My *New Yorker* interview on *Average is Over*

It was with Joshua Rothman, here is one bit:

The whole narrative you unfold—intelligent software, human-computer cooperation, deferring to our smartphones—sounds very futuristic. Do you think we’re living through a historically unprecedented period?

I don’t accept the view that this new era is so different from every time in the past. Consider the industrial revolution, which starts in Great Britain in the seventeen-seventies or seventeen-eighties. For a long time, you had rising inequality, fairly stagnant living standards, a lot of problems adjusting. Of course, we did eventually get over it in the longer run, and it was much better for everyone. But it took, arguably, fifty or sixty years for us to make that transition. I think this future wave of inequality, which is already underway, will be a lot like that. It will take us decades to make the transition. Those decades will bring a lot of problems. But I think that in the much longer run—which is not what the book is about—it will be much more positive than it will seem during the transition era. I think this period fits quite nicely with historical precedent.

There is also this:

In the U.S., New York City is probably the most unequal place we’ve got. And I find it striking how many people believe, first, that inequality is terrible, and that this vision for the future is horrible, and, at the same time, think, “Oh, I love New York City!”

We already have places with extreme inequality, but life there goes on, and we don’t recoil in horror. The non-wealthy parts of New York are very vital, and have the best of humanity in them. We have intuitions [about equality and inequality] that are derived from American post-war history. I don’t want to dismiss those intuitions altogether, but I think we need to be more skeptical of them.

Comments

Or ancient Rome with the introduction of massive amounts of slave labor, which made some very very rich while depriving the zero margin worker his living. This arguably was a large cause of the end of republic and the beginning of empire, and I would say ok the whole the good outweighed the bad over the following thousand years.
Not certain what will happen in the future, but the unrest we are going through might lead to less social participation or more. History can provide different lessons.

How did the good outweigh the bad? The Roman Empire was remarkably stagnant in terms of technology.

Good question.

Did technology leap forward during the dark ages?

The perennially aggrieved always need a new outrage to keep them worked up. Inequality is the latest craze. That rich man stole my money - it's so unfair! Save us, Obi-wan Obama!

Indeed.

I wish they'd go back to worrying about violent videogames or something.

It's not the poor, by and large, complaining about inequality.

They're not asking to be saved from excessive Gini coefficients.

It's too abstract and intellectual of an issue for the hoi polloi to get worked up about.

No, it's the elites and intelligentsia who push the inequality issue.

To the intelligentsia, you should also add the Occupy Wall Street types. OWS was not made up of the smartest ones, but they were full of confused passion. Of course, this build up was designed to prepare the battle space for the 2012 election, where the evil plutocrat Romney was pitted against the people's valiant tribune.

It should have been easy for Romeny to de-"evil plutocrat" himself, shouldn't it? I wonder what went wrong.

I disagree, it isn't easy to reverse a media narrative, what do you think he should have tried and didn't?

I was being funny. Car elevators, secret offshore accounts, Scroogish monologues on tape .. he worked it the other way.

Gee, an increasingly left-behind population not going gangbusters over a .01% candidate who made his fortune pillaging companies? It's not as if that track record could translate into presidential policy.

I can't possibly understand their reluctance.

So instead the "left-behind" get behind just a 1% candidate? Your comment and word choice (pillaging? come on) further cements the idea that obviously it was not reversed.

In case you hadn't noticed, the 1% candidate - (and he's not that - come on) is pushing policies that benefit them. You think Romney would be doing that, or maybe pushing an outsourcing agenda and protecting the rich?

I don't think even most Obama voters are under the delusion that Obama is pushing policies that benefit the poor.

Compared to the counterfactual, they were. (Let's slash X to 200Y funding is not an actual plan to help actual people.)

I'd love to hear more of your thoughts on inequality. From most corners, all I hear is "inequality, bad."

There are two broad ways to achieve inequality. You can improve everyone's fate, but some faster than others, broadening the curve. That one isn't so bad. But Tyler's book is about the other kind, where people at the low end suffer stagnation or even falling fortunes, while the high end continues to excel. I'd think it is easy to say "falling fortunes for broad swaths of Americans, bad."

About 80% of top earners fall out of that category over five years.

Not so rich people become rich. Think Gates, Jobs, Brin, Page and Zuckerberg.

It's income mobility that matters. And statist societies with massive regulatory webs protecting large corporations tend to have less of it.

I actually think income is a bad measure entirely. You want net worth info, distribution, over time.

I've never understood why both sides seem to presume that annual income is wealth.

I'm sure it's a case of "better a number we have." (We keep using the stupid DOW because it's a number we all know.)

Here are a few possibilities:

1. Income and wealth are highly correlated. Not perfectly correlated, but highly correlated.

2. Income is much easier to measure than wealth, so given (1) it becomes a good proxy.

3. When we compare ourselves to our neighbors, we typically compare consumption. If I notice that my neighbor consumes 10 times more than I do, I think of my neighbor as "wealthy" (that's just the word we use). But consumption is more typically driven by income rather than wealth (endowment effects, loss aversion, etc.). When people talk about inequality, they are really talking about envy, which means they are talking about consumption, which means they are talking about income (and not wealth, even though they use the word "wealthy").

I believe net worth is only measured systematically in the US Census ... not terribly high time resolution.

You need both as some with moderate income and low consumption can accumulate a lot of wealth.

"About 80% of top earners fall out of that category over five years."

?

Meaning those people go from "filthy stinking rich" to just "ludicrously rich?" What point are you trying to make again?

What % of the population achieves the success of the people you've cited. Hell, other countries have similar plutocrats who went from rags to riches. Look at Russia's billionaire oil barons. I highly doubt you'd cite Russia as an economy or social structure you'd like to emulate.

A few billionaires don't move the needle on inequality. The big driver is doctors, etc, versus ZMP human garbage.

How much of the income inequality in New York City is because they subsidize the poor to live in some of the most expensive real estate in the country?

Kill those subsidies and you would get rid of the income equality. (Of course it would be by displacing the poor, but we only care about the "inequality within the city" metric, right?)

Thank you, yes. This is a big country; there is no reason that blight can't be banished far away to some otherwise worthless valley. Admission: completely voluntary (unlike, of course, the taxes used to pay for it all). Bus fare to the new housing projects? Free. Bus fare back? Market rates apply.

Rents for responsible people many of whom actually need proximity to business districts, etc: brought down into sane ranges for the first time in decades.

Is income inequality even increasing? It was decreasing in the 80s and 90s ( http://qje.oxfordjournals.org/content/121/2/351.short ). It's possible that trend has reversed, I suppose, but certainly "dollar a day" poverty has continued to decline and economic growth has been quite high in (most of) Latin America and is even making strides in Africa.

Does Tyler expect inequality to increase going forward? Or is he another of those people who treat the evaporation of location-specific rents in goods-producing industries (an inequality *reducing* phenomenon) as rising inequality?

You haven't been around for the 2000s, have you?

I have. The 2000s was one of the highest growth decades in human history and less developed countries grew faster than richer countries. It's possible that inequality somehow increased despite that trend, and I'd welcome evidence on that point, but the 2000s seemed to be if anything a stronger version of the 80s and 90s. Since 2010 developing countries have generally outperformed richer countries as well.

This chart ( http://en.wikipedia.org/wiki/File:Historical_top_10_nominal_GDP_proportion.svg ) shows that there's been a huge reduction in "GDP inequality" since 2000, with one of the biggest gainers- China- having a very large and very poor population. That's at least something of a proxy for income inequality.

I certainly acknowledge that these last decades have been great for the world, but at the same time, I think we can talk about national strategies for the welfare of our respective citizens. If for instance China's growth has coincided with a loss of "good factory jobs" in the US, that is a loss in the US.

Doesn't this show one of the problems with measuring inequality among a certain group? You're essentially taking an arbitrary group of people and measuring them against each other.

For instance, China has experienced explosive growth. This has the effect of markedly increasing inequality, among Chinese. However, it's significantly reduced inequality, comparing, when comparing Chinese to Americans.

Same with measuring inequality within "New York City," whatever that is. Inequality probably isn't so bad if you look at the Upper East Side, or if you look at Harlem. But if you look at the UES *and* Harlem, it gets much worse.

As I say, I distinguish between different underlying causes of inequality. I don't have a problem with an inequality that raises all boats, but some more than most. The problem is that we have a fair amount of data that not all boats are rising in the US, and it seems worthwhile to look at that, to see if any tweaks can be done to improve outcomes in .. leaky boats.

"If for instance China’s growth has coincided with a loss of “good factory jobs” in the US, that is a loss in the US."

Fair enough to analyze the US by itself, but China’s growth has coincided with a loss of “good factory jobs” in China as well. Technology is the culprit.

From a US perspective it has been automation and globalization. The shipping container, as we've discussed, was key to both. My widget gets to Costco with few hands touching it. When few hands touch, fewer paychecks are printed.

Hans Rosling tells us the world is looking better, but that is primarily a Chinese story, and not so much to do with us, other than that we are one of the "consumer nations" that made their export growth happen.

Hans Rosling takes for granted the story that the "developed" countries are the end goal of civilization.

Like most people, he can't imagine rapid growth and progress in the richer nations of the globe. As a result, the story becomes about the poor getting washing machines and automobiles.

If Rosling's thing is recent history, to current events, it is kind of odd to fault him for not being a futurist.

So, if you were going to be a "Rosling of the Future," how would you do it? What's your data set?

In other words: while some Americans love to profess their admiration for and dedication to the principle of "equality" and moan or shout their dyspeptic regard for "inequality", Americans have not reached consensus on what "equality" is or how it is fostered. Unfortunately, having no clear concept in mind, Americans in pursuit of "equality" do so all the more strenuously, often yielding (equally) vague outcomes.

Good post.

Is it? Are declining outcomes truly evidence for continued equality of opportunity?

I have no idea, which is why I think that was a good post.

Well, I'd submit that "middle class wage stagnation," etc., are a poor top-level signal for "all is well in American opportunity."

When you add 50 million poor illiterate steezers who are coming from an even poorer country, you get something that looks like "middle class wage stagnation" even if every single person who was here prior to the steezer invasion has seen their income rise during that period.

So, there was no farm labor before 2009? I blame Obama.

I'm not proposing any solution - because there is no stated problem - but it is odd to me as a simple observer that there are a relative handful of people who control a huge percent of the world's resources while legions of others go hungry at night.

Again, I am not arguing for any kind of specific prescriptive policy.

For all of you "survival of the fittest" types: if you had 10 children and 1 of them continually dominated the others, you'd probably step in at some point and make sure your other 9 were adequately provided for.

I often find myself conflicted because I work hard and make a good living; I revile lazy people who expect others to take care of them.

That said, there are many people who didn't have the good fortune I had to be raised in a well-functioning household with upper-middle income parents in the richest country in the world - but who work hard, or want to work hard, but just cannot get ahead. Am I suggesting that I, or anyone, should be forced to shuffle money in their direction? No. But a little compassion certainly isn't too much to ask. I get the feeling that many here look down on the poor, or even the middle class with the assumption that they're all shiftless lazy people.

I think of the super-rich guy with the villas and yachts who literally could burn $100 bills round the clock and suffer no great loss and it just seems odd to me. We revile dictators like Mugabe who hoard their countries' riches and keep their citizens impoverished, but in terms of global - and even national - outcomes, we're only slightly more humane.

This is a Laffer curve type problem where 100% equality is just as poor an outcome as .001%. I don't know what the "right" % is, but it feels like we're a lot closer to the latter, and continuing to move in that direction. Any suggestion that a move in the opposite direction - even one not initiated via fiscal or social engineering policy - might be better for society is met with accusations of "socialist."

The difference is that those super-rich people by and large got that way by creating something great - computers, cheap gas from fracking, a better toaster, whereas Mugabe got it by stealing.

Also, your basic premise is wrong: "it is odd to me as a simple observer that there are a relative handful of people who control a huge percent of the world’s resources". A "relative handful" control "a huge percent" - vague terms used to imply something false: that the billionaires' wealth is enough to end world poverty. Completely false. All the combined wealth of all the world's billionaires would not even be sufficient for a one-time payment of $1,000 to the 7 billion humans. It probably is barely even sufficient for a one-time payment of $100.

The cause of rising "inequality" is that as the world population has grown from 6 billion to 7 billion, basically that entire extra billion people has been born to poor people in poor countries. And don't look now, there's another billion poor on the way.

Your $1000 statement is true, but the "barely sufficient" part is not. The table at http://en.wikipedia.org/wiki/Billionaire#Statistics says the total net worth of the world's billionaires this year was $5.4 trillion, which is about $770 per person. Of course the numbers fluctuate wildly with the stock market; in 2009 the number was more like $342 per person not least because a number of people apparently dropped out of the "billionaire" classification.

I would be very interested in reliable-ish estimates of worldwide total asset values, actually, if you happen to know of any.

And how did the Walton heirs get their billions? From their Daddy. And Steve Cohen? Insider trading. Nobody begrudges the genius millionaire/billionaire class. People begrudge private equity guys like Romney and dynastic wealth.

It is a tough problem.
1. The bottom billion live on less that $2.00/day so it is not just the USA top 1%. The median income USA family could in theory easily double a few bottom billion family's income without suffering, $6 or $8 a day would do it but effective charity is tough. Both for the rich and the very rich.
2. Most of the top 1% do not consume as large a percent of their income as others but save and invest and that tends to help us all.
3. I agree with you that we do not know a solution. The best idea might be to allow more immigration.

In America, the top 1% earn more than $380,000 per year. We are, however, among the richest nations on Earth. How much do you need to earn to be among the top 1% of the world?
$34,000.
That was the finding World Bank economist Branko Milanovic presented in his 2010 book The Haves and the Have-Nots.

FWIW
I had to be raised in a well-functioning household
Some that were raised in dysfunctional homes do quite well.

Some questions:

1. How can the current economic system survive? The ratio of workers to entitlement recipients is rapidly decreasing year over year. 40% of people who do work earn wages of $10 per hour or less (i.e. they aren't capable of funding the entitlement programs). We have something like $80 trillion in debt when you factor in long term obligations. Individuals are broke. Cities are broke. States are broke. QE hasn't done anything except boost housing and stock prices. On a macro level, things look terrible. Demographically, the people who produce the most offspring are the people least financially equipped to support those offspring.

2. What about technological unemployment? TC's freestyle chess analogy is already breaking down. How can the economy handle mass "poof, ZMP for you?" Driverless cars are here - what will happen to the 1.5mil people who drive vehicles for a living?

3. What role will global warming and depleting natural resources play domestically and internationally?

When we were really rich, we could send sufficient Social Security and Medicare to workers so that they could keep their houses and their cars and lead independent 1st world lives until ... they couldn't drive anymore. We similarly propped low end workers into a pseudo middle class existence, with cars, apartments, etc.

Perhaps we won't have to completely abandon "middle class for everyone" if things go well, but if the future is as dark as you suggest, I'd think there are humane futures available. Less homes, less cars, more apartments and public transportation ... IOW a view of Europe shaped by costs.

Hot off the presses -

Whopping 932,000 Americans Drop Out Of Labor Force In October; Participation Rate Drops To Fresh 35 Year Low. Retail, Hotel And Temp Workers Account For Half Of All October Job Gains

The number of people not in the labor force exploded by nearly 1 million, or 932,000 to be exact, in just the month of October, to a record 91.5 million Americans. This was the third highest monthly increase in people falling out of the labor force in US history.

At this pace the people out of the labor force will surpass the working Americans in about 4 years.
_______________________________________________________________________
Obvioulsy this is not sustainable - and a closer examination of the LFPR shows that it's not a demographic issue - the older folks are holding on to their jobs for dear life. This 85%-15% world is looking more and more like hyper-optimism - if we don't create livable wage jobs for Americans ASAP this country will collapse very quickly. Nobody will be able to afford artisan pencils!

For those living in bubbles - do you really realistically think these trends can continue?

http://theeconomiccollapseblog.com/archives/which-america-do-you-live-in-21-hard-to-believe-facts-about-wealthy-america-and-poor-america

#1 The lowest earning 23,303,064 Americans combined make 36 percent less than the highest earning 2,915 Americans do.

#2 40 percent of all American workers (39.6 percent to be precise) make less than $20,000 a year.

#3 According to the Pew Research Center, the top 7 percent of all U.S. households own 63 percent of all the wealth in the country.

#4 On average, households in the top 7 percent have 24 times as much wealth as households in the bottom 93 percent.

#5 According to numbers that were just released this week, 49.7 million Americans are living in poverty. That is a brand new all-time record high.

#6 In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.

#7 Household incomes have actually been declining for five years in a row and total consumer credit has risen by a whopping 22 percent over the past three years.

#8 According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.

#9 The homeownership rate in the United States is at an 18 year low.

#10 The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.

#11 18 percent of all food stamp dollars are spent at Wal-Mart.

#12 According to the U.S. Census Bureau, the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.

#13 It is hard to believe, but right now 1.2 million students that attend public schools in America are homeless. That number has risen by 72 percent since the start of the last recession.

#14 One recent study discovered that nearly half of all public students in the United States come from low income homes.

#15 In 1980, CEOs at S&P 500 companies made 42 times as much as their employees did on average. Today, CEOs at S&P 500 companies make 354 times as much as their employees do on average. In fact, there are many CEOs that make more than 1000 times what the average employees in their companies make.

#16 U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.

#17 At this point, one out of every four American workers has a job that pays $10 an hour or less.

#18 Today, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.

#19 Approximately one out of every five households in the United States is now on food stamps.

#20 The number of Americans on food stamps has grown from 17 million in the year 2000 to more than 47 million today.

#21 At this point, the poorest 50 percent of all Americans collectively own just 2.5 percent of all the wealth in the United States.

"...do you really realistically think these trends can continue?"

What trends? Those "hard to believe facts" are all snapshots.

Also, if you're going to engage in outrageous cherrypicking to generate the biggest possible contrasts by using arbitrary groupings, you should at least try to hide it, i.e. compare the bottom 20 million to the top 2000, rather than 23,303,064 and 2,915.

"""For those living in bubbles – do you really realistically think these trends can continue?""""

No, and they're not continuing. US gini coefficient hasn't changed since the mid-90s. In fact, if you look at the history, there never was a "trend" in the first place. Rather what you had was two "jumps" in inquality. One small one happened in the mid-80s and another in the mid-90s. Two events = not a trend.

"The sky is falling, the sky is falling" Oh, wait a minute, the federal government was shut down for half of October...maybe that 932,000 shouldn't be extrapolated to the future.

Give him a break. The world is boring without Peak Oil driving TEOTWAWKI

""40% of people who do work earn wages of $10 per hour or less""

I doubt this claim given that the median wage is $16.71/hour.

http://www.bls.gov/oes/current/oes_nat.htm#00-0000

The observation about NYC is a very astute one, and is maybe the best case I've yet heard about the appropriate level of outrage for this kind of future.

As someone living in NYC, the recent mayoral election focused almost exclusively on inequality. Now the blogging /tweeting econ public do really love NYC despite the inequality. However, there is a *chance* that there may be a larger group of people who do not like it, and they may not blog/tweet as much. This is just a theory, would be curious what other New Yorkers think.

Can't imagine that election says much given that about 8% of New Yorkers voted for de Blasio.

Despite the inequality? I'd say they love it because of the inequality. Or rather because of things that are inextricably linked to inequality.

"The non-wealthy parts of New York are very vital, and have the best of humanity in them."

We are going to have to agree to disagree.

New York City owes the majority of it's history of cultural impact to the non-wealthy parts. Culturally speaking a New York that becomes increasingly wealthy-only will probably have a future where it comes to look more and more like these old European cities such as Paris or Venice - a lovely museum and memory to a glorious past.

I live in New York City and I have to agree with btdnyc and CBBB. There was a lot of unhappiness among the people living here about the transformation of the core of the city into essentially a crowded high-end suburb, with what that implied culturally and in terms of cost of living. It only really started surfacing in the last election, though Bloomberg's difficulty in amassing more than narrow margins in his electoral victories despite outspending his opponents by ridiculous margins and his high spending to votes ratios were warning signs.

When are we going to hear your scenario for how things will manage to be better off in the very long run? Is that the next book?

If one accepts the hypothesis of AIO, it seems hard to imagine the marginal value of most human labor ever being worth much. You have alluded to the possibility that most goods will eventually be so cheap that the standard of living for most people could be very high even with very low incomes. However that would require energy and other commodity prices to remain very low in the long run, which seems implausible. It would also require that the majority of people could be "better off" through consumption alone and without meaningful work.

> In the U.S., New York City is probably the most unequal place we’ve got. And I find it striking how many people believe, first, that inequality is terrible, and that this vision for the future is horrible, and, at the same time, think, “Oh, I love New York City!”

A very muddled observation. They may love the idea of NYC, or its history, or visiting it, but they do not love the idea of living there - how many poor or middle-class people now live in Manhattan? (I may enjoy visiting Antarctica or Alaska or Africa but that's very different from wanting to live there permanently!)

Manhattan is 80% rent controlled. Many poor people live there cheaply.

I'm skeptical of this figure, but there is a big difference between "rent control" and "rent stabilization". Btw, rent control has largely been phased out. You have to be politically connected to get one of the handful or remaining rent controlled apartments.

http://furmancenter.org/files/publications/HVS_Rent_Stabilization_fact_sheet_FINAL_4.pdf

Table B - Core Manhattan, can't vouch for the source though.

"Inequality" seems to be the new progressivist buzzword. It's a handy concept if you love government social engineering because it's guaranteed to always, always exist. (Like that perennial jello-wrestling exercise known as "climate change.")

You can tax everybody at 100% and give the money to Paul Krugman and Brad DeLong for redistribution to the unequal and you will still have inequality. You can give women rifles, ship them to Central Asia, and promote them to 10-star general just for having a pulse and you will still have inequality. You can take the entire annual federal budget and dole it out to every person below the poverty line and you will still have inequality. You can remove every African-American child from their parents and turn them over to Amy Chua for rearing and daily tutoring sessions with Malcolm Gladwell and Tom Friedman and you will still have inequality. At the end of it all, the equalitarians will still be there yelling for more transfer payments to end all this terrible inequality.

I think we'd be off if society were more oriented to just standing down and letting people find their own level instead of all this Yale-or-jail, Average-Is-Over snake oil which always seems to require more people, more education, more monetary/fiscal outlays, more growth, growth, growth! There are also policies out there that hinder the other side of the equation--allowing the rich to become poor--which need dismantling.

Where's the "like" button?

I don't know why libertarians are so thick about this. No one really cares about inequality as a platonic abstract. What matters is that a lot of people have poor living standards and insufficient access to the infrastructure that they need to improve their living standards. Inequality factors into this to show us that there are enough resources out there so that this doesn't have to be the case, they are just not being employed to ameliorate it.

Poor living standards? They've never been higher...and that's across the spectrum. People work less today, they make more money, and their jobs are less grueling.

One other note: while Tyler observes that it took almost two generations for Industrial Revolution benefits to be widely realized, it's worth recalling further that those fifty or sixty years of transition occurred from the end of the 18th century through early decades of the 19th century. The perception of temporal velocity in those days, I submit, was itself a tad more languid: I would hardly argue or expect that patience or fatalism are more deeply embedded in contemporary society. The expectations of what "timely change" consists of are not apt to become more realistic over the next few decades.

Another excellent point.

Urso: grazie for your two nods in this thread.

If your taste in satire is equally generous, I offer this link: http://fictionaut.com/stories/strannikov/egalite-in-equal-measures

I just don't see how the future you describe is politically possible. Not without ending universal suffrage, and that's an act that would in itself provoke insurrection.

This isn't 1885. Those "post-war intuitions" you refer to aren't simply going to fade away quietly. The only way they're going to die is hard.

How about a Rawlsian universe where people didn't know what they or other people were going to make, but had to vote on income distribution ex ante, What type of income distribution would people prefer? My guess is it would have some lottery ticket aspect to it, but not enough to drag the average down a lot (<5%?). Any thoughts?

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