by From Dean Baker – the ways in which the economy has been structured to redistribute income upward It’s hard not to be appalled and scared by the reality denial of Donald Trump’s followers. Their willingness to insist an election was stolen, with no evidence whatsoever, is difficult to understand for those of who like to think that people respond to facts and logic. I don’t have any easy answers to get these people to start thinking clearly, but I will point out that it is not just ignorant and/or crazed Trumpers who have trouble dealing with reality. Many of our leading intellectuals and our major media outlets have similar difficulty dealing with reality when it doesn’t fit their conceptions of the world. In particular, I am referring to my standard complaint about the unwillingness
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from Dean Baker
– the ways in which the economy has been structured to redistribute income upward
It’s hard not to be appalled and scared by the reality denial of Donald Trump’s followers. Their willingness to insist an election was stolen, with no evidence whatsoever, is difficult to understand for those of who like to think that people respond to facts and logic.
I don’t have any easy answers to get these people to start thinking clearly, but I will point out that it is not just ignorant and/or crazed Trumpers who have trouble dealing with reality. Many of our leading intellectuals and our major media outlets have similar difficulty dealing with reality when it doesn’t fit their conceptions of the world.
In particular, I am referring to my standard complaint about the unwillingness to acknowledge the ways in which the economy has been structured to redistribute income upward. I will focus on the two simplest routes, which are often described as “technology” and “globalization.”
The Technology and Inequality Lie
Sorry to get harsh on this, but after what we saw on January 6th, I am not in a mood for being polite. I realize that it is very convenient for people who are doing relatively well in the current economy to believe that it is just a result of the way that technology happened to develop. In this story, it just happened to turn out that the progress in areas like software, artificial intelligence, and biotechnology have made advanced skills in science and math more valuable and less-skilled physical labor less valuable.
This line is repeated endlessly in media outlets and academic circles with zero reflection. As I endlessly point out, the ability to get returns from these innovations in our economy depends almost entirely on government-granted patent and copyright monopolies. Without Microsoft’s patents and copyrights on software, Bill Gates would almost certainly not be one of the richest people in the world. The same applies to Larry Ellison and hundreds of other software tycoons, as well as tens of thousands of others who have made lesser fortunes in software, biotech, and other areas.
It is certainly possible that our current system of patents and copyrights is optimal for promoting innovation (to my mind that seems absurd), but what is inescapable is that patent and copyrights are public policies, not facts of nature. We can (and have) make patent and copyrights stronger and longer. We can also make them shorter and weaker. We can also rely, as we already do to a substantial extent, on alternative mechanisms for financing innovation and creative work.[1]
Structuring patents and copyrights in ways that redistribute an enormous amount of income to people with skills in math and science was a policy choice. It was not the blind path of technology. Yet, there is virtually zero recognition of this fact in policy debates.
The Globalization Lie
Globalization is the other major force routinely cited as a cause of upward redistribution over the last four decades. The story is that there are hundreds of millions of people in the developing world who are willing to do the same work as our manufacturing workers for a small fraction of the pay. The result is that we have lost millions of manufacturing jobs in the United States, and the ones that remain pay far less than they had in the past. Since manufacturing has historically been a source of relatively high-paying jobs for workers without college degrees, the loss of good-paying jobs in manufacturing has put downward pressure on the pay of workers without college degrees more generally.
While this story is true as far as it goes, it ignores the obvious corollary. There are also millions of workers in the developing world who would be willing to work in highly paid professions, for example as doctors and dentists, at a fraction of the pay that our doctors and dentists receive.
This point is usually met with the response that doctors and dentists and other professionals in the developing world don’t train to U.S. standards. That is true, but only because training to our standards still does not allow them to practice in the United States. In the case of both doctors and dentists, rather than requiring specific standards, we literally require training in the United States. In the case of doctors, we require the completion of a U.S. residency program. In the case of dentists, we require graduating a U.S. dentistry program.
It is absurd to argue that training in the United States is the only way that these professionals can attain acceptable standards of competence. While there is a clear public interest in ensuring that these professionals are well-qualified, we surely could set up an accreditation system where doctors in India, China, and elsewhere could train to our standards and then pass a test (our test) to demonstrate sufficient proficiency to practice in the United States.[2]
This is something that would have to be negotiated as part of trade agreements. That we did not choose to negotiate a mechanism to facilitate trade in physicians’ services, but instead focused on removing barriers to trade in manufactured goods, was a policy choice. It was not some inevitable process of globalization.
The result of our policy of protecting doctors and dentists is that they are paid far more in the United States than in other wealthy countries, with the average being approximately twice as high in the United States. The average physician in the United States earns close to $300,000 a year, close to the cutoff for the top one percent of all wage earners.
This is not the case with other occupations. For example, the Bureau of Labor Statistics reports that hourly compensation in manufacturing in the United States was only a bit more than 70 percent as high as in Germany or Denmark.
So, it is simply a lie to say that globalization led to the downward pressure on the pay of workers without college degrees. It was how our policy elites chose to structure globalization.
Fighting the Twin Lies of Inequality
Just as it is hard to figure out how to get Donald Trump’s followers to accept the reality about his election defeat by Joe Biden, it is very difficult to get policy types to acknowledge the reality that it was public policy, not the blind forces of technology and globalization, that led to the surge in inequality over the last four decades. In principle, this should be an easier task since policy types like to think that they can be swayed by evidence and logic. In reality, it’s not clear they live up to their self-understanding.
At the most basic level, anyone in a policy position is almost always, by definition, on the winning side of the inequality gap. Most of these people are highly educated and earn far more than the average worker. Given their status as winners, it is convenient for them to think that their success is due to their ability and/or hard work rather than the fact the deck was rigged. This is true even for liberals, who in their generosity support progressive taxes to redistribute from the winners to the losers. It is nicer to think of oneself as a charitable person, rather than a beneficiary of theft who is willing to give back some of the haul.
But the view that inequality is something that happened, as opposed to something that was designed, also fits in with the standard story that liberals like to tell about the market and government. This story is that the unfettered market (Note: a fictional character) leads to bad outcomes, but good liberals recognize the need for the government to rein in it in for the good of society. The idea that the government and the market are thoroughly intertwined, so that the notion of unfettered market makes zero sense, complicates the thinking of liberals. Therefore, they choose to ignore reality.
The same is true even for people who are more left. They want to decry the evils of capitalism, arguing for a better socialist future. If all the identifiable evils of capitalism can be shown to be contingent on specific ways in which we have structured the market, it undermines the story.
But I would say the biggest obstacle is simply the incentive structure for people who write on these issues or control newspapers and other outlets. No one will ever lose their job for repeating the standard wisdom over and over again. If that seems like a strong claim, look the at the list of columnists at the country’s leading newspapers.
By contrast, pushing ideas that are radically at odds with the accepted wisdom can be hazardous to your career. Unless someone has great confidence in an alternative perspective, it’s best to stick to the conventional wisdom, which is why it persists.
This is, of course, not the first time I have found myself combatting the mainstream perspective, and sometimes I have ended up on the winning side. The view that I, along with others, pushed for decades, that full employment is hugely important for combatting poverty and inequality, is now the accepted wisdom in policy circles.
The dangers posed by the housing bubble is an issue where I clearly lost, even as events eventually proved me right. The pre-collapse debate was interesting because it was a simple case where the mainstream of the profession simply chose to ridicule and/or ignore the position that the housing bubble posed a serious risk to the economy. This attitude persisted even though I was joined in my warnings by Yale University Professor Robert Shiller, who subsequently won a Nobel Prize.
The idea that the collapse of a bubble could lead to a major economic disruption was just too unfashionable to be seriously considered. This is in spite of the fact that residential construction was hitting record shares of GDP, with the savings rate plummeting to record lows, as bubble-generated housing wealth led to a consumption boom.
After the collapse, the deniers got a collective “who could have known?” amnesty, as the problem was attributed to the mysterious ways of finance, as opposed to bubble-driven demand that could easily be recognized by examining quarterly GDP data. The lesson of the housing bubble is that there is little reason for those who spout mainstream positions in policy debates to ever consider alternatives. They suffer no professional consequences even when shown to have been wrong in a very big way. That doesn’t mean there is never any movement – the huge shift in the debate on the impact of minimum wages on employment is a great example – but logic and evidence have far less force in policy debates than we would like to believe.
The Policy Elites and the Trumpers
By any standard, the sight of the Trump mob looking to kill Mike Pence and Nancy Pelosi, and overturn a democratic election, was horrifying. It would be great if there were some simple way to explain to these people that their guy lost and they were trying to destroy democracy in the United States.
Unfortunately, I don’t have that magic formula. But it is important to recognize that it is not just ignorant Trump backers that can have difficulty dealing with reality.
[1] I calculate the amount of income redistributed upward through patent and copyright monopolies here. I sketch out alternatives in Rigged, chapter 5 [it’s free].
[2] Many have raised the concern that we would be taking away doctors from the developing world, where they are badly needed. We actually can set up a system where we compensate developing countries for doctors and other professionals who come to the United States so that they can train two or three for every one that comes here. I discuss this issue in Chapter 7 of Rigged. It is also worth noting on this point that many doctors and other professionals from the developing world already come to the United States. Under the current system, they get zero compensation. Developing countries would almost certainly be far better off under a system where more professionals leave to the United States, but they are compensated for the loss of highly educated workers.