Guest Post: Inequality And The Decline Of Labor

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Inequality has many sources, but political and technological dynamics are key factors.

You may have seen this video on Wealth Inequality in America, which has gone viral. I have shown the same data for years in charts and discussed it at great length: Made in U.S.A.: Wealth Inequality (July 15, 2011).

The bottom 80% of American households held a mere 7% of these financial assets, while the top 1% held 42.7%, the top 5% holds 72% and the top 10% held fully 83%.

Here is a snapshot of total assets by category:

"Other assets" include Treasury and corporate bonds, favored holdings of pension funds and the wealthy due to their relative safety and guaranteed yield.

Here is a snapshot of stock ownership:

No surprise there: the top 1% owns roughly 40% of all stocks, and the top 10% own 81%.

Wealth comes from earned and unearned (rent, dividends, etc.) income and capital appreciation, so it's no surprise that the income of the wealthiest segment has also far outpaced the lower 95%:

I have long held that the greatest source of wealth inequality is political: those with great wealth have captured the for-sale machinery of governance, and "persuaded" the Central State to carve out quasi-monopolies and cartels that enable artificially high premiums. They also buy subsidies, exceptions and tax breaks for their income streams.

This is the result of a dominant Central State and an electoral process that lives and breathes cash and lobbying.

In other words, the primary source of wealth inequality is political corruption and an overly powerful centralized State that can grant monopolies and enforce cartels. For example, Attorney General Holder admits megabanks are ‘too big to jail’.

Setting aside the fact that the financial and political Elites are two sides of the same Aristocratic coin, we find an erosion of middle class jobs and wages.

Many observers (including myself) have noted that robotics and networked software are replacing both unskilled and skilled labor at a faster clip than technology is creating jobs. Some believe the rise of robots and software pose little threat to human labor, for example: The robot menace:

 

As technology improves, Mr Autor writes, a pattern emerges. Machines take over routine tasks like repeated number-crunching or the welding of car parts. Such jobs can be programmed into machines using detailed, specific instructions. Displaced human workers are then reassigned to do more improvisational or intuitive work. At airline check-in counters, say, computers are displacing employees from mundane tasks like printing boarding passes. That makes it easier for the humans to respond to unexpected problems like cancelled flights or changed itineraries.

 

A faster pace of "jobsolescence" could create a huge number of niches like that: human workers needed to facilitate the automation taking over many routine tasks.

This sort of article never gets around to acknowledging the obvious reality: that the number of airline employees "doing improvisational work" is considerably lower than the total number of employees that once did both improvisational work and the duties that have been replaced by networked machines and software.

In the lived-in world these analysts apparently avoid, costly human interactions in many settings are increasingly rare, and this elimination of waiting to interact with an employee is a great boon: print your boarding pass at home, no waiting.

In airports, the only human interaction required in most cases is Homeland Security. In retail settings, self-checkout elminates the need for all but a thin slice of "improvisational work."

Developing economies often have a great many people available for improvisational work, but their pay is very low, as improvisational work does not carry much of a premium when labor is in surplus.

Few commentators dare wonder if the entire model of distributing output via wages is broken. The implicit assumption is that there will always be an unmet demand for labor of all skill levels.

This assumption has two ideological flavors:

1. This demand for labor only comes alive when the price of labor is free-floating, i.e. price adjusts for supply and demand. In other words, if I won't pay $15 an hour for someone to mow my lawn, I might hire someone to do the work for $5 an hour. This is the free-market perspective.

2. Education is the key, as the higher the skills and knowledge base of workers, the more they are worth to potential employers. This is the progressive perspective.

To the degree these are ideological, they are unhelpful, as "believers" are blinded by their respective convictions to any concepts outside their circle of faith.

While it is true that the market will distribute labor and wages, a huge imbalance i.e. massive labor surplus, opens the door to exploitation by those with scarce cash to pay for labor.

As for education, I have often pointed out the fallacy in this assumption: training 100,000 people to become PhDs does not automatically create 100,000 jobs for them. Granting 100,000 advanced degrees in chemistry does not create jobs for these 100,000 newly minted chemists. The demand must be organic, i.e. employers see some way to generate $200,000 of value in the marketplace from paying one of these graduates $100,000. (Recall that the pay scales for advanced degrees are high, so the bar of value creation is also higher.)

There are saturation points to all high-skill labor categories. At some point, there is no need for more physicists, attorneys, etc. because there simply isn't enough demand for their skills.

So education is not some sort of blanket panacea to a systemic surplus of labor.

There are many forms of labor that have so little value or the value is diffused to the point that no one will pay to have the work done.

Consider building a free bikeway. Since there is no income stream generated by the bikeway, no enterprise will pay for the bikeway. The city labor contracts require paying workers $75,000 each (or more, once all benefits and pension costs are included), and the diffused benefits to the city often do not justify this major expense.

As a result, the bikeway never gets built. The same applies to picking up litter throughout town; it isn't cost-effective to pay people $75,000 to pick up litter, but since there is no incomes stream, then private enterprise can't do it, either. So nobody does it, other than prisoners (community service) or random unpaid volunteers.

In other words, there is a lot of work that could be done or needs to get done that is not cost-effective for either the public or private sector.

The ideal scenario in a State-dominated consumerist economy is the complete commoditization of labor, meaning people are wealthy enough to pay others to do everything for them. The ideal consumerist household earns about $200,000 a year (bare minimum) and pays others to: walk their dog, bathe their dog, clean their house, watch their kids, take their elderly parents down to the Seniors Center, teach their kids martial arts, piano, dancing, etc., tutor the kids when needed, maintain their house and prepare their meals.

In this scenario, there is always plenty of demand for a variety of skilled labor because the wage earners make so much money doing some high-skill job that they can afford to hire a veritable army of helpers and assistants to manage everyday living.

This is the fantasy scenario of all State-dominated consumerist economies because the high-earning household distributes virtually all its disposable income to downstream labor: the State gets to tax every wage and every transaction, and everyone earning a wage has money to spend on goods and services, keeping money velocity and tax revenues high.

There are two problems with this: one, only 5% of households make enough money to support the commodification of labor on this scale (The top 5% of households, three-quarters of whom had two income earners, had incomes of $166,200 or more: Affluence in the United States), and two, many Americans don't want jobs as domestics, dog-walkers, etc. Their expectations are far higher than what the labor market has to offer.

In other words, everyone wants to be in the top 5%, but the number of positions paying these wages is limited. Training 50% of the populace to perform the top 5% of jobs does not mean 50% of the populace will magically earn top 5% wages.

As a thought experiment, suppose we trained 50% of the workforce to be doctors, attorneys and PhDs in STEM (science, technology, engineering, math). Would the economy magically create jobs for 75 million doctors, lawyers and PhDs? Unfortunately, no. The number of positions requiring this level of training is limited by the demand, the money floating around to pay for these skills and the value created.

Let's return to the starting observation: Few commentators dare wonder if the entire model of distributing output via wages is broken. Those few who do dare wonder if there simply won't be enough paid work to go around have a conventional solution: the Central State should tax the remaining wage earners (and everyone's unearned income) and pay everyone without a job a guaranteed annual income.

In the State-dominated consumerist economy, this is the only possible conceptual solution, because it gives the State more power and distributes enough income to keep the consumer-based economy well-greased.

Is there no other model? I believe there is: an economy based on the forgotten decentralized, networked foundation of society, the community. In my recent books Why Things Are Falling Apart and What We Can Do About It and Resistance, Revolution, Liberation: A Model for Positive Change, I identify the three fundamental components of society: the State (government), the marketplace and the community, i.e. the non-State, non-marketplace functions of family, neighborhood, church, community group, fraternal organization, etc.

An economy in which surplus is distributed to decentralized communities rather than being concentrated in the Central State and its financial Elites, where the spoils are divided up according to bought-and-paid-for political favoritism, is perhaps the most efficient, practical, sustainable and fair distribution system possible in an era of structural labor surplus.

Most people have difficulty even conceptualizing this framework because they have internalized the dominance of the State. Community has withered to the point it has lost experiential meaning; it has ceased to exist in an economy where 50% of the populace receives a payment from the State. Community has been reduced to a myth that receives lip-service from politicos and others in the State's food chain.

When the current system of State-enforced inequality collapses, we will collectively have to re-establish the framework and meaning of community, one piece at a time.

Subscribers and major contributors will hear more about these topics in the weekly Musings Reports.

Part II Roundtable discussion with CHS, Gordon T. Long and Bill Laggner-- Central Banks: Perception of Omnipotence (27 Minutes, 43 Slides)

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falak pema's picture

correction : decline of labour in FIRSTWORLD.

Thats what Reaganomics and NWO globalisation is all about; spread out the pain and thin out the gain! 

Its a big world out there! 

adr's picture

and 99% of that 1% has never actually worked a day that required real labor in their lives.

hankwil74's picture

Because real labor = muscles and sweat

and

fake labor equals using your brain

"You use your brain to make money... what an idiot!"

Divided States of America's picture

Rephrase

 

"You use your brain to STEAL money!"

adr's picture

Using your brain counts as labor. Passing off the labor of other's brains as your own does not. Take one Steve Jobs for example.

If your CFO used his department to cook the books to increase EPS, with the end result of increasing the value of the shares you hold, you made money without labor or even a single neuron of brain power.

That is wealth without labor.

Acet's picture

Using your brain to come up with new and improved ways of skimming money off the work of your fellowman is not real work.

And yet, lots of sectors in our society, from law to finance, have become overwelmingly about that.

tickhound's picture

Yup... Difficult for people to get through the very relevant, in its day, "by the sweat of your brow" mentality.

Re-post....

Labor is now just a cost.  The consumption end is subsidized.  Higher taxes are meaningless to a 'chosen' corporation or a multi-national in the face of higher profits.  These taxes only strengthen their position against smaller competitors or small business.

The truly SAD part is that all this breakthrough technology is being developed and guided toward simply REPLACING our labor and SUPPORTING ancient profit models. 

These models were created as OUR LABOR WAS NECESSARY.  We fetched pails of water FCS.  Value was placed on labor as we domesticated plants and animals and became more dependent on one another. 

The models were built to get the MOST out of our labor.  Profit was the incentive. 

A robot doesn't require incentive.  It is not a consumer.  It doesn't require laws governing "FAIRNESS."  It doesn't require the services, the protection...

It doesn't care about abundance or scarcity. 

IT DOESN'T DRIVE AN SUV 60 miles to work. 

The Models are broken. 

Ben is CHIEF MEDICINE MAN for an ANCIENT RELIGION that is IRRELEVANT outside of faith.

James_Cole's picture

"The models were built to get the MOST out of our labor."

Which model are you talking about, slavery? Penal? Cause' the only time in history when labour has been paid for value is when it organized. 

e-recep's picture

when there was real growth middle class benefited from it, too. but real growth ended in year 1980 and things stagnated till year 2000. but the rich didn't want to stop there, so wealth transfer got first priority. we have had 13 years of rampant wealth transfer and it still goes on.

WTFx10's picture

Jews non Jews don't fuckin matter get rid of Nations\governments borrowing their currency from the private fucking Bankers. Arrest and confiscate their illegal wealth. Jail ,kill or put their criminal Asses to work. Nations do not need middle men skimming off the top I do not care what race or fucking religion. Its a fucking racket and they have had it all to themselves for to fucking long.

The USA has the biggest military the world has ever seen and they follow orders from a bunch of fucking criminals. Don't even call them Bankers, their just fucking thieves.

Pathetic

http://www.youtube.com/watch?v=5hfEBupAeo4&feature=youtu.be

James_Cole's picture

Where is all this anti-Jew bullshit coming from anyway?? Been picking up steam lately. 

Anusocracy's picture

Because people are slowly finding the source of the problem. This process of discovery has occurred in a number of countries over the past thousand years.

It's the beginning of a revolt against injustice and is long overdue.

secret_sam's picture

Simple minds need simple solutions.  If something is going wrong in someone's life, the easiest thing in the world is to look for someone to blame.

Jews have always been a popular target.

WTFx10's picture

What part of I DO NOT GIVE A FUCK IF THEY ARE JEWS OR NOT JEWS, A THIEF IS A THIEF! A GANGSTER IS A GANGSTER! ARREST all of them and we can sift through the nationalities and religions later if you want to sort the scum out in groups.

 

secret_sam's picture

You're sounding a bit emotional, son.  Obviously if you're not a Jewhater, my comment has nothing to do with you.  I was replying to James_Cole's question.

F22's picture

I gave you a minus because of your ignorance.

Income for the top one percent is an AGI of $369K.

I've done more "real labor" than most Americans and the same is true for the majority of my partners and colleagues.  Bailing hay, milking cows and shoveling manure, building homes, cutting wood to heat our home, repairing and maintaining farm equipment.  I still work 60-80 hours a week and I have worked 100+ hours per week--if I didn't, I wouldn't make half the income that I make.  ----12 hours of work--that's a half-day.  Yes, I'm in the 1% and have worked long and hard to get here.  You shouldn't disparage those that you clearly know nothing about.

monad's picture

If you're bailing hay and milking cows by hand, that's a hobby. If you're getting paid to do it by hand, its someone else's hobby and you're still spinning your wheels. If you're serious commercial, you aren't pasteurizing milk with a Bowie knife and a trench shovel, up hill in the snow 5 miles, both ways, waving a flag and kissing every girl along the way. Your arrogance belies your claimed outrage. The only thing your private property has to do with what's coming is that you're going to lose it all to the people you're defending. Pay attention: they are coming to kill us and take our shit. TBTF = monopoly = MNCs with the wealth of small nations and none of the liabilities, which they have offloaded onto the working people by coopting their - our - governments. Its about responsibility, you slave. I work hard too and I hate parasites. Pay attention or you'll just pay. You're spun.

Cult_of_Reason's picture

Infographics on the distribution of wealth in America, highlighting both the inequality and the difference between our perception of inequality and the actual numbers. The reality is often not what we think it is.

http://www.youtube.com/watch?v=QPKKQnijnsM

Thank you Bernanke!

Super Broccoli's picture

nah nah nah that was before, benny's working on it now and every american is getting a faboulous job. some would say it's part time and they're right but it's only because workers wants some time out to be able to consume consume consume all they earned on their enormous paycheck

 

Bernanke knows what he's doing folks, Obama is a great leader and the son of god (which explains why Kim Dot Sung whatever NK leader is getting nervous at the moment :=) and the economy is booming, we'll soon have huuuuuuge trade surplusses

Skyprince's picture

A voice of reason in the wilderness.  Bring it on!

 

Burr's 2nd Shot's picture

A wise man once said, "You'll work hard with a gun in your back for a bowl of rice a day." Prophetic, really.

insanelysane's picture

I would respectfully disagree.  The infrastructure is crumbling in the US yet the government pays people to be unemployed instead of paying them to rebuild the infrastructure.  Why?  Because the majority of the unemployed will vote out the politicians if they are forced to work for a check.

adr's picture

Would you want to drive over a bridge built by the people that have been paid not to work for 30 years?

three chord sloth's picture

Then don't put 'em to work on the 1% of roads that are bridges, overpasses, tunnels, and/or otherwise dangerous. Put 'em to work on the 99% that is a flat slab of tar and gravel plopped on level ground.

DOT's picture

Spots wont turn to stripes, and the entitlements are many. I think we would see a huge increase in disability claims. "Hey! Boss I think I stubbed my toe."

Anusocracy's picture

Privatize the roads.

We have the former Soviet Union's road bureaucracy and we've ended up with their roads.

 

"Everything government touches turns to crap."  Ringo Starr

secret_sam's picture

       the government pays people to be unemployed instead of paying them to rebuild the infrastructure.  Why?  Because the majority of the unemployed will vote out the politicians if they are forced to work for a check.

Glossing over the skills issue, the reason government doesn't pay the unemployed to build infrastructure is because folks like you in the construction industry would call it socialism and say it's "stealing their jobs."

smartstrike's picture

Excellent point! Can you imagine the outcry if USPS tried to take on UPS and FedEX?

secret_sam's picture

I'm sensing sarcasm, but you obviously don't have a lot of familiarity with all the labor disputes that have occurred every time some state governor puts another prison chain-gang online and stops paying $18.22/hr (or whatever) to those guys in the orange vests.

There are lots of strange corrupting influences on ALL the business models that started competing with government services.  When you're out of highschool, you may start learning about them.

Dewey Cheatum Howe's picture

When a single union is the only source for labor for a single job, it is a monopoly on labor. There are no free market principles for real wage price discovery in that case. I'm not saying there shouldn't be any unions but there should an open system for labor which means jobs in a company where the employer chooses from labor being in a particular union, non union, or some competing union. I believe in that scenario the best of the labor pool will go to the best union or work outside and in turn will get a better deal. 

secret_sam's picture

     When a single union is the only source for labor for a single job, it is a monopoly on labor.

I understand what you're getting at in the academic/fantasy-world sense, but there's never been a union that's monopolized a given source of labor, so that's not terribly relevant.

The point is: politicians have to get elected.  Voters (and the more important folks in the process, the campaign financiers) have COMPETING INTERESTS.  So whatever you may think is some kind of "obvious" solution to whatever political or economic problem you're bitching about is going to be fiercely opposed by some other citizens.

It's not likely that you'll find an example of a case where your side is 100% completely correct and the other side is 100% completely wrong.

It's to be expected that folks are going to think they're always right, but I always find it amusing when I encounter the mind closed so tightly that it cannot even consider the POSSIBILITY that there's another side to the issue.

Marco's picture

So the extra unemployment over the last few years was because of a laziness epidemic?

Ignatius's picture

Banks and corporations -- 'by hook and and by crook' --  will eventually and by their nature and design, soak up every bit of excess value in whatever territory they operate.  We will be left with the super rich controlling deep capital pools and the rest battling one another for the few prized positions in the pyramid.  The rest will be nothing but serfs scraping crumbs together when and where they can.

The bureaucracy of it will be oppressive to the many, as it already is for the few with an intact intellect to notice.  Don't be overly judgmental for those who can't as yet see this as we have a culture and schooling system that throttles independent intellectual development by design.

Those that currently hold these reigns of power will not give them up voluntarily, they never have.

Resets are a fact of history needed now as much as ever.  All we really have is each other whom we are trained to despise with machine like regularity.

adr's picture

I wouldn't want to be rich. Most of the time when that scenario unfolds the rich try to kill each other and the poor try to kill the rich.

bigyimmy007's picture

@Ignatius

You could also include government in that group as well.

adr's picture

I work hard to create products people want to buy so I can get paid. Now that practically nobody has any extra cash to buy products they want to buy, I can't get orders for my products so I can get paid.

One other reason why I can't get orders is because the people I can sell to want to pay less than the price I pay to actually produce the products, so even if I could sell the products, I would actually lose money doing so. So how am I supposed to get paid?

Do you have an answer for that Krugman? Huh?

I guess the government could just print money and give it to the people, so they could have money to buy the things they want and then I could get orders and get paid. But, if the government is just printing money to give to the people, why would I actually work to get paid when I could just get paid by taking money directly from the government.

So instead of working hard and actually producing product for a living. I'll just take money from the government and produce nothing along with everyone else, yet somehow everything I want will still be produced for me to buy. PARADISE!!!!

And that is how easy it is to completely destroy the Keynesian fallacy.

shovelhead's picture

Sounds like your business could use a dose of Krugman 'lightning'.

adr's picture

We do have $11 million in inventory sitting in a warehouse. Hmmm. I heard Dominion's gas lines have a habit of failing lately.

Bob Sacamano's picture

"So how am I supposed to get paid?"  

Produce a product people are willing to pay for (vs a product they are not willing to pay for).   Everyone wants to pay less, but the trick is to produce something people are willing to pay for.  Back to the drawing board.

Parrotile's picture

You got anything in mind??

R&D COSTS, and costs A LOT, no matter the Industry. In some Industries (Pharmaceuticals, Medical Devices), the R&D costs are literally jaw-dropping. Add the "Regulatory" and other Government Interference costs, and you soon find that innovation ain't quite as great as it's cracked up to be.

That's why everyone "who's Smart" copies, or produces fake products.

Or buy your way in to the MIC - plenty of Govt. cheese to produce costly and ineffective weapon systems

spooz's picture

The way I see a citizens dividend (print money and give it to the people instead of propping up the banks) working, it would first be used to pay off debt, and would, if anything, provide only a meager lifestyle.  There would still be plenty of incentive to earn more for those who want the nice home, car, entertainment, vacations, etc.

cabtrom's picture

If 5 dollars could still buy 5 or 6 gallons of gas I'd walk a fucking dog for a Job.

Acet's picture

Interestingly, here's a comment I posted earlier today that dovetails with this: http://www.zerohedge.com/news/2013-03-07/economic-un-recovery-novel-pers...

 

DOT's picture

You're hired ! your pay will be $ .12 per hour payable bi-weekly.

shovelhead's picture

I made 150k last year as an online dominatrix to the 1%.

Find out how @ Madame 'Slappy' Monahan.com

adr's picture

You probably could have made a lot more cash if you agreed to be gangraped in a public bar by members of the San Francisco 1%.

You get a safe word, but if you use it, you won't get paid.

shovelhead's picture

That was the year before...

Pink sock forced a career change.