AUCTIFICUS AEQUALITAS

Note: This post is part of our League Symposium on inequality. You can read the introductory post for the Symposium here. To see a list of all posts in the Symposium so far, click here.

By Wardsmith

Dr. Hanley has thrown down the gauntlet yet again to get our collective juices flowing so we can get to the bottom of “Equality”. There have been innumerable discussions here at LoOG on equality and its evil twin inequality.  Kuznets Curve indicated that over time, inequalities washed out of the system as the poor eventually get to catch up to the rich, who clearly do better in the middle period. Those who disagree and there are plenty usually point to local maxima and minima plots within a country. In fact as the article in the Atlantic mentions, it all seemed to fall apart in the 1970’s. So what began to happen then, what was the event and what are the consequences?

Globalization – Pure and simple. The problem with all analyses that have as their boundaries those geopolitical lines on a map that define a country are doomed to failure. We are a world, made up of (at last count) 192 states. Some are large, some are small, many are ridiculous but it is a world nevertheless. Wealth generating activities among the richest Western nations are buffered by poor nations and their citizens getting into the act as well. When Kuznets theorized his curve, he was envisioning a society that was slowly migrating out of rural farming subsistence to urban industrialization (think China). As the Chinas of the world begin to participate in industrialization and the wealth multiplication it produces they necessarily dampen the wealth inequality curve making it appear less improved on a country by country basis, but still improving on a worldwide basis. I’m not interested in rehashing economics theories from the 40’s and 50’s here, but rather to wave away arguments of the, “But, but, wages have stagnated in this country!” variety. The X axis says, “Income per Capita” and the Capita here is rapidly approaching 7 billion (or whatever population of the world engages in productive activity). That makes for a looongg X, meanwhile market distortions cause the inequality axis to extend as well spiking the peak of the parabola.

But we’re the industrialized West, and we’ve been on top of the food chain for hundreds of years and we’d like to remain there. So what if the poorest in America are statistically better off than 99% of the rest of the world? There are still /other/ Americans here who are better off than us, dammit, so we want redress! However useful the politics of envy are to the political class, and the many rebuttals it produces, I suspect the real answer lies elsewhere, literally.

Enrico Moretti looks at The New Geography of Jobs. I’d previously touched on this point lightly in an OP I did on immigration. My contention was that diversity and or places which had diverse populations made up of different races were demonstrably better off than those that didn’t and I pointed to some studies (coincidentally written by other Italians) that backed it up. Of course mere genetic diversity isn’t the whole picture (although I suspect it helps) but most important is something akin to critical mass. Once there are enough of the right kinds of smart and dynamic thrill seeking entrepreneurial types in a community the multiplier effect of wealth skyrockets. Moretti breaks America into three distinct groups. The first is the brain hubs like Silicon Valley and Seattle. Next are the post-industrial cities like Detroit (and no I won’t keep picking on Pittsburgh) and Buffalo. Finally there are those in the middle that could go either way (Ok, I’ll put Pittsburgh here). In this excerpt from his book he rather strikingly makes the case that /where/ you live will have more to do with your success than almost any other factor.

For someone like David Breedlove, a highly educated professional with solid career options, choosing Visalia over Menlo Park was a perfectly reasonable decision in 1969. Today it would be almost unthinkable. Although only 200 miles separate these two cities, they might as well be on two different planets.

The divergence of Menlo Park and Visalia is not an isolated case. It reflects a broader national trend. America’s new economic map shows growing differences, not just between people but between communities. A handful of cities with the “right” industries and a solid base of human capital keep attracting good employers and offering high wages, while those at the other extreme, cities with the “wrong” industries and a limited human capital base, are stuck with dead-end jobs and low average wages. This divide—I will call it the Great Divergence—has its origins in the 1980s, when American cities started to be increasingly defined by their residents’ levels of education. Cities with many college-educated workers started attracting even more, and cities with a less educated workforce started losing ground. While in 1969 Visalia did have a small professional middle class, today its residents, especially those who moved there recently, are overwhelmingly unskilled. Menlo Park had many low-income families in 1969, but today most of its new residents have a college degree or a master’s degree and a middle- to upper-class income. Geographically, American workers are increasingly sorting along educational lines. At the same time that American communities are desegregating racially, they are becoming more segregated in terms of schooling and earnings…

The changes taking place in the United States can be seen around the globe. New economic powerhouses are displacing old ones. What used to be tiny, barely visible dots on the map have turned into thriving megalopolises with thousands of new companies and millions of new jobs. Nowhere are these changes more obvious than in the Chinese city of Shenzhen. If you have not heard of it, you will. It is one of the fastest-growing cities in the world. In just three decades it has gone from being a small fishing village to being a huge metropolis with more than 10 million residents. In the United States, a fast-growing city like Las Vegas or Phoenix may triple or quadruple in size over a thirty-year period. Shenzhen’s population has grown by more than 300 times in the same period. In the process, Shenzhen has become one of the manufacturing capitals of the world.

Domestically the Wall Street Journal article on Moretti’s book focuses on mobility, as in Grapes of Wrath type mobility, moving from the dustbowl to the opportunity of a better life in California. For the unskilled this is a risky proposition today (as it was in the 30’s) because the call for unskilled labor has if anything diminished dramatically since then. This has created a problem especially for the unskilled which is two-pronged and difficult to dissociate. Among Americans, however, there are large differences, with some groups much more willing to move than others. At the time of the Great Migration in the 1920s—when more than two million African-Americans abandoned the South for industrial centers in other regions—less-educated individuals were more likely to migrate in search of better lives. Today, the opposite is true: The more education a person has, the more mobile he or she is. College graduates have the highest mobility of all, workers with a community-college education are less mobile, high-school graduates are even less and dropouts are the least mobile of all.

The Catch-22 is you won’t get ahead if you don’t leave, and you’re least able to leave (and get ahead) if you’re uneducated. Also from the WSJ: This distinction between causes is important because it suggests a policy reform that could end up helping those workers whose lack of mobility isn’t a choice. The unemployment-insurance system is essentially the same now as when it was introduced in the 1930s. What is striking is that the system doesn’t provide any incentive for workers to look for jobs in locations with better labor markets. If anything, it discourages mobility from high-unemployment areas to low-unemployment ones, because the former have falling costs of living and the latter have rising costs. An unemployed worker in Detroit has limited incentives to move to, say, Chicago, a more expensive city but one where the labor market is stronger.

I had noticed previously that many LoOG commenters and contributors seem to be unemployed. In the ideal universe (where none seem to live) we would live wherever we liked and as Here and Now puts it, “Remember author Thomas Friedman’s argument that the world was flat, and where you lived didn’t matter, because with e-mail, cell phones, and the Internet, you could do business all over the world? Berkeley economist Enrico Moretti pretty much says “that is so 10 years ago!” I personally invested a lot of personal “blood and treasure” trying to buck this trend, along with other like-minded investors and entrepreneurs. Moretti is right, the critical mass just isn’t there until (at least in high tech) there are a minimum of 2 dozen similar companies in relatively close proximity. Phillipe Khan took Borland to the sleepy burgh of Scotts Valley between San Jose and Santa Cruz. It just didn’t work; once he’d moved the company they lost their momentum and drive. Their fast paced dynamic culture was ruined. I live in a similar place, with several nearby universities but insufficient high tech companies for employees with itchy feet to move to without disrupting their families. We have plenty of smart people mind you, mostly in medicine, but I have no one to talk algorithms and chip design with, whereas I could chat up random people in “the Valley” on those subjects at a Pho restaurant and could likely have a business plan on a cocktail napkin by the end of lunch. Critical Mass rules. Now that I’ve solved this problem I’m looking forward for other interlocutors to resolve intelligence distribution inequalities and educational outcomes.

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47 thoughts on “AUCTIFICUS AEQUALITAS

  1. Low-income workers are likely to be dual-income families, or have dependent children tied to a divorce or broken up relationship.

    They are therefore less mobile. It’s one thing to uproot the family when the primary wage earner is moving for a better job, and the wife/kids follow. It’s quite another to uproot the family and not know if the wife will be able to find another job, or move far enough away to not be able to see the kids on the weekends.

    Families with a husband or wife tied up in grade-school education are even worse off. Teachers have to get certified for individual states, which is a two-year process and as fast as republican state governments are hacking away at the educational system they despise so much, finding a job as a licensed teacher isn’t a remotely hopeful proposition.

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    • Old news Kimmi, but thanks for the link (actually any links from you would be a huge bonus). I didn’t get into it (tried and failed to keep the word count below 1500) in the OP but the issue isn’t so much manufacturing per se, but the skills required to participate in the new manufacturing. Someone who can show up stoned and hungover and screw the same 4 screws into the never ending assembly line of goods had better already have considered a new line of work. Robots do it faster, cheaper, better and they never go on strike or call in sick. Those who can competently manage and program said robots will do extremely well, earning well into the six figures, but yes the manufacturing sector that was built in America on the backs of unskilled foreign workers doing mundane, dangerous repetitive work is long gone.

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  2. It’s strange, when I graduated HS in the early 90’s, I had a high physical mobility (everything I owned fit in my car), but low job prospects (no one will pay to move an unskilled HS graduate anywhere, except his parents, and only insofar as it gets him out of the house so the old hippies can run around in the nude & smoke weed again).

    Now, I have the ability to command a relocation package of an employer sufficient to move my entire household, but my mobility is hampered by a different problem – an underwater mortgage. I wonder how much of our current lack of economic recovery is due to the fact that people are unable to relocate without being willing to A) become an absentee landlord, or B) take the credit hit to do a Short Sale or suffer a Foreclosure?

    I mean, I keep hearing about how companies want to hire, but can’t find skilled workers. Such a situation would increase the draw of businesses to areas where you have lots of educated people who are stuck.

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    • There was no schedule decided. I’ve got my second draft done, but it’s long and I’m having trouble with the middle part.

      It actually dovetails nicely into this post – great post, Ward – so I might put it up today and hash out the weak sauce in the comments.

      Really, great post, Ward.

      I agree with the “Critical Mass rules” hypothesis. I’m not certain yet that it is systemically linked to localism, though. Broadbase communications are still new. People who say, “Email is so 20 years ago” don’t realize how little of the actual functionality of email is used by the people who use email (and how much of the disfunctionality is also used to keep lots of things still “the way they were” in spite of the fact that there are better ways to do things).

      I think it will be another 20 years before real adoption of the digital universe occurs in a way that could potentially desegregate Critical Mass and Localism.

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        • Thanks for the compliment(s) Patrick. Sorry I jumped the gun, I’ll be out of the country on the 13th and will likely be completely out of the blogging loop for most of the time. I’m always happy to be “first with the worst” and let you guys all school me with your better posts that I’ll read when I get back. :)

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          • No big deal, but I too was under the impression we were going to schedule these for after the 12th.

            I am less than half done with mine.

            Wardsmith, great job. I agree completely with this as one of the structural or institutional causes of income inequality.

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  3. I could use a pass-through by an editor. Anybody that wants to get a preview at mine and is willing to give me feedback, the post is in draft form in the admin interface.

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  4. I really don’t understand the Kuznets curve. Wealth and income inequality are of course extremely well-documented in the U.S. and other countries, and have been shown to follow an exponential or power curve law, with the vast majority of people having very low income, and a few having enormous incomes. Moreover, studies have shown that this is related to the connectedness of people–most social networks follow the same power law. You can argue about how much the absolute wealth of people may increase under these circumstances, but the relative picture is pretty well set.

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    • Andy, for starters let me congratulate you on your excellent treatise on liberal and conservative mindsets. Back in January I had bookmarked a number of the same links such as Kuszewski’s because I was going to write up an OP comparing Liberals, Conservatives and Libertarians. The thing got too long and convoluted so I gave it up as a bad idea (or better put, a good idea badly executed). Of course the subject is a bit too involved for a sub 2000 word OP here anyway and I’m not up to writing a book. Yours, while not book length (yet) is certainly conclusive and I delayed responding to you until I’d had adequate time to read (and digest) your wisdom.

      This link was inadvertently omitted from my OP. An excellent and concise definition of Kuznets Curve from it follows: The Kuznets curve, formulated by Simon Kuznets in the mid-1950s, argues that in preindustrial societies, almost everybody is equally poor so inequality is low. Inequality then rises as people move from low-productivity agriculture to the more productive industrial sector, where average income is higher and wages are less uniform. But as a society matures and becomes richer, the urban-rural gap is reduced and old-age pensions, unemployment benefits, and other social transfers lower inequality.

      Looking at results instead of reasoning has a lot to do with the counter-intuitive reaction to the curve, after all it isn’t working now how could it ever work? But as my link above shows, there are a multitude of contra indicative factors at work, all of which conspire to keep the poor poor and the rich rich. The inherent mobility Kuznets pointed to as rural farm workers migrated to urban industrialized cities has already run its course in the US, where only 2% (and dropping) of the population are still engaged in farming. In China the reverse is true and we’re seeing the local maxima of high inequality there while this migration takes place. That tied in of course to the mobility component of my OP, which was the whole point after all and not the rehashing of Kuznets. You wants ta get richer, you gots to move your feet. :)

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  5. For a little more on this, see my article “Same Values, Different Groups. Why Liberals and Conservatives Talk Past Each Other”, at integralworld.net. The issue of inequality as it’s related to network dynamics is discussed in the section “The Law of Power”.

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  6. I love this post, Ward. Truly. My thought went into a different direction on this subject, but this in particular is a subject that interests me. The inefficiency of having these jobs going unfilled over here while people are desperate for work over there drives me nuts. Because, I mean, there must be a solution for it.

    No, we can’t solve the unemployment problem by moving everybody to North Dakota, but it’s still a net plus above and beyond the job that’s getting filled, because there are multipliers involved.

    But lacking the means to move is an issue. MA also brings up a good point about the reliance on more than one income. On the other hand, lower-income folks tend to have more generalist job descriptions. It’s harder for a married couple of engineers to move because you can’t rely on getting a job within your expertise anywhere you want. If you’re a receptionist or in the service industry, that casts a wider net. So helping out with relocation does seem like a good idea.

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    • This is something military families have long had to deal with. Your normal stay is about three years between moves. There’s no easy answers although you’re right about the kind of job the spouse has making a really big difference.

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      • It’s an issue for me personally, actually. My wife’s career has necessitated living in five places over the last ten years. Next year will be the sixth. With any luck, the year after that will be #7. My luck only ran out with the current move. Prior to that, I was able to find a job everywhere we went. But I’m also a bit of a generalist as far as IT goes, with each job being different than the last. That’s harder for a petroleum engineer to do.

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        • As a truck driver I probably have the most mobile job in the world, no pun intended. My spouse spent this last winter with her brother in Wyoming while she took chemo. All I had to do was request home-time at a different zip code than normal. It matters very little where I live so it’s kind of cool living in a low cost-of-living town.

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  7. Nice post, Wardsmith. I love pho, and I’d totally want to live in a city with delicious pho.

    Your point about cities is, I think, exactly wrong. People choose the cities they work in based on what they offer them on weekends. This is why, outside of a few dream schools and my state school, most of the other med schools I’ll be applying to are in Boston, New York, Chicago, and San Francisco.

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    • Christopher, “some” people choose work cities by the entertainment value (segue Hanley’s recent post), but those “some” are the upper echelon. You belong there by virtue of being able to apply to medical school. Given the rejection rate, you have to have high grades and strong referrals and demonstrated superior intelligence. That already places you in the 1%, intellectually if not economically (yet). You’ll still be better served (economically) if you ultimately practice in Boston rather than say, Northern Exposure.

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