This was a very well- written and thought-provoking article- it’s rational approach has had far more impact on my opinions and causes me to look more deeply into “truths” I have taken for granted. I also loved the literary references.
$8 million in 1989 is equivalent to $20 million in 2022, so it now takes more than twice as much money to be in the top .1%, but not four times as much money. This is in line with the fact that the share of wealth has not quite doubled, certainly not quadrupled.
I have always been proud to pay my taxes. If it helps a drug addict or alcoholic so be it. Almost everyone needs a hand up at least once in their life. I don’t think anyone can be truly Stoic or Spartan in their lives. Thank you for all you do.
Private equity generally is due for a critical examination. The well accepted idea that it makes American business more efficient and is all too the good will be challenged as it goes into customer service oriented businesses like HVAC and plumbing. Two businesses I deal with that were acquired by PE — a condo building manager and a security alarm company — soon had their service deteriorate to the point where they had to be fired.
Interesting thought. That's a dissertation/book idea for someone to grab regarding PE and customer service. I think healthcare might be a particularly problematic industry.
Now I’m speaking without knowledge, but on the surface, Blackstone and others having bought up thousands of single family homes to rent out doesn’t seem an obvious plus for young American would-be homeowners. It did however probably put money in the pockets of Baby Boomers, many who needed it for retirement.
I'd thought that Blackstone acquired their enormous house inventory from the banks during the Great Recession, for pennies on the dollar, when the banks were utterly awash in foreclosed property.
1-in-13 American homeowners lost their homes during those dark days. I'd like to see a piece on whether or not--or to what extent--winners like Blackstone are currently exerting influence to suppress new house starts in the US to keep the value of their assets high.
A valid and important footnote, especially as you include the UK in one of your comparisons, is that the UK government spends far less on its National Health Service than many European countries, and that the current Conservative government is doing all it can to privatise healthcare (in haste before this year's, or January's at the latest, election). It is a fact that a deliberate war is being conducted by the rich Conservatives against the sick and the poor.
I'm not an economist, but, having lived in Norway (2002-2006), I got some insight into that country's taxation regime. It appeared to me to be much more equitable, simpler (less loopholes as a result), and structured in such a way that those struggling with sickness and poverty would be actively supported at all times. Childcare costs, for example, could be deducted from income before tax, up to a threshold. Visits to the doctor, MRI scans etc etc, were mainly paid for by the state, with patients paying (if I remember correctly) a max £200 a year (on top of their taxes) for these essential services. Taxes are also levied on assets (liquidity, property, shares etc minus debt inc mortgage), with 1%ish tax payable on net wealth (currently the tax kicks in on net wealth over 1.7 mil kroner (approx £170k). In my view this type of system is much fairer all round.
Lastly, on philanthropy, there is an argument which says that if the very wealthy were taxed much more heavily, their philanthropy would not be needed. Philanthropy, to an extent, is a voluntary tax, and what's needed are compulsory taxes (I have always argued that any income over £150k should be taxed at at least 50%, and dividends should be categorised as income and taxed at the same rate). I did argue, at a think-tank in France some decades ago, in favour of a global taxation regime and was almost lynched. Personally, I think I was ahead of the times with that thinking, and would still like to see such a regime (it might even help create more co-operation between nations and fewer wars).
I'm somewhat aware that the UK is drifting toward a capitalism more in line with the U.S. In fact I was thinking of the UK when I qualified some comments with "generally" and "on average."
And I agree that compulsory taxes are where America has to go. it might be that higher marginal rates and a continuation of the deduction for charitable contributions would be a win-win for American society in that giving has become a status symbol.
I'm in the UK, and I don't agree with Richard's analysis. My view is that people who can afford it are almost being driven to seek private health care because the NHS has become so inefficient in some respects. However, when it does work properly it is brilliant, and having the service free or at low cost at the point of consumption is a huge benefit.
In the UK, when a top level person screws up, they often get promoted. If they mess up really badly they are likely to get a gong like an OBE or a peerage. I have often said that I'm looking for a top job I can make a total dog's dinner of in order to fund my retirement
A typically honest and interesting article, David. I can't really comment on the USA. But as regards the UK, the move towards a more market-oriented economy and society is not a "drift". It's entirely deliberate. Our own elites are thriving too, and their current friends in government have worked hard to keep it that way.
Good read. Having lived in Europe, I always thought they tried much harder to level inequality than the in the U.S. I've never heard of a wealthy person who couldn't afford to pay taxes. The U.S. needs to do a better job with it's social safety net and providing necessary services for the benefit of all citizens and families.
Figures like Bernie Sanders and Andrew Yang have drawn significant support for policies that might move the needle. Universal health care would be enormous. I'm not sure I support a universal basic income, but when I look at the boom/bust cycles in industry, and the frequent waves of layoffs, it seems that it either needs to be harder to lay off employees (i.e., some kind of regulation to guarantee more job security, so people and their families don't bear full responsibility for the vagaries of the marketplace) or there needs to be a safety net that doesn't make someone with a pink slip immediately housing insecure.
As you and I have discussed many times, the skyrocketing cost of a college education directly dampens social mobility. It forces young people to make high-stakes financial investments in certain career paths, contributes to the apocalypse we're seeing in the humanities, and is convincing many young people to choose a trade rather than an education. None of this bodes well for democracy.
I agree with most of what you say - except that we need fewer people going to trade schools. Rather, I’d argue we need better educational foundations (why are schools only open for 2/3rds of the day and year?!) and cheaper, better higher ed options across the board.
I think healthcare is the first area that does need to be addressed. We are such an outlier in how our system is structured. I don't know if UBI has been implemented in any of our peer countries. I think there have been pilots.
And as to a college degree, that is increasingly a dividing line in our society at the same time as in your posts you've pointed out the decline in the quality of the higher ed institutions.
A lot has to do with actual course content of US undergrad & grad degrees. A 3.5 or 4 year BS in Mathematics in most EU countries is the equivalent of a 5 or 5.5 year Master's in the US. All due to the roughly 2 years of "breadth" courses required in the US.
1. The high cost of education is a result of easy sudent loans - colleges know they will get their money whether the student can pay it back or not, hence they charge whatever they want. Forgiving student loans while continuing the ease of getting student loans will not fix the problem.
2."... convincing many young people to choose a trade rather than an education." Maybe I misread your intent. Did you actaully say that "Trades" are not education? Hopefully, you did not mean to convey that. However, I know many, many highly skilled technically trained individuals, who got highly complex technical educations who makes 6 figures in work that almost no "educated" person would have a clue about, myself included. And the cost is miniscule compared to a 4 year degree (ask me, I know). If I had it to do all over again, I would go the trade route in a heartbeat. Because now when ever I need something repaired, guess who I have to call?
Everything these "trades" people do is essential for the "educated" to live in the life-style they are accustomed. Many trades trained individuals become business owners and eventually become wealthy. Meanwhile, too many "education" programs offer no jobs and lead nowhere except the parents basement and deep debt.
Maybe a hybrid type program of humanities and technical education would work. Just thinking out loud here.
It's possible that there is some price gouging at the most selective colleges and universities, but this is most certainly not the operative principle at the vast majority of institutions, where an air of scarcity reigns. Hence the continual waves of layoffs, the perpetual fixation with enrollment.
As for #2, certainly there are many kinds of education. I received an education in the outdoors as a child in rural Montana and another education through my work as a firefighter and wilderness ranger with the US Forest Service. But that's not what we mean when we talk about public education or a college degree (the original context for this thread). For at least half a century, the U.S. made a liberal arts education accessible to everyone. For minimal financial risk, almost any American could study Aristotle and Milton and participate in the unending conversation. As William Cronon explains in his classic essay "Only Connect," the liberal arts was once available only to the wealthy -- the dominant vision for higher ed until recently had been to bring the freedom and growth associated with liberal arts education to everyone.
Sure, access to wealth is part of what we mean when we talk about democratizing education. But living a life of meaning and purpose is another. Assuredly, many people forge lives of meaning and purpose independently of college -- through their church or their community. But the point of the examined life is not to accept those defaults as the only answers to enduring questions, or the personal and cultural limitations that come with them.
So I mean no disrespect to the trades. Many members of my family are tradespeople -- I also have been one of them. But the trades don't teach you how to think critically. They don't teach you how to evaluate the authority of information in your news feed. We saw the consequences in the early 20th century, nineteenth century, and in earlier periods, of segregating American society between those with access to liberal arts education and those without. I believe America is healthier when all forms of education are open to as many of us as possible.
"But the trades don't teach you how to think critically." - I would disagree with this statement in general. And I would add that most 4 year degree programs do not teach anyone how to think critically either or "evaluate the authority of information in their news feed".
No, Cork is not accusing colleges of greed. Cork is asserting that colleges are responding rationally to a marketplace disordered by artificially easy money, and a fairly recent Federal Reserve study supports his assertion.
Curious about that study, Mike. The research I cite above shows that only for-profit institutions have demonstrably followed the Bennett Hypothesis. It sounds like a reasonable opinion, and it may hold for the most selective institutions. But anyone familiar with the effects of COVID on higher ed and ongoing panic about enrollments will know that colleges are scrambling to fill enormous budget deficits, not profiting from easy money.
Yes, many colleges are struggling financially, but nonetheless tuitions have increased at gross multiples of inflation even though actual instructional salaries have remained fairly stable in real terms. The draconian price increases have been a function of increased demand for higher education services compounded by a very generous understanding of what such services are expected to encompass. In other words, greed has nothing to do with it; there are no villains here, just well-intended governmental policies that were poorly thought through. The institutions responded to these polices quite rationally, as they had created a marketplace where students and families demand unnecessary and even luxury services (translating into hugely bloated administrative expenses and froufrou dorms and facilities) and they are willing to pay for them with borrowed money. In a perfect marketplace the checks would be an unwillingness of lenders to make risky loans and consumers to borrow irresponsibly, but creditworthiness is irrelevant in the world of higher education lending, and borrowers are not always rational.
Appreciate the links. I'll need to wade through them later, but the bankrate summary is spot on for explaining the rising costs.
I think we agree about most of this. Whether colleges are exploiting easy loan money or responding, as you suggest, to a complex set of intersecting demands (such as expectations for services that were not prioritized historically) may be a moot distinction. The fact that many of these institutions also play financial roulette with investments in athletics (sometimes with donor money, but sometimes with base operations) doesn't help.
This is a very thoughtful article that deserves a more thorough response than this, but one part struck me as particularly noteworthy.
“One spending statistic that’s particularly telling is that in America, government spends just 0.7% on supporting families compared to its peer countries who spend three or four times as much.
All the countries mentioned above have capitalist economies. But these countries have on average been far more effective at putting up guardrails to create a more fair and morally sound society. America has not.
The price of meeting people’s basic needs is a higher and more progressive tax code.”
What’s interesting to me as a reactionary is that those countries that heavily subsidize family expenses also all have catastrophically low birth rates. I would theorize that this phenomenon is bound up with a mindset that sees children as an expensive burden that otherwise conflicts with a life of labor in a capitalist(ish) system with the expectation of gaining ready resources for personal consumption. In other words, it a system that says we’ll take care of you if kids happen, much as we would if you got the measles.
Neither that system nor ours (which heavily subsidizes all of those other westernized economies by acting as their de facto military) is conducive to family life and is in fact maladapted to serve any end but individualized consumption. Taking more money from big business and giving it to big government won’t do much if they operate from the same premises and are in fact just the same people. Big everything is the legacy of the Second Industrial Revolution and lingers on into the present in the form of managerialism and the ethos of managerialism is what I described, a system of “expert” rule that legitimizes itself by promising to realize the liberal dream of freedom as the absence of restraint wedded to maximizing economic capacity in the interest of said consumption. In other words, I don’t think taking money from Tweedledee Corporation and handing it to Tweedledum Government Agency will result in it being put to better use.
My thought is that real change will come from the bottom up, people forming meaningful communities bound together by organic relationships, with localized political control and social welfare programs sufficient for their needs. Real change will come when the organizing idea of the economy becomes putting a man into productive labor remunerative enough for him to own a home a support a family in reasonable comfort. Anything else will just get us back where we are now.
Some government programs are terribly wasteful, usually the ones that try to intervene in the economy or come up with complicated benefit schemes. The Employee Retention Credit, for example, was a huge multi-hundred billion giveaway and totally unnecessary. There should be more written about this invitation-to-fraud program.
I think an expanded Child Tax Credit does make sense, not because it will result in a higher birth rate, but because it's fair and efficient (sending checks). And is a good investment in children. If it means lifting children in poverty, down the road those children are going to be less likely to commit crimes, go to jail, be unemployed and so on.
The big Federal entitlement programs of Medicare and Social Security are also relatively efficient as well.
I would remind them that business ownership and employing people is a form of undemocratic power, as is high-dollar philanthropy. I’d remind them that the problem with their wealth isn’t so much that they have more and nicer things than the rest of us but that they have louder voices, and the choices they make affect other people’s lives, dreams and even freedom. Like when they donate to a school district but premise it on the schools pivoting towards STEM, what does that do to the kid who wants to be an artist?
Donations used to promote a personal POV as you describe are good arguments why relying on philanthropy to make our society less unequal is problematic. Thanks for the comment Michael.
The range among billionaire philanthropists is enormous. Bill Gates donates 33% of his annual income; while the Walton heirs (Walmart) have supposedly given less than 1%.
Your former Senator from New York, the esteemed Daniel Patrick Moynihan is reported to have said,
"You are entitled to your own opinion, sir. You are not entitled to your own facts." What we have to deal with are many people who do not do their own research nor believe the hard evidence when presented. My opinion is they either don't want to believe the truth or they listen only to others who say what they want to hear. There are no alternative facts as far as I can tell. There are different interpretations of what those facts may mean and how they may affect the lives of people who are impacted by them. Some of our systems in the U.S. are in need of reform, the tax system being one Health care is another. As for politics, we'll see what happens in November. Thanks, David, for this thoughtful, well-written Spark!
David, I came back and read your post again and still like it a lot. You said "The current levels will revert." Any predictions regarding when that might begin? There are those who believe that wealth inequality is going to become increasingly unsustainable. What then? You say you know which between reform or revolution you prefer and I believe reform would be the wiser choice too but who's going to do it? And when?
I am one who struggles with this along with a few other things and I will post some of my observations and conclusions about education soon. In the meantime, still musing about these numbers: "The top 10% of households by wealth had $6.5 million on average. As a group, they held 66.6% of total household wealth. The bottom 50% of households by wealth had $50,000 on average." You noted some comparisons with other countries and yet, the U.S.(330 million people compared to other countries) seems unwilling or unable to make much change to be more in line with how those other countries spend or invest their money. Then I think about the U.S. budget and I am stunned by where it all goes. The U.S. spends 12% of budget on defense and more than the next 10 countries combined.
I applaud you David and hope many of the 1% gain the shift that you have. I am not American, yet as I read your excellent essay I initially felt sick, a literal knot in my stomach, at the reality of the pervasive belief system causing the dichotomy. Then I felt hope. If someone like you, with your knowledge and background far different than mine, feels there can be positive change coming it allows me a sense of okayness (made that word up!) I haven't had in a while.
David - I agree with the seriousness of income inequality as an issue, but see little connection between your prescriptions, which risk seeming symbolic and sentimental, and the actual challenge. Jailing Dick Fuld would be gratifying, but changes nothing. Neither are Schwartzman's unfortunate comments relevant (incidentally, he is a billionaire because he delivered superior returns to pension funds who would otherwise be underfunded; he is, from that perspective, a mitigator of income inequality). Carried interest is also irrelevant. You take it for granted that the government would spend additional funds wisely. That is 1) ahistorical, and B) not "income". The statistics you site do not reflect transfer payments anyway. Government interventions have a long history of increasing income inequality. One example from today's news: a large number of college educated people will have their debts vacated at the expense of people without advanced degrees, and with debts (often medical) of their own.
It may be time to revisit the actual thesis of the Bell Curve, whose central point was lost in controversy. Murray's point was that a technology-based service economy like our own rewards IQ disproportionately. There was less income inequality when everyone was a farmer. If that's true, we should remove all barriers to upward mobility. Sample solution #1: school choice.
As an educator, like David, I have changed my mind over time. I once believed, as I think you suggest in your last paragraph, that the Bell Curve simply showed a distribution that already existed. After 30+ years of teaching, I no longer believe that. A student's performance (or a child's or a teen's or an adult's) does vary significantly based on opportunities available to them. I have seen this again and again.
It is reassuring to think that the Bell Curve (and any distribution, e.g., of wealth) represents the natural distribution of merit. But how can we be sure that's what it represents? And what if we're wrong?
Agree 100%. (BTW - Murray spent the rest of his life trying to dissociate IQ from "merit"). He thought IQ accurately reflected whatever quality helps someone thrive professionally in a modern economy, but that's beside the point. Even if IQ is not what he suggested, it is still true that our economy rewards certain skills in an increasingly disproportionate way. That was his point. The Bell Curve was a warning about income inequality (the controversial stuff was way back in chapter 13). How do we address that? I think educational opportunity at younger ages (i.e. school choice) as opposed to fetishizing college degrees. My 2 cents.
That's a helpful correction about IQ and a reminder that the author's version of a thing and the widely-circulated version of the thing rarely match. The latter is often oversimplified. I support educational opportunity at younger ages (i.e., preschool and kindergarten available to every child). I do think David's closing question, whether change will come through policy changes or more chaotic means, is worth thinking about. I'm certain that education will only go part of the way. I see bright students leaving college with living expenses much higher than their immediate earning potential, especially if they also have other values besides making the most money at all costs. In them I see that the economy rewards certain skills (as you say) and also certain choices. The choice to be an individual pursuing money seems to get remunerated best. If a young person has nobler, community-serving aspirations and loads of skills, they can expect to be remunerated poorly. This is terribly unfortunate.
2) I think the Schwarzman comment is indicative of a mindset as was the Romney comment.
3) My prescription is for a social safety net that's more generous. The two big Federal entitlement programs of Medicare and Social Security are actually very efficient. And something like an expanded Child Tax Credit that involved sending checks would also be efficient.
4) My numbers are based on wealth, not income. Wealth is a more accurate measure of inequality in my opinion.
David, it would be great to hear your similarly reasoned analysis of how increasing US market concentration in all sectors of the economy is both a) Suppressing wages of wage earners; and b) Increasing spending costs to wage earners.
The Third American Gilded Age, like the two before it was rife with Oligopolies and Monopolies. That stifled competition, squeezed wage earners from both ends, and concentrated wealth in the hands of a tiny few. Or am I missing something?
David, another well-written thought provoking piece. As Richard Pierce succinctly puts below, some in the UK cannot wait for the current Conservative government to finally run out of road because of its attitude and deliberate underfunding of the NHS, plus a catalogue of many others. The taxation system in the UK is not fair and neither is the current political system. We need to grow up and behave like many parts of Europe with higher taxation, proportional representation and actively develop policies to change consumer behaviour, especially our right to cheap air travel and fossil fuels to heat our homes and propel our vehicles.
What I find even more bewildering is the state of US politics and the behaviour of the Republican party. If you ever feel the urge, a piece from your perspective as to why there still remains significant doubt to the outcome of your next presidential election, I for one would be really interested and grateful. It's self-interest really, because the outcome will effect us all.
Are rich Republican US citizens really so stupid, so selfish, so indulgent, so insular in their outlook to believe that the future of your country is safer with the current GOP regime in charge? As you advocate, reform is a much safer way to change than to revolt. You appear to be on an extremely dangerous path at the moment.
Andrew, thanks fro the comment and the suggestion for a future essay.
I'm reading a good book about the working class called "Second Class" by Batya Ungar-Sargon. She did a lot of work speaking with the working class which covers the majority of Americans on how they live and what they think. It gives a lot of insight into why both parties are scorned for various reasons but why any will choose Trump as the lesser of two evils.
As for rich Republicans, I think the short answer to your question, however simplistic, may be yes.
Faith in the law’s ability to take on the rich and powerful took another tumble in the last four years. I’d add to your 2008 history Trump’s infamous - and seemingly true - remark that he could shoot someone in the middle of a public street and get away with it. Plus the open corruption of some on the Supreme Court. The lack of swift and adequate consequences has undermined faith in the law.
The modern Supreme Court used to be seen as an important guardrail. I agree that that is no longer the case. The conflicts of interest are serious and so is the partisanship. As fro trump, fitter historians will have to wrestle with the question of how much he was a symptom or a cause of dysfunction. Of course, a lot will depend on 2024.
This was a very well- written and thought-provoking article- it’s rational approach has had far more impact on my opinions and causes me to look more deeply into “truths” I have taken for granted. I also loved the literary references.
Thanks Tracy.
This is a great summary of important issues in our society. I have two queries.
"In 1989, you needed a minimum wealth of $8 million to be in the 0.1%; today you need a minimum of $46 million."
1. Are the above figures inflation adjusted? You should indicate that.
2. The footnote does not link to the relevant graph. Please correct.
Not adjusted for inflation. Two different data sources, both from the Fed.
For the minimum cutoff, it's https://fred.stlouisfed.org/series/WFRBLTP1311
For the wealth distribution, it's https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/#quarter:137;series:Net%20worth;demographic:networth;population:all;units:shares
I'll amend the footnote. Thanks Kathleen. Really good catch and suggestion.
$8 million in 1989 is equivalent to $20 million in 2022, so it now takes more than twice as much money to be in the top .1%, but not four times as much money. This is in line with the fact that the share of wealth has not quite doubled, certainly not quadrupled.
True. It was a little lazy of me not to do the inflation adjustment.
I don't agree. I'm a historian and you are not, and I'm always thinking about inflation adjustments.
You are far from lazy. You attract smart, detail oriented readers. Always interesting in the comments.
I have always been proud to pay my taxes. If it helps a drug addict or alcoholic so be it. Almost everyone needs a hand up at least once in their life. I don’t think anyone can be truly Stoic or Spartan in their lives. Thank you for all you do.
Thanks! Yes, paying taxes is a privilege.
Not if yer a low income worker. Then it's a drag : )
When I meet someone who demands total self-sufficiency, I ask them, “Did you change your own diapers?”
Private equity generally is due for a critical examination. The well accepted idea that it makes American business more efficient and is all too the good will be challenged as it goes into customer service oriented businesses like HVAC and plumbing. Two businesses I deal with that were acquired by PE — a condo building manager and a security alarm company — soon had their service deteriorate to the point where they had to be fired.
Interesting thought. That's a dissertation/book idea for someone to grab regarding PE and customer service. I think healthcare might be a particularly problematic industry.
Now I’m speaking without knowledge, but on the surface, Blackstone and others having bought up thousands of single family homes to rent out doesn’t seem an obvious plus for young American would-be homeowners. It did however probably put money in the pockets of Baby Boomers, many who needed it for retirement.
I'd thought that Blackstone acquired their enormous house inventory from the banks during the Great Recession, for pennies on the dollar, when the banks were utterly awash in foreclosed property.
1-in-13 American homeowners lost their homes during those dark days. I'd like to see a piece on whether or not--or to what extent--winners like Blackstone are currently exerting influence to suppress new house starts in the US to keep the value of their assets high.
Very interesting.
A valid and important footnote, especially as you include the UK in one of your comparisons, is that the UK government spends far less on its National Health Service than many European countries, and that the current Conservative government is doing all it can to privatise healthcare (in haste before this year's, or January's at the latest, election). It is a fact that a deliberate war is being conducted by the rich Conservatives against the sick and the poor.
I'm not an economist, but, having lived in Norway (2002-2006), I got some insight into that country's taxation regime. It appeared to me to be much more equitable, simpler (less loopholes as a result), and structured in such a way that those struggling with sickness and poverty would be actively supported at all times. Childcare costs, for example, could be deducted from income before tax, up to a threshold. Visits to the doctor, MRI scans etc etc, were mainly paid for by the state, with patients paying (if I remember correctly) a max £200 a year (on top of their taxes) for these essential services. Taxes are also levied on assets (liquidity, property, shares etc minus debt inc mortgage), with 1%ish tax payable on net wealth (currently the tax kicks in on net wealth over 1.7 mil kroner (approx £170k). In my view this type of system is much fairer all round.
Lastly, on philanthropy, there is an argument which says that if the very wealthy were taxed much more heavily, their philanthropy would not be needed. Philanthropy, to an extent, is a voluntary tax, and what's needed are compulsory taxes (I have always argued that any income over £150k should be taxed at at least 50%, and dividends should be categorised as income and taxed at the same rate). I did argue, at a think-tank in France some decades ago, in favour of a global taxation regime and was almost lynched. Personally, I think I was ahead of the times with that thinking, and would still like to see such a regime (it might even help create more co-operation between nations and fewer wars).
Thanks for the comment Richard,
I'm somewhat aware that the UK is drifting toward a capitalism more in line with the U.S. In fact I was thinking of the UK when I qualified some comments with "generally" and "on average."
And I agree that compulsory taxes are where America has to go. it might be that higher marginal rates and a continuation of the deduction for charitable contributions would be a win-win for American society in that giving has become a status symbol.
I'm in the UK, and I don't agree with Richard's analysis. My view is that people who can afford it are almost being driven to seek private health care because the NHS has become so inefficient in some respects. However, when it does work properly it is brilliant, and having the service free or at low cost at the point of consumption is a huge benefit.
In the UK, when a top level person screws up, they often get promoted. If they mess up really badly they are likely to get a gong like an OBE or a peerage. I have often said that I'm looking for a top job I can make a total dog's dinner of in order to fund my retirement
A typically honest and interesting article, David. I can't really comment on the USA. But as regards the UK, the move towards a more market-oriented economy and society is not a "drift". It's entirely deliberate. Our own elites are thriving too, and their current friends in government have worked hard to keep it that way.
Good read. Having lived in Europe, I always thought they tried much harder to level inequality than the in the U.S. I've never heard of a wealthy person who couldn't afford to pay taxes. The U.S. needs to do a better job with it's social safety net and providing necessary services for the benefit of all citizens and families.
Figures like Bernie Sanders and Andrew Yang have drawn significant support for policies that might move the needle. Universal health care would be enormous. I'm not sure I support a universal basic income, but when I look at the boom/bust cycles in industry, and the frequent waves of layoffs, it seems that it either needs to be harder to lay off employees (i.e., some kind of regulation to guarantee more job security, so people and their families don't bear full responsibility for the vagaries of the marketplace) or there needs to be a safety net that doesn't make someone with a pink slip immediately housing insecure.
As you and I have discussed many times, the skyrocketing cost of a college education directly dampens social mobility. It forces young people to make high-stakes financial investments in certain career paths, contributes to the apocalypse we're seeing in the humanities, and is convincing many young people to choose a trade rather than an education. None of this bodes well for democracy.
I agree with most of what you say - except that we need fewer people going to trade schools. Rather, I’d argue we need better educational foundations (why are schools only open for 2/3rds of the day and year?!) and cheaper, better higher ed options across the board.
I think healthcare is the first area that does need to be addressed. We are such an outlier in how our system is structured. I don't know if UBI has been implemented in any of our peer countries. I think there have been pilots.
And as to a college degree, that is increasingly a dividing line in our society at the same time as in your posts you've pointed out the decline in the quality of the higher ed institutions.
A lot has to do with actual course content of US undergrad & grad degrees. A 3.5 or 4 year BS in Mathematics in most EU countries is the equivalent of a 5 or 5.5 year Master's in the US. All due to the roughly 2 years of "breadth" courses required in the US.
1. The high cost of education is a result of easy sudent loans - colleges know they will get their money whether the student can pay it back or not, hence they charge whatever they want. Forgiving student loans while continuing the ease of getting student loans will not fix the problem.
2."... convincing many young people to choose a trade rather than an education." Maybe I misread your intent. Did you actaully say that "Trades" are not education? Hopefully, you did not mean to convey that. However, I know many, many highly skilled technically trained individuals, who got highly complex technical educations who makes 6 figures in work that almost no "educated" person would have a clue about, myself included. And the cost is miniscule compared to a 4 year degree (ask me, I know). If I had it to do all over again, I would go the trade route in a heartbeat. Because now when ever I need something repaired, guess who I have to call?
Everything these "trades" people do is essential for the "educated" to live in the life-style they are accustomed. Many trades trained individuals become business owners and eventually become wealthy. Meanwhile, too many "education" programs offer no jobs and lead nowhere except the parents basement and deep debt.
Maybe a hybrid type program of humanities and technical education would work. Just thinking out loud here.
Your first point echoes the Bennett Hypothesis (attributed to a 1987 op-ed "Our Greedy Colleges," where William J. Bennett makes that case). However, research shows that the premise only holds for for-profit institutions: https://www.npr.org/2018/12/13/672952507/does-more-federal-aid-raise-tuition-costs-not-for-most-students-research-says
It's possible that there is some price gouging at the most selective colleges and universities, but this is most certainly not the operative principle at the vast majority of institutions, where an air of scarcity reigns. Hence the continual waves of layoffs, the perpetual fixation with enrollment.
As for #2, certainly there are many kinds of education. I received an education in the outdoors as a child in rural Montana and another education through my work as a firefighter and wilderness ranger with the US Forest Service. But that's not what we mean when we talk about public education or a college degree (the original context for this thread). For at least half a century, the U.S. made a liberal arts education accessible to everyone. For minimal financial risk, almost any American could study Aristotle and Milton and participate in the unending conversation. As William Cronon explains in his classic essay "Only Connect," the liberal arts was once available only to the wealthy -- the dominant vision for higher ed until recently had been to bring the freedom and growth associated with liberal arts education to everyone.
Sure, access to wealth is part of what we mean when we talk about democratizing education. But living a life of meaning and purpose is another. Assuredly, many people forge lives of meaning and purpose independently of college -- through their church or their community. But the point of the examined life is not to accept those defaults as the only answers to enduring questions, or the personal and cultural limitations that come with them.
So I mean no disrespect to the trades. Many members of my family are tradespeople -- I also have been one of them. But the trades don't teach you how to think critically. They don't teach you how to evaluate the authority of information in your news feed. We saw the consequences in the early 20th century, nineteenth century, and in earlier periods, of segregating American society between those with access to liberal arts education and those without. I believe America is healthier when all forms of education are open to as many of us as possible.
"But the trades don't teach you how to think critically." - I would disagree with this statement in general. And I would add that most 4 year degree programs do not teach anyone how to think critically either or "evaluate the authority of information in their news feed".
The idea that degree programs typically teach critical thinking these days is risible.
No, Cork is not accusing colleges of greed. Cork is asserting that colleges are responding rationally to a marketplace disordered by artificially easy money, and a fairly recent Federal Reserve study supports his assertion.
Curious about that study, Mike. The research I cite above shows that only for-profit institutions have demonstrably followed the Bennett Hypothesis. It sounds like a reasonable opinion, and it may hold for the most selective institutions. But anyone familiar with the effects of COVID on higher ed and ongoing panic about enrollments will know that colleges are scrambling to fill enormous budget deficits, not profiting from easy money.
A few examples:
https://www.citizen-times.com/story/news/local/2024/04/12/unca-asheville-has-staff-layoffs-deficit-to-grow-to-8-million/73301337007/
https://www.forbes.com/sites/michaeltnietzel/2024/03/05/drake-university-proposes-cutting-13-academic-programs-to-close-budget-deficit/?sh=3d7348ac6449
https://www.chronicle.com/article/the-u-of-connecticut-could-be-the-next-public-flagship-to-face-big-cuts
Yes, many colleges are struggling financially, but nonetheless tuitions have increased at gross multiples of inflation even though actual instructional salaries have remained fairly stable in real terms. The draconian price increases have been a function of increased demand for higher education services compounded by a very generous understanding of what such services are expected to encompass. In other words, greed has nothing to do with it; there are no villains here, just well-intended governmental policies that were poorly thought through. The institutions responded to these polices quite rationally, as they had created a marketplace where students and families demand unnecessary and even luxury services (translating into hugely bloated administrative expenses and froufrou dorms and facilities) and they are willing to pay for them with borrowed money. In a perfect marketplace the checks would be an unwillingness of lenders to make risky loans and consumers to borrow irresponsibly, but creditworthiness is irrelevant in the world of higher education lending, and borrowers are not always rational.
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr733.pdf
https://www.bankrate.com/loans/student-loans/why-is-college-expensive/#reasons
https://www.washingtonpost.com/opinions/2023/06/20/student-loan-college-expensive-tuition/
https://www.cato.org/blog/federal-student-loans-rising-tuition-costs-insider-speaks
https://mises.org/mises-wire/federal-student-loans-drive-college-tuition-levels
https://www.lendingmetrics.com/news-resources/newsfeed/the-irrational-borrower
P.S. Similarly, economists have long known that the deductibility of mortgage loans increases the price of housing.
Appreciate the links. I'll need to wade through them later, but the bankrate summary is spot on for explaining the rising costs.
I think we agree about most of this. Whether colleges are exploiting easy loan money or responding, as you suggest, to a complex set of intersecting demands (such as expectations for services that were not prioritized historically) may be a moot distinction. The fact that many of these institutions also play financial roulette with investments in athletics (sometimes with donor money, but sometimes with base operations) doesn't help.
I've written at some length about that:
https://joshuadolezal.substack.com/p/how-many-millions-has-your-university
This is a very thoughtful article that deserves a more thorough response than this, but one part struck me as particularly noteworthy.
“One spending statistic that’s particularly telling is that in America, government spends just 0.7% on supporting families compared to its peer countries who spend three or four times as much.
All the countries mentioned above have capitalist economies. But these countries have on average been far more effective at putting up guardrails to create a more fair and morally sound society. America has not.
The price of meeting people’s basic needs is a higher and more progressive tax code.”
What’s interesting to me as a reactionary is that those countries that heavily subsidize family expenses also all have catastrophically low birth rates. I would theorize that this phenomenon is bound up with a mindset that sees children as an expensive burden that otherwise conflicts with a life of labor in a capitalist(ish) system with the expectation of gaining ready resources for personal consumption. In other words, it a system that says we’ll take care of you if kids happen, much as we would if you got the measles.
Neither that system nor ours (which heavily subsidizes all of those other westernized economies by acting as their de facto military) is conducive to family life and is in fact maladapted to serve any end but individualized consumption. Taking more money from big business and giving it to big government won’t do much if they operate from the same premises and are in fact just the same people. Big everything is the legacy of the Second Industrial Revolution and lingers on into the present in the form of managerialism and the ethos of managerialism is what I described, a system of “expert” rule that legitimizes itself by promising to realize the liberal dream of freedom as the absence of restraint wedded to maximizing economic capacity in the interest of said consumption. In other words, I don’t think taking money from Tweedledee Corporation and handing it to Tweedledum Government Agency will result in it being put to better use.
My thought is that real change will come from the bottom up, people forming meaningful communities bound together by organic relationships, with localized political control and social welfare programs sufficient for their needs. Real change will come when the organizing idea of the economy becomes putting a man into productive labor remunerative enough for him to own a home a support a family in reasonable comfort. Anything else will just get us back where we are now.
Thanks L. of C. for the comment.
Some government programs are terribly wasteful, usually the ones that try to intervene in the economy or come up with complicated benefit schemes. The Employee Retention Credit, for example, was a huge multi-hundred billion giveaway and totally unnecessary. There should be more written about this invitation-to-fraud program.
I think an expanded Child Tax Credit does make sense, not because it will result in a higher birth rate, but because it's fair and efficient (sending checks). And is a good investment in children. If it means lifting children in poverty, down the road those children are going to be less likely to commit crimes, go to jail, be unemployed and so on.
The big Federal entitlement programs of Medicare and Social Security are also relatively efficient as well.
I would remind them that business ownership and employing people is a form of undemocratic power, as is high-dollar philanthropy. I’d remind them that the problem with their wealth isn’t so much that they have more and nicer things than the rest of us but that they have louder voices, and the choices they make affect other people’s lives, dreams and even freedom. Like when they donate to a school district but premise it on the schools pivoting towards STEM, what does that do to the kid who wants to be an artist?
Donations used to promote a personal POV as you describe are good arguments why relying on philanthropy to make our society less unequal is problematic. Thanks for the comment Michael.
The range among billionaire philanthropists is enormous. Bill Gates donates 33% of his annual income; while the Walton heirs (Walmart) have supposedly given less than 1%.
“It’s a war. It’s like when Hitler invaded Poland in 1939.” This is deranged.
Your former Senator from New York, the esteemed Daniel Patrick Moynihan is reported to have said,
"You are entitled to your own opinion, sir. You are not entitled to your own facts." What we have to deal with are many people who do not do their own research nor believe the hard evidence when presented. My opinion is they either don't want to believe the truth or they listen only to others who say what they want to hear. There are no alternative facts as far as I can tell. There are different interpretations of what those facts may mean and how they may affect the lives of people who are impacted by them. Some of our systems in the U.S. are in need of reform, the tax system being one Health care is another. As for politics, we'll see what happens in November. Thanks, David, for this thoughtful, well-written Spark!
Thank you Gary. That DPM quote is a great one.
David, I came back and read your post again and still like it a lot. You said "The current levels will revert." Any predictions regarding when that might begin? There are those who believe that wealth inequality is going to become increasingly unsustainable. What then? You say you know which between reform or revolution you prefer and I believe reform would be the wiser choice too but who's going to do it? And when?
I am one who struggles with this along with a few other things and I will post some of my observations and conclusions about education soon. In the meantime, still musing about these numbers: "The top 10% of households by wealth had $6.5 million on average. As a group, they held 66.6% of total household wealth. The bottom 50% of households by wealth had $50,000 on average." You noted some comparisons with other countries and yet, the U.S.(330 million people compared to other countries) seems unwilling or unable to make much change to be more in line with how those other countries spend or invest their money. Then I think about the U.S. budget and I am stunned by where it all goes. The U.S. spends 12% of budget on defense and more than the next 10 countries combined.
Thank you for a cogent and important piece. There’s a lot on the line.
This is one of the best and most well written articles on economics that I’ve read in a long while. Thanks 🙏🏾
Definitely
I applaud you David and hope many of the 1% gain the shift that you have. I am not American, yet as I read your excellent essay I initially felt sick, a literal knot in my stomach, at the reality of the pervasive belief system causing the dichotomy. Then I felt hope. If someone like you, with your knowledge and background far different than mine, feels there can be positive change coming it allows me a sense of okayness (made that word up!) I haven't had in a while.
Okayness is a great word. Communicates a feeling much better than, say, equanimity.
Thank you for the comment, Donna.
David - I agree with the seriousness of income inequality as an issue, but see little connection between your prescriptions, which risk seeming symbolic and sentimental, and the actual challenge. Jailing Dick Fuld would be gratifying, but changes nothing. Neither are Schwartzman's unfortunate comments relevant (incidentally, he is a billionaire because he delivered superior returns to pension funds who would otherwise be underfunded; he is, from that perspective, a mitigator of income inequality). Carried interest is also irrelevant. You take it for granted that the government would spend additional funds wisely. That is 1) ahistorical, and B) not "income". The statistics you site do not reflect transfer payments anyway. Government interventions have a long history of increasing income inequality. One example from today's news: a large number of college educated people will have their debts vacated at the expense of people without advanced degrees, and with debts (often medical) of their own.
It may be time to revisit the actual thesis of the Bell Curve, whose central point was lost in controversy. Murray's point was that a technology-based service economy like our own rewards IQ disproportionately. There was less income inequality when everyone was a farmer. If that's true, we should remove all barriers to upward mobility. Sample solution #1: school choice.
As an educator, like David, I have changed my mind over time. I once believed, as I think you suggest in your last paragraph, that the Bell Curve simply showed a distribution that already existed. After 30+ years of teaching, I no longer believe that. A student's performance (or a child's or a teen's or an adult's) does vary significantly based on opportunities available to them. I have seen this again and again.
It is reassuring to think that the Bell Curve (and any distribution, e.g., of wealth) represents the natural distribution of merit. But how can we be sure that's what it represents? And what if we're wrong?
Agree 100%. (BTW - Murray spent the rest of his life trying to dissociate IQ from "merit"). He thought IQ accurately reflected whatever quality helps someone thrive professionally in a modern economy, but that's beside the point. Even if IQ is not what he suggested, it is still true that our economy rewards certain skills in an increasingly disproportionate way. That was his point. The Bell Curve was a warning about income inequality (the controversial stuff was way back in chapter 13). How do we address that? I think educational opportunity at younger ages (i.e. school choice) as opposed to fetishizing college degrees. My 2 cents.
That's a helpful correction about IQ and a reminder that the author's version of a thing and the widely-circulated version of the thing rarely match. The latter is often oversimplified. I support educational opportunity at younger ages (i.e., preschool and kindergarten available to every child). I do think David's closing question, whether change will come through policy changes or more chaotic means, is worth thinking about. I'm certain that education will only go part of the way. I see bright students leaving college with living expenses much higher than their immediate earning potential, especially if they also have other values besides making the most money at all costs. In them I see that the economy rewards certain skills (as you say) and also certain choices. The choice to be an individual pursuing money seems to get remunerated best. If a young person has nobler, community-serving aspirations and loads of skills, they can expect to be remunerated poorly. This is terribly unfortunate.
A few comments to your comment:
1) I think symbols are important.
2) I think the Schwarzman comment is indicative of a mindset as was the Romney comment.
3) My prescription is for a social safety net that's more generous. The two big Federal entitlement programs of Medicare and Social Security are actually very efficient. And something like an expanded Child Tax Credit that involved sending checks would also be efficient.
4) My numbers are based on wealth, not income. Wealth is a more accurate measure of inequality in my opinion.
Good to have the dialogue!
David, it would be great to hear your similarly reasoned analysis of how increasing US market concentration in all sectors of the economy is both a) Suppressing wages of wage earners; and b) Increasing spending costs to wage earners.
The Third American Gilded Age, like the two before it was rife with Oligopolies and Monopolies. That stifled competition, squeezed wage earners from both ends, and concentrated wealth in the hands of a tiny few. Or am I missing something?
I'm not qualified to address that very good question, but I will see if I can find a good answer that is well researched.
David, another well-written thought provoking piece. As Richard Pierce succinctly puts below, some in the UK cannot wait for the current Conservative government to finally run out of road because of its attitude and deliberate underfunding of the NHS, plus a catalogue of many others. The taxation system in the UK is not fair and neither is the current political system. We need to grow up and behave like many parts of Europe with higher taxation, proportional representation and actively develop policies to change consumer behaviour, especially our right to cheap air travel and fossil fuels to heat our homes and propel our vehicles.
What I find even more bewildering is the state of US politics and the behaviour of the Republican party. If you ever feel the urge, a piece from your perspective as to why there still remains significant doubt to the outcome of your next presidential election, I for one would be really interested and grateful. It's self-interest really, because the outcome will effect us all.
Are rich Republican US citizens really so stupid, so selfish, so indulgent, so insular in their outlook to believe that the future of your country is safer with the current GOP regime in charge? As you advocate, reform is a much safer way to change than to revolt. You appear to be on an extremely dangerous path at the moment.
Andrew, thanks fro the comment and the suggestion for a future essay.
I'm reading a good book about the working class called "Second Class" by Batya Ungar-Sargon. She did a lot of work speaking with the working class which covers the majority of Americans on how they live and what they think. It gives a lot of insight into why both parties are scorned for various reasons but why any will choose Trump as the lesser of two evils.
As for rich Republicans, I think the short answer to your question, however simplistic, may be yes.
Faith in the law’s ability to take on the rich and powerful took another tumble in the last four years. I’d add to your 2008 history Trump’s infamous - and seemingly true - remark that he could shoot someone in the middle of a public street and get away with it. Plus the open corruption of some on the Supreme Court. The lack of swift and adequate consequences has undermined faith in the law.
The modern Supreme Court used to be seen as an important guardrail. I agree that that is no longer the case. The conflicts of interest are serious and so is the partisanship. As fro trump, fitter historians will have to wrestle with the question of how much he was a symptom or a cause of dysfunction. Of course, a lot will depend on 2024.