Annals of the Great Recession V.

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From the late 19th Century “Gilded Age” to the early 20th Century “New Era,” America lived with a lot of income inequality.[1] The Great Depression of the 1930s and the policies of the New Deal closed that range of incomes. This new order continued from the 1930s through the 1970s. From the 1980s to the financial crisis income inequality rose sharply once again.   The financial crisis and the subsequent Great Recession dented this inequality, but did not reverse it. Nor does it seem likely that it will be substantially reduced under foreseeable conditions.

The low and middle-income groups suffered limited losses from the recession in comparison to upper income groups. The financial crisis and subsequent recession hit upper income group harder than other groups; federal government responses helped lower income groups more than upper income groups, the wealthy still haven’t made up their losses, and inequality has decreased.

The one-percent suffered the largest fall in pre-tax income during the Great Recession. Between 2007 and 2012-2013, the income of the top one ten-thousandth of earners fell 26 percent; the income of the “one-percent” fell 21 percent; the income of the top five percent fell 15 percent; and the bottom 90 percent fell 13 percent. For most poor and middle-class groups, the average income decline was about 10 percent.

In 2007, the pre-tax income of the highest one ten-thousandth of earners peaked at $39.4 million. In 2009 it fell to $21 million. That’s a 46.6 percent drop in income. Most of these losses came on falling stock-prices, so the run-up of the stock market in recent years has done much to restore the income of this group. In 2012 and 2013, it reached $29.2 million. This group is back at about 74 percent of its pre-recession income. Overall, the income of the “one percent” is still about 20 percent below its pre-recession peak.

Long-standing federal government counter-cyclical policies—unemployment payments, food stamps—helped off-set the effects of the Great Recession for low-income groups. The stimulus bill helped as well. After-tax and after-transfer incomes for the middle quintile of income earners fell by 2 percent in comparison to pre-recession levels. After tax and after transfer incomes for the lowest quintile income group actually rose 2.6 percent.

These facts run against the common perception. “Maybe [people haven’t perceived this truth] because many liberals are tempted to believe inequality is always getting worse,…”

Leonhardt sees middle-class incomes as having been “damaged” by income inequality. This, in turn, “has caused wide-spread frustration.” The implications for American politics should be obvious.

It’s hard to sympathize with people whose incomes dropped from almost $40 million a year to barely $20 million a year. They’ll get by, somehow.

Nevertheless, there are issues that are worth some thought.

First, is inequality as such a durable political issue or would most people be satisfied if they experienced a moderate rise in income each year?

Second, why have upper-incomes grown so much since the 1980s while most incomes have stagnated? The answers here are likely to be more complex and the problems less tractable than the political ideologies of left and right would lead us to believe. Increasing inequality has coincided with globalization, two recessions, the aging of the “Baby Boom” generation, problems in adapting the American labor force, and political near-paralysis. What to do?

[1] David Leonhardt, “Since the Financial Crisis, A Little Less Inequality,” NYT, 17 February 2015.

The Special Forces Solution.

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Many of the international problems confronting the United States these days seem both intractable and incomprehensible.[1] This is deeply frustrating for people living in a country with what is still the leading economy and the most powerful military—by far–in the world. There may be a sense that there is a solution at hand, if our leaders would just employ it.

You can see where this attitude comes from. In truth, the “armies” of many developing countries aren’t made up of real “soldiers.” They’re just “men with guns”[2] hired to prop up the regime in power. The collapse of large parts of the army of Iraq in Summer 2014 illustrates this point. In contrast, the Special Forces of Western nations are highly skilled and motivated. In the American popular imagination, SEALS, Rangers, and Delta Force troops are almost mythic heroes. People often are quick to point out that the Battle of Mogadishu in October 1993 left 17 Americans dead, while the Somalis suffered 1,500 to 3,000 casualties.[3] If only we could lay the weight of our real advantage (elite troops, Precision-Guided Munitions (PGMs), drones) on the primitive enemy, they would be vanquished.

Recent war movies have epitomized this belief.[4] As one of the SEALS surrounded by Taliban says, “I think we’re in for one Hell of a gunfight.” However, all of these movies both built on and diverge from earlier, more cautious movies.

The movie “Clear and Present Danger” (1994, dir. Philip Noyce) asked what if the “war on drugs” was a real war? It answers that we wouldn’t fight it with cops and lawyers bound by legal forms and trials. An angry American president orders his National Security Adviser to launch a secret and illegal war on the cocaine cartels. An elite platoon recruited from Hispanic-American soldiers is inserted into Columbia. They begin to destroy drug labs and transport aircraft. They call in an airstrike against a meeting of cartel chiefs, leaving the building in ruins. The operation is aborted when a henchman of the surviving cartel chief discovers that it is Americans who are doing the killing—without a formal declaration of war. The National Security Adviser betrays the troops to save his own skin, but the remnants are rescued by men of honor. A series of clips begin at: https://www.youtube.com/watch?v=W4xO0k9LcIU

The movie “Tears of the Sun” (2003, dir. Antoine Fuqua) asked what if we had wanted to stop the Rwanda genocide? A squad of Navy SEALS is sent into Nigeria in the midst of revolution[5] to rescue an American-by-marriage doctor working in a do-gooder camp. She refuses to leave without her ambulatory patients, so the SEAL team commander (played by Bruce Willis) is forced to take them along. They are hunted through the forests and mountains by the rebels. Along the way, the Americans change their attitudes. Willis’s character says “I broke my own rule: I’ve started to give a fuck.” One of his men says they need to fight “For all the times we stood down or stood aside.” A series of fire-fights display American prowess, but the SEALs and refugees are finally saved by a belated airstrike. https://www.youtube.com/watch?v=M_MELX1MMoI

Both movies are cautionary tales in which elite forces are never all of the answer.

[1] The same probably can be said about the domestic social and economic problems.

[2] See: “Men with Guns” (1997, dir. John Sayles).

[3] The movie about the event, “Black Hawk Down” (2001, dir. Ridley Scott), was a huge hit and remains very popular.

[4] See: “Lone Survivor” (2013, dir. Peter Berg); “American Sniper” (2014, dir. Clint Eastwood).

[5] Curiously, the trouble arises from a reheating of the quarrel with the southern Ibos, rather than the current war with northern Muslims. See: “The Dogs of War” (1980, dir. John Irvin), another example of my argument. https://www.youtube.com/watch?v=dyxBxmBjC0U

Climate of Fear XIII.

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A decade ago, back when climate change began to emerge as a serious concern, scientists and environmentalists composed a menu of possible future alternatives to burning carbon. Both solar power and wind power seemed likely to be massively expensive. In contrast, biofuels—the conversion of plants into fuel—seemed like it might be a low-cost winner. Both the government of the United States and European governments have invested billions of dollars in developing biofuels. In Britain, for example, subsidies and mandates were used to stimulate a shift to burning wood pellets made from sawdust and tree waste.[1] In the United States, the government mandated and subsidized the mixing of ethanol—a biofuel made from corn—with gasoline. Anywhere from 30 to 40 percent of America’s corn crop now goes to ethanol.

In fact, costs for wind and solar power dropped sharply over the same period that biofuels were being developed. However, until we transform battery technology it will not be possible to use solar or wind power for transportation. Many people continue to count on biofuels as a substitute for carbon-burning.[2] A 2014 report from the Intergovernmental Panel on Climate Change (IPCC) urged replacing carbon with biofuels as an affordable means to hold back climate change. The International Energy Agency speculates that it may be possible to provide over a quarter of world transportation fuel needs by 2050. More immediately, the United States projects that 12 percent of its transportation fuel will come from biofuels within a decade. Similarly, the European Union projects a sharp increase in the role of biofuels to power transportation between today (2.5 percent) and 2020 (10 percent).

Now people are re-thinking this strategy.[3] For one thing, biofuel production has turned out to be massively inefficient: a huge amount of land is required to produce a meager amount of energy. (The 30-40 percent of the American corn crop devoted to ethanol reduces gas consumption by only about 6 percent.) The energy content of all current biomass (food crops, fodder for animals, lumber, biofuels) is about 220 exajoules. The IPCC estimates that the biofuels component alone will have to reach 250 to 300 exajoules by the end of the 21st Century to hold back climate change. This implies a massive expansion of biofuel acreage.

Skeptics believe it unlikely that farm productivity can actually be increased much on the ground, as opposed to on a chalk-board. The world faces an increasing demand for food as both population and incomes in developing countries rise. These will more than eat up any increase in productivity, leading to continued expansion of lands devoted to crops. The American bet on ethanol has driven up world food prices. Harvesting trees for biofuel seems like even more of a losing proposition. It reduces the amount of carbon dioxide captured by trees while increasing the amount of carbon dioxide emitted.

Clearly, there are no simple solutions to the climate problem. It is going to take time to discover the best approaches, even though we seem to be short of time. Government hasn’t entirely succeeded at picking “winners” from among contending solutions. Decisions can have unanticipated consequences that turn out to be hard to un-do. Rather like the origins of the climate problem in the first place.

[1] The chief beneficiary of this effort may have been the members of the U.S. Industrial Pellet Association, which supplies much of the European demand.

[2] Eduardo Porter, “A Biofuel Debate: Will Cutting Trees Cut Carbon,” NYT, 11 February 2015.

[3] Justin Gillis, “New Report Urges Western Governments to Reconsider Reliance on Biofuels,” NYT, 29 January 2015. The story reports on a World Resources Institute study released on Friday.

 

Why is everyone hating on the 19th Century? 3.

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There were a lot of countries, but they were not equally powerful or important. Although the Big Ones had agreed not to eat the Little Ones, the Little Ones still walked softly around the Big Ones. The Great Powers were Britain, France, Germany, the Austro-Hungarian Empire, and Russia. Italy was a “Great Power” only by way of courtesy.[1]

The Minor Powers were the Scandinavian countries (Norway, Denmark, Sweden); the Low Countries (Belgium, Holland); the Iberian countries (Spain, Portugal); and the Balkan countries (Serbia, Rumania, Bulgaria, Greece).

Beyond Europe there were countries that were rising up into (the United States, Japan) or falling down out of (the Ottoman Empire) the ranks of the powers.

 

The core idea of 19th Century diplomacy was to maintain the five Great Powers in relative equilibrium so that no one state could dominate all the others. If one state or two allied states threatened to become too powerful, then the other states would align against it.

 

There were four key elements in maintaining this Balance of Power.

  1. “Compensation.” That is, the point of the balance of power was to keep everyone at approximately equal strength. If one Great Power increased its strength by adding territory, then the other Great Powers had to be “compensated” in order to increase their strength. Lots of times this compensation was purely symbolic, rather than substantial. Great Powers just didn’t want to be seen by other countries as not being important. Then, who paid the “compensation”? Little countries or faraway places, that’s who. That was one of the down-sides to being a Lesser Power or not a power at all. People took stuff away from you and you just had to lump it.
  2. Constant maneuvering. Most treaties were not permanent or open-ended. They had time limitations because states made arrangements to deal with specific problems that came up. Both countries had to agree to renew a treaty when it expired or to end it ahead of time. If one or both parties chose to not re-new a treaty, then it ended. In theory, both walked away with no hard feelings.
  3. Self-restraint. Just because you can do something right now, doesn’t mean that you should do it. A selfish pursuit of individual national interest will destabilize the system. Other countries will start thinking of your country as a problem. They’ll start thinking about how to re-direct you. If you get three or four other Great Powers thinking about how to re-direct you, then you will get re-directed. Look at Germany in the 20th Century.
  4. The absence of ideology as a factor in decision. Liberalism and Conservatism are ideologies. Communism and Fascism are ideologies. In Balance of Power politics, these don’t matter in deciding on international alignments. OK, probably you think Democratic countries are natural allies against Dictatorships. That isn’t true in Balance of Power politics. After 1870, Britain and France had the most democratic governments in Europe, but they were constantly at odds over colonial disputes. In 1894 Republican, democratic France formed an alliance with autocratic Tsarist Russia. Both had a need for an ally, so they made nice with each other in spite of the vast differences in their domestic politics. Countries didn’t have “permanent friends.” They had permanent “interests.”

[1] Usually, no one cared what the Italians thought. They just pretended that they did. This is called “having good manners.”

Why is everyone hating on the 19th Century? 2.

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There’s no such thing as international “law.” There is no higher authority to enforce a single code of conduct. In the 19th Century, what people called international “law” was really two things.

One was the belief that treaties between countries were binding contracts. In 19th Century diplomacy, bi-lateral treaties (treaties between two countries) were important. Multi-lateral treaties (treaties between a bunch of countries) were more important. What you say that you will do, you must do. Otherwise, the contract is broken. Not only may the other party or parties make other arrangements, but they can beat up on you if they have the means and the mind to do so.[1]

The second was that there were standards of behavior. They weren’t particularly high standards. Even so, people often had trouble meeting them. Just as you were not supposed to cheat at cards in your personal life, you were not supposed to lie to another country. To lie to another country, you had to respond to a direct question in an untruthful manner. However, if you phrased things in such a way that they got the wrong idea all on their own, that wasn’t a lie.[2]

If you were going to try something new, you should talk to the other powers beforehand. Certainly, you should talk to the other countries with what was called an “interest” in the matter. An “interest” meant having a “common concern” with others in something, or a “right to a share” in something. If something that some other country did would have an effect on your country, you had an “interest” and a right to a voice. If your country had signed a treaty, your country had an “interest” in the operation of that treaty. If some country did something that had no effect on your country, then you didn’t have an “interest” and your country had no right to be consulted. If your country had not signed a treaty, your country had no right to a voice on the treaty.

That said, the various meanings of the legal term “interest” can conflict. For example, back in the 1990s, Iraq and Kuwait were at odds over a matter. The ruler of Iraq, Saddam Hussein, told the American ambassador, April Glaspie, about his grievances. Ambassador Glaspie responded that the United States couldn’t offer an opinion on the dispute because it had no “interest” in the matter. It wasn’t a party to the dispute. Then Saddam Hussein sent his army to occupy Kuwait and to threaten Saudi Arabia. Well, that’s where the oil comes from. So, that touched on an American “interest” of a different sort. If Saddam Hussein thought that the United States was going to let one country monopolize the oil supply of the Western world, he was very much mistaken.[3]

You were supposed to try to settle disputes peacefully, without resorting to war. War is an uncertain business. Lots of things can go wrong. Usually they do go wrong. Flunk a war and you can have all sorts of problems. Win a war too decisively and other countries will start to worry about you. So, dodging war in favor of talk served everyone’s interests.

[1] It is possible to discern two different attitudes at the core of this belief. On the one hand, until recent times, bankruptcy was seen as a form of fraud. You could get sent to prison if you could not pay your debts to people who had loaned you money in good faith. This happened to the father of Charles Dickens. Sir Walter Scott worked himself near to death out of the felt obligation to help pay off the debts of his publisher. On the other hand, diplomats were almost always aristocrats. They came out of a culture of personal honor and—if necessary—dueling.

[2] The American Secretary of State John Foster Dulles was particularly adept at this.

[3] Shamefully, Glaspie was made the goat during the panic in Washington that followed. She ended her career as Consul General in Cape Town, South Africa.

Why is everyone hating on the 19th Century? 1.

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President Barack Obama and Secretary of State John Kerry have denounced Russian President Vladimir Putin for attempting a return to 19th Century diplomacy in his handling of relations with Ukraine.[1] Everyone agrees that such a “return” is undesirable.

For a historian this attitude is puzzling. In comparison with what had gone before and what would come afterward, the 19th Century was remarkably peaceful. By 1815 Europeans had lived through more than twenty years of devastating wars and terrifying revolutions.[2] They wanted it to stop. Generally, they got what they wanted.

The Poles rebelled against the Russians (1830-1831).

The Revolutions of 1848-1849 led to much bloodshed in within the Austrian Empire and sphere of influence. The Austrians battered rebellious Italians, and Bohemians and Moravians into submission, and then called in the Russians to do the same with the Hungarians.

The Prussians and the Danes fought over the fate of Schleswig-Holstein (1848-1851).

Britain and France fought Russia in the Crimean War (1853-1856).

The German-speaking countries fought Denmark over Schleswig-Holstein (1864) .

France and the Italian states fought Austria (1859-1860).

The Poles rebelled against the Russians (1863-1864).

Prussia fought Austria (1866), with Italy piling-on.

The German states fought France (1870-71), with Italy piling-on.

Russia fought the Ottoman Empire (1877-1878).

Russia fought Japan (1904-1905).

Italy fought the Ottoman Empire (1911-1912).

Two Balkan Wars (1912-1913) finished the process of driving the Ottoman Empire out of Europe.

A lot of mostly small-scale fighting took place outside of Europe as Britain, France, Italy, Russia, Belgium, and Germany built empires. This race for empire only led to war between the powers on two occasions: Britain and France fought Russia over the fate of the Ottoman Empire (1853-1856), and Japan fought Russia over Manchuria (1904-1905). Although many other opportunities for war offered themselves, the powers composed their differences through diplomacy.

Civil strife within Europe did lead to shooting at times: the July Days (1830) and the Commune (1871) in France; the suppression of revolutions in Germany and Austria (1848-1849); the Carlist Wars in Spain (1833-1840, 1872-1876); and the “Risorgimento” in southern Italy (1859-1860).

The epically long and destructive wars of the 19th Century were civil wars fought outside of Europe over messianic causes (Taiping Rebellion in China, 1850-1864; American Civil War, 1861-1865).

Grim as this record may look, it has to be seen in context. Rapid population growth and industrialization de-stabilized European society and politics. Nationalism undermined the existing system of states. The competition for empire brought European states into conflict all around the globe. The potential for frequent, prolonged, and devastating wars was very great. In reality, the history of the 19th Century is the history of wars that never happened.

[1] Certainly, no one would accuse President Obama or Secretary of State Kerry, or the previous Secretary of State, Hillary Clinton, of being either Machiavellian or Bismarckian in their diplomacy.

[2] The French Revolutionary Wars (1792-1802); the Napoleonic Wars (1803-1815).

CINAY-sayers.

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            David Wise (1930- ) went into the newspaper business as soon as he got out of college. Working for the “New York Herald-Tribune,” he became its White House correspondent in 1960. He served as the paper’s Washington bureau chief from 1963 to 1966. Wise came to know a lot of people and a bunch of them were in the intelligence community. The CIA, NSA, and Defense Department are as much a snake-pit of personal rivalries and tortured consciences as anywhere else. People told Wise things and gave him leads. Nobody ever got paid for just sitting around, so Wise ran down the leads. He published a series of books on what he found out.
            The books revealed to the reading public details of the development of the U-2 spy-plane; CIA efforts to overthrow hostile governments (Guatemala, Iran, Cuba, Indonesia); and covert operations in Southeast Asia during the Vietnam War.[1] Subsequently, he moved on to books on the struggle between Soviet intelligence (KGB) and its American opponents (CIA, FBI).[2]
            However, three of Wise’s books had a longer half-life in American politics than did his topical works on espionage. The Invisible Government, in 1964; The Politics of Lying: Government Deception, Secrecy, and Power (1973); and The American Police State: The Government Against the People (1976), all raised alarms about the growing power of the career professionals in agencies charged with protecting America from enemies. Wise warned against the encroachment of intelligence and police professionals on powers that traditionally were the responsibility of democratically elected officials. These books resonated with the public because of the times in which they were published. The “Pentagon Papers,” the fall of President Richard Nixon over the “Watergate” scandal; and the hearings chaired by Senator Frank Church on the intelligence community all inspired alarm among American citizens. Subsequently, the alarm died down after various reforms were put in place.

Recent events have revived concern. The 9/11 attacks, the war with Islamists, and the revelations by Edward Snowden all have contributed to concern about the erosion of individual civil rights and democratic government. This time the herald comes from academia.

Echoing David Wise lo these many years, Michael Glennon[3] argues that the elected officials charged with oversight of the government bureaucracy have abdicated their role. In part, this abdication springs from deference to experts on complicated issues.[4] In part, this abdication results from the decay of Congress from a participant in shared government to a freak-show. Without rigorous oversight and with the best of intentions, the national security organizations that were created to fight the Cold War with the Soviet Union have not only escaped control, but have actually gained the upper hand over constitutional government. The national security experts control the formulation of policy choices laid before the Executive. These same organizations help draft the laws that the Legislature passes; they then implement (or ignore) that legislation. They serve up the rationales for actions which the Judiciary usually approves. The National Security Council, the Central Intelligence Agency, and the Joint Chiefs of Staff figure as the big dogs in what Wise would have called a “secret government.”

[1] The U-2 Affair, with Thomas B. Ross (1962); The Invisible Government, with Thomas B. Ross (1964); The Espionage Establishment, with Thomas B. Ross (1967).

[2] Molehunt: the secret search for traitors that shattered the CIA (1992); Nightmover: How Aldrich Ames Sold the CIA to the KGB for $4.6 million (1995); Spy: The Inside Story on How the FBI’s Robert Hanssen Betrayed America (2002).

[3] Michael Glennon, National Security and Double Government (New York: Oxford University Press, 20 14).

[4] Pearl Harbor and 9/11 loom over this deference like a mushroom cloud.

 

A couple of economic ideas from the past.

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As we lament economic inequality and get ready to keel-haul the Greeks, it is worth recalling  some commanding ideas of the past.

International payments and the domestic economy.

First, in the olden days, money had consisted of silver (good) and gold (better). Then, people had agreed to use paper money (which was worthless) on the understanding that it could be exchanged for gold whenever anyone wanted. To prevent scummy governments from printing all the paper money they wanted (“How can I be over-drawn when I still have some checks?”), fixed ratios of paper money to gold held by the government were established. The more gold that a government held, the more paper money that it could issue; the less gold that a government held, the less paper money it could issue. (See: accordion.)

Second, the money from one country can’t be used in another country. Countries settled their debts by transferring gold. Buy more stuff from a foreign country than you sell to that country and you had to settle the debt by shipping gold. Sell more stuff to a foreign country than you buy from it and they sent you some gold.

Third, if you put gold-backed paper currency together with the use of gold to settle international debts, you got a system in which the domestic economy of each country was linked to the international economy of all countries. If a country exported more than it imported, then gold flowed into the country. The increased gold supply inside the country compelled that country to increase the amount of paper currency in circulation. Prices and incomes would rise, making it less competitive. If a country imported more than it exported, then gold flowed out of the country. The decreased gold supply inside the country compelled that country to decrease the amount of paper currency in circulation. Prices and incomes would fall, making it more competitive.

Ideally, each country would strive for a rough equilibrium. However, the system was thought to be kinda-sorta automatically self-correcting. Countries with in-flows of gold and rising national incomes then could afford more stuff from abroad and ended up having to export gold. Countries with outflows of gold and falling incomes then could afford less stuff from abroad and ended up importing gold. This cut down on the role of any national government in managing the economy. Mostly, the heads of the various national banks (the Bank of England, the Bank of France, the US Federal Reserve Bank, etc.) were supposed to co-operate in smoothing out any bumpy patches.

 

Business cycle theory.

Commonly-accepted economic theory held that during a period of growth demand exceeded supply, so prices rose too high; any fool could make a profit and many did; wages tended to float up above a sensible level and many dead-beats got hired; and banks made unsound loans. In short, “plaque” built up in the “arteries” of the economy. This couldn’t go on. Eventually a “slump” would clean out all the plaque and re-establish the basis for sound growth. (See: angioplasty.) Demand would fall. Falling demand would force down prices to a reasonable level; unemployment would get rid of dead-beats and take wages down to a sensible level; silly businesses (see: nail salons) would go bankrupt; stupid loans would not be made; and the particular mix of products would return to what people actually needed. Then the economy could start growing again.

There is a seductive elegance to these all-encompassing theoretical systems. Same as there is with Marxism. The parallels don’t end there. Ideas have consequences.

What is globalization?

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“Globalization” has been going on for a very long time, but in the last quarter of a century the degree of globalization has increased dramatically.

The ancient “Silk Road” trade route connected East Asia, South Asia, the Middle East and Europe. Sailors, caravan drivers, missionaries, and the odd tourist carried word of one civilization to another. (Bits of Roman armor have been discovered in Vietnam.)

The “Voyages of Discovery” created European empires of Trade in Asia and of Settlement in the Americas. Europeans (willing) and Africans (unwilling) moved to the Americas; cotton, coffee, corn, tomatoes, tobacco, potatoes, and Aedes aegypti all crossed the oceans for the first time.

Industrialization in the 19th Century spread Western power, ideas, and patterns of economic development all over the globe in new ways and to a greater degree than before. European investment poured into American, Indian, and Chinese railroads, and into the Suez and Panama canals; the telegraph eliminated time in sending messages; millions of people migrated.

The rise of Communism between 1919 and 1989 sealed off much of the world from Western Capitalism. These places needed scientists, doctors, and engineers, so they built up an educated elite. Then the collapse of the Communist model led to the opening of Russia, Eastern Europe, and China to the world market. Countries like India, much of Africa, and Latin America had all copied parts of the Communist model. After 1989 they also opened up. Low-skill jobs flowed toward low-cost producers who had to employ and feed poor people as best they could. Making steel, sneakers, T-shirts; assembling computers; and processing chicken all migrated.

The collapse of Communism roughly coincided with the development of the Internet for commercial uses. This, too, wiped away barriers. Call centers in India sprang up, making my afternoons a living hell. At the same time, angry Russian techies who had lost their cushy jobs with NepoCom went in for cyber-crime against Western businesses.

The whole world suddenly became more like One World than ever before.

 

It always has been driven by economic forces, but it always has had huge effects in every other aspect of human life. Here are a few examples.

On the one hand, the world is organized into nation-states, but there aren’t any borders in the atmosphere. Green-house gases emitted by one country affect every country. On the other hand, hundreds of millions of people live in environmentally-fragile places, but they are driving for industry as the path to a better life. What happens when 1.3 billion Chinese decide that they all want a car, just like 300 million Americans? I suppose we could tell them to stick to bicycles, but that seems kind of racist. Maybe we should go back to bicycles to set a good example?

Millions of people in poverty-stricken “failed states” want to get to some place that is successful. Even if they don’t speak the language, can’t read or write beyond an elementary school level, belong to a traditional culture that devalues women, and have spent their working lives behind a water buffalo. It will get worse if their country is about to go under water.

You can get a kidney transplant done for $5,000 in India (plus airfare and hotel); you can get SRS done for $16,000 in Thailand (plus airfare and hotel).

Rihanna is from Barbados; Frankie Joe Rukundo is from Rwanda; “Narcocorrida” is popular on both sides of the Mexican-American border; some of the most interesting American students consider themselves “otaku”; three French brothers produced “Assassin’s Creed.”

Inequality 2.

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Americans history since 1967 has been complex and troubled. However, the economic fortunes of virtually all Americans have steadily improved.[1] In 1967, 40 percent of households earned less than $35,000; 53 percent earned between $35,000 and $100,000; and 7 percent earned more than $100,000 a year. In 2013, 34 percent of households earned less than $35,000 a year; 43 percent earned between $35,000 and $100,000; and 22 percent earned more than $100,000.

The share of households earning more than $100,000 increased from 7 percent to 22 percent. This 15 percent moved up from the middle class. If nothing changed for the lowest share of households, then the middle class would have fallen to 38 percent. Instead, the share earning less than $35,000 decreased from 40 percent to 34 percent. This 6 percent moved up into the middle class. This pretty much matches up with the 43 percent still earning between $35,000 and $100,000 a year. For all three classes, then, the years from 1967 to 2014 have seen a total of 21 percent of Americans moving from the lower class into the middle class or from the middle class into the upper class. This means that 79 percent of Americans remained in their original class. That doesn’t mean that many of them felt frustrated or deceived.

However, the over-all rise of American household fortunes masks other important trends. First of all, the general process of advance went into reverse after 2000. In 2000, 31 percent of households earned less than $35,000 a year; 45 percent earned between $35,000 and $100,000; and 25 percent earned more than $100,000. Then, between 2000 and 2013, 3 percent of households fell out of the middle class into the lower class, and 3 percent fell out of the upper class into the middle class. So, the American story up to 2000 was even more emphatically one of success. It was followed by a period of retreat. How much of the retreat—and the resulting sense of crisis–arises from the pain of the Great Recession and how much from long term trends like globalization? People were clearly falling backward between 2000 and the onset of the financial crisis in 2008. This decline resulted from foreign competition and new technology.

Some of the people who “fell” from the ranks of the middle and upper classes probably were marginal new arrivals. Any economic down-turn would shove them off the ledge. They were the victims of President Obama’s rejection of an adequate stimulus bill back in 2008-2009 and of Republican-enforced austerity policies after 2010.

Average median household income has fallen by 9 percent. Among households headed by people 65 or older, median income has risen by 14 percent since 2000. Partly, the rise in income for older households results from people who continue to work after age 65. Partly, it results from increasingly generous benefits (Social Security, Medicare) provided to older people.

One of the key factors here appears to be education. Even as late as 1992, almost half of middle class families were headed by someone with a high school education or less; slightly more than half by someone with at least some college. Today, 37 percent of middle class families are headed by someone with a high school education or less; 63 percent with at least some college. The middle class has declined most markedly in places that have shifted from industry toward technology and services. New England and New Jersey offer good examples.

How should we deal with globalization, the increased value of education, and the weighting of social policy toward older Americans at the expense of younger Americans?

[1] Dionne Searcey and Robert Gebeloff, “More Fall Out As the Middle Class Shrinks Further,” NYT, 26 January 2015.