Airs – Ian Lance Taylor

The Argent Age

The dramatic growth of income inequality in the U.S. over the last 30 to 40 years may mark the end of a long experiment in U.S. society, starting with Teddy Roosevelt and ending with Richard Nixon (things were already changing under Jimmy Carter). Teddy Roosevelt was the first of the progressive presidents, and was a major force in a shift in society in which government worked to limit the power of large corporations and guarantee basic rights like food and shelter to all citizens.

Those times are gone, and we have returned to the Gilded Age. Through a natural analogy with Greek mythology, I think we should call the present day the Argent Age. This is due to a broad shift in societal values: government is the problem, and business and the free market is the solution. The inevitable result is that an increasing number of people are poor and have little control over their own lives. In the Gilded Age their anger expressed itself in prairie populism which targeted financiers and politicians. In the Argent Age financiers aren’t doing so well at the moment, but the main anger is against politicians (again) and a somewhat imaginary liberal elite who are assumed to control the national discourse.

In both ages the wealthy by and large ignore the poor; when they consider them at all they tend to advocate a trickle-down theory. Rags-to-riches stories are prominent in both ages (Horatio Alger vs. American Idol), which serve as a form of bread and circuses. In both ages the wealthy exert enormous if somewhat hidden control over the political process.

The Gilded Age ended with Teddy Roosevelt and the Square Deal. He was a more or less accidental president, pushed onto the ticket as a vice-presidential candidate by a Republican boss who wanted him out of his position as governor of New York, and becoming president after McKinley’s assassination. Despite this inauspicious start, he immediately started working to curb the power of corporations, passing the Meat Inspection Act and the Pure Food and Drug Act, and making the serious use of the Sherman Antitrust Act.

The Argent Age will end too, but I can’t guess how. I hope we don’t have to wait for another Teddy Roosevelt; he was a true original.

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Ian Lance Taylor

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26 responses to “The Argent Age”

  1. fche Avatar
    fche

    AThe dramatic growth of income inequality in the U.S. over the last 30 to 40 years may mark the end of a long experiment in U.S. society”

    For what it’s worth, I don’t share your “optimism” about this. There is plenty of power held by wealth-redistribution types.

    “government worked to […] guarantee basic rights like food and shelter to all citizens.”

    Do you understand that this very formulation is basically a socialist axiom, rather than self-evident natural law. Such “positive rights” directly imply robbing peter to pay paul.

  2. Ian Lance Taylor Avatar
    Ian Lance Taylor

    I understand that we are all human beings together, and that the suffering of one person diminishes me. I also understand that society is not a zero sum game, and that helping one person does not imply hurting another. I agree that this is not self-evident natural law, but our society has many rights which I think are not self-evident or natural; the most obvious examples for me are the government enforced monopolies we refer to as copyrights and patents.

    Socialist is not an automatically negative word, any more than capitalist is.

  3. Simetrical Avatar
    Simetrical

    Surely you don’t think we’re currently anywhere near Gilded-Aged levels of inequality, do you? I seem to recall that in the Gilded Age, businessmen were so wealthy that one bailed out the federal government on at least one occasion. Right now it’s rather the reverse situation, methinks. 🙂

    We still have a government that’s vastly more powerful than any group of businesses. We still have social security, welfare, Medicare, Medicaid, food stamps, homeless shelters, and a tax burden that falls overwhelmingly on the rich. It’s widely accepted that the government has at least some responsibility to help the poor and needy. Big businesses are viewed with suspicion and subjected to mounds of onerous regulations (such as the Food and Drug Act and Sherman Antitrust Act you mention). Our last Republican president identified himself as a “compassionate conservative” and was noted for things like how much government aid he sent to Africa. All this puts us much closer to Teddy Roosevelt than the Gilded Age, in my book.

    You might be right that the *direction* of change has swung back toward the Gilded Age, at least in some ways. I’m not sure this is a bad thing. In particular, while I’m completely behind efforts to help the poor, a competitive market with government incentives looks like a much better way to do so than a wholly government-run system like social security. More nationalization looks like a way to hurt everyone in the long run, rich and poor alike.

  4. fche Avatar
    fche

    “I understand that we are all human beings together, and that the suffering of one person diminishes me.”

    Understood.

    “I also understand that society is not a zero sum game, and that helping one person does not imply hurting another.”

    But unfortunately this is not so. Every bit of taxation / wealth redistribution exactly hurts another person.

    “our society has many rights which I think are not self-evident or natural; the most obvious examples for me are the government enforced monopolies we refer to as copyrights and patents.”

    Right, the patent one is particularly anti-libertarian in that it precludes independent rediscovery. You won’t find me defending these on philosophical grounds.

  5. Ian Lance Taylor Avatar
    Ian Lance Taylor

    Simetrical:

    The man who bailed out the U.S. government was J.P. Morgan. One could argue that he did it three times, in 1871, 1895, and 1907. From a modern perspective, we would say that he was personally playing the role which is now played by the Federal Reserve, which was created in 1913.

    The income tax burden falls overwhelmingly on the rich, but the overall tax burden much less so. Looking over at taxfoundation.org, I see that In 2007 the top 1% of earners paid 40% of the income tax (and earned 22% of the income). However, the income tax was only 25% of all government tax receipts; 20% of tax receipts was in the form of payroll taxes, which are far less progressive. State and local sales and income taxes are also far less progressive. When considering tax burden, you must look beyond the income tax.

    Anyhow, you’re certainly right that it is the direction which matters here.

    fche:

    Wealth redistribution does not hurt anybody if it makes the overall society richer and thus returns the money back to the person who was taxed. You can see this if you consider extreme cases, but it can be true in general. Obviously there is a balance to be struck, but it simply is not the case that every tax makes somebody poorer in the long run.

  6. fche Avatar
    fche

    “Wealth redistribution does not hurt anybody if it makes the overall society richer and thus returns the money back to the person who was taxed.”

    I’ve never heard of a serious exposition of such an idea. The closest would be related to “public goods” or perchance public education, but outright wealth redistribution is something else. “trickle-up economics” as it were. Who came up with this?

  7. Ian Lance Taylor Avatar
    Ian Lance Taylor

    I would look for some of the ideas by Amartya Sen, who won the Nobel Prize in 1998.

  8. ncm Avatar
    ncm

    Trickle-up economics is the normal case in capitalist society, and is generally its purpose. Why put it in scare quotes?

  9. fche Avatar
    fche

    ian: I scanned some good old wikipedia articles, but still haven’t seen any claim that outright wealth redistribution can/should be beneficial to those whose wealth was taken. Can you give a more specific pointer for the origins of this counter-intuitive idea?

    ncm: You may be thinking of “trickle-down”, the term often used by critics of free markets back in the 80’s.

  10. Ian Lance Taylor Avatar
    Ian Lance Taylor

    fche: I don’t have a specific link for you, sorry. I found a few web sites out there but nothing from a strict economist point of view. The idea is only counter-intuitive if you treat taxes as always being negative. Consider the extreme case of no taxes, which means no public police force, no shared courts, etc.

    ncm does of course mean trickle-up, I assume you are being facetious. There are plenty of web pages on trickle-up economics, though not all use ncm’s meaning.

  11. Simetrical Avatar
    Simetrical

    Ian: If you’re only making an observation about direction, then is that direction is good or bad? For instance, you remark on growing income inequality. But zero income inequality would probably be a bad thing in practice — no one has yet demonstrated a feasible system to maintain such perfect equality while still achieving an overall high standard of living. It follows that there is some point where decreasing income inequality is *bad*. A priori, we might be on either side of that point. Just as tax increases don’t always harm the taxed, so does income equalization not necessarily help the poor.

    So I’m wondering why you think that we should be moving away from the Gilded Age at this point (as the tone of your post implies), and not toward it.

  12. Ian Lance Taylor Avatar
    Ian Lance Taylor

    I do think that income inequality is too high in the U.S. today. In the 1950s the U.S. had a very high standard of living (for the time) with a much much lower level of income inequality. I think that a very high level of income inequality can be dangerous for a society: it tends to split the society apart.

    The U.S. does have a safety valve of sorts by permitting people of exceptional skill to change social class. But it seems to me that the level of anger in U.S. society is rising, and that is dangerous for all of us. I think the increasing anger between different parts of society at the root of the fact that our political parties are no longer willing to work together, partially paralyzing the political system.

    I should note that taxes are not the only way to reduce income inequality (although I do think that having the long-term capital gains tax rate be approximately the same as the payroll tax rate makes little sense from an equity point of view). Part of what is driving income inequality is the way that corporate boards cooperate, consciously or not, to ratchet up executive pay. That could be changed without touching the tax code. It could be changed without any government action at all, though it would take people courageous enough to walk away from money, which is not a trait that is valued in U.S. society today.

  13. ncm Avatar
    ncm

    I don’t agree that income inequality is an artifact of corporate management conventions. Those conventions are themselves a consequence of corporate control of legislatures, operated via mass media control of the electorate. There were a few limits on that control, enabling citizens to organize and affect, e.g., the last election, but any such limits disappeared today. Citizens are now superfluous, and the only serious political conflicts will be between corporations that have different goals.

    The U.S. was an interesting experiment for 234 years, but today it failed — interestingly, as a consequence of Supreme Court decisions that date to justices installed during the last Gilded Age. Whatever happens next, it won’t be pleasant, even for Frank.

  14. Ian Lance Taylor Avatar
    Ian Lance Taylor

    I agree that corporate control of politics is a real problem. Eisenhower warned us all, and it’s only gotten worse. That said, my views are certainly not as apocalyptic as yours. And Frank doesn’t live in the U.S., so he’ll be OK.

  15. fche Avatar
    fche

    “Part of what is driving income inequality is the way that corporate boards cooperate, consciously or not, to ratchet up executive pay.”

    If the precise quantity of income inequality you worry about is defined by those few thousand americans who are executives or superstars, you will get a certain mathematical attractiveness about it (“max income minus min income”). But surely the overall distribution curve, those few thousand people are in the margins — tiny fractions of the overall population.

    Them merely being rich (or having high income — not the same thing!) in no way diminishes you. Maybe the success of such people should elevate you, unless one’s empathy is strictly directed downward.

    I’m really sorry to see you guy so gloomy, perhaps a consequence of yesterday’s supreme court ruling. I hope you are mistaken about corporate control of politics. It seems like people are voting with their hearts & minds — like last november and again just a few days ago.

  16. Simetrical Avatar
    Simetrical

    @Ian:

    I’m not terribly worried about income inequality. Absolute wealth is more important to me — especially at the low end, where people don’t have enough to eat. The news on that front is excellent. estimates that the number of people living on less than $1 a day has dropped by two-thirds between 1970 and 2006 — in absolute number. So proportionally, more like a 75% or 80% drop.

    And the study estimates that the *worldwide* Gini coefficient dropped from 67.6 to 61.2 between 1970 and 2006. By contrast, says the US Gini coefficient only rose from 39.4 to 47.0 in that same period, making us still much more equal than the world overall.

    So I don’t see any reason to be pessimistic, particularly not on a global scale. I’m not worried about the difference between the extremely rich people in America making a million dollars a year, and the moderately rich making $20,000 a year. There are virtually no poor people in America by global standards. Our primary concern should be people who actually have trouble getting food, not people who have trouble paying rent on an expensive urban apartment if they only choose to work 40 hours a week. Being able to *survive* working only 40 hours a week is a huge luxury in some parts of the world.

    @ncm:

    Do you have concrete evidence (e.g., studies) that suggests that the policies that for-profit corporations favor are any more harmful to society than policies that people would otherwise favor? As far as I can tell, everyone tries to enact policies in their own self-interest, so if corporations didn’t dominate campaign advertising, someone else would. Democracy doesn’t really get you good policy in any event — it just avoids the kind of policy that hurts enough to make most people angry at the government, and it does that no matter how much anyone campaigns.

    So we’re still ruled by the ignorant masses, who anyone with influence tries to win favor from. No change there. If you want a government that makes better decisions, you should look at systems other than pure democracy, like futarchy:

  17. ncm Avatar
    ncm

    Sim: You want to see studies that show corporations want copyright to last forever more than individuals do? Perhaps you can unearth a study identifying a single individual, ever, who has sent money to a copyright lobbyist? Or one revealing millions of dollars have been collected from individuals to send to lobbyists to promote weakening clean-air laws? Maybe one for the special contract-law and anti-trust carve-outs for insurance companies?

    Please. You don’t have any obligation to respect me, but you might show Ian a hint of respect.

  18. Ian Lance Taylor Avatar
    Ian Lance Taylor

    It’s a fair point that somebody else having high income does not diminish me.

    The problem that I’m concerned about is different. When there is a large degree of income inequality, the wealthy tend to increasingly gather power in the overall political and legal system and they tend to change it to favor their interests, and the interests of their children. All increases in wealth tend to flow to the people who are already wealthy. Poor people have their chances of improvement rigged against them, not a direct goal of the wealthy but rather a side-effect. These are all effects that I think we can see in a number of other countries with high income inequality (e.g., a number of countries in sub-Saharan Africa, Kenya being a particularly vicious example as wealth has become associated with ethnicity). For that matter, middle class income in the U.S. has stagnated since the 1970s, although that is slightly deceptive as many things have become cheaper in real dollars since then.

    If people perceive that the system is rigged against them, they tend to lose faith in society, to become angry, to seek more extreme approaches to change. We get more people like Timothy McVeigh. That is dangerous for everyone. That’s why a high degree of income inequality concerns me.

  19. Simetrical Avatar
    Simetrical

    @ncm:

    Of course corporations advocate particular things that harm society. But so do individuals. Both corporations and individuals also advocate (sometimes by accident) things that benefit society. So isolated examples aside, is a greater corporate voice more likely to be helpful, harmful, or not make a big difference?

    Note that the answer will probably depend a lot on what you think is good for society. This is why there’s a partisan split here: conservatives are happy at the decision because corporations more often agree with them, while liberals are unhappy with it because corporations more often disagree with them. Nobody seems to actually care one way or the other about free speech (although the conservatives all phrase their support that way).

    @Ian:

    Sure. Income inequality is harmful beyond a certain point, but it’s not clear where that point lies. Are we before it, or after it? That’s the sort of question that’s almost impossible to rigorously answer, as far as I can tell, so there’s not much to do but call it a matter of opinion.

  20. Ian Lance Taylor Avatar
    Ian Lance Taylor

    There is no bright line in income inequality. The negative effects increase as inequality gets larger. I’m sure there is a point in the other direction where different negative effects increase as incomes become more equal. But I’m also sure that we are very far from that point.

  21. Simetrical Avatar
    Simetrical

    Why are you sure of that, though? I’m not sure of that at all. I can’t think of any way to rigorously test it even in principle.

  22. Ian Lance Taylor Avatar
    Ian Lance Taylor

    There are no rigorous tests in real-world economics. The context always matters.

    In this case the way to get some idea would be to look at other countries and to look at historical data. What is the level of income inequality in very stable countries like Germany? What is the level of income inequality in unstable countries like Colombia?

    (According to Wikipedia quoting the CIA Gini, Germany is 28, Colombia is 54, and the U.S. is 45; I looked up the numbers after picking the example countries.)

  23. fche Avatar
    fche

    But why choose “stability” as the criterion? How about per-capita GDP? Poverty rate?

  24. Ian Lance Taylor Avatar
    Ian Lance Taylor

    Because stability is what I’m concerned about.

  25. fche Avatar
    fche

    But surely that’s not all. After all, dictatorships or anarchy can be very stable/persistent.

  26. Ian Lance Taylor Avatar
    Ian Lance Taylor

    I’m not sure what you’re trying to lead up to. Of course stability is not the only important characteristic of a society. It’s not even the most important. Societies are measured on many different interrelated axes. An increase in income inequality doesn’t have any obvious effect on the poverty rate, so I’m not concerned about it. I don’t think that per-capita GDP is all that interesting, as long as GDP is not decreasing. My fear is that rising income inequality does have an effect on stability, so that is what I am concerned about. This all seems consistent and reasonable to me.

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