Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
DOUBLE YOUR DONATION!
We don’t run corporate ads. We don’t shake our readers down for money every month or every quarter like some other sites out there. We provide our site for free to all, but the bandwidth we pay to do so doesn’t come cheap. A generous donor is matching all donations of $100 or more! So please donate now to double your punch!
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. 

October 22, 2018
Henry Giroux
Neoliberalism in the Age of Pedagogical Terrorism
Melvin Goodman
Washington’s Latest Cold War Maneuver: Pulling Out of the INF
David Mattson
Basket of Deplorables Revisited: Grizzly Bears at the Mercy of Wyoming
Michelle Renee Matisons
Hurricane War Zone Further Immiserates Florida Panhandle, Panama City
Tom Gill
A Storm is Brewing in Europe: Italy and Its Public Finances Are at the Center of It
Christopher Brauchli
The Liars’ Bench
Gary Leupp
Will Trump Split the World by Endorsing a Bold-Faced Lie?
Michael Howard
The New York Times’ Animal Cruelty Fetish
Alice Slater
Time Out for Nukes!
Geoff Dutton
Yes, Virginia, There are Conspiracies—I Think
Daniel Warner
Davos in the Desert: To Attend or Not, That is Not the Question
Priti Gulati Cox – Stan Cox
Mothers of Exiles: For Many, the Child-Separation Ordeal May Never End
Manuel E. Yepe
Pence v. China: Cold War 2.0 May Have Just Begun
Raouf Halaby
Of Pith Helmets and Sartorial Colonialism
Dan Carey
Aspirational Goals  
Wim Laven
Intentional or Incompetence—Voter Suppression Where We Live
Weekend Edition
October 19, 2018
Friday - Sunday
Jason Hirthler
The Pieties of the Liberal Class
Jeffrey St. Clair
A Day in My Life at CounterPunch
Paul Street
“Male Energy,” Authoritarian Whiteness and Creeping Fascism in the Age of Trump
Nick Pemberton
Reflections on Chomsky’s Voting Strategy: Why The Democratic Party Can’t Be Saved
John Davis
The Last History of the United States
Yigal Bronner
The Road to Khan al-Akhmar
Robert Hunziker
The Negan Syndrome
Andrew Levine
Democrats Ahead: Progressives Beware
Rannie Amiri
There is No “Proxy War” in Yemen
David Rosen
America’s Lost Souls: the 21st Century Lumpen-Proletariat?
Joseph Natoli
The Age of Misrepresentations
Ron Jacobs
History Is Not Kind
John Laforge
White House Radiation: Weakened Regulations Would Save Industry Billions
Ramzy Baroud
The UN ‘Sheriff’: Nikki Haley Elevated Israel, Damaged US Standing
Robert Fantina
Trump, Human Rights and the Middle East
Anthony Pahnke – Jim Goodman
NAFTA 2.0 Will Help Corporations More Than Farmers
Jill Richardson
Identity Crisis: Elizabeth Warren’s Claims Cherokee Heritage
Sam Husseini
The Most Strategic Midterm Race: Elder Challenges Hoyer
Maria Foscarinis – John Tharp
The Criminalization of Homelessness
Robert Fisk
The Story of the Armenian Legion: a Dark Tale of Anger and Revenge
Jacques R. Pauwels
Dinner With Marx in the House of the Swan
Dave Lindorff
US ‘Outrage’ over Slaying of US Residents Depends on the Nation Responsible
Ricardo Vaz
How Many Yemenis is a DC Pundit Worth?
Elliot Sperber
Build More Gardens, Phase out Cars
Chris Gilbert
In the Wake of Nepal’s Incomplete Revolution: Dispatch by a Far-Flung Bolivarian 
Muhammad Othman
Let Us Bray
Gerry Brown
Are Chinese Municipal $6 Trillion (40 Trillion Yuan) Hidden Debts Posing Titanic Risks?
Rev. William Alberts
Judge Kavanaugh’s Defenders Doth Protest Too Much
Ralph Nader
Unmasking Phony Values Campaigns by the Corporatists
FacebookTwitterGoogle+RedditEmail