The Jackpot Ecomony
Widening wage inequality is not just a function of a better education or
great
technological skill. Dumb luck may be even more important.
By DAVID FRIEDMAN
Amid soaring stocks and tightening labor markets, last month's
disclosure that U.S. wage growth fell to a 20-year low sharply
challenges popular justifications for this decade's staggering
income inequality. It's time to refocus on one of the era's most
striking developments: the unprecedented cleansing of working-class
concerns from America's once-progressive politics.
The widespread, but surprisingly unexamined idea that technological
change chiefly accounts for rising global poverty, falling real wages
and astounding wealth concentration highlights the new political
elitism. Wealth inequality, it turns out, is just the birth pain of the
Information Age. The PC revolution heavily rewards Internet savvy
and punishes those with "old economy" skills: construction workers,
aerospace engineers, service employees, farmers and the like.
Worldwide assets naturally flow to the high-tech elite. Huge wealth
differentials are the result.
Part of this "technology story" is undeniably true. Even in the booming
United States, let alone struggling Asia or Central Europe, wage
inequality is dramatically growing.
According to Economic Policy Institute economist Jared Bernstein,
median inflation-adjusted U.S. wages fell by 3.1% during 1989-1997.
Hourly pay, meanwhile, stagnated or fell for the bottom 60% of the
U.S. work force, including 80% of all male workers. Real wages fell
by 6.7% for male workers and rose by just 0.8% for women, about
one-tenth as fast as in the 1980s. U.S. poverty rates rose to nearly
14%, historically quite high, while middle-class wealth fell by 3%.
Concurrently, the share of total national wealth held by the top 1% of
U.S. households ballooned from 37.4% to 39.1%. The wealthiest
10% of all households pocketed nearly 90% of the profits from the
'90s' stock-market run. Average corporate-ex-.ecutive pay has
doubled since 1989 and is now a record 116 times what a typical
worker earns.
There's little evidence that a microchip-induced "technology shock"
unique to the 1990s can even remotely account for all this. Research
by Bernstein and colleague Lawrence Mishel shows that technology's
impact is now a less significant factor affecting wages and is actually
more favorable to many lower-wage workers than in previous
decades. Productivity rates, which should be exploding if the
computer revolution were generating huge returns for high-tech skills,
grew no faster in the 1990s than in the 1980s; they are now lower
than in the precomputer 1950s and 1960s.
More telling still, throughout the 1990s, average starting wages for
college graduates, the most technically advanced and
computer-literate workers, fell by a stunning 10%. Newly minted
biologists, chemists and physicists saw their starting salaries plummet
from 11% to 14.5%. Offers to computer programmers dropped by
more than 9%, and from 2% to 3% for new computer scientists and
engineers.
These findings decisively contradict claims that education and
computer-related skills explain contemporary wealth disparities.
But if the technology story is so weak at explaining wage inequality,
why is it so popular? In previous decades, after all, "trickle down" and
other rationales for wealth inequality were relentlessly attacked.
What's different today is the unparalleled influence that a new,
fabulously privileged elite--including Web-site and computer gurus,
actors, directors, media magnates and financial power
brokers--wields over the mainstream left. To be sure, the wealthy,
such as the Kennedys or Roosevelts, long played influential roles in
U.S. progressivism. Never before, however, have their interests been
so dominant, yet less scrutinized.
Cheered by a star-struck media, the new elites have redirected the
left's focus from working-class survival to matters of suburban
"livability." Welfare was easily expendable, but racial and gender
preferences even the wealthiest might claim were religiously
defended. Hundreds of thousands of manufacturing jobs were
sacrificed by a Democratic administration so that bargain-basement
luxuries could be imported.
Everyone seemed to win. As the stock market rose during
1993-1997, the super-rich got even wealthier and paid taxes at far
higher rates than if the same income were spread among more
people. According to the Congressional Budget Office, had U.S.
wealth distribution stayed the same as in 1993, the country would still
suffer a multibillion-dollar federal deficit. Instead, the budget
miraculously balanced.
The technology story conceals what, in many ways, is an
old-fashioned jackpot economy. Great wealth flows to the few
corporate executives, celebrities, professionals and Internet hustlers
who catch the fancy of cash-flush U.S. investors. It's much nicer to
attribute good fortune to better education, or a high-tech revolution,
than to low interest rates, global impoverishment, social connections
and dumb luck.
Hollywood, the epicenter of U.S. faux progressivism, dramatically
illustrates how working-class interests are undermined by the left's
elitist agenda. In the early 1990s, filmed entertainment was evolving
into what many thought would be a true "new" economy: a dense
network of highly collaborative, flexible companies that collectively
produced high-quality products for global distribution. The industry's
resulting job growth and high skills and wages helped lead Southern
California from recession.
The jackpot economy upset these trends. Exploiting investors'
gullibility and celebrity infatuation, Hollywood's "above the line"
talent--big-name directors, actors and writers--demanded and
increasingly got exorbitant fees for their services. This upward flow
of wealth came at the expense of the "below the line" craft and
blue-collar work force, whose share of production budgets steadily
fell. Wages and job growth contracted. Employment security and
work conditions worsened.
America's most self-consciously liberal industry inaugurated a classic
labor squeeze. Hollywood's heavily unionized work force made
repeated concessions, often in the face of threats to move production
to low-wage, subsidized and nonunion locations like Canada and
Australia.
To date, however, the progressive media have largely ignored these
realities. Rank-and-file union members like Michael Everett, an L.A.
County Federation of Labor delegate, were shocked when the left's
flagship journal, the Nation, ran a gossipy, cream-puff series about
Hollywood. "Had even one of the contributors bothered to check
beneath the surface glitz," he laments, "they would have discovered a
factory town in deep distress."
Politicians supported by Hollywood similarly balk at questioning the
disparate bargaining power and locational opportunism their patrons
employ against the working class. Most want to dangle subsidies of
their own, a strategy that would likely provoke a new bidding war
with other states and countries. Even worse, locational subsidies
perversely transfer public revenues badly needed for other purposes
to an already wealthy elite.
Does it matter if U.S. progressives care less about a chicken in every
pot than latte for all who can afford bone china? Although it's
possible to disagree about ultimate policies, America sorely needs an
authentic working-class politics.
The dramatic deflation of overseas economies that has accompanied
the U.S. economic boom, for instance, is breeding potentially severe
future consequences. China's intransigent example--aggressively
unequal trade exploiting huge labor-cost differentials, a closed
economy and overt military espionage--is gaining currency as the
preferred response to U.S. hubris. A working-class politics would
force U.S. leaders to more carefully consider trade, labor, social and
security issues that the jackpot-happy elite all too readily ignores or
downplays.
It's also unclear how most Americans will react when the good times
end and the technology story no longer pacifies. As upward mobility
is increasingly truncated by elite-dominated politics, and
working-class concerns are treated as fringe issues by both political
parties, social unrest is a real possibility.
That's the problem with a jackpot economy. The glitter and
excitement surrounding inconceivably big payoffs seem so seductive,
so achievable. Yet, it's only in the make-believe world of a heavily
guarded casino that almost everyone can lose, and the house always
wins, without serious consequences.*
- - -
David Friedman, a Contributing Editor to Opinion, Writes Frequently
on Economics and Development
Copyright 1999 Los Angeles Times. All Rights Reserved
Search the archives of the Los Angeles Times for similar stories. You will
not be charged to look for stories, only to retrieve one.