulk of the population with mortgages and bearable lives --- there will be plenty of anger at unfairness, but few people willing to risk what they have to change the system violently."

To societies which stopped evolving, if the population is hungry enough change will come from inside. If it isn't it will come from abroad.

Posted by: ogmb | February 27, 2006 at 11:50 PM 

First, the French Revolution was not the work of the impoverished masses, but of the discontented bourgeoisie, many of whom were quite rich.
Second, I have worked on the changing distribution of wealth and income in Portugal from 1309-1789. Wealth and income were most unequal in the 16th century, when there was no social unrest. That came in the 17th century (sporadic and unsuccessful; tax revolts mainly), a period of less inequality than in the 16th century. So I find it difficult to say that revolution is the result of poverty. Other things are usually the catalyst.

Posted by: hj | February 28, 2006 at 12:43 AM 

The explanation for the docility of the "disadvantaged" in the US can be found in the recent book "What's the Matter with Kansas?" (approximate title). Marx was prescient: religion IS the opiate of the masses.

Posted by: hj | February 28, 2006 at 12:47 AM 

There are certainly exploitive groups in the this country. For instance, there are the tenured professors. Not all of them are exploitive, of course, but enough are to consitute a serious problem in our colleges and universities. 

Similarly, the teachers unions in many states and cities often set up rules that allow teachers with seniority to exploit the taxpayers and to prevent the kinds of reforms that might give poorer kids a fair chance. (Rich kids in those schools have other options.)

Perhaps Professor DeLong has written about these exploitive groups and I have missed it. (I rarely visit the site.) If so, I would appreciate pointers to his work on these kinds of exploitation.

Posted by: Jim Miller | February 28, 2006 at 04:19 AM 

Krugman is attacking the "knowledge worker" hypothesis, i.e. that American workers can still better their economic position by gaining education and skills that can compete in the new global market. (In other words, he is attacking that idiot who sometimes shares the page with him, Tom Friedman).

That hypothesis says nothing about technical vs. humanities degrees. If it were true, it ought to apply to all of the "symbolic manipulation" areas, which is larger than the narrowly technical studies. It is a hypothesis about higher ed in general; that's why Krugman's evidence is on point.

Posted by: Tad Brennan | February 28, 2006 at 04:19 AM 

I get very nervous when people only look at income levels across different years, without any effort to look at net worth, or at total lifetime earnings. 

I have a friend from business school who is a portfolio manager, and he's at the 99th percentile for income this year ($400k) and could quite possibly move to 99.5% or 99.9% or even 99.99%. On the other hand, he could also have a few bad years in a row, never get a portfolio manager job again, and spend the rest of his life at middle/upper-middle income levels.

I also remember when Chief Justice Roberts was under consideration, and it was revealed he'd made millions in his last year before becoming a judge. It turned out that had been a one-time payout from his law firm to him as a partner. Not that he'd been LOW-INCOME the other years, but he wasn't quite the oligarch that that single snapshot would make you think.

Or to put it another way, Brad - isn't it reasonable to expect your predictions of increasing economic insecurity (as in "Shaken and Stirred") to apply to the folks at the top of the income distribution as well as regular joes? And what would that look like if it didn't look like insanely high income levels going to a small group of folks?

Posted by: Geoffrey | February 28, 2006 at 04:40 AM 

Houshold income is a broader picture, Geoffrey; I think that the frequency of houshold incomes greater than 1 million annually is about 1 in 200.

Posted by: lessthanamused | February 28, 2006 at 04:56 AM 

Sebastian,

Last time I checked, in the US, a college graduate with a bs in Computer Science could get ~60k's doing Java development coming out of college, in India, the same student with the same qualification would start a 6ks.

Where would you do your software development?

Posted by: Don Quijote | February 28, 2006 at 05:13 AM 

I think that de-lumping college graduates is an idea whose time has come. Even within one department there can be steep thresholds -- in geology, for example, the high rollers go into oil geology (or did when my brother was in school) and humble folk go into water geology. 

There should also be some recognition that a lot of non-college people didn't go to college because they weren't smart enough or had other problems which made working difficult too -- it's not that college would have changed their lives. 

There should also be a listing of types of two-year degrees which pay better than most four-year degrees. 

Just continuing to say that "education is the biggest single variable" is ingenuous.

Posted by: John Emerson | February 28, 2006 at 05:17 AM 

There are certainly exploitive groups in the this country. For instance, there are the tenured professors. Not all of them are exploitive, of course, but enough are to consitute a serious problem in our colleges and universities.

As opposed to CEO's who get golden parachutes whose worth is greater than my entire lifetime's earning, despite the fact that they just drove the corporations they are running into bankrupcy, and sent a bunch of workers to the poor house.

Posted by: Don Quijote | February 28, 2006 at 05:18 AM 

I think Brad's 5 points smack of an alibi.

A free market is driven by personal self interest.

Those at/near the top have a personal interest in extracting wealth from those below them and transferring it to themselves.

Those below them have a personal interest in extracting wealth from those above them and transferring it to themselves.

Given nearly 30 years of politics in which society has either favored those at the top (Ford, Reagan, Bush, Bush), or people have refused to intervene when those at the top use their power to extract wealth (Carter, Clinton), this is a natural outcome.

Additionally, you have had a deliberate policy of depressing wage growth in the bottom half of society (Volker, Greenspan, probably Bernanke), and rules that forbid owners (stockholders) from reviewing remuneration of corporate executives.

This is not a failure of the market, rather it is an entirely predictable outcome.

Posted by: Matthew Saroff | February 28, 2006 at 05:20 AM 

"Power" isn't an economist's concept, is it? Or has economics changed? It seems to me that non-Marxist stuff I used to read very aggressively ignored questions of power.

Perhaps Krugman's involvement in popular journalistic writing has actually improved his understanding of real-world economics by forcing him to look ate stuff that technical economists routinely factor out. A year or so ago people on this site were lamenting Krugman's sullying his hands with journalism when he could be writing technical economics instead. 

I predicted then that his journalistic activities might end up making him a better economist by getting him out of the professional bubble forcing him to deal with additional data, and I think that this article is evidence that I was right. (Perhaps something similiar happened to Stiglitz, though I haven't read his stuff).

Posted by: John Emerson | February 28, 2006 at 05:24 AM 

The percentage of women attaining college degrees has increased from 45% to 55%. Because women are paid less than men, this in part affects the college salaries.

http://www.ncpa.org/pd/economy/pd051200a.html

Plus it is more than just skills. College grads must relocate to pull in high initial salaries and may need to relocate several times to stay on the promotion track. 

Krugman is correct about the top earners and they especially are not carrying their share of supporting the government and the infrastructure that helped them become wealthy. One reason why there are not more good paying jobs is that we are ignoring our infrastructure needs, from large class sizes in poor schools to sewer and water projects, energy efficiency and transportation needs. 

By ignoring energy efficiency, we are exporting dollars to import petroleum that could be better spent on workers improving energy efficiency at home. This is an investment that is being ignored because the costs are short term and up front and the benefits are collected over a longer time period in the future. The same holds true for education, etc.

The plantation economy is all about maintaining the status quo of the wealthy plantation owners, a struggling middle class and destitute workers. The plantation economy does not educate its workers, or build infrastructure to create jobs off the plantation because it takes resources away from the plantation and erodes the relative wealth of the plantation as it promotes change. 

The plantations maintain their stranglehold on the economy by fear and racism. Middle class are told that support for public education will erode their own position and make them compete with better educated minorities for the same jobs. The government is presented as the problem. The plantations meanwhile line up at the government trough of subsidies and corporate welfare, while denying the rest of society access to the government resources necessary to change the economy and improve it for the vast majority who are not the plantation owners. Only when the majority realize that they will be much better off by forcing the wealthy to do their part will the necessary investments be made in the economy. The last time around it took the great depression to greatly increase the numbers of poor to the point where change was demanded. The resulting improvements in the economy kept the wealthy at bay for over a generation. Now that the memory has faded, the wealthy are once again in ascendancy.

Posted by: bakho | February 28, 2006 at 05:37 AM 

"Further increases in inequality as the tax and transfer system becomes less progressive."

But the tax and transfer system is already highly regressive, because the government forces people to pay a toll to landowners.

Posted by: liberal | February 28, 2006 at 05:43 AM 

I just want to note that the Green Party is in complete agreement with Brad's five points.

Posted by: David A. Spitzley | February 28, 2006 at 06:33 AM 

"There are certainly exploitive groups in the this country. For instance, there are the tenured professors. Not all of them are exploitive, of course, but enough are to consitute a serious problem in our colleges and universities."

How many tenured professors fall into the 99% percentile of income distribution?

Just askin'...

Posted by: Montesquieu Grenouille III | February 28, 2006 at 06:33 AM 

Take a look at the CEO:worker ratio from the 60s and then from today (about 400:1).

Public corporation take money from shareholders but seem to have little interest in either shareholders or employees.

My goofy little idea is this: repeal Sarbanes-Oxley, but have the SEC appoint 2/3 of directors to public stock corporations. This would create serious issues for the crony class.

Posted by: save_the_rustbelt | February 28, 2006 at 06:56 AM 

Steal from the rich, give to the poor! :)

Posted by: RobinHood.com | February 28, 2006 at 07:12 AM 

one question

what impact would the severely overpaid american CEO have on these figures?

their compensation has been so extreme they might skew any but the the largest numbers involving them.


being paid $25, $50, $100 million a year can raise totals and averages in a hurry.

Posted by: orionATL | February 28, 2006 at 07:13 AM 

How do we characterize the "knowledge workers", who were promised that they would benefit from globalization, and be insulated from the increasing economic inequity? 

People with college degrees? People with four year degrees? People with four year degrees in technical subects, not the humanities? All that, but only if you're a man not a woman?

Here's a simpler way to characterize them: what Tom Friedman was saying (and what Krugman is now disproving) is that *you*, the readers of the New York Times, are going to benefit from globalization and be insulated from inequities. You know who you are; you subscribe to the NYT or at least read its op-ed page regularly. Some of you got math degrees and some of you got English degrees, but by and large you are better educated, somewhat wealthier, slightly closer to the levers of power than non-NYT readers. Maybe the top 20% in pure economic terms, though that's only a rough proxy.

So the "knowledge worker" pitch was a way of saying: ignore the plight of the victims. You and I--you NYT readers and I the NYT writer--we're going to make out from this. Sure, we could drag our heels and resist. Sure, we could press for political change to ameliorate the condition of the worst off. But don't worry--none of *us* will be that hard hit. None of the people *we* know are going to suffer from the gross inequities. We're alright, jack. So don't spend any political capital on the bottom 80%--they deserve what they're getting 'cause they didn't take AP classes.

That's what Friedman's flat-earth meritocracy arguments amounted to. And that's why Krugman's rebuttal gets at something important. It's not just the losers in Kansas who advocate policies contrary to their own economic interests. All you well-educated NYT readers, you lucky ducks in the upper 20%? You have been suckered into advocating policies against your own economic interests, too. You thought you were in on the deal, when the whole time the oligarchy was cutting you out of the deal. And Friedman's rhetoric kept you on board, kept you thinking you were going to profit from the scam, when actually you were one of the victims, too.

Thanks, Tom. For that and the Iraq war, too.

Posted by: Tad Brennan | February 28, 2006 at 07:14 AM 

Using the now former CEO of Radioshack as an example:

How does one get to be considered for a CEO?

I have a technical degree, BSEE, and see the ceiling of it: about $100,000 is the absolute most money I will ever make per year being at the top of my game with a Master's in an electrical engineering specialty, by the time I'm 50 or so.


I have witness the absolute lack of logic in making decisions by the manager class. 

I now wish to join the manager class, because it seems that being mediocre makes you a star, since your peers are absolutely awful.


So if you know how CEO's / Directors get chosen, pass that information on, I'm interested in not being a peon or being at risk of having my job moved to Bangalore.

Posted by: NinjaPlease | February 28, 2006 at 07:15 AM 

Ninja

As far as I can tell becoming a CEO has a lot to do with personality and power politics and only a little to do with competence.

I would provide a list of example but I suspect most of you know them already. Certainly GM has an amzing heritage of incompetence in the captain's chair.

Posted by: save_the_rustbelt | February 28, 2006 at 08:40 AM 

Way up at the top Maynard Handley argues that societal overthrow will remain unlikely due to the investment that the poor have in mortgages and the like (they have something to lose, therefore they won't throw it away easily). Then he makes the very interesting analogy with entropy (by raising the entropy among the vast majority of society and dramatically lowering it for the elite, societal innovation can proceed rapidly (he worries that this rationalization will become common; it's not apparent that Maynard holds this view himself)). 

The problem here is that drift on an entropy landscape is a function of the entropy gradient multiplied by the mean-square fluctuation. By creating such a steep entropy gradient, the system moves to a highly metastable state. A few monstrous hurricanes coupled with rising sea levels will cause fluctuations that are certain to nucleate societal change (but probably not through innovative companies). 

Posted by: Ken Muldrew | February 28, 2006 at 08:54 AM 

I think it's the shift from manufacturing to services that's central to Brad's point #4. Semi-skilled manufacturing jobs in large factories were unionizable (if there's such a word). Each man's production depended on the work of the others. Nineteenth century Marxism held that the industrial proletariat was already socialized; it was just a question who would direct their efforts. Semi-skilled service jobs are very difficult to unionize. Each person works alone. Co-workers are rivals rather than team-mates.

Most of our graduates are semi-skilled.

Skilled workers in short supply, even skilled service workers, can still demand adequate compensation, now as in the past. But semi-skilled workers need, have always needed, to organize to demand adequate compensation.

Posted by: jim | February 28, 2006 at 09:11 AM 

"It's not just the losers in Kansas who advocate policies contrary to their own economic interests. All you well-educated NYT readers, you lucky ducks in the upper 20%? You have been suckered into advocating policies against your own economic interests, too."

But here's the rub. The red-state losers can kept corralled politically by the cultural issues. But how do you handle the smartass lucky duckies after they realize that they too are getting the fuzzy end of the lollipop? I'm talking about the sort of people who don't think much of Bush but who voted for him last time because "Kerry looks French" or "I hear Teresa's a real bitch on wheels", etc.. 
If these people turn against the oligarchy, then we'll see a political revolution akin to what happened in 1932.

Posted by: Laughing Historian | February 28, 2006 at 09:16 AM 

Mechanisms:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/02/28/BAGM5HFU5K1.DTL&hw=rachel+gordon&sn=001&sc=1000

Posted by: ken melvin | February 28, 2006 at 09:39 AM 

The whole thing is:
http://www.sfgate.com/cgi-bin/article.cgi?f=
/c/a/2006/02/28/BAGM5HFU5K1.DTL&hw=rachel+gordon&
sn=001&sc=1000


Posted by: ken melvin | February 28, 2006 at 09:51 AM 

"That hypothesis says nothing about technical vs. humanities degrees. If it were true, it ought to apply to all of the "symbolic manipulation" areas, which is larger than the narrowly technical studies. It is a hypothesis about higher ed in general; that's why Krugman's evidence is on point."

My comment wasn't about technical vs. humanities degrees. The kind of technologically oriented skills which drive our economy are not easily divided into technical and non-technical degrees. Lots of skilled people have no degree whatsoever. Lots of people with degrees don’t are lacking in crucial skills. That is why I don’t believe trying to use “college-educated” as a proxy for “skilled in a way that is helpful to the economy” is helpful. 

Posted by: Sebastian Holsclaw | February 28, 2006 at 09:52 AM 

And some people can't type. :) 

"Lots of people with degrees don’t are lacking in crucial skills."

should be "Lots of people with degrees are lacking in crucial skills". 

I edited that sentence for clarity and made things worse. 

Posted by: Sebastian Holsclaw | February 28, 2006 at 09:54 AM 

The question here seems to be whether there's some intrinsic value in a college degree. For a long time, there have been people who argued it was just a sorting/signalling mechanism. So the question in the past was just what is the value of that signal. That is, getting through college means you're able to learn things and have some self control, so you'll fit into the corporate world well.

Sebastian's claim seems to be that it's important what you learn in college. That may be possible, especially, as he says, in the technical areas. But the thing is, the number of people who actually keep up with productivity growth, 10%, is still far small than the number of people who presumably have "useful" degrees. If 40% go to college, and only 25% of them get useful degrees, then we have 10% who keep up with productivity. I find it hard to convince myself that there are huge returns at the top because a small number of people are getting important degrees.

Which is Krugman's point -- college, or even having a useful technical degree and lots of skills, is not what gets you entry into the top 5 or 1 percent of the income distribution.

Posted by: Ian D-B | February 28, 2006 at 10:09 AM 

For the second time in the history of the world, I agree with Sebastian. 

Posted by: John Emerson | February 28, 2006 at 10:14 AM 

Tad calls it:

--So the "knowledge worker" pitch was a way of saying: ignore the plight of the victims. You and I--you NYT readers and I the NYT writer--we're going to make out from this. Sure, we could drag our heels and resist. Sure, we could press for political change to ameliorate the condition of the worst off. But don't worry--none of *us* will be that hard hit. None of the people *we* know are going to suffer from the gross inequities. We're alright, jack. So don't spend any political capital on the bottom 80%--they deserve what they're getting 'cause they didn't take AP classes.--

What Krugman is saying should (if people pay attention) really scare those NYT readers. Because if it is really only the top few percent who are doing better, there isn't any realistic way for people to be upwardly mobile anymore. Lots of people can go to college, but very few can be CEOs. And if there is no way to be upwardly mobile, how do we maintain social stability? People have to have hope, right? Besides just the hope of winning Lotto?

I know I (a patent attorney) felt a different kind of a chill when I found out big companies were outsourcing some of their patent work. I was skeptical of the whole retraining meme before, but at that point (1) my ox was being gored and (2) I don't know where you go to get this so-called retraining, when all the knowledge fields are being outsourced as well.

Posted by: Emma Anne | February 28, 2006 at 10:19 AM 

Ok, I missed a subtlety in Sebastian's point (maybe the critical issue) -- it's not a question of what degree you have, just how useful are you. Again, the point is that being economically useful does not seem to predict wages terribly well. Even if you're doing better than 90% of workers (that doesn't even include those who can't get a job) you only barely keep up with average productivity growth. the income distribution we observe simply can't have any serious relationship to the distribution of skills.

Posted by: Ian D-B | February 28, 2006 at 10:20 AM 

Ian D-B


What we would need are actual examples of people starting from a family of $42,000 / year, that go to college and get a degree and then evaluate what has become of them.


Granted there are a number of variables that may offset results, but if 75% of healthcare business management graduates are now earning $250,000 a year, 10 years since they graduated, I'd say it's a good field to study.


Of course nepotism and cronyism could be the reasons...

Posted by: NinjaPlease | February 28, 2006 at 10:32 AM 

Well, Bush looked around and said: "The haves, and the have-mores. Heh heh. I call them my base." And this is exactly what they elected him to do, with the help of a lot of dishonest smart cons and stupid or religion-addled ordinary voters, not to mention some electoral cheating with the help of campaign managers in charge of State elections, easily-hackable and un-auditable Diebold machinery, etc. For shame.

Posted by: Neil' | February 28, 2006 at 11:06 AM 

Tad Brennan: YOu will enjoy David Sirota's spicy open letter to Tom Friedman, one of the top "wankers" out there enabling the oligarchy.

http://www.huffingtonpost.com/david-sirota/an-open-letter-to-tom-fri_b_15810.html

Posted by: Neil' | February 28, 2006 at 11:13 AM 

I think a 100% inheritance tax on net worth above $500K would work nicely to solve America's problems. Earn and spend as much as you like in your lifetime... just forget about creating some ridiculous family dynasty on the backs of the working class.

Posted by: Crazy | February 28, 2006 at 11:34 AM 

"Crucial skills" still puts you in the top 10 percent not the top 1/10th of one percent. If you disagree please cite some examples. Krugman uses a college education (long held symbol of access to greater earnings) to underscore that it is only the oligarchs who are succeeding in this society. No matter how you parse the data the numbers Krugman put up stay the same. Finding a new measuring stick to come to the same conclusion ("What we're seeing isn't the rise of a fairly broad class of knowledge workers. Instead, we're seeing the rise of a narrow oligarchy...") strikes me as a next to useless hair to split. Is this just an intellectual exercise or is it meant to take us somewhere?

Posted by: dubblblind | February 28, 2006 at 11:47 AM 

If not a 100% estate tax, then a very high one. Maybe higher exemptions for real family farms and small businesses.

Most of us don't want to be in the top few per cent of income earners. Most of us look down upon people whose primary goal involves gaining wealth and power. It's pathological. It's against our religious principles.

So perhaps our goal should be to explore new ways of maintaining a healthy, growing, environmentally stable economy that provides a great deal of equality in terms of material and spiritual access to what makes life worth living.

Posted by: Dale | February 28, 2006 at 11:52 AM 

Actually a study on Kansas City by Richard Coleman, soon I think to be published, shows that intergenerational class moves are minimal. It is relatively easy to move up one class (upper lower to lower middle; upper middle to lower upper) but moving two class rungs up is not common, and going from lower class to upper class is very very rare. And of course there are also many downward movements. Upper class kids who get onto drugs and end up lower class.

Posted by: hj | February 28, 2006 at 12:17 PM 

In a conversation at a different site (Daniel Drezner) about this same article, we have calculated that the top 0.01% (i.e. 99.99%) amounts to approximately 13,000 earners. Furthermore, there is estimation (speculation?) that simple celebrities (baseball players, movie stars, musicians, etc) may account for a substantial portion of those 13,000 people (one commenter estimated 3,000 professional athletes/coaches, etc. I guessed about 5,000 celebrities total). 
Note that if these are accurate, then this is a huge implication. It is not a nation dominated by oligarchs. It is a nation dominated by celebrities. 

Steve

Posted by: Steve | February 28, 2006 at 12:36 PM 

My research indicates to me that in a society governed by Malthusian mechanisms, growing inequality is the result of rapid population growth. When that growth levels off or declines inequality declines also. This has little to do with government or policy; it is a demographic phenomenon. If there is a demographic phenomenon behind the increasing inequality in modern America, I cannot say. I doubt it is due to government policy alone, although income redistribution by government would certainly lessen it, as has been the case in the UK.

Posted by: hj | February 28, 2006 at 12:57 PM 

If you go look at the paper Krugman cited (just google it) we talk about how athletes and celebrities account for what's going on at the very top. We had made an attempt to model this based on numbers from Fortune, but didn't get anywhere. It's an interesting issue, and if somebody could figure out how to get some real data it would make a fun little paper.

the only problem is that a lot of celebrities and athletes certianly don't make the top .01%. the cutoff is over 3 million, but the majority of athletes don't earn that. the top .1% cutoff is about 1 million, so a good deal of them wouldn't even make that. the same goes for celebrities. A million for a movie might not be uncommon, but maybe you don't get that every year.

Posted by: Ian D-B | February 28, 2006 at 01:07 PM 

This is the speculative post from the Daniel Drezner site. I don't know whether it is correct, but it seems plausible.

"The number of folks who make enough money in sports to qualify to be in the top 99.9% (1.6M annually) of income earners has risen from a handful in 72 to probably better than 3000 (most MLB players earn better than that, most NFL, many NBA, most NHL, many PGA golfers, many NASCAR drivers, etc, add coaches and execs to the mix and that's a conservative estimate), acrosss all sports. Add to that the retired players who played after the mid 80s when salaries rose and you have individuals sitting on true wealth and can make this list for the rest of their lives given decent money management."

I added 2000 celebrities outside of sports to get a guesstimate of 5000 total.

And note that the fact that many athletes/celebrities don't make $1.6 mill a year may be consistent with the statement that 5000 do.

Steve

Posted by: Steve | February 28, 2006 at 01:13 PM 

NinjaPlease laments "I have a technical degree, BSEE, and see the ceiling of it: about $100,000 is the absolute most money I will ever make per year being at the top of my game with a Master's in an electrical engineering specialty, by the time I'm 50 or so."

And he's right -- I'm about 50, make about 100 grand, and have a PhD and decades of experience in computer software engineering. So I guess I'm in the top ten percent with my "crucial skills", just as dubblind says, and Tad's "People with four year degrees in technical subects" mostly don't make the cut. But I still can't make my expenses, and have little retirement savings left, thanks to a divorce, health problems, and a deflating real estate market. So even the top ten percent can be none too secure.

My current plan is to do a startup, which gives me some hope of a secure retirement, but at much greater risk of losing everything. If there is any hope for American engineering and science I think it lies in becoming more entrepreneurial, thus escaping the corporate productivity destruction field.

And to answer Don's question, if you need a lot of cheap engineers and can stand high turnover you go to India. Or China. Or the Phillipines. But if you need just a few really good engineers there are plenty in the US, and in India and lots of other places too, all of them worth far more than they are paid.

Posted by: Doctor G. | February 28, 2006 at 01:31 PM 

hj wrote, "My research indicates to me that in a society governed by Malthusian mechanisms, growing inequality is the result of rapid population growth. When that growth levels off or declines inequality declines also."

Yes and no.

Rapid population growth doesn't necessarily have to drive inequality. The reason it usually does is that increases in population are accompanied by increases in land rent, and if valuable land is held by a small fraction of the population, then inequality will increase.

"This has little to do with government or policy; it is a demographic phenomenon."

Wrong. It has everything to do with government policy: namely, enabling land owners to collect rents in exchange for nothing of value.

"If there is a demographic phenomenon behind the increasing inequality in modern America, I cannot say."

Again, the driver of inequality you're referring to is really rent. While I think land rents are the biggest driver of inequality anywhere, it's not clear to me that they're responsible for the recent increase in inequality in the US. Of course, there are other rents, e.g. patents.

Posted by: liberal | February 28, 2006 at 01:54 PM 

Why do large corporation CEOs in Japan, Germany, France, and GB have multiples in pay of 16-18X the ave wage earner, c/w the oft quoted 321X figure for in the US? Is it corporate structure or some sense of decency? Perhaps someone can answer that. Remeber the inequity in CEO bonuses when Chrysler married Daimler, you'd think the German guy was running KIA. 

Posted by: lessthanamused | February 28, 2006 at 02:31 PM 

liberal:

I was referring to Portugal in the 15th-17th centuries. Government "policy" could hardly have created a society much different that what had evolved there, as in much of the rest of Europe, since the early Middle Ages. After all, it took a revolution in France to change the social organization of the ancien regime. [I gather you are not an historian of early modern Europe.] Certainly much of the population increase, resulting primarily from a fall in the death rate, was forced into the cities for lack of land available in the countryside. There these "immigrants" created a growing city proletariat.

Posted by: hj | February 28, 2006 at 02:37 PM 

liberal: 

If you want a French example, take a look at

Le Roy Ladurie, Emmanuel.
The peasants of Languedoc. Translated with an introd. by John Day. Urbana : University of Illinois Press, [1974]

Posted by: hj | February 28, 2006 at 02:46 PM 

The pro athlete argument probably doesn't explain much in terms of total numbers. Quite possibly less than 1000 athletes make $1M or more annually. Of the big US team sports, only the NBA and the NHL have median salaries over $1M, and they have the smallest rosters (NBA of 12 to 15 for each of 30 teams, meaning something more than half of 360 to 450 players makes $1M/year, NHL of 22 for each of 30 teams, or more than half of 660 players -- compared to 53 and 26 player rosters in the NFL and MLB). And some of these players pay much of their taxes to Canada, not the U.S.

NBA:.....$3.7 million (median = $2.2 million)
MLB:.....$2.5 million (median = $788,000)
NHL:.....$1.8 million (median =$1.1 million)
NFL:.....$1.3 million (median = $589,000)

Athletes in individual sports had lower average earnings:

PGA:.....$875,000 (median = $565,000)
LPGA:...$196,000 (median = $83,000)

(from IU's Don Coffin's bloghttp://signsofchaos.blogspot.com/2005/03/athletes-salaries-and-ticket-prices.html)

Posted by: bill | February 28, 2006 at 02:52 PM 

"Is it corporate structure or some sense of decency?"
Good question lessthanamused.

I often wonder about the mental space one would have to occupy to see oneself worth so much more than those who work below you in the hierarchy.

I think concepts like decency, morality, pathology, etc. are too little used to describe some of our seemingly ordinary social realities.

Posted by: Dale | February 28, 2006 at 03:07 PM 

"have the SEC appoint 2/3 of directors to public stock corporations. This would create serious issues for the crony class."

No, it would create serious incentives. The current lobbying scene around Congress would be dwarfed by the swarming around the SEC. 

The SEC is already pretty much in the hands of corporations -- give them a real reason to bribe, it'll get worse. Look at the NYSE companies banding together to pass Grasso $180 million to "regulate" them. Lawsuits against him haven't proceeded far enough to determine what they were buying with the money...


Posted by: Diana | February 28, 2006 at 03:07 PM 

Habermas sometimes refers to the rules by which the systemic side of our society run with the phrase "norm-free" modes of sociation. Seemingly automated systems of economic production and power relations that operate outside the need for consensus or democratic process.

But that sense of norm free carries an ironic subtext. Because nothing is really norm free.

Posted by: Dale | February 28, 2006 at 03:13 PM 

Crazy wries:
[I think a 100% inheritance tax on net worth above $500K would work nicely to solve America's problems. Earn and spend as much as you like in your lifetime... just forget about creating some ridiculous family dynasty on the backs of the working class.]

I can see how having rich people consuming huge amounts of goods and services during thier lifetimes would be a great demand boost. But wouldn't it be better if they kept thier money invested? Don't people castigate america about it's low savings rate? Your system would lower americas savings rate considerably and possibly raise interest rates just for the sake of a large demand boost. Isn't saving more sustainable and wise? At the very least, your system would cause large long-term swings in demand and savings based on how large, how wealthy, and how close to thier expected deaths various generations are. The baby boomers would cause a huge swing.

Posted by: scottynx | February 28, 2006 at 03:45 PM 

Note: The above post assumes that rich people would get around to pretty much spending all thier money if facing an estate tax with a top rate of 100%.

Posted by: scottynx | February 28, 2006 at 03:48 PM 

"Re

Note that if these are accurate, then this is a huge implication. It is not a nation dominated by oligarchs. It is a nation dominated by celebrities.

Steve"

IMHO it is a nation dominated by the oligarchs who hire and pay the celebrities

Posted by: GeorgeS | February 28, 2006 at 03:49 PM 

lessthanamused writes:
"Why do large corporation CEOs in Japan, Germany, France, and GB have multiples in pay of 16-18X the ave wage earner, c/w the oft quoted 321X figure for in the US? Is it corporate structure or some sense of decency? Perhaps someone can answer that. Remeber the inequity in CEO bonuses when Chrysler married Daimler, you'd think the German guy was running KIA."

The largest US corporations are much larger than thier counterparts abroad, as measured by market capitalization, sales, profit, etc...
In theory, running a larger company should be harder than running a smaller company, and the field of qualified canditates smaller, so that the price is bid up higher. 
I know that wouldn't explain all of it. I'm sure that comparing same-sized companies between the US and other comparable nations would still yield far higher US earnings. One reason could be differences in laws. Another reason could be differences in union power. These issues as well as how generally conservative or liberal the society is govern the companies range of options. The US probably has the fewest constraining laws (even the threat of laws can deter things too). As for a value judgement, I believe that the fewer the laws (except for contract enforcement, & mitigating negative externalities) the more efficient the economy and the higher the economic growth. Thats why I believe in freedom to pay a Ceo whatever the market rate is for his skills. Would you put a price ceiling on NBA stars? How would you pick who gets Kobe and who gets Shaq? It goes for intellectual work too. You know a lot of very smart people right? Why don't they all have Nobel Prizes (it's related to the question of why all ceos can't run microsoft equally well)? 


Posted by: scottynx | February 28, 2006 at 04:15 PM 

Here are my $.02...

Just googled to get population stats: the US is roughly 300 million...so that 99.9 percentile is a mere 300,000 persons...the 99.99 percentile just 30,000 persons...I would imagine a good chunk of the above resides in Manhattan or in the better neighborhoods of LA and SF...gotta say I was surprised at how small the absolute numbers are...


Posted by: ricardo | February 28, 2006 at 04:20 PM 

Interest rates were 19% in 1982. Today they are what, 4-5%? The long downward slide of interest rates over the past 23 years has made the financial 'engineers' the beneficiaries. These are the reigning oligarchs. Workers at the top of the financial markets' food chain earn many hundreds of thousands, even millions of dollars. These include mutual and bond fund managers, pension fund managers, stock salesmen, take-over specialists, venture capitalists, etc.,etc.,etc.

The financial boom during the 80's, 90's 00's, due mainly to continuously declining interest rates, has created untold numbers of millionares.

As interest rates continue to climb from current levels, a result of the US central bank being forced to raise rates to support a collapsing dollar, the end will come for the ascendence of oligarchs. When the dollar collapses as it must (because of the gargantuan trade deficit), inflation will rise dramatically here at home because the stuff we buy from China will become more expensive. The vicious circle is in it's early stages.

Paul Krugman has just rung the bell.

Posted by: Dilbert | February 28, 2006 at 05:19 PM 

hj wrote, "After all, it took a revolution in France to change the social organization of the ancien regime. [I gather you are not an historian of early modern Europe.]"

You're simply wrong. Government policy clearly includes how land ownership works. Or were the regimes at the time not governments?

Posted by: liberal | February 28, 2006 at 06:17 PM 

scottynx wrote, "In theory, running a larger company should be harder than running a smaller company, and the field of qualified canditates smaller, so that the price is bid up higher."

Doesn't sound like a reasonable explanation.

"Thats why I believe in freedom to pay a Ceo whatever the market rate is for his skills."

That's not the question. The question is, what are these "skills" that require so much rewarding?

Oh, yeah...the skills that lead the idiots at Time-Warner to purchase AOL at a much-inflated price.

"Would you put a price ceiling on NBA stars?"

Stupid analogy. Basketball skills are far easier to measure than "CEO skills".

Posted by: liberal | February 28, 2006 at 06:22 PM 

liberal: You seem to assume that royal governments in the early modern period could simply change the rules by which "land ownership works" whenever or however they wished. This shows a complete ignorance of the constraints under which monarchies of the ancien regime functioned. They were not modern states with elections and legislation that constantly changed things. Tradition ruled and traditional law ruled. The monarchy had, in fact, limited power to change things as it wished. Your repeated statements that I, a professional historian, am "simply wrong" should embarrass you, but obviously they do not. Are you a professional historian, specialized in early modern European history? Have you read LeRoy Ladurie?

Posted by: hj | February 28, 2006 at 06:25 PM 

Ricardo-
its even more than you think. There are about 300 million people in the country, but only about 130 million tax returns (children don't earn, and in many families, both wage earners file jointly, etc etc). Thus, the top .1 % is 130,000 people, the top 0.1% is a mere 13,000 people. Remove the athletes, the movie stars, the producers, the famous musicians, the local guys done good (what does the most successful car dealer in Minneapolis make? Multiply that by 50 for the top 50 cities in the country. Then add the top McDonald's francise owner in each city, the top realty company owner etc etc). Throw in a few bankers and lawyers, and there's just not much of an oligarchy left. 

Steve

Posted by: Steve | February 28, 2006 at 06:49 PM 

Celebrities, in most cases, have short careers. Many of them end up broke because they live high and are cheated by the biz.

The oligarchy is an oligarchy of wealth, not income, and while a few celebrities have made it (Michael Jackson, Mick Jagger, Madonna, et al) most of them don't. 

I also doubt that there are that many celebrities in the top 0.1%

Probably Krugman should start over again talking about wealth rather than income. 

Posted by: John Emerson | February 28, 2006 at 07:00 PM 

Diane makes an interesting point. I often wonder what lead to the large disparity between CEO and rank and file employee salary (it has grown dramatically over the past 20 years).

During the same time, the amount of time politicians have to dedicate to fund raising activity has also grown dramatically. This of course is correlation, and not causation.

Probably part of the CEO/rank and file anomaly grew out of the sociological shift of the incentive stock option. The transition from pension guarantees to 401(K)'s may also have played a role.

Just mining for hypotheses...

Posted by: bronxite | February 28, 2006 at 08:05 PM 

To make it to the Forbes 400 in 2004, you needed a net worth estimated at a measly 750 Million.

&Chump change compared to what the people at the top of the list have.

Posted by: Don Quijote | February 28, 2006 at 08:44 PM 

Whoa. I have to admit, this post and the comments attached to it are just about the last thing I ever expected to see on this blog.

As to the oligarchy thing; Wait. You mean us vocal and vociferous opponents of neoliberalism were right?!. Color me shocked. No really. Next you'll start telling us that the neoliberal policies for development in the global South don't work either. Or maybe even that global 'wage arbitrage' is a facet of globalization.

I'm stunned.

Oh yeah; We told you so.

Posted by: Lorenzo | February 28, 2006 at 10:25 PM 

John Emerson wrote, "Probably Krugman should start over again talking about wealth rather than income."

This is an important point. Being "rich" is a function of wealth, not income.

Posted by: liberal | March 01, 2006 at 03:07 AM 

hj wrote, "You seem to assume that royal governments in the early modern period could simply change the rules by which 'land ownership works' whenever or however they wished."

You and I are speaking of different things.

I'm making the following points:
(1) The ills you speak of are not truly Malthusian, but rather reflect dysfunctional land ownership systems.
(2) Land ownership is created and defined by government.

Whether a particular government could easily change land ownership rules (let alone have the wisdom to do so) is another matter. But to claim that such poverty is some kind of sociologically/economically inevitable outcome is just false.

Posted by: liberal | March 01, 2006 at 03:13 AM 

I did google Dew-Becker and Gordon. Is there a site where the paper is available for free and without registration?

A conclusion that one can draw from Krugman's column is that the Galbraiths are basically correct. (Power matters; skill-biased trade doesn't explain what's going on.) But I bet neither show up favorably in Krugman's new textbook.

Posted by: Robert | March 01, 2006 at 03:15 AM 

Robert, I'm hoping that Krugman, DeLong, Steiglitz, Quiggin, et al, let their political experiences inform their technical economic work. That would be called "empiricism", IIRC.

People have been saying for a long time that technical economics is an alternative universe only loosely related to our world, but the profession has not changed, and outsiders can't say anything about this stuff because we don't know the math. 

Posted by: John Emerson | March 01, 2006 at 05:06 AM 

I agree with Delong and (to lesser extent) Krugman on this. I would add only one point, which is not even economics. 

It seems to me that the public has at least implicitly endorsed these changes by failing to protect its own interest. The economic elite wants to screw the middle and lower classes, but they are doing so with the permission of the voting middle class. "Values" and "security" are still more imoportant to the lower reaches than is income distribution. So long as this is the case, the distribution will continue to skew in favor of the powerful.

At some point, the pain will rise enough to get folks' attention and then we will have a leftish backlash. I hope majority rule lasts long enough to allow that reaction. And it would be even better if the rich could be a little more prudent in their grabbing. 


Posted by: Gerard MacDonel | March 01, 2006 at 07:56 AM 

Robert, try this link: http://faculty-web.at.northwestern.edu/economics/gordon/BPEA_Meetingdraft_Complete_051118.pdf

Posted by: Ian D-B | March 01, 2006 at 09:38 AM 

that didn't work. just go to http://faculty-web.at.northwestern.edu/economics/gordon and look around

Posted by: Ian D-B | March 01, 2006 at 09:40 AM 

Probably Krugman should start over again talking about wealth rather than income.

A good point. And it's nice to see people distinguishing among "rich" people.

I classify them as either "yuppies" or "plutocrats." 

Yuppies have enough wealth to live comfortably, but not so much that they can use it as a tool to power. I.e., break laws with impunity, set up laws to their advantage, etc. 

Power is what plutocrats get for their excessive wealth.

So I've always thought that what we need to do is limit the amount of wealth that people can have. Beyond a certain point, it's simply not necessary as a "reward" for hard work or innovatgion, or whatever the apologists for the current system claim is the virtue of allowing individuals to accumulate that much wealth.

I would say that the most wealth in liquid assets that any person needs would be enough to allow the person to invest it conservatively and earn enough on the investment to earn an income equal to the 90-th percentile on the income distribution. That's pretty a pretty generous reward for hard work, it would allow you to not work and live very comfortably, but it would limit the amount of free cash on hand for use in bribery of public officials. Or at least major public officials. How much net worth do you need to have to spit out an income of $100K? $5 million? $10 million. That should be the wealth cap. period. Maybe some exception for non-liquid assets related to owner-managed businesses and farms and such.

And I'm glad to see the voices of alarm being raised about the oligarchic plutocracy. 

Posted