FacebookTwitterGoogle+RedditEmail

Technology and Inequality

The people who have been the winners in the massive upward redistribution of income over the last three decades have a happy story that they like to tell themselves and the rest of us: technology did it. The reason why this is a happy story is that technology develops to a large extent beyond our control.

None of us can decide exactly what direction innovations in computers, automation, or medicine will take. Scientists and engineers in these areas follow their leads and innovate where they can. If the outcome of these innovations is an economy that is more unequal, that may be unfortunate, but you can’t get mad at the technology. This is why the beneficiaries of growing inequality are always happy to tell us that the problem is technology.

There is another story that can be told. In this story the upward redistribution of income was a conscious policy by those in power. This story points to a number of different policies that had the effect of redistributing income upward. For example, exposing manufacturing workers to direct competition with low-paid workers in the developing world, while protecting highly educated professionals (e.g. doctors and lawyers), would be expected to lower the wages of both manufacturing workers and the large number of workers who will compete for jobs with displaced manufacturing workers.

Central banks that target low inflation even at the cost of higher unemployment will also increase inequality. When a central bank like the Fed raises interest rates to slow the economy and reduce inflationary pressures, it is factory workers and retail clerks who lose their jobs, not doctors and
lawyers. Even an economist can figure out that this will depress the wages of the former to benefit the latter.

And when a government adopts a one-sided approach to enforcing labor laws, so that courts intervene to benefit management and weaken unions, it will reduce workers’ bargaining power. This will mean lower pay for ordinary workers and higher corporate profits and pay for those at the top.

These and other policy changes over the last three decades can explain the massive upward redistribution that we have seen over this period. In this story there is no happy coincidence about the upward redistribution of income. It was done by human hands with the finger prints of the 1 percent everywhere.

But people involved in policy debates often have difficulty seeing these fingerprints. That is the context in which we have to understand the report that the OECD released on inequality at the end of last year. While this volume contained much interesting data and useful analysis, the main villain in its inequality story was technology.

This led to the happy conclusion that those calling the shots were not responsible. As decent caring human beings they had ideas about how to redress the harm that technology had caused, but this was only because they were good people. There was no sense of undoing the damage brought about by deliberate policy.

On closer examination it turns out that the OECD technology story is wrong. Ananalysis by my colleague at the Center for Economic and Policy Research, David Rosnick, found that they appeared to have made a mistake in their analysis substituting a coefficient on a cyclical technology variable for the coefficient of the trend technology variable. Essentially, their results (and ours) found that spending on technology may influence inequality over the course of a business cycle, but that the increase in spending on technology over the last three decades had no impact on inequality over this period.

The OECD analysis did find that lower unionization rates and weaker labor protections contributed to inequality; although this rise was offset by the impact of an increasingly educated workforce. On net, their analysis explained none of the rise in inequality they identified.

Our analysis found that the growth of the financial sector could explain much of the rise of inequality over this period. The rise in the financial sector share of compensation was strongly associated with a rise in inequality. This is not surprising. The huge paychecks of the Wall Street crew have to come from somewhere and our analysis indicates that it came from those below the 90th percentile in the income distribution. The growth of the financial sector is in turn a story of too-big-to-fail insurance and having the government look the other way in the face of financial sector corruption, as we see most recently with the LIBOR scandal.

In short, the OECD struck out in trying to produce a volume that supported the benign technology caused inequality story. When done correctly their analysis does not support this conclusion. Our modification of their analysis fingers the financial industry as a major villain in the inequality story.

If we are serious about reducing inequality, reining in the financial sector must be a big part of the plan. And, a tax on financial speculation would be a great place to start.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This column originally appeared in The Guardian.

 

SAVE BLACK MESA:

The Poster That Ignited the Radical Environmental Movement, signed by photographer Marc Gaede, available now at the CounterPunch Online Auction!


More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

Weekend Edition
January 18, 2019
Friday - Sunday
Melvin Goodman
Star Wars Revisited: One More Nightmare From Trump
John Davis
“Weather Terrorism:” a National Emergency
Jeffrey St. Clair
Roaming Charges: Sometimes an Establishment Hack is Just What You Need
Louisa Willcox
Sky Bears, Earth Bears: Finding and Losing True North
Robert Fisk
Bernie Sanders, Israel and the Middle East
Robert Fantina
Pompeo, the U.S. and Iran
David Rosen
The Biden Band-Aid: Will Democrats Contain the Insurgency?
Nick Pemberton
Human Trafficking Should Be Illegal
Steve Early - Suzanne Gordon
Did Donald Get The Memo? Trump’s VA Secretary Denounces ‘Veteran as Victim’ Stereotyping
Andrew Levine
The Tulsi Gabbard Factor
John W. Whitehead
The Danger Within: Border Patrol is Turning America into a Constitution-Free Zone
Dana E. Abizaid
Kafka’s Grave: a Pilgrimage in Prague
Rebecca Lee
Punishment Through Humiliation: Justice For Sexual Assault Survivors
Dahr Jamail
A Planet in Crisis: The Heat’s On Us
John Feffer
Trump Punts on Syria: The Forever War is Far From Over
Dave Lindorff
Shut Down the War Machine!
Glenn Sacks
LA Teachers’ Strike: Student Voices of the Los Angeles Education Revolt  
Mark Ashwill
The Metamorphosis of International Students Into Honorary US Nationalists: a View from Viet Nam
Ramzy Baroud
The Moral Travesty of Israel Seeking Arab, Iranian Money for its Alleged Nakba
Ron Jacobs
Allen Ginsberg Takes a Trip
Jake Johnston
Haiti by the Numbers
Binoy Kampmark
No-Confidence Survivor: Theresa May and Brexit
Victor Grossman
Red Flowers for Rosa and Karl
Cesar Chelala
President Donald Trump’s “Magical Realism”
Christopher Brauchli
An Education in Fraud
Paul Bentley
The Death Penalty for Canada’s Foreign Policy?
David Swanson
Top 10 Reasons Not to Love NATO
Louis Proyect
Breaking the Left’s Gay Taboo
Kani Xulam
A Saudi Teen and Freedom’s Shining Moment
Ralph Nader
Bar Barr or Regret this Dictatorial Attorney General
Jessicah Pierre
A Dream Deferred: MLK’s Dream of Economic Justice is Far From Reality
Edward J. Martin
Glossip v. Gross, the Eighth Amendment and the Torture Court of the United States
Chuck Collins
Shutdown Expands the Ranks of the “Underwater Nation”
Paul Edwards
War Whores
Peter Crowley
Outsourcing Still Affects Us: This and AI Worker Displacement Need Not be Inevitable
Alycee Lane
Trump’s Federal Government Shutdown and Unpaid Dishwashers
Martha Rosenberg
New Questions About Ritual Slaughter as Belgium Bans the Practice
Wim Laven
The Annual Whitewashing of Martin Luther King Jr.
Nicky Reid
Panarchy as Full Spectrum Intersectionality
Jill Richardson
Hollywood’s Fat Shaming is Getting Old
Nyla Ali Khan
A Woman’s Wide Sphere of Influence Within Folklore and Social Practices
Richard Klin
Dial Israel: Amos Oz, 1939-2018
Graham Peebles
A Global Battle of Values and Ideals
David Rovics
Of Triggers and Bullets
David Yearsley
Bass on Top: the Genius of Paul Chambers
FacebookTwitterGoogle+RedditEmail