Mark Thoma, the gentlest economist around, wrote an article that I mostly agree with, Rising Insecurity and the Rise of Trump and Sanders. He argued that populist movements are the result of increased economic inequality and insecurity. I think the second word there — insecurity — is actually the more important one. Most people can deal with their lives as they are. The hardest part of our society is not knowing if it is all going to be destroyed through no fault of your own. As Thoma put it, “When new technology is adopted, some people who did nothing worse than pick the wrong industry to work in will lose their jobs, while others will see their incomes rise, sometimes spectacularly if the new technology serves an important, unfilled need.” You know, it’s called “luck.”
The core of what Thoma talked about is what has happened during globalization. In general, it has made the world richer. But instead of the wealth being distributed, it all went to a small group. This is to be expected. It is also to be expected that in a democracy, measures would be taken to fix things. As Thoma noted, “If the gains are $1,000 and the losses are $300, transferring $301 or more from the winners to the losers would leave everyone better off.” But we have not seen that.
In fact, we have seen the opposite. Even as globalization has helped the rich, we have seen policies that have made things even worse. Let’s just list a couple of things. When you buy oil for your car so you can go to work, you pay sales tax; but when rich people buy stocks, they pay no sales tax. While manufacturing workers have been put in direct competition with foreign workers, doctors, lawyers, and other highly paid workers have not. While incomes of the wealthy have skyrocketed, their taxes have gone down — way down. None of these are economics; these are political decisions designed to take money from the lower rungs of society and give them to the upper rungs.
This all brings me back to Milton Friedman’s claim that while the rich might be getting much richer, the poor too are better off. Well, that’s been open for debate for a long time. Just last year, Glenn Hubbard (Yes, that guy.) was claiming that if you looked at total compensation (rather than just wages), the lower classes weren’t stagnating. Now I’ve always found that a disingenuous argument, because our protectionist healthcare system makes it look like people are getting more in benefits, but its just the cost of those benefits that are going up. If these people were working in Canada, they wouldn’t see any increase.
Well, Lawrence Mishel reported yesterday, Pay Is Stagnant for Vast Majority, Even When You Include Benefits. The Bureau of Labor Statistics did a detailed study of workers from 2007 through 2014 and they found that for the bottom 80% of workers, total compensation was stagnant or went down — with the median worker seeing their pay decline by 4% and their total compensation decline by just under 2%.
So what are we going to do? Nothing, of course. This is because the power elite really don’t care. If I had Milton Friedman in front of me right now, I would ask him what he thought about this. It does, after all, go against what he argued for years. But I know what he would say: it doesn’t matter. He was never making a practical argument. He only threw those out for the prols to keep them off his back. And that’s true for all the rest of the power elite.
Go back to the days of feudal lords and you will see that the real justification for our system of inequality and insecurity is the same: there are the deserving and the undeserving. In Mark Thoma’s article, he wrote, “We don’t have to abandon capitalism.” And most people think that capitalism, despite all its flaws, is still the best thing we have. I think the problem is in our biology. The reason that capitalism is the best system we can come up with is because we are still hierarchical pack animals, so we can’t imagine a system that doesn’t involve winners and losers. If anyone ever did come up with a system where everyone was able to live dignified lives, we’d rebel against it. We want people to feel the insecurity so they will constantly know their place.