The Benefits Of Growth Are Not Shared

[T]he richest 5 percent of households obtained roughly 82 percent of all the nation’s gains in wealth between 1983 and 2009. . . . The bottom 60 percent of households actually had less wealth in 2009 than in 1983.

From here.

The facts are the facts. The lurking issue, which is a mixed question of empirical reality and how one should appropriately determine who created value and thus deserves a share of those economic gains by any standard other than our current economic system, warts and all, is how it has come to be the case that the benefits of economic growth have been so concentrated.

One view, suggested by the choice of dates, is that the dwindling influence of organized labor driven mostly by policy choices of governments has unbalanced what is basically a political question about how profits created by a collective effort of high level and low level workers should be divided.

Another view is that this is a case of a relatively unregulated market economy doing what it does best, allowing people who create new wealth to keep it, while not sharing the benefit with people who are replaceable by others who can do the same thing even though they happen to be the ones using their replaceable skills for economically successful masters rather than economically inept ones. Put another way, this view suggests that Microeconomics 101 orthodoxy, that the rest of the Economics then busies itself finding exceptions to, that generally speaking a market economy operationally tends to match productivity and economic value to the market actors who cause that productivity and economic value at least in some rough justice, on average, big picture sense. The fact that pre-government transfer disparities in incomes have been similar across governments with very different economic policies in the developed world is suggestive of the idea that the growing inequality has fundamental roots that are largely natural products of the most efficient ways that our technologies afford to produce goods and servies and that government imposed redistribution of wealth, rather than changes to the black box free market economy that generates that wealth, is the appropriate place to create social class equity if one feels that this is the appropriate outcome as a matter of policy.

Both views, of course, are fundamentally uninformed. Neither claims actual knowledge at a nuts and bolts level of what it is in our economy as a descriptive matter that is different about the last quarter century that has caused our economy to produce increasingly stratified economic outcomes for households.

Certainly, no one doubts that the proximate cause is that those at the top have seen their real incomes increase while those in the middle and those at the bottom have not, and that taxes and social programs in the United States, at least, have not strongly redistributed unequal incomes. Those who look a little closer are able to refine the analysis a bit and conclude that the big business and investment income of the very well to do have increased much more than the merely wealthy of senior but not top management, distinguished profesionals and those involved in the top levels of medium sized businesses, who in turn have done better than merely ordinarily talented professionals and managers, who in turn are the last lawyer to have seen any progress at all.

Likewise, no one doubts that these incomes are largely the product of contractual and business arrangement negotiations, given force of law and honored most of the time (but perhaps not at some critical moments) that are voluntarily negotiated between the parties to those transactions on the basis of economic power in the context of large economic markets for similar transactions that are governed largely by principles of supply and demand.

But, if one goes further than that to look at why the current batch of affluent people have more economic power than they did thirty years ago relative to their peers in the community and you are likely to get either blank stares from economists who feel that they have left their jurisdiction, or popular but not very rigorous accounts to offer vague suggestions like the notion that we are now in an "information economy."

Some of the intermediate factors that seem to be particularly important, or at least seem as if they might be important, in no particular order include:

(1) the economic pressures on people in good producting industries and other offshorable work due to lower wages in developing countries resulting from international trade;
(2) the triumph of management over ownership in struggle to control big businesses;
(3) technologies and a legal environment that give rise to economies of scale (not always formally in a single legal entity firm) that make big businesses more competitive at a fundamental level than smaller businesses, and the "excess" or profit in times of economic growth inure to whoever happens to be at the top of the pyramids when it takes place - as the number of pyramids gets samller, a smaller group of people benefit from this excess that derives from the efforts of far more people than historically modest businesses did;
(4) increased productivity due mostly to technology, accompanied by a situation where the vast majority have their basic material needs largely satisfied in the status quo, that leaves an excess that those who want to claim the fruits of the increased productivity don't have to fight other participants in the economic activity particularly hard by historical standards to obtain (in other words, fewer people can make what the masses need so the powerful can claim the rest);
(5) the withering of a wide array of intermediate social institutions of all types economic and otherwise, for reasons that aren't entirely clear, have undermined the capacity of the rank and file of society to act collectively reducing their bargaining power in the political process and economy;
(6) increasing complexity in our society as technologies and economic arrangements have rapidly changed, grown more sophisticated, have reduced the proportion of people in society who have the capacity to understand what is going on well enough to engage this complex world successfully and their scarcity has made them more valuable;
(7) the increasing indirectness of production and reduced magnitude of prosperity has undermined the social bonds of human contact that previously caused market actors with economic power to refrain from utilizing the full extent of their economic power;
(8) vast differences in wealth between those with more economic ability and the less skilled are the norm to which market economies naturally trend and the period of post-war shared prosperity that preceeded the current trend were aberations driven by the vast comparative advantage the U.S. received when its allies economies were ravaged by war, by the diminshed workforce due to war deaths and the return of women to the home after the baby boom, pent up domestic demand and savings from a long Great Depression and World War II, distribution of the economic tracks people inherited due to the war, and a sense of societal unity lingering from the nation's need to unite for the war effort;
(9) the increased importance that wealth has taken relative to effort as a means of production in a technology dominated society; and
(10) stagnation in economic growth rates on a widespread basis in society as the path by which productivity can be improved grows less obvious and growth requires more exceptional innovations.