Thursday, February 23, 2017

We are All One Society

The white working class who elected Donald Trump president--those non-college educated workers in the middle 50% of families (30th to 80th percentile) whose median income was $64,000 in 2008--"resents professionals but admires the rich," said Joan C. Williams in her election post-mortem. And they despise the poor.

This working class sentiment is shared by much of today's GOP establishment in the United States, and by many of the wealthy in society everywhere. The wealthy believe they are deserving because they are "job creators" (as the refrain had it here a couple of election cycles past), because they are smart, industrious, and innovative. They worked hard in school. They worked hard in business. For society to succeed, they say, we only need to unleash the power of the smart, hard working, and innovative. It's hard to argue with success.  

President Trump, heartily supported by Paul Ryan, Mitch McConnell and their Congressional co-leadership, says "unburden the smart, hard working, innovative, and rich from their tax burdens and from the hobbles of regulation" and we'll make America Great Again! 

According to this world view shared by the working class and the rich, the rich are deserving and the poor are moochers, "who believe they are entitled to  healthcare, food, and housing" in Mitt Romney's "deplorables" phrase.  The poor, those families in the bottom 30%, are resented, despised, and forgotten by both the working class and the rich. Let the churches look after them! is the sentiment. 

But this world view of just deserts shared by the working class and the wealthy is an illusion says Brad DeLong. The truth is the rich are overpaid. They are cashing in a disproportionate share of our societal dividend. The truth is, the rich are not worth what they are paid. They are not "deserving;" they are "lucky."   

The illusion of "just deserts" fails to recognize that we, the 100%, are all one society.  Elizabeth Warren, of course, said something similar in 2012 during her  campaign for the Senate. 

Here's Brad DeLong: 
In [our world there are] mammoth increasing returns to unowned knowledge and to networks. [In such a world] no individual and no community is especially valuable. Those who receive good livings are those who are lucky–as Carrier’s workers in Indiana have been lucky in living near Carrier’s initial location. It’s not that their contribution to society is large or that their luck is replicable: if it were, they would not care (much) about the departure of Carrier because there would be another productive network that they could fit into a slot in. 
Think of the iMac computer I type this on. How did it get here? There is no person in the world who knows how to build one of these machines, much less how to design it, build it, and bring it to market. There are some who know computer programming; there are some who know about designing computer chips; there are some who know more broadly about the guts of this hardware; there are some who know how to organize a factory in China; there are some who know how to create that polished, scratch resistant glass; there are some who know how to form those shiny aluminum cases, or keyboards; there are some who know how to harvest/create the raw materials used in all the different components; there are some skilled in putting all these components together; there are some who know about supply chains; about bar codes; there are stevedores and ship captains; there are store clerks; there are some who know how to educate all these people so they can do what they do; there are some who can design or build the buildings Apple is housed in, the roads Apple employees drive on; the aircraft carriers that keep the sea lanes safe . . . . The point is: they are all needed.  Without any one of these, I don't have a computer sitting on my desk. Apple's CEO, Tim Cook is paid ~$10 million annually and, in addition, he has a stock compensation package worth hundreds of millions.  Tim Cook doesn't have a clue how to build an iMac or get it to my desk--why does he "deserve" so much?
All of this “what you deserve” language is tied up with some vague idea that you deserve what you contribute–that what your work adds to the pool of society’s resources is what you deserve.

This illusion is punctured by [the necessary] recognition that there is a large societal dividend to be distributed, . . .
It is a dividend that Tim Cook did not create.  This societal dividend does not belong to the rich; it is more like a commons, the natural resources like air, water, and open land, that is is accessible to all members of a society.

But we like the illusion that we receive what we "deserve." And because we like this illusion. . .
the government is supposed to, somehow, via clever redistribution, rearrange the pattern of market power in the economy so that the increasing-returns knowledge- and network-based societal dividend is pre-distributed in a relatively egalitarian way so that everybody can pretend that their income is just “to each according to his work”, and that they are not heirs and heiresses coupon clipping off of the societal capital of our predecessors’ accumulated knowledge and networks.
But it is an illusion, and it doesn't work. When Tim Cook collects $10 million in salary each year and hundreds of millions in stock compensation, he is coupon clipping off of the societal capital of our predecessors' accumulated knowledge and networks.

What about those poor workers who used to have steady, good paying jobs for themselves and their offspring at General Electric in Erie Pennsylvania, and now don't, . . . and so voted for Trump, while despising the professional class represented by Hillary Clinton and despising the poor?
[I]n a market capitalist society, nobody has a right to the preservation of their local communities, to their income levels, or to an occupation in their industrial specialization. In a market capitalist society, those survive only if they pass a market profitability test. And so the only rights that matter are those property rights that at the moment carry with them market power–the combination of the (almost inevitably low) marginal societal products of your skills and the resources you own, plus the (sometimes high) market power that those resources grant to you.
And this market power, we know, is largely a matter of luck . . .  "This wish to believe that you are not a moocher," says DeLong, "is what keeps people from seeing issues of distribution and allocation clearly–and generates hostility to social insurance and to wage supplement policies." In order to realize that we are all one society, we must "rip the veil off of the idea that (we) deserve to be highly paid because (we) are worth it. (We) aren’t," says DeLong.
And this ties itself up with regional issues: regional decline can come very quickly whenever a region finds that its key industries have, for whatever reason, lost the market power that diverted its previously substantial share of the knowledge- and network-based societal dividend into the coffers of its firms. The resources cannot be simply redeployed in other industries unless those, too, have market power to control the direction of a share of the knowledge- and network-based societal dividend. And so communities decline and die. And the social contract–which was supposed to have given you a right to a healthy community–is broken.
It's a matter of psychology, says DeLong.
[H]umans are, at a very deep and basic level, gift-exchange animals. We create and reinforce our social bonds by establishing patterns of “owing” other people and by “being owed”. We want to enter into reciprocal gift-exchange relationships. We create and reinforce social bonds by giving each other presents. We like to give. We like to receive. We like neither to feel like cheaters nor to feel cheated. We like, instead, to feel embedded in networks of mutual reciprocal obligation. We don’t like being too much on the downside of the gift exchange: to have received much more than we have given in return makes us feel very small. We don’t like being too much on the upside of the gift exchange either: to give and give and give and never receive makes us feel like suckers.
We want to be neither cheaters nor saps.

It is, psychologically, very hard for most of us to feel like we are being takers: that we are consuming more than we are contributing, and are in some way dependent on and recipients of the charity of others. It is also, psychologically, very hard for most of us to feel like we are being saps: that others are laughing at us as they toil not yet consume what we have produced. 
And it is on top of this . . .  “natural propensity to truck, barter, and exchange”–-[that] we have built our complex economic division of labor. We construct property and market exchange(s). . .  to set and regulate expectations of what the fair, non-cheater non-sap terms of gift-exchange over time are. We devise money as an institution as a substitute  of the trust needed in a gift-exchange relationship, and we thus construct a largely-peaceful, global, 7.4 Billion-strong highly-productive societal division of labor, built on
assigning things to owners—who thus have both the responsibility for stewardship and the incentive to be good stewards…
But we are blind to the commons, the societal capital we have jointly inherited. And we don't know how to properly value and distribute that societal capital.

Tim Cook is the CEO in charge of a very large, highly productive societal division of labor, whose end product is an iMac on my desk. He has both the incentive and the responsibility to be a good steward of this "very large-scale web of win-win exchanges…mediated and regulated by market prices…"
There are enormous benefits to arranging things this way. As soon as we enter into a gift-exchange relationship with someone or something we will see again–perhaps often–it will automatically shade over into the friend zone. This is just who we are. And as soon as we think about entering into a gift-exchange relationship with someone, we think better of them. Thus a large and extended division of labor mediated by the market version of gift-exchange is a ver powerful creator of social harmony.
It's the opposite of protectionism. When we retreat into nationalist protectionism, as the people who voted for Trump this election have done, we have lost sight of the fact that we are all one society, 7.4 Billion strong.
This is what the wise Albert Hirschman called the doux commerce thesis. People, as economists conceive them, are not “Hobbesians” focusing on their narrow personal self-interest, but rather “Lockeians”: believers in live-and-let live, respecting others and their spheres of autonomy, and eager to enter into reciprocal gift-exchange relationships—both one-offs mediated by cash alone and longer-run ones as well.
Trumpism is to focus on the narrower personal self-interest. . .; it is to lose track of a proper accounting of our societal capital; it is to ignore the benefits of society, the live-and-let-live attitude that respects others and their spheres of autonomy, eager to enter into gift-exchange relationships . . ., and to lose track of the fact that without all, that iMac does not sit on my desk.

Ultimately, however, we do it, we need to get everybody to understand that:
[N]o, none of us is worth what we are paid. We are all living, to various extents, off of the dividends from our societal capital. Those of us (Tim Cook) who are doing especially well are those of us who have managed to luck into situations in which we have market power–in which the resources we control are (a) scarce, (b) hard to replicate quickly, and (c) help produce things that rich people have a serious jones for right now.
When we behold a global supply chain like the one for the iMac, we can admire the stewardship at the top and the individual ingenuity, hard work, and dedication all up and down the line. But above, all, we must remember that from Tim Cook to the miners of precious metals, everyone is living off a global societal inheritance, and that this societal inheritance belongs to everyone. . ., even those in the bottom 30 percent, and those left on an empty side-track in Erie Pennsylvania. 

We must not lose sight of the fact that we are all one society. 

P.S.  DeLong's thoughts were triggered by some suggestions from Noah Smith for how to properly distribute some of our societal dividend in the depressed Midwest, in places like Erie Pennsylvania.  Read the entire piece HERE.  And this week,  Dietrich Vollrath, associate professor of economics at the University of Houston had an article about DeLong's post HERE.  Vollrath examines DeLong's comments in terms of Trust and Scale, and he says: " I found [this] to be a unique justification for the public sector."

Follow me on Twitter @RolandNikles

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