Tag Archives: inequality

Robots and Luddites

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For various reasons, I’ve been thinking about Luddites. My husband called me a Luddite for mildly complaining that our TV set-up has become so complicated that I no longer know how to play a DVD. Seriously, though, the ‘robots are eating our jobs’ argument has been gaining traction – in the interesting Brynjolfsson and McAfee book [amazon_link id=”0984725113″ target=”_blank” ]Race Against the Machine[/amazon_link], in Paul Krugman’s Robots column, and assessed in this recent Economist survey article (with handy links).

Oddly this is simultaneous with the interest in Robert Gordon’s argument that the days of significant technology-driven productivity gains are over, in his paper Is US Economic Growth Over? The awesome analytical power of economics tells us these arguments can’t both be true at the same time, even if it doesn’t tell us which one is correct.

Luddites have an unfair reputation, as if they should have realised that the tide of technological change was unstoppable so why bother protesting? Eric Hobsbawm once argued (in The Machine Breakers) that there wasn’t a big difference between the Luddites of 1811-13 and the “collective bargaining by riot” that had been going on for donkey’s years. Besides, expressing opposition to one’s job becoming technologically redundant is highly (individually) rational. In my part of the world, East Lancashire, the big riots were in the 1820s – our ‘local’ riot was written up in the lovely book [amazon_link id=”1871236177″ target=”_blank” ]Riot! [/amazon_link] by William Turner. The ‘[amazon_link id=”0140600132″ target=”_blank” ]Captain Swing[/amazon_link]’ riots in the South occurred in the 1830s.

Machine-prompted industrial unrest is the result of the combination of the normal innovation-driven dynamics of capitalism with the failure of the system to find a way of sharing productivity gains outside their originating sector. So inequality, not innovation, is why the robots matter now.

 

What *is* the cost of inequality?

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Anybody who is concerned about the gap between top and bottom incomes in our society will enjoy reading Stewart Lansley’s [amazon_link id=”1908096292″ target=”_blank” ]The Cost of Inequality: Why Economic Equality is Essential for Recovery.[/amazon_link] The book does a good job of joining the dots between different pre-crisis trends – the divergence of incomes and the ‘disappearing middle’ in the jobs market, the growing debt burden as people borrowed to consume as well as buy houses, the housing bubble itself, banking deregulation, the worship of shareholder value, mega-bonuses. While little of this is wholly new, it is assembled here in a way that makes it obvious why the pre-crisis economy was unsustainable.

Along the way are some thoroughly attention-grabbing points. For example, I knew that income inequality in the US and UK had returned to close to 1920s or 30s levels. Lansley adds this has occurred: “….despite much more mature democracies and regulated economies.” (p22) He’s quite right to raise the implicit question about how on earth this was able to happen. The book is also strong on the links between the emergence of the global mega-rich and the bubbles in asset markets and dysfunctional financial sector activity, and on the feedback effects between inequality and finance – not least the growth in household debt that Raghuram Rajan put centre stage in [amazon_link id=”0691152632″ target=”_blank” ]Fault Lines[/amazon_link].

[amazon_image id=”0691152632″ link=”true” target=”_blank” size=”medium” ]Fault Lines: How Hidden Fractures Still Threaten the World Economy (New in Paper)[/amazon_image]

I would disagree with Lansley’s assertion (p27) that economic orthodoxy says inequality is essential for growth. Conventional economics says there are two countervailing effects of inequality. To quote myself (ahem) in my Joseph Rowntree Foundation Lecture of last year: “Inequality could imply a large pool of savings to finance investment, entrepreneurship or a tax system that is not too progressive and so does not discourage work effort. These would boost growth. Alternatively, inequality could reduce the incentive of poor people to acquire education, or might increase social and political instability, either of which will reduce growth.”

I was surprised to read that in 1998 there had been a City debate on inequality, with George Cox of LIFFE arguing that rich City workers were good for the economy because of their spending, and Andrew Winckler, former CEO of the Securities and Investment Board, arguing that the City had become “smug and complacent” and that “the current bonus system encourages a degree of speculation that is not warranted and is rewarding failure.” (p78) Winckler was proved right. As the book points out, the original ‘robber barons’ at least built businesses; the current lot speculate and consume. They are rentiers.

The book’s main theme is the deathly, damaging embrace of inequality and finance, and Lansley’s solutions lie in the realm of financial regulation. Without a prosperous middle class, he argues, the economy can not recover. He will surely welcome the EU’s bonus cap, even if bankers are shocked (as the caption on a Banx cartoon had one banker saying to another: “Cap our bonuses? After everything we’ve done for the world?”).

However, I think this book –  although far, far better argued than the famous/notorious [amazon_link id=”0241954290″ target=”_blank” ]The Spirit Level: Why Equality is Better for Everyone[/amazon_link] in terms of establishing causality from inequality to wider economic damage – will also speak mainly to readers who already believe that argument before they start reading. This is partly just style, as it’s written in a colourful, polemical way that’s bound to have the converted cheering in the aisles. But it is also partly that there is a more complicated story. Inequality has many interacting causes; capping bank bonuses alone won’t fix it, welcome and essential as the cap is (even Martin Wolf in the FT says so!)

I’m certain there is also a strong argument to be made about the way high incomes are parlayed into political power which rigs regulation in favour of incumbents; they are then able to block competition and entry, which, over time, reduces the economy’s potential growth. The financial sector plays a central role in this too, through both its own oligopoly power and its encouragement of M&A through the economy, but the power grab extends to other sectors too. I just haven’t seen the argument set out anywhere in exactly this way.

Having said that, [amazon_link id=”1908096292″ target=”_blank” ]The Cost of Inequality[/amazon_link] gives an excellent birds-eye view of the malign consequences of the financial sector-driven, unsustainable increase in inequality, and of the damage that has caused the US and UK economies. The book concludes: “Allowing the fruits of growth to be so unevenly shared is the real cause of this crisis. If the distribution of national income had been maintained at its level of three decades ago, idle surpluses would now be being spent, and we would be well on our way out of this economic deadlock.”

Class consciousness

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I’ve started reading Owen Jones’s [amazon_link id=”1844678644″ target=”_blank” ]Chavs: The Demonization of the Working Class[/amazon_link], my follow up to the excellent [amazon_link id=”1847087027″ target=”_blank” ]Estates[/amazon_link] by Lynsey Hanley (I reviewed Estates here). Two chapters in, Chavs describes examples of that demonisation of the working class (white British and non-white and/or immigrant). Some of the examples he quotes from posh, mainly female journalists are staggeringly crass and awful. I hope he includes later more about the interplay between socio-economic class and culture – just as in the days of ‘U and non-U’, part of the demonisation is mocking the cultural differences. My northern working class family had ‘settees’, although obviously I’ve made it to the ‘sofa’ class myself.

[amazon_image id=”1844678644″ link=”true” target=”_blank” size=”medium” ]Chavs: The Demonization of the Working Class[/amazon_image]

Class has been overlooked for too long in public political and cultural discourse. It’s always seemed clear to me that you can’t discuss, for example, the role of race in society without considering how race and class overlap. It seems the increase in inequality may have made it permissible to bring the subject up again, although I note that many people are still more comfortable talking about ‘the 99 per cent’ or ‘low-income families’ than about ‘the working class’ or even ‘poor people’.

I’ll review Chavs later in the week.

Was Alan Greenspan a founding member of ‘Occupy’?

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This morning, through one of those chains of mental connections that would take too long to explain, I picked up Alan Greenspan’s 2007 book [amazon_link id=”0713999829″ target=”_blank” ]The Age of Turbulence[/amazon_link]. I was expecting to mock his triumphalism and complacency, not having read it since it was published. It was a surprise to find, along with a confidence about the lasting effects of new technologies on productivity growth, a real sense of the fragility of the globalized, financialised economy of which he had been an important architect:

“The impact that fixing our school system would have on our future level of economic activity may not be easy to measure, but unless we do so and begin to reverse a quarter century of increases in income inequality, the cultural ties that bond our society could become undone. Disaffection, breakdowns of authority, even large-scale violence could ensue.” (Extraordinary, this one – Alan Greenspan as a founder member of the Occupy movement!)

“The dysfunctional state of American Politics does not give me great confidence.”

“History has not dealt kindly with the aftermath of protracted periods of low-risk premiums….. Value is what people perceive it to be. Hence liquidity can come and go with the appearance of a new idea or fear.” … A financial crisis was “brewing”, he wrote.

“Markets have become too huge, complex and fast-moving to be subject to 20th century supervision and regulation…. For over 18 years my Board colleagues and I presided over much of this process at the Fed. Only belatedly did I … come to realize that the power to regulate administratively was fading.”

His conclusion remained, in mid-2007, that markets would therefore best be left to regulate themselves. The overall tone of the book is very firmly that of the Alan Greenspan we all have in mind – pro-market and anti-intervention, optimistic about globalisation and technology, far more concerned about inflation than deflation. But reading the introduction and conclusions again with the benefit of hindsight, those notes of caution are intriguing.

[amazon_image id=”0713999829″ link=”true” target=”_blank” size=”medium” ]The Age of Turbulence: Adventures in a New World[/amazon_image]