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Self-Deception of the Overlords April 20, 2010

Posted by Dwight Furrow in Dwight Furrow's Posts, Political Philosophy.
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Matt Yglesias is shocked:

Financial advisor Mike Donahue whines in the WSJ: “I have more than most only because I’ve worked harder than most and because I am a saver.”

I find it literally shocking that people say things like this. And I always go back to the case of the Salvadoran guys who moved all my furniture into my current apartment. I certainly make more money than those guys. But whether or not I work longer hours than they do (which is definitely possible, I work pretty long hours), you’d have to be clinically insane to think that writing my blog entails working harder than they do. In the real world, the reason I earn more than Salvadoran movers is the same as the reason I work less hard—I have more valuable skills, and people with valuable skills can demand both more money and cushier working conditions. But it’s not as if those guys were too lazy to become American political pundits, they were born in El Salvador in the middle of a civil war and never had a chance to obtain the relevant skills.

 

I don’t find Donahue’s comments shocking but only because I have heard them so often they no longer make me cringe. But I quite agree with Yglesias’s take on this.

There just is not much of a relationship between how hard someone works and how much money they make.

The job market doesn’t reward effort; it rewards having a skill or ability for which the supply falls short of demand. And our social norms reward having wealthy parents.

None of these are factors that individuals have much control over.

But, for some reason, successful people place great stock in convincing themselves that their success is entirely their own doing.

I put in lots of hours thinking, writing, teaching, explaining, grading, etc. The only part of my job dull enough to reasonably be called work is grading and going to meetings. But I certainly don’t work harder than movers, miners, construction workers, K-12 teachers, or farm laborers.  The difference is that society values what I do. I’m grateful for that, but it isn’t my doing.

Highly paid newspaper pundits are always lecturing us about “welfare queens” , self-reliance, the vices of the poor, and how giving people aid makes them lazy. If they actually had to do real work they might not be so quick to criticize.

Here are some key facts about economic mobility in the United States:

  • Children from low-income families have only a 1 percent chance of reaching the top 5 percent of the income distribution, versus children of the rich who have about a 22 percent chance.

  • Children born to the middle quintile of parental family income ($42,000 to $54,300) had about the same chance of ending up in a lower quintile than their parents (39.5 percent) as they did of moving to a higher quintile (36.5 percent). Their chances of attaining the top five percentiles of the income distribution were just 1.8 percent.
  • By international standards, the United States has an unusually low level of intergenerational mobility: our parents’ income is highly predictive of our incomes as adults. Intergenerational mobility in the United States is lower than in France, Germany, Sweden, Canada, Finland, Norway and Denmark. Among high-income countries for which comparable estimates are available, only the United Kingdom had a lower rate of mobility than the United States.

So much for the American Dream.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com

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Why the Old Growth Won’t Return May 25, 2009

Posted by Dwight Furrow in Current Events, Dwight Furrow's Posts, politics.
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One very straightforward way of thinking about the current economic crisis is that some investment bankers, seeking quick profit with little risk, developed some unusual and unworkable investment instruments. And because of a deregulated environment where no one was paying attention to what they were doing, these investment instruments enabled lots of bad loans, especially in the housing sector. This created a bubble—an inflated housing market—that burst sending the economy into a tailspin.

Once the bad loans are off the books and housing prices are stabilized we can return to the kind of growth rates that we had before the crisis.

I get the impression that lots of people expect something like this after the recession.

But there is another story to be told, one that is less optimistic. The alternative story is that easy credit is not something that appeared over the last few years but has been expanding over the past few decades, fueling what we now think of as modern consumerism—middle class people with the ability to buy lots of stuff. But this expansion of credit was not based on improving real wages for the middle class. Thus, for many years people were borrowing money that they had no realistic means of paying back, while paying exorbitant interest on that money to the bankers. The collapse of the housing market was just the “straw that broke the camel’s back”—an event that triggered the collapse of a financial bubble that had been building for years.

Via Kevin Drum, this chart suggests the alternative story is the right one.

Blog_Real_Income_1979_2007

 

The chart shows, since 1979,  an enormous leap in real income for the top 1%, some modest growth for the next 19%, and for everyone else almost nothing. Yet, this flat growth in real income for most Americans is accompanied by a plummeting savings rate for the middle class and an explosion in consumption fueled by credit.

The conclusion to draw from this is that the growth rates of the past 30 years were based on nothing but financial shenanigans and delusional spending. If so, we will not be able to return to previous growth rates even once there is a economic turn around.

This means a fundamental shift in how Americans conceptualize a good life. It also suggests that no matter how successful Obama is at ending the Great Recession, he will face a frustrated electorate in the future.