Today Bloomberg.com published my opinion piece in which I analyze the connection between economic inequality and political instability. It starts:
Complex human societies, including our own, are fragile. They are held together by an invisible web of mutual trust and social cooperation. This web can fray easily, resulting in a wave of political instability, internal conflict and, sometimes, outright social collapse.
Analysis of past societies shows that these destabilizing historical trends develop slowly, last many decades, and are slow to subside. The Roman Empire, Imperial China and medieval and early-modern England and France suffered such cycles, to cite a few examples. In the U.S., the last long period of instability began in the 1850s and lasted through the Gilded Age and the “violent 1910s.”
We now see the same forces in the contemporary U.S. Of about 30 detailed indicators I developed for tracing these historical cycles (reflecting popular well-being, inequality, social cooperation and its inverse, polarization and conflict), almost all have been moving in the wrong direction in the last three decades.
Read the rest of the article on Bloomberg.com
As usual, when writing for popular outlets, one must sacrifice detail for readability. For those readers who are interested in exploring these issues in more detail I collected together the relevant blogs, under three headings. The first is on the relationship between inequality, elite overproduction, and cooperation (or, rather, failure of cooperation). The second series of blogs asks why inequality started growing during the late 1970s. And the third argues that the recent wave of shooting rampages is actually a surface indicator of deep structural-demographic pressures that have been growing in the last 30-40 years.
As always, comments are welcome. But don’t blame me for the title that Bloomberg.com slapped on my commentary! As all writers know, we have no control over the titles…
The only thing worse than the headline is the comments following the article. I’m largely losing any hope that constructive conversation can ever happen within open forums of any kind.
You’ve written a well researched and excellent article. Keep up the good work.
Comments on Bloomberg as a microcosm of our society?
I tried to read comments on Bloomberg. At least some of them as there are hundreds. Very depressing. Some were interesting indeed, but there were way too many od this kind:
“Are you saying the under employed lawyers are going to be blocking the roads to DC like the farmers in France? This could be the most bizarre thesis ever. Russia ended slavery without a major war, Russia was under the Czarist system, thus we should really have had a Czar and avoided the Civil War?”
“It’s good to see the populist agitators of the 1930’s are still alive and well! Where would we be without psuedo-intellectuals spreading minsinformation, villainizing wealthy minorities, and encouraging social unrest?
Now if only we could go back to the good old days when Labour-Unions held entire cities hostage by force in order to extort excessive-wages for its members, or when socialist-uprisings would overthrow entire nations, or when dictators nationalized farms, factories, and mines ‘for the good of the people’. Boy those were the good old days!”
Can’t people read?
I appreciate your ability to explain complex problems with clear logic and in simple and entertaining prose which makes it easy to follow and understand for laymen like myself.I follow your blog precisely because of that.
Does your analysis of wage gaps attempt to adjust for all forms of income – both for executives via stock options and the like and for workers via benefits? It would seem that the the non-wage component of benefts would have grown dramatically over the last 30 years as life expectancy has increased.
the last sentence of my previous comment should have read:
“It would seem that the non-wage component of total income would have grown dramatically over the last 30 years as life expectancy has increased.”
John, I’ve been relying on two data sets, Money Wage of Unskilled Labor and Production Workers Compensation. The second one includes benefits. Both show the same dynamics over the last century (growth to the late 1970s, stagnation/decline after that). Check out the site maintained by Lawrence Officer and Samuel Williamson;
In other words, including benefits in does not change the gloomy picture.
Excellent article! It complements so perfectly what I am currently reading in Why Nations Fail! If politicians, economists… and even share-holders could just grasp these concepts…
According to Acemoglu and Robinson a high degree of inclusiveness has been achieved in the economical and political institutions in western nations during the last 3 centuries. However, everyone that has worked for a large organization, like for example a private-held multinational, knows that inclusiveness has not permeated these organizations (not even unions have changed this). Companies often behave like small absolutist monarchies where hierarchies rule and elite-executives are all-powerful. No pluralism here. No balance of power whatsoever. Extractive elites remain for generations. Often workers feel like serfs with little alternatives. The outcome could well be the opening gap in the wages that you mention, specially in times of uncertainty.
In economies like ours, that are gradually “Japanizing”, perhaps more inclusiveness should be achieved inside companies and other organizations.
Juan, a number of commentators have made a similar observation: it is ironic that in our democratic societies, economic organization is an undemocratic chain of command. It doesn’t have to be – in Germany the labor unions play an important role in setting company strategy. Yet, this is the way things are in this country.
Excellent article. I found it out on Bloomberg via The Browser, so I guess it’s becoming the hit it deserves to be. I must say the diagram on top of the Bloomberg article neatly summarizes the instability cycle: if one is too lazy to read it all, that’s enough to grasp what is rightly argued in the article.
Finally, I agree with the comment made by Mr. del Busto, in that it complements and goes beyond what Acemoglu and Robinson argue in their book (which I also had the pleasure to read).
A picture is worth a thousand words…
According to the article, we started a new cycle of Elite surproduction around the 70.s, when productivity increased while salaries stagnated (for the most of us). Couldn’t we put this in parallel or correlation with the fact that before that, growth was the result of our need to produce more where’s as now we only look for growth and production is a mean to it? In other words, we used to produce to satisfy our needs (this can be debated later on) whereas now we produce to sustain growth. Do we really need 6 versions of the IPad in a three years timeframe? And who benefits from that growth, high productivity,… If basically wages stagnated? What happens when productivity cannot sustain growth by itself?
This is a very important point. Productivity didn’t start increasing, it simply went on increasing following the same trend it did for the 20th century. But the worker incomes stagnated. So their consumption also stagnated (well, after they got so much in debt that they couldn’t borrow more). As demand declined, growth also slowed down. It’s the vicious Keynes cycle (instead of the virtuous one he advocated).
Also, could we consider those trends, not as cycles repeating but as steps towards a bigger “cataclysm”, such as the end of democracy? Such as you said, economic organisations are undemocratic and they tend to become the real paradigm of our society. When a company stops making children works, usually it s because it alters it’s sales and image rather than thanks to some political action. At the same time maybe the act of purchasing has more democratic sense and value than actually voting for politicians.
Anyway, all food for thoughts.
Interesting article that gives, as always, a lot to think about. I’m curious about the overall lack of concern by middle class and poorer Americans about this increasing disparity of wealth and about most having to work harder and harder to stay in the same place at best. Many of my students take their own downward mobility for granted, for instance, and while they’re not happy about it, I don’t see the fire in their bellies. There was the Occupy movement, but that fizzled. It’s anyone’s guess what’s going to happen next year in the midterm elections in terms of voter turn out and results.
I’m wondering why more aren’t hitting the streets and why so many who are far and away not members of the 1-2% are still so keen to defend the concentration of wealth (and to condemn anyone who criticizes it as proposing USSR-style socialism). Is it still the pipe dream of trickle down, or the belief that if you keep your head down and work hard, one might get ahead someday? Is it fear of looking like fools if we get excited about a cause and it doesn’t pan out? Is it the plethora of electronic and internet diversions that did not exist in the early 1900s? Is it a modern inability to focus on anything for any length of time? Is it outrage fatigue?
Perhaps, the simplest explanation is that this is the result of long-term indoctrination to so-called “liberal ideology” that imposes the concept of extreme selfishness (or “Every Man for Himself“ ideology undercover of such motto as “the uniqueness of each person”, “freedom”, “full responsibility for own success”). As a result, individuals become incapable of any type of grass-roots cooperation.
Ironically, it leads to the loss of the very liberal values ( “freedom”, “the uniqueness of each person”, “full responsibility for own success”).” Liberally indoctrinated people are more inclined to blame themselves for all the problems of the system (and secretly dreaming to cheat the system) than participate in social movements.
Young elite don’t have fire in their bellies yet because they are not truly desperate. Remember: if the elite aspirants start unrest/revolutions, things for THEM have to become bad. When people–typically the young would-be leaders of our society who are denied the opportunities they aspire to–feel they have nothing to lose, that is when things will turn violent.
The ones who are against “socialism” are mainly the established elite. The ones who are for it are typically the disenfranchised elite. Also, if you look at the whole law school resistance/reform movement, a lot of the “scamblogs” go into exactly what the author is saying. There are too many lawyers than jobs available (the elite overproduction) and the unemployed/underemployed lawyers are lashing out at the law schools, with many scamblogs being created. In response, enrollments have plummeted to 1977 levels, and they keep going down.
Regarding general discontent, it really depends on what Congress does in the next year or two that’s important. If the economy stays stagnated and the elite aspirant’s economic situation does not improve, then social unrest will probably occur. And it will be sudden and spontaneous.
An interesting thing I’ve noticed is that Occupy Wall Street DID have some wealthy young people. Well, the young people were not wealthy…but their parents were. And the organizers were educated. It goes into the “elite overproduction” theory, and I believe the author is right in his analysis.
This is very telling that Bloomberg published it at all.
One comment on Bloomberg said something like, shame on you Bloomberg for publishing this article!
Be aware of unemployed lawyers. – Remember Robespierre, Marx, Lenin, Castro … 🙂
“Be afraid. Be very afraid.”
the question is what to do about income inequality. The tax man already takes a giant bite out of our richest and most productive citizens. Hard to raise taxes. we spend a lot on education without getting a decent return since so many kids are hard to discipline much less educate with important career skills. Hard to justify throwing more money at a broken system.
A giant bite? I wouldn’t call 35% excessive (and the effective rate on top incomes is much lower). When the taxes on top incomes hovered around 80-90%, this nation actually did quite well. Now, I am not an advocate of such draconian tax rate. 50% sounds just about right to me – half for you, half for the society.
you’re leaving out state, local, property taxes, etc. Plus, the highest federal rate is now nearly 40% plus the 3.8% obamacare tax. So in NYC and CA your all-in income tax rate is close to 50%. That’s pretty harsh. Plus the “rich” are already shouldering a big burden of tax receipts. The top 10% of earners were already paying 70% of the taxes before taxes went up.
As for higher tax rates in the past, few people actually paid the 80-90% rate when it was that high due to a proliferation of tax shelters then that don’t exist today. Today, AMT takes away a lot of deductions for high earners.
Remember Romney and how reluctantly he showed his tax return? For everyone to see that his tax rate was 15%, even slightly less than that.
It is upper-middle class in NYC and CA who pay close to 50%, not _really_ rich.
“The top 10% of earners were already paying 70% of the taxes before taxes went up.”
That’s because they make a ton more than everyone else in our highly unequal society.
You can’t say that all of it is due to effort, ability, and thus are just rewards, however. It may be for the upper-middle class, but not the top 1% of 1%. You want a system that rewards hard work and creativity, but it’s hard to argue that, say, an investment banker who makes 1000 times the average income produces 1000 times more value to society than the average worker.
Produce for yourself, essentially no tax. Produce for others, 50% tax. What does that do to humanity’s greatest strength, specialization along with the ability to exchange favors?
i guess we can agree on 50/50! it’s prob enough that the state and the individual are a little dissatisfied so it’s prob just about right.
I might start watching cspan when we start arming congressmen, I think giving them all a mace would be a perfect solution to cull that elite herd.
careful what you wish for…if the elite aren’t around to support the rest of us, who will? The 99% needs the 1% and vice versa. Wiping out (or just culling the elites) won’t make the rest better off though the gap might narrow between the rich and poor.
I’ll defend the lawyers. I do think there was elite overproduction, but that’s a result of there being such a pool of money for the elites. The profit potential drew aspirants into the race.
Lawyers were certainly people who profited from this, but far from the most. As the article points out the number of MBAs rose even faster than lawyers since the 70s. And beyond MBAs, the finance sector specifically. The article doesn’t doesn’t even mention the rising percentage of total corporate profits taken by FIRE sector since the 1980s.
Legal work has externalities, but it’s mainly of the form of slowing things down. A type of friction or tax that lowers growth. (Reduced growth hasn’t really been a problem since the 70s). Lawyers rarely have the ability to accelerate feedback cycles of the sort that drives social instability — e.g. increasing debt and leverage, devaluing labor vs capital, creating top heavy reward, propping up asset prices by ever increasing supply of money, and magnifying and trading against systemic risks. Lawyers are just not capable of that level of societal destruction (politicians maybe, but they didn’t come up with the economic ideas on their own).
Articles like this take it out on lawyers because lawyers have recently joined the rest of society in suffering the effects. It’s always easier to take it out on people who no longer have power.
Some of the blame may even be deserved, but if you take down the lawyers, the situation won’t get any better economically. It’s already too late. The waterline has crept up past them. They’re in the water drowning with everyone else, or will be soon.
But socially and legally, the law still represent one of few avenues of challenging the elites that still has legitimacy.
So as you can see by the publication in Bloomberg of this and other similar articles, the elites are quite supportive of social efforts to de-legitimize the law and lawyers (except those that protect their property rights of course). You see that same dynamic with the ruling class in dictatorships. Because if you take down the lawyers, that’s one less legitimate avenue of recourse and justice that they have to worry about.
Then you really are down to the barricades and the streets as unpalatable options.
Remember that I did not come with the title. In fact, we agreed on a different one with the editor, but then somebody else slapped the “Blame the Elites” title on the article. In the article, I explicitly say, “Don’t hate them” [lawyers]. But most ‘readers’ don’t read beyond the title.
Also, I generally like the theme of the article, but saying the 1% is now the 2% doesn’t really make any sense. That description is just jarring.
It doesn’t even make sense in a conceptual way. If I had to pick, I think it would be more accurate to say that the 1% is now the 0.5%.
The joys of being elite is not being expanded to the many in our society, it’s being reserved for fewer and fewer. There are more 1% aspirants than ever though.
Actually what was 1% in 1970 is now 3-4% today. That’s the whole idea of elite overproduction. Of course, inequality within the elites also has grown dramatically. My whole article is about this intraelite inequality, something that most people don’t realize is problematic.
@Peter Turchin: Have you ever read E. Todd’s book “L’illusion economique” from 1998 and “Apres L’empire” from 2003? Some bits of your work remind me of Todds work, even if his more concentrates more on anthropology and how different Family types formed societies.
I guess people will rise when only Brioche will be left to eat…:)
Congratulations! This article may be a step toward some public dialogue with the elite.
However, at this point, the idea of “elite overproduction” looks somewhat one-sided. It focuses on the demographic aspects of “overproduction of elite aspirants”, but says little about the production of elite positions (assuming their number as given).
Although elite of tier N can create several additional positions of the tier N-1 (by the way, this is one of the common definitions of elite of level N). Thus the elite itself can create enough elite positions, at least for itself and own offspring, in the long run, this process (at constant external conditions) may lead to a “dilution of wealth,” i.e. to reduce wealth inequality.
Another uncertain point, it measures used to assess inequality and welfare. Mechanic-statistical mixing of social status, wealth and income distributions in the one-dimensional parameter “inequality” does not look very neat. At least, the mutual dynamics of wealth and income distributions can be very indicative for understanding the current political processes.
I don’t quite see how elites are creating elite positions. Political expansion creates new political positions, and economic expansion creates new economic positions, but just having more elites doesn’t create more elite positions.
Let’s look at some examples.
Senior government officials can create a network of highly profitable businesses for friends and relatives.
The owner or president of the corporation may create some additional positions, like vice-president or Board member for their children. These children may be incapable (or simply do not want) run the company and in turn hire the best graduates from the best universities. This also creates “elite” positions for some professors. Thus there is multiplicative effect for the production of elite positions.
Perhaps we are using different definitions of the elite in their arguments. There are three general approaches which are based on (A) social status, (B) wealth and (C) income. For some reason, I use the concept of the elite on the basis of highest accumulation of wealth (B). You are probably more prone to definition on the basis of social status (A).
This suggests that political offices should represent a certain number of people or a certain amount of tax revenue, rather than a certain geographical region of fixed size.
(Or that political power and prestige should somehow be limited.)
That’s right, in my most general model the number of elite positions in proportional to the population size. In another model large surplus of elite aspirants creates pressure for the state to spend more money on finding them offices. However, this contributes to the over-extension of state finances, state bankruptcy and collapse.
Currently in the US the number of top political offices (presidency and the cabinet, supreme court, and the Congress) is fixed, however. This creates an additional pressure of intraelite competition.
So, how do we define the cut-off between elite and not-quite-elite?
As Conspecific Community Dynamics — what a mouthful! — points out, there are a lot of nigh-elite positions in modern government, positions that often wield more power than their nominal superiors. (Yes, Minister makes the same point.)
There is typically no sharp cut-off. The distribution of power is usually similar to the distribution of wealth, there is a long right tail (rather than two humps – the distribution of starting lawyer salaries is very unusual). So you have several gradations of elites and ‘near elites’. In historical literature the top level (‘ magnates’) is often distinguished from mid-rank and low-ran elites. And then there are elite aspirants for all those ranks. Things are complicated in the real world.
There is no defined cut-off. This means that everyone has a lucky chance to assign themselves into elite and everyone else into non-elite.
That’s what happens around; there are many self-appointed elites, the political elite (status based), business elite (wealth based), financial elite (income based) or avatar-bad-name elite (Conspecific Community Dynamics based)…
Currently in the US each top political office has flexible number of supporting positions (advisers, lobbyists, consultants, lowers, etc.). Some of these “supporting positions” have more power and influence than their official employer. By the way, this is one of the reasons why wealth is the best indicator of belonging to elite than the Table of Ranks.
This is a good point. I wonder whether there is data on the numbers and salaries of these supporting positions. I think I’ve seen data on the lobbying groups. What about staffers?
BTW, Isegoria is right, you need a better name.
Here you can see that the number of “Legislative and judicial branch personnel” has doubled in 50 years.
This name is automatically mirrored from my blog, but I’ll try to change it to a more human like.
Thanks. I have these data to 1992, but this table rounds it up to 2011. However, it is very unhelpful that it mixes up judicial and legislative personnel. The data up to 1992, which disaggregates these two types show that the primary growth was in the judicial branch, so it’s not clear at all that the legislative personnel increased dramatically.
When I first read about elite overproduction, I did not think of a growing population vying for a fixed number of senate seats. I thought of the move toward everyone getting a college degree, as if everyone was going to get a great job by virtue of doing what only the elite used to be able to do.