Income Inequality & immobility: $100k is the new $30k

With ‘income inequality’, I think some of my crankiness / recalcitrance is the disgust of constantly being goaded into an argument that is not ‘the’ actual argument.

The President is going to raise the wage floor on federal contracts to $10 an hour apparently.

Fine.  But this will not remediate income inequality.  What the President and the Democrats want is significantly more income redistribution from modestly affluent households on up.  This perhaps would remediate income inequality, given suitable scale and payouts.  But the Democrats won’t acknowledge a debate on that premise, because it exposes them as fairly politically radical.  So what we get is this insipid argument where the existence of low and minimum wage jobs = income inequality.

Being an “income inequality” skeptic I find is as difficult as being a ‘climate change denier’.  People will slap you down with various Gini coefficients that are ostensibly backed by consensus research.  The denier’s job of asserting that doesn’t mean much is very difficult.

I’ll take a shot at that here, with the breadth of some observation.

Minneapolis Punch Pizza was featured in the SOTU for paying its lowest workers a minimum of $10 / hr.

http://minnesota.cbslocal.com/2014/01/28/punch-pizza-to-be-featured-in-state-of-the-union/

This is laudable as well, and the business owners get some props for being great guys.  You read this article though, and you note there’s a potential for restaurant managers to earn $60k / yr and general managers to earn $100k / yr at Punch

For these workers, I would doubt that Punch is paying a premium wage over restaurants in its eatery sector.  For full timers, that’s too big an expense for a class of worker they don’t need to overspend to attract (my wild ass assertion).  Which is to say, I think those are representative wages quoted from the top of scale.  So we’ll say restaurant managers are commonly earning $40 – $60k these days, with general managers earning $75 – 100k.

My knee jerk reaction:  We think of restaurant workers as low paid, but $50k a year is professional money.  An industry where restaurant managers earn $50k a year is not one that suffers from an inequality.

If restaurant managers earn $50k a year…. Then I don’t think we have a systemic economic mobility problem either.  Restaurant managers are made on the job, not minted by universities.  What we do have is an invalid premise.  And the invalid premise we have is kind of obvious:  that everyone needs to be a STEM worker.  We don’t.  STEM work is no more laudable than anything else.

Add as well (if I have my facts right…) these punch Pizza guys started this chain as young men, from nothing.  It’s ostensibly a low 8 figure enterprise now.  I don’t want to make the exception the rule here, so I’ll assert that I see this sort of thing go on often enough to say …. that this sort of entrepreneurship is also an example of there not being a systemic mobility problem.

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12 thoughts on “Income Inequality & immobility: $100k is the new $30k

  1. pm1956

    Well, i think that your friend Chait makes a really good point about the whole inequality debate–it is not about the to 10% versus the bottom 10%, or even the top 1%, but rather the top 0.01%–not the people who are bringing home $100,000.00 but rather those with incomes greater than $1,000,000.00/yr.

    As for the Punch Pizza guys–one of them started the chain, the other was the Caribou Coffee guy. I’m not certain that either started from rags on their way to riches.

    But i think that the larger point goes back to the old story about Henry Ford paying his workers $5/day, which at the time was way above the going rate. Ford’s response was that he wanted his employees to be able to afford his products. Paying minimum wages to potential customers does not get you many potential customers.

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  2. pm1956

    Here is perhaps the most compelling argument about inequality:

    http://www.nytimes.com/2014/01/29/opinion/capitalism-vs-democracy.html?ref=opinion&_r=0

    inequality is an inevitable result of capitalism–and capitalism and democracy may not be compatible in the long term (because of the extreme inequality and consequent extreme imbalance of political power that results).

    “There are a number of key arguments in Piketty’s book. One is that the six-decade period of growing equality in western nations – starting roughly with the onset of World War I and extending into the early 1970s – was unique and highly unlikely to be repeated. That period, Piketty suggests, represented an exception to the more deeply rooted pattern of growing inequality…..The six decades between 1914 and 1973 stand out from the past and future, according to Piketty, because the rate of economic growth exceeded the after-tax rate of return on capital. Since then, the rate of growth of the economy has declined, while the return on capital is rising to its pre-World War I levels…..”If the rate of return on capital remains permanently above the rate of growth of the economy – this is Piketty’s key inequality relationship,” Milanovic writes in his review, it “generates a changing functional distribution of income in favor of capital and, if capital incomes are more concentrated than incomes from labor (a rather uncontroversial fact), personal income distribution will also get more unequal — which indeed is what we have witnessed in the past 30 years.”….The only way to halt this process, he argues, is to impose a global progressive tax on wealth – global in order to prevent (among other things) the transfer of assets to countries without such levies. A global tax, in this scheme, would restrict the concentration of wealth and limit the income flowing to capital…..His prognosis is extremely bleak. Without what he acknowledges is a politically unrealistic global wealth tax, he sees the United States and the developed world on a path toward a degree of inequality that will reach levels likely to cause severe social disruption.

    Final judgment on Piketty’s work will come with time – a problem in and of itself, because if he is right, inequality will worsen, making it all the more difficult to take preemptive action.”

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    1. Erik Petersen

      I read the Edsall / Piketty piece. This is a hot article the last couple days. I’m having difficulty arranging my thoughts without inelegantly reverting to bullet points.

      Piketty’s preferred solution are various global wealth taxes, but he has no hope of these actually being implemented. I think that’s correct. The impediment being, it’s not something a US Sen or Rep could vote for with any hope of maintaining office.

      So democracy will prevent an income inequality fix from being implemented. There’s a contradiction here that I gather is resolved by saying well, that’s ‘bad’ democracy. IE, the appearance of democracy that is actually the corporations and wealthy subverting democracy. This is too contrived, I think, ultimately relying on an explanation of mass false consciousness that I don’t think has ever been demonstrated true.

      Piketty speculates that failure to remediate income inequality via his taxation regime will lead to social disruption. I don’t know what this is if not a Marxist wish prophesy for an underclass revolt. Has this ever actually happened? Is it possible for it to happen now?

      http://www.washingtonpost.com/opinions/matt-miller-inequality-riddles/2014/01/15/58e0b9a6-7de5-11e3-95c6-0a7aa80874bc_story.html

      http://www.economist.com/blogs/democracyinamerica/2014/01/inequality-1

      With the modern rich there is securitization and finacialization where we get into some heretofore thought absurd dollar realms. But the ginis are ostensibly less than the gilded age. Income inequality is also a state of nature anyway. I’m not convinced we are near an area where it’s corrosive. And if it’s not, the rhetoric is hollow populism.

      Last… Edsall’s title is a bit provocative. Capitalism and democracy have coexisted. Capitalism and social democracy have coexisted. Socialism and democracy have not, with democracy being diminished when people object to their property rights being abridged.

      Reply
  3. pm1956

    Here is another take on the issue, that suggests that not only has social/financial mobility not changed very much over time (and the benefit of the approach that this author uses is that it looks over very long stretches of time), but also suggests that there is little that government can do to improve that mobility:

    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/29/everyone-likes-the-idea-of-equal-opportunity-this-economist-thinks-its-a-fantasy/

    The real question in all of this is that society must be seen as legitimate if it is to survive (without turmoil/revolution, etc–to answer your above question, just think about the French Revolution or the Russian Revolution, etc. For that matter, the rise of Hitler and Mussolini to power was only possible because the regimes preceding them had lost legitimacy).

    Democracy is considered to be a political system that gives legitimacy to a society via “the will of the people” (elections). One of the things that always serves to destroy the legitimacy of a regime is unfairness–people come to see a regime as rigged, as bestowing favors/privilege/money to those who do not deserve it–“unearned” privilege/favors/money.

    Rampant/growing inequality and lack of mobility (inherited economic status) can certainly erode legitimacy in a society, and that is never a good thing. Property rights will be rights only so long as a majority of people think that they are rights. Change people’s minds about that, and they will change the laws, and property rights will disappear. This happens all the time. If you want to avoid that happening again, you need to preserve the perceived legitimacy (“fairness”) of property rights. In our case (in the US), we need to preserve the idea of the “American Dream”–that anyone can grow up to be President, that you can do better (economically) than your parents, that social mobility is available to those who work hard, and that privilege is not determined by birth. Right now, it seems as if a lot of people are questioning the reality of the American Dream, and that is troubling.

    Reply
    1. Erik Petersen Post author

      Nice wonkblog piece.

      Sweden as a demonstrative example piques me in several ways. You know, in everyone’s minds eye Sweden is supposed to be near utopian now.

      In the latter 19th century Sweden suffered the kind of inequality borne social disruption which we speak. Laborers and tenant farmers didn’t have the vote, and competed with each other for land, food, and materials. They didn’t revolt, but they left, en mass, to which I can attest personally. I don’t think it’s much of a statistical overstatement to say that half the country immigrated to the United States. The country was hollowed out and they were forced to embark on progressive social reforms lest they lose more.

      I don’t know how this guy tracks surnames by generation in Sweden. The origins of my own Americanized Swedish surname are completely arbitrary. They dind’t use surnames the way we do, and they don’t do so now.

      Reply
  4. pm1956

    I know you read the Atlantic, so this article should be familiar to you:
    http://www.theatlantic.com/politics/archive/2014/02/the-end-of-american-exceptionalism/283540/

    I think all three sections are great, but the third is particularly relevant to this current discussion:

    “What globalization and technology can’t explain is why inequality is so much higher in America than in Europe, where the same tectonic forces are at play. Indeed, if you eliminate government policies on taxing and spending, America is about as unequal as Sweden, Norway, and Denmark and a bit more equal than Finland, Germany, and Britain. America claims its place as the most unequal major Western country only when you add in government policy. Which is to say that while globalization and technology may be increasing inequality everywhere, they are increasing it more in the United States because, compared with Europe, the United States redistributes less money from rich to poor.

    Which brings us back to conservatives, because it is their champions—Ronald Reagan in the 1980s, Newt Gingrich in the 1990s, George W. Bush in the 2000s—who pushed many of the policies that have boosted inequality. In the mid-1970s, the federal government’s top tax rate for regular income was 70 percent and its top rate for long-term capital gains was almost 40 percent. When Bush left office, the rate on regular income had fallen to 35 percent and the rate on long-term capital gains was down to 15 percent. (That has crept up under Obama to almost 40 percent on regular income and 20 percent on capital gains for individuals making over $400,000.) These huge shifts in tax policy have been partially offset by antipoverty spending, which has grown significantly since the 1970s, largely because skyrocketing health care costs have made Medicaid far more expensive. But even if you take that increase into account, America is still doing far less to combat inequality than other advanced democracies.

    If you believe, as academics increasingly do, that economic inequality goes hand in hand with calcified class relations, then decades of conservative policy have contributed to America’s relative lack of economic mobility.

    This, in turn, has soured young Americans on the belief that through the free market they can rise above the circumstances of their birth. Which means that, when it comes to declining faith in the American Dream of upward mobility, as with declining faith in organized religion and declining faith in America’s special mission in the world, conservatives have helped foment the very backlash against American exceptionalism that they decry.”

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    1. Erik Petersen Post author

      I don’t accept Beinart’s premise. I’ll start with this, which I think is central to both our discussion and Beinart’s:

      “If you believe, as academics increasingly do, that economic inequality goes hand in hand with calcified class relations, then decades of conservative policy have contributed to America’s relative lack of economic mobility.”

      I don’t think it’s obvious that there are calcified class relations. I guess we’d be looking for studies and public opinion surveys to demonstrate this. I’m not familiar with any that make these points. His Pew self-identification “Have / Have not” strikes me as unreliable, and it stops way short of demonstrating ‘calcified class relations’. People still like the affluent, if not the rich. I think the public zeitgeist is exactly opposite what’s described in Beinart’s paragraph. There’s STILL no great embitterment to the rich, and under the circumstances of 2008 there probably should be more. In the SOTU, the President said “we don’t begrudge the wealthy their success,” which is true.

      Socialism / capitalism preference for those under 30: I just don’t see a good leading indicator coming out of that, but I’ve not gotten past the eye rolling stage on that

      In terms of form, what I see here is an attempt by Beinart to take the common trope of liberals being against American exceptionalism, and argue the counterintuitive. IE, conservatives are the ones who eroded American exceptionalism.

      By the way, in reviewing Chait the last couple days, I think he stops short of arguing “tax because income inequality.” Rather, he argues ‘tax bc they can afford it and we need to fund some things”. I agree with this, maybe just not to the same degree.

      I don’t think the country lacks for economic mobility. I do think we’re arguing about the wrong thing in this country. It’s rather easy in this country, in the last decade, to earn 0 at age 22 and $100k at age 30. Not common say, not typical say, but not difficult. Quite easy to earn 0 at age 22 and $50k at 30.

      I’m not belittling people who don’t, but I do think in the larger conversation we muddle up the idea of a career arc And as a statistical measure, I doubt that we should expect enormous movement into the top decile.

      Reply
    2. Erik Petersen Post author

      He misuses that “70% tax rate”. He removes its context and abuses it.
      Jimmy Carter lowered top tax rates over 1977-79. He probably would have lowered them again. Tax rates were too high.

      It was an inefficient tax code as well. High rate / High deduction environment. No one actually paid a 70% rate, and it made for things like people investing in dubious tax shelters rather than productive endeavors. It was a very sclerotic economy, due in many ways to the tax code. The Reagan tax code was an improvement.

      Reply
      1. PM

        Just want to note that the 1986 tax reform (lower the rates by getting rid of deductions) was not a Reagan idea, but a democratic idea–the Bradley/Gephardt bill (I know because i was there…)

    1. Erik Petersen Post author

      Persuasive to a point, I think. But I don’t think income inequality makes up more than half the phenomena.

      It leaves out Amazon, and its effect on Sears and JCP.

      Figure, the reason ‘high end’ are the only retail showroom ventures is that ‘high end’ is the only thing with the margins to pay the rent on the space. ‘Mid grade’ and ‘value’ don’t have the margins. That’s Sears and JCP. If its a shippable product, people ignore Sears and JCP and buy it from Amazon.

      My wild ass assertion is that the decline in middle class consumption the last five years is tied to a complete absence of home equity money in the marketplaces. This does in fact dovetail nicely with an observation about income inequality.

      Reply

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