Rising US inequality Post author By Kevin O’Rourke Post date August 1, 2010 Edward Luce has a really good piece on this much-studied phenomenon here. Categories In Inequality 22 Comments on Rising US inequality ← Shamrock Rovers 0 Juventus 2 → DoF Document on Tax Reliefs 22 replies on “Rising US inequality” Same is happening here. You get the awful sinking feeling that we are moving toward the age-old work out for this – war @ Kevin O’Rourke, Very interesting article, and a long one too. Unfortunately it makes for depressing reading. But it’s not the first time a article like this has come along, I recently read a article about housing in certain surburbs in the US. You could buy a entire street for $22 K. The houses were worth less than the infrastructure below the houses (sewers, communication cables etc). Certain sections of the city had effectively being abandoned by the city council. Some social workers even commented that a civil war is a possibility. Not too sure what the future holds for western civilisation, but this idea of the East making everything and the West buying everything cannot go on. Can we really compete against those earning $10 / day? Are we really that much smarter to command a higher salary? @Eureka Before the workout of WWI/II, there was a rough two class system – an earning class and a serving class. There were 100 years of roughly peace (wars involving few countries in specified areas). In the nineteenth century it was land rents and industrial ownership that ruled. These appear to be low margin businesses today (i.e. you need to be very scaled up to win from them). Those at the top of the professions also lived a good life, but what will be the top professions these days? The Elizabeth Warren lecture may take slightly longer to watch, and I’m sure many have already seen it, but here’s the link, just in case. http://www.youtube.com/watch?v=akVL7QY0S8A The lecture is titled “The Coming Collapse of the Middle Class”. I don’t know whether it’s coming any more, or whether it’s here….and not just in the USA. @Hugh Thanks for posting the link to that superb EW lecture. It’s one of the best I’ve seen–I’ve watched it several times. We’re a bit better off (so far) in areas like health care (though the changes over the last 10 years have been in the wrong direction–towards Boston), and 3rd level education tends not to be as dear, and we have better social safety nets (too good, it could be argued). That said, the increase in vulnerability is palpable. Nakedcapitalism recentlyhad a link to a post by Michael David White about “The Aftermath of the Global Housing Bubble. . . ” It has some interesting graphs about how assets have decreased in value but the debts have not. Ireland is at the top of the chart re: current real house prices in comparison to 1997 house prices. Factor in commercial real estate, NAMA etc and the problem (i.e. myth of deleveraging) would be even more drastic than these graphs indicate. The post in question is here: http://housingstory.net/2010/07/28/the-aftermath-of-the-global-housing-bubble-chokes-the-world-banking-system/ The style is tongue-in-cheek but it’s pretty sober reading nonetheless. I have often covered this topic and it’s interesting how the expectation that globalisation would allow the developed countries to move to knowledge jobs while emerging economies would focus on low-cost manufacturing, is being overturned. The German guest worker system has not been replicated and rich countries will in future have to contend with the rising educated masses of the East and South. In the US, the growing inequality is likely to boost demands for protectionism. I wrote this article on the issue last Friday: America: A country you cannot tell a lie about Of course, one wonders what “knowledge” is there is the global economy that is uniquely Anglo-Saxon in thought process. And why would anyone else want to buy it… Since you mention Anglo-Saxons here is a link for you: http://delong.typepad.com/sdj/2010/07/economic-inequality-in-the-anglosphere.html @ Kevin O’Rourke Ireland and the UK cut taxes while expanding public services and the welfare state, built on temporary credit boom prosperity. Inequality increased and with the reduced tax bases, the public services will now have to be cut back. The gaps will likely have increased as long-term unemployment rises. In the UK, 600,000 public sector jobs are due to be cut. In Ireland, there will be no cuts until at least 2014. Brad DeLong may be over-estimating US influence (even if Ronald Reagan played a major role) and under-estimating the ideological impact of Thatcherism (with its focus on privatisation, reducing taxation on high earners and emasculating trades unions) on Brian Mulroney (Canada), Bob Hawke (Australia) and David Lange (new Zealand) – even if the latter two were in the Labour camp – and the post-’87 government in Ireland (and even Carlos Menem in Argentina). @ Michael Hennigan Here is another long essay on what is happening to America: Angelo M. Codevilla, “America’s Ruling Class — And the Perils of Revolution”, American Spectator, July – August 2010 http://spectator.org/archives/2010/07/16/americas-ruling-class-and-the In case anyone missed it, Paul Krugman also produced some slides on inequality and the crisis. http://krugman.blogs.nytimes.com/2010/06/28/inequality-and-crises/ @Michael “In the UK, 600,000 public sector jobs are due to be cut. In Ireland, there will be no cuts until at least 2014.” Not sure about this one! There will be no new recruitment and no renewal of temporary contracts. This combined with retirement will lead to significant shrinkage. Odd thing is that the main disincentive to public sector recruitment is the cost of paying for pensions. How about non-compulsory retirement? @Michael Hennigan Ireland and the UK cut taxes while expanding public services and the welfare state, built on temporary credit boom prosperity. Inequality increased and with the reduced tax bases, the public services will now have to be cut back. As I am sure you are fully aware, it is quite wrong to group Ireland with the US and the UK in relation to inequality. Inequality (as defined by the proportion of the population with less than 60pc median income) has risen continuously in the US and UK since the 1980s. It rose in the UK under the recently-deceased caring-sharing Labour Government. In Ireland, according to the ESRI and, later, SILC reports, inequality rose between 1994 and 2001. It then started to fall and has fallen every year since 2001. It peaked at 21.9pc in Ireland in 2001, but had fallen to 14.4pc by 2008 (see link below for SILC survey). This is below the EU average. In the UK it is still around 20-21pc. In the past decade, Ireland has recorded the steepest fall in inequality (or relative poverty, as it is sometimes called) of any developed country. In terms of inequality, Ireland is now closer to the Nordic countries (around 10pc) than to the US and UK (around 20-21pc). Whether this is a good thing or a bad thing is a matter of opinion. I’m making no comment on that, merely posting factual information. http://www.cso.ie/releasespublications/documents/silc/2008/silc_2008.pdf WOW! The thread is only 13 posts long (before mine). But, nice to see that it is living up to the the highest standards of Irisheconomy.ie. Only 13 posts, but 13 is enough to contain predictions of (a) coming global war (b) imminent revolution in all western countries (c) total collapse of the middle class (d) the end of manufacturing industry in the developed world. All we’re missing are predictions that a meteorite is about to hit Dublin, that a plague of locusts has been spotted heading for Cork, and that Galway is about to be washed away by a tidal wave. But, give it another day, and these will surely come. Might I respectfully suggest that posters here need to read more about what is actually going on in the real world, as reported by real businessmen and real entrepreneurs, and less of the apocalyptic stuff that comes from academics, with nothing better to do, like Paul Krugman. The latest highly-respected KPMG global survey of output expectations among manufacturing and service firms was published today. Might I respectfully suggest that posters here try reading it, instead of the latest rants from every academic nutter in the US. What the KPMG survey found was that (a) globally, output expectations have increased for both manufacturing and service firms since the previous survey in early 2010 (b) that optimism and expectations of future output increases among Irish services firms is now the highest in the EU and one of the highest in the world and, for manufacturing firms, its above the EU average, although not the highest in the EU. The survey is reported here. http://www.finfacts.ie/irishfinancenews/article_1020279.shtml http://www.businessandleadership.com/news/article/24703/leadership/confidence-in-service-sector-in-ireland-is-highest-in-eu-kpmg-survey @ JohnTheOptimist John, I don’t wish to get involved in any calamity howling about Ireland! I would expect by 2012, when data for 2011 is available we will see the relative impact of the recession on different groups; the inccrease in long-term unemployment and the prospect of private sector pensions providing little income security for those who began contributing in the past decade and are due to retire in te coming 10 years. @JtO I do not understand why global manufacturing and services sentiment is relevant. Sentiment is not going to address the problems faced by those on the wrong side of inequality. Sentiment and positive expectations are not going to reduce inequality. I get the feeling that there is great equality and great unity in Ireland as huge amounts of people have been wiped out through share falls, property falls and trade and consumption falling. Granted, there are a small minority within unions and the civil service who think that the country is laden down with closet millionaires but most people know the truth. However, I am worried by the travails of the inequality in the USA and the strain on their middle classes. The economic, social and political consequences could be regrettable. @ JTO Setting up the straw men again. There are no loonies on this blog. ‘Might I respectfully suggest that posters here need to read more about what is actually going on in the real world, as reported by real businessmen and real entrepreneurs’ I suppose the difficulty is that so much of our ‘entrepreneurship’ has been tainted with croneyism and dissembling. Fair play to anyone who has managed to play the business game straight without getting shafted. The following fact is reported in the CSO document which you kindly linked ‘In 2007, the average ‘at risk of poverty’ rate for the EU was 16%, with Latvia reporting the highest rate at 21% and Ireland reporting a rate above the EU average at 18%’ As @ Zhou notes, it looks like we’ll be having a bit of levelling downwards. @Hugh Sheehy Thanks for posting that Elizabeth Warren Lecture. I had a look at some of it last night. She sets out the deterioration of the economic position of todays’ workers in the USA. I have no doubt but that the same analysis applies to Ireland. It was heartening to have somebody spell out the real nature of our difficulties and to dispell the pernicious myth that today’s working generation has blown their money on tat and bling. @Paul Quigley It always pays to be precise about dates in these matters. The reality is that since 2001 there has been a very sharp fall in relative poverty and inequality in Ireland, something that the poverty industry or left-wing commentators like Vincent Browne, Fintan O’Toole and Gene Kerrigan will never ever admit to. O’Toole was rabbiting on about the growth in equality in Ireland in the Irish Times yesterday, but without giving any figures to back up his argument. The facts are quite clear. SILC (Survey of Income and Living Conditions)do a survey of the number living below the 60pc median threshold each year in every EU country. This 60pc median is generally recognised as the gold standard for relative poverty and inequality. Their figures for Ireland since 2001 are: 2001 21.9pc 2003 19.7pc 2004 19.4pc 2005 18.5pc 2006 17.0pc 2007 16.5pc 2008 14.4pc So, would you agree that, even under the rapacious right-wing FF/PD government, relative poverty and inequality have fallen sharply in Ireland since 2001? Yes or no? Would you further agree that, under the caring-sharing socialist government in the UK in that time, relative poverty and inequality didn’t fall at all, in fact it increased in recent years? Moreover, this perod 2001-2008 was mostly one of very rapid economic growth, just catching the beginning of the recession in 2008. But, overall between 2001 and 2008 the economy grew by about 30pc. So, this sharp fall in relative poverty and inequality in Ireland between 2001 and 2008 represents levelling-up and not levelling-down. I’d agree that, if the 2009 figures show a further fall, that would indeed be levelling-down (although probably back to levelling-up again from 2010 H2 on). Regaring the EU comparison you quote, because they have to wait until all countries have completed their SILC survey, the EU figures lag a year or two behind the CSO figures for Ireland. The EU comparison you quote is for 2007, which does not capture the further sharp fall in the relative poverty rate in Ireland in 2008. The average EU figure has remained roughly constant at about 16pc since 2001. Ireland was at 21.9pc then, but, as the SILC figures above show, has come down to 14.4pc by 2008. The UK was up with Ireland at around 21pc in 2001, and has more or less remained there. @JtO The article by Edward Luce refers to the trap which those earning median income or just above median income find themselves in. Elizabeth Warren’s analysis of their reduced spending power, their increased workload, ther increased risk of insolvency and their reduced capacity for emergency earnings spell it out very well. I understand that you initially sought to refute the idea that we are as unequal a society as the british or americans. However, the speculation about whether we were influenced by other English speaking countries is very much a side-show to the net point that those on median income are in a bad way in Ireland and elsewhere. @ JTO Thanks for the detail. I am not an expert on social inclusion, but I would guess that income is only one feature of poverty, although it is a pretty important one. I daresay also that the 60pc of median measure has its faults and limitations. We have handed out plenty of cash to the poor, but most of the benefits probably accrue to those who supply the goods and services on which the cash is spent. They get the blankets but we get the business. Our public services are grossly inadequate, so poorer folk have to put their hands into their pockets to supply their kids with basic educational recreational facilities. You can join Irish society if you can afford it, otherwise tough luck. Comments are closed.