December 10, 2018

Basic Income on the Res

Thomas Sowell has a platinum resume: Marine Corps war vet, bachelor’s Harvard, master’s Columbia, Ph.D. U of Chicago, professor at Cornell and UCLA, Urban Institute and the Hoover Institute at Stanford, books, articles…. You get the point: when he talks economic and social policy, people listen.

The people at The Institute for Family Studies (IFS) were listening when they published a blog post earlier this year entitled “What We Can Learn From Native Americans About a Universal Basic Income.” The article describes the Seneca tribe’s practice of distributing casino money to its members, and focuses on the particularly disastrous provisions pertaining to the money for minors:

Half the money for children under 18 is given to their parents, and the other half is put into a trust. When a Seneca youth turns 18 and can show that he or she has graduated from high school or earned a GED, he or she receives a lump sum of $30,000. Those who don’t get a high-school degree have to wait until they’re 21 to receive the money.

Government officials and other members of the nation tell me that the best thing most young adults do with this money is to buy a new truck. These are kids who have never had very much before; so when someone hands them a huge check, they clearly don’t know what to do. Store owners report that young people will come in to buy candy, handing $50 or $100 without expecting any change. These young people seem to have no concept of saving or investing.

I used to practice estate planning, and need to point out that the Seneca approach to minor beneficiaries unfortunately borrows the worst kind of legislation drafting laziness from intestacy law, uniform gifts to minors acts, and similar laws involving minors and money. Their experience therefore has nothing to do with UBI specifically. Of course dropping a wad of cash on an unprepared 18 or 21 year-old is a dumb idea. Of course the kids “have no concept of saving or investing.” (Like the rest of us do.) Moving on, the article cites more disasters:

The money “is almost never saved for education.

“Despite a vast apparatus to help Seneca members set up businesses, almost no one starts one.

“Unless people are employed by the tribe (either through the casino or in tribal government), they are largely unemployed.

“Theft is also a problem. One official told me that they have had reports of elder abuse where children and grandchildren were stealing payments from older members of the tribe.

“The results of all this can be seen in the poverty rates for the Senecas, which have continued to rise. Their territory is divided into two reservations. As of 2011, the Allegany reservation poverty rate was 33.3 percent and the Cattaraugus reservation poverty rate was 64.9 percent, the highest in Cattaraugus County. During the first decade that the casino was operating, the poverty rate in Cattaraugus County, which includes part of the Seneca Territory, increased from 12.8 in 2000 to 18.7 in 2011.”

Finally, the article ends by citing Thomas Sowell:

Writing about the concept of a Universal Basic Income last year, Thomas Sowell summed up the situation: ‘The track record of divorcing personal rewards from personal contributions hardly justifies more of the same, even when it is in a more sophisticated form. Sophisticated social disaster is still disaster—and we already have too much of that.’

The Sowell article cited by the IFS blogger was “Is Personal Responsibility Obsolete?” (Investor’s Business Daily, June 6, 2016). It begins this way:

Among the many disturbing signs of our times are conservatives and libertarians of high intelligence and high principles who are advocating government programs that relieve people of the necessity of working to provide their own livelihoods.

Generations ago, both religious people and socialists were agreed on the proposition that ‘he who does not work, neither shall he eat.’ Both would come to the aid of those unable to work. But the idea that people who simply choose not to work should be supported by money taken from those who are working was rejected across the ideological spectrum.

And so we see the standard anti-UBI fightin’ words:

“divorcing personal reward from personal contributions”

“government programs that relieve people of the necessity of working to provide their own livelihoods”

“people who simply choose not to work”

“money taken from those who are working”

I confess, I can’t help but wonder what people who say those things think they would do with UBI money. Again moving along….

Other tribes also distribute casino money. The following is from What Happens When the Poor Receive a Stipend?”, published by The New York Times as part of a 2017 series on economic inequality called “The Great Divide.”

Scientists interested in the link between poverty and mental health, however, often face a more fundamental problem: a relative dearth of experiments that test and compare potential interventions.

So when, in 1996, the Eastern Band of Cherokee Indians in North Carolina’s Great Smoky Mountains opened a casino, Jane Costello, an epidemiologist at Duke University Medical School, saw an opportunity. The tribe elected to distribute a proportion of the profits equally among its 8,000 members. Professor Costello wondered whether the extra money would change psychiatric outcomes among poor Cherokee families.

Same idea, different tribe. How’d they do? We’ll find out next time.

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

There’s No Such Thing as a Free Lunch — True or False?

Last time, we were introduced to the idea of a universal basic income (UBI). We can assume that the pros and cons have been thoroughly researched and reasonably analyzed, and that each side holds its position with utmost conviction.

We can also assume that none of that reasonableness and conviction will convert anyone from one side to the other, or win over the uncommitted. Reason doesn’t move us: we use it to justify what we already decided, based on what we believe. SeeWhy Facts Don’t Change Our Minds,” The New Yorker (February 2017) and “This Article Won’t Change Your Mind,” The Atlantic (March 2017).

History doesn’t guide us either — see Why We Refuse to Learn From History from Big Think and Why Don’t We Learn From History, from military historian Sir Basil Henry Liddell Hart. The latter contains conventional wisdom such as this:

The most instructive, indeed the only method of learning to bear with dignity the vicissitude of fortune, is to recall the catastrophes of others.

History is the best help, being a record of how things usually go wrong.

There are two roads to the reformation for mankind— one through misfortunes of their own, the other through the misfortunes of others; the former is the most unmistakable, the latter the less painful.

I would add that the only hope for humanity, now, is that my particular field of study, warfare, will become purely a subject of antiquarian interest. For with the advent of atomic weapons we have come either to the last page of war, at any rate on the major international scale we have known in the past, or to the last page of history.

That’s seems like good advice, but it mostly goes unheeded. It seems we’d rather make our own mistakes.

If reasoned analysis and historical perspective don’t inform our responses to radically new ideas like UBI, then what does? Many things, but cultural belief is high on the list. Policy is rooted in culture, culture is rooted in shared beliefs, and beliefs are rooted in history. Cultural beliefs shape individual bias, and the whole belief system becomes sacred in the culture’s mythology. Try to subverts cultural beliefs, and the response is outrage and entrenchment.

All of which means that each of us probably had a quick true or false answer to the question in this week’s blog post title, and were ready to defend it with something that sounded reasonable. Our answer likely signals our kneejerk response to the idea of UBI. The “free lunch”— or, more accurately, “free money” — issue appears to be the UBI Great Divide: get to that point, and you’re either pro or con, and there’s no neutral option. (See this for more about where the “no free lunch” phrase came from.[1])

The Great Divide is what tanked President Nixon’s UBI legislation. The plan, which would have paid a family of four $1,600/year (equivalent to $10,428 today) was set to launch in the midst of an outpouring of political self-congratulation and media endorsement, only to be scuttled by a memo from a White House staffer that described the failure of a British UBI experiment 150 years earlier. UBI was in fact a free lunch; its fate was thus sealed.

As it turns out, whether the experiment failed or not was lost in a 19th Century fog of cultural belief, so that opponents of the experiment pounced on a bogus report about its impact to justify passing the Poor Law Amendment Act of 1834 — which is what they wanted to do anyway. The new Poor Law was that era’s version of workfare, and was generated by the worst kind of scarcity mentality applied to the worst kind of scarcity. Besides creating the backdrop to Charles Dickens’ writing, the new Poor Law’s philosophical roots still support today’s welfare system:

The new Poor Law introduced perhaps the most heinous form of “public assistance” that the world has ever witnessed. Believing the workhouses to be the only effective remedy against sloth and depravity, the Royal Commission forced the poor into senseless slave labor, from breaking stones to walking on treadmills. . . .

For the whole history lesson, see “The Bizarre Tale Of President Nixon’s Basic Income Plan.”

And so we’re back to asking whether UBI is a free lunch or not. If it is, then it’s an affront to a culture that values self-sufficiency. If it isn’t, then it requires a vastly different cultural value system to support it. The former believes that doing something — “making a living” at a job — is how you earn your daily bread. The latter believes you’re entitled do sustenance if you are something: i.e., a citizen or member of the nation, state, city, or other institution or community providing the UBI. The former is about activity, the latter is about identity. This Wired article captures the distinction:

The idea [of UBI] is not exactly new—Thomas Paine proposed a form of basic income back in 1797—but in this country, aside from Social Security and Medicare, most government payouts are based on individual need rather than simply citizenship.

UBI is about “simply citizenship.” It requires a cultural belief that everybody in the group shares its prosperity. Cultural identity alone ensures basic sustenance — it’s a right, and that right makes Poor Laws and workfare obsolete.

The notion of cultural identity invites comparison between UBI and the “casino money” some Native American tribes pay their members. How’s that working? We’ll look at that next time.


[1] Yes, Milton Friedman did in fact say it, although he wasn’t the only one. And in a surprising twist, he has been criticized for advocating his own version of UBI.

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

Fireflies and Algorithms

We’ve been looking at workfare — the legislated link between jobs and the social safety net. An article published last week — “Fireflies And Algorithms — The Coming Explosion Of Companies[1] brought the specter of workfare to the legal profession.

Reading it, my life flashed before my eyes, beginning with one particular memory: me, a newly-hired associate, resplendent in my three-piece gray pinstripe suit, joining the 4:30 queue at the Secretary of State’s office, clutching hot-off-the-word-processor Articles of Incorporation and a firm check for the filing fee, fretting whether I’d get my copy time-stamped by closing time. We always had to file today, for reasons I don’t remember.

Entity choice and creation spanned transactional practice: corporate, securities, mergers and acquisitions, franchising, tax, intellectual property, real property, commercial leasing… The practice enjoyed its glory days when LLCs were invented, and when a raft of new entity hybrids followed… well, that was an embarrassment of riches.

It was a big deal to set up a new entity and get it just right — make sure the correct ABC acquired the correct XYZ, draw the whole thing up in x’s and o’s, and finance it with somebody else’s money. To do all that required strategic alliances with brokers, planners, agents, promoters, accountants, investment bankers, financiers… Important people initiated the process, and there was a sense of substantiality and permanence about it, with overtones of mahogany and leather, brandy and cigars. These were entities that would create and engage whole communities of real people doing real jobs to deliver real goods and services to real consumers. Dissolving an entity was an equally big deal, requiring somber evaluation and critical reluctance, not to mention more time-stamped paperwork.

“Fireflies and Algorithms” sweeps it all away — whoosh! just like that!— and describes its replacement: an inhuman world of here-and-gone entities created and dissolved without the intent of all those important people or all that help from all those people in the law and allied businesses. (How many jobs are we talking about, I wonder — tens, maybe hundreds of thousands?) The new entities will do to choice of entity practice what automated trading did to the stock market, as described in this UCLA Law Review article:

Modern finance is becoming an industry in which the main players are no longer entirely human. Instead, the key players are now cyborgs: part machine, part human. Modern finance is transforming into what this Article calls cyborg finance.

In that “cyborg finance” world,

[The “enhanced velocity” of automated, algorithmic trading] has shortened the timeline of finance from days to hours, to minutes, to seconds, to nanoseconds. The accelerated velocity means not only faster trade executions but also faster investment turnovers. “At the end of World War II, the average holding period for a stock was four years. By 2000, it was eight months. By 2008, it was two months. And by 2011 it was twenty-two seconds.

“Fireflies and Algorithms” says the business entity world is in for the same dynamic, and therefore we can expect:

[W]hat we’re calling ‘firefly companies’ — the blink-and-you-miss-it scenario brought about by ultra-short-life companies, combined with registers that remove records once a company has been dissolved, meaning that effectively they are invisible.

Firefly companies are formed by algorithms, not by human initiative. Each is created for a single transaction — one contract, one sale, one span of ownership. They’re peer-reviewed, digitally secure, self-executing, self-policing, and trans-jurisdictional — all for free or minimal cost. And all of that is memorialized not in SOS or SEC filings but in blockchain.

“So what does all this mean?” the article asks:

How do we make sense of a world where companies — which are, remember, artificial legal constructs created out of thin air to have legal personality — can come into existence for brief periods of time, like fireflies in the night, perform or collaborate on an act, and then disappear? Where there are perhaps not 300 million companies, but 1 billion, or 10 billion?

Think about it. And then — if it hasn’t happened yet — watch your life flash before your eyes.

Or if not your life, at least your job. Consider, for example, a widely-cited 2013 study that predicted 57% of U.S. jobs could be lost to automation. Even if that prediction is only half true, that’s still a lot of jobs. And consider a recent LawGeex contest, in which artificial intelligence absolutely smoked an elite group of transactional lawyers:

In a landmark study, 20 top US corporate lawyers with decades of experience in corporate law and contract review were pitted against an AI. Their task was to spot issues in five Non-Disclosure Agreements (NDAs), which are a contractual basis for most business deals.

The study, carried out with leading legal academics and experts, saw the LawGeex AI achieve an average 94% accuracy rate, higher than the lawyers who achieved an average rate of 85%. It took the lawyers an average of 92 minutes to complete the NDA issue spotting, compared to 26 seconds for the LawGeex AI. The longest time taken by a lawyer to complete the test was 156 minutes, and the shortest time was 51 minutes.

These developments significantly expand the pool of people potentially needing help through bad times. Currently, that means workfare. But how can you have workfare if technology is wiping out jobs?

More on that next time.


[1] The article was published by OpenCorporates, which according to its website is “the world’s largest open database of the corporate world and winner of the Open Data Business Award.”

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

The Success Delusion

How did the social safety net turn into a poverty trap? It was a victim of the success of the job as an economic force.

Psychologists call it “the success delusion.” You do something and get a result you like, so you keep doing it, expecting more of the same. It keeps working until one day it doesn’t. Do you try something new? No, you double down — it worked before, surely it will work again. You keep doubling down until you’ve made a mess.

You’re a victim of your own success. If you could listen, hindsight would tell you that there was more to it than what you were doing, that a lot of what happened was you being in the right place at the right time. You might believe that or not, but what matters now is that the times have changed and you didn’t.

That’s what happened to social welfare. 40 years of post-WWII economic success positioned the steady job as the cornerstone of economic prosperity and upward mobility. Then, in the 80s and 90s, about the time the job was starting to lose its economic vitality, policy-makers doubled down on it: work had raised the welfare of the whole world since the days of the telegraph and railroad, and surely it was still the best route out of poverty. So now we had workfare instead of welfare, and, as we saw last time, social welfare became “a system of suspicion and shame.”

Standin’ in line marking time
Waiting for the welfare dime
‘Cause they can’t buy a job
The man in the silk suit hurries by
As he catches the poor old lady’s eyes
Just for fun he says, “Get a job.”

That’s The Way It Is”
Bruce Hornsby and the Range

Rutger Bregman sums it up this way:

We’re saddled with a welfare state from a bygone era when the breadwinners were still mostly men and people spent their whole lives working at the same company. The pension system and employment protection rules are still keyed to those fortunate to have a steady job, public assistance is rooted in the misconception that we can rely on the economy to generate enough jobs, and welfare benefits are often not a trampoline, but a trap.

Utopia for Realists (2017).

Guy Standing explains it this way:

The period from the nineteenth century to the 1970’s saw what Karl Polanyi, in his famous 1944 book, dubbed “The Great Transformation.”

The essence of labourism was that labour rights — more correctly , entitlements — should be provided to those (mostly men) who performed labour and to their spouses and children.

Those in full-time jobs obtained rising real wages, a growing array of “contributory” non-wage benefits, and entitlements to social security for themselves and their family. As workers previously had little security, this was a progressive step.

Labourism promoted the view that the more labour people did, the more privileged they should be, and the less they did the less privileged they should be. The ultimate fetishism was Lenin’s dictate, enshrined in the Soviet constitution, that anybody who did not labour should not eat.

The labourist model frayed in the 1980’s, as labour markets became more flexible and increasing numbers of people moved from job to job and in and of employment.

To defend labour-based welfare, social democratic governments turned to means testing, targeting benefits on those deemed the deserving poor.

The shift to means testing was fatal. As previous generations of social democrats had understood, benefits designed only for the poor are invariably poor benefits and stand to lose support among the rest of society.

Ironically, it was mainly social democratic parties that shifted policy towards workfare, requiring the unemployed to apply for non-existent or unsuitable jobs, or to do menial, dead-end jobs or phony training courses in return for increasingly meagre benefits.

Today, we are living in a Second Gilded Age — with one significant difference. In the first, which ended in the Great Crash of 1929, inequality grew sharply but wages on average rose as well. The Second Gilded Age has also involved growing inequality, but this time real wages on average have stagnated or fallen. Meanwhile, those relying on state benefits have fallen further behind, many pushed into homelessness, penury and dependence on inadequate private charity.

Since the 1980s, the share of income going to labour has shrunk, globally and in most countries of economic significance. . . . The labour share fell in the USA from 53 per cent in 1970 to 43.5 per cent in 2013. Most dramatically, it slid by over twenty percentage points in China and also dropped steeply in the rising industrial giant of South Korea.

Besides falling wages, there has been an increase in wage differentials and a less-documented decline in the share of people receiving non-wage benefits, such as occupational pensions, paid holidays, sick leave or medical coverage. Thus worker compensation, in terms of “social income,” has fallen by more than revealed by wages alone.

As a consequence of these developments, “in-work poverty” has rocketed. In some OECD [Organisation for Economic Cooperation and Development — 34 industrialized member countries], including Britain, the USA, Spain and Poland, a majority of those in poverty live in households where at least one person has a job.

The mantra that “work is the best route out of poverty” is simply false.

The Corruption of Capitalism (2017).

Not only are jobs doing a poor job at social welfare — for both employed and unemployed alike — but they are themselves an endangered species. More to come…

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

Poverty Gets Personal

“In the sixties we waged a war on poverty and poverty won.” – Ronald Reagan

“Poverty is a ‘personality defect.’” – Margaret Thatcher

The Gipper was referring to LBJ and his Great Society, but he got it wrong: the Great Society failed to eliminate poverty because it never got all the way to dealing with it. Instead it took a more politically acceptable path focused on education and community involvement — not bad things, but there’s a difference. As for the Iron Lady, there’s actually some truth in what she said (we’ll look at that in a moment), but I suspect not in the way she probably meant it. She was more likely voicing the common attitude that the poor are intellectually impaired, morally flawed, prone to bad lifestyle choices, and criminally inclined, and therefore worthy of only the most grudging kind of help. That attitude and the Great Society’s reputed loss[1] in its War on Poverty explain a lot about today’s prevailing approach to poverty relief.

Rutger Bregman tackles this tough subject in his book Utopia for Realists: And How We Can Get There (2017):

A world without poverty— it might be the oldest utopia around. But anybody who takes this dream seriously must inevitably face a few tough questions. Why are the poor more likely to commit crimes? Why are they more prone to obesity? Why do they use more alcohol and drugs? In short, why do the poor make so many dumb decisions?

He continues with more tough questions:

What if the poor aren’t actually able to help themselves? What if all the incentives, all the information and education are like water off a duck’s back? And what if all those well-meant nudges [toward self-help and away from government assistance] only make the situation worse?

He then profiles the work of Eldar Shafir, a psychologist at Princeton, and Sendhill Mullainathan, an economist at Harvard, who formulated a theory of poverty based on the concept of “scarcity mentality.” Their research shows that the chronic poor are really good at scrambling after short term solutions, but tend to be inept at sustainable long-term thinking. It’s a matter of mental bandwidth: today’s urgency gets all the attention, leaving other matters to go begging (sometimes literally). In fact, their research estimates that poverty costs a person about 13-14 IQ points. In other words, living in a chronic state of being poor can eventually rewire the human brain to the point where clear thinking and prudent behavior are challenged.

Hence the grain of truth in Margaret Thatcher’s comment.

One problem with that attitude, though, is that it uses the terms “poor” and “poverty” interchangeably. But not everyone who’s poor is also impoverished. At the simplest level, the poor are poor because they lack money. But poverty goes further: it’s a chronic condition that generates a specific outlook and way of approaching life. When that condition is shared, it becomes a culture. You know it when you’re around poverty; you might not know it when you’re around poor.

Government assistance programs don’t make that distinction. As a result, as Bregman states, social welfare has “devolved into a behemoth of control and humiliation.”

An army of social services workers is needed to guide people through the jungle of eligibility, application, approval, and recapture procedures. . . . The welfare state, which should foster people’s sense of security and pride, has degenerated into a system of suspicion and shame.

Is it really that bad? Try applying for food stamps sometime.

Our bank account was thin after a business failure and some health issues. Following the advice of family, my wife applied for food stamps. Her experience was everything Bregman describes. Case in point: after two mandatory daylong job search classes (how to write a resume, set up a LinkedIn page, use the internet to check out online job postings…), she had to prove her willingness to work by reporting for 8 hours per week of wall-washing duty at a church community center. She washed the same walls every week — the same walls that other people were also washing every week — the cleanest walls in Denver. Washing walls — pointlessly, needlessly, endlessly — to prove you’re not a slacker.

Help with the grocery bill was bittersweet for a couple months, then we opted out. It’s easy to intellectualize and debate about “all the information and education” and “the jungle of eligibility, application, approval, and recapture procedures.” It’s not so easy when they get personal. We were poor but not impoverished, and the system was just too demoralizing to continue. Maybe that was the point.

Plus, earning money reduces or eliminates benefits — a result which economist Guy Standing calculates is equivalent to the imposition of an 80% tax. The quandary is obvious: earn money or opt out of the system— either way, you pay the tax. Most people — even the cognitively-impaired — wouldn’t agree to a deal like that.

How did “Brother, can you spare a dime?” turn into this? Curiously, the current welfare system derived from the same post-WWII economic surge that rewarded working people. We’ll look at how that happened next week. In the meantime, have a listen:

This week’s post uses portions of a LinkedIn Pulse article I wrote last year about poverty, crime, and homelessness. Next week’s post will also tap that source. You might like to jump ahead and read the article: Why Don’t We Just solve Some Problems For a Change?


[1] Not everyone agrees that we lost the War on Poverty. See this article that considers both sides.

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

The Rentier Economy: A Primer (Part 2)

My plan for this week’s post was to present further data about the extent of the rentier economy and then provide a digest of articles for further reading.

Turns out that wasn’t so easy. The data is there, but it’s mostly buried in categories like corporate capitalization, profits, and market concentration. Extracting it into blog-post-sized nuggets wasn’t going to be that easy.

Further, the data was generally only footnoted in a maelstrom of worldwide commentary. Economists and journalists treated it as a given, barely worthy of note, and were much more interested in revealing, analyzing, and debating what it means. The resulting discourse spans the globe — north to south, east to west, and all around the middle — and there is widespread agreement on the basics:

  • Economic thinking has traditionally focused on income from profits generated from the sale of goods and services produced by human labor. In this model, as profits rise, so do wages.
  • Beginning in the 1980s, globalization began moving production to cheap labor offshore.
  • Since the turn of the millennium, artificial intelligence and robotics have eliminated jobs in the developed world at a pace slowed only by the comparative costs of technology vs. human labor.
  • As a result, lower per unit costs of production have generated soaring profits while wages have stagnated in the developed world. I.e., the link between higher profits and higher wages no longer holds.

Let’s pause for a moment, because that point is huge. Erik Brynjolfsson, director of the MIT Center for Digital Business, and Andrew McAfee, principal research scientist at MIT, wrote about it in their widely cited book The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (2014). The following is from a chapter-by-chapter digest written by an all-star cast of economists:

Perhaps the most damning piece of evidence, according to Brynjolfsson, is a chart that only an economist could love. In economics, productivity—the amount of economic value created for a given unit of input, such as an hour of labor—is a crucial indicator of growth and wealth creation. It is a measure of progress.

On the chart Brynjolfsson likes to show, separate lines represent productivity and total employment in the United States. For years after World War II, the two lines closely tracked each other, with increases in jobs corresponding to increases in productivity. The pattern is clear: as businesses generated more value from their workers, the country as a whole became richer, which fueled more economic activity and created even more jobs. Then, beginning in 2000, the lines diverge; productivity continues to rise robustly, but employment suddenly wilts. By 2011, a significant gap appears between the two lines, showing economic growth with no parallel increase in job creation. Brynjolfsson and McAfee call it the “great decoupling.” And Brynjolfsson says he is confident that technology is behind both the healthy growth in productivity and the weak growth in jobs.

Okay, point made. Let’s move on to the rest of the rentier story:

  • These trends have been going on the past four decades, but increased in velocity since the 2007–2009 Recession. The result has been a shift to a new kind of job market characterized by part-time, on-demand, contractual freelance positions that pay less and don’t offer fringe benefits. Those who still hold conventional jobs with salaries and benefits are a dying breed, and probably don’t even realize it.
  • As non-wage earner production has soared, so have profits, resulting in a surplus of corporate cash. Low labor costs and technology have created a boom in corporate investment in patents and other rentable IT assets.
  • Rent-seeking behavior has been increasingly supported by government policy — such as the “regressive regulation” and other “legalized monopoly” dynamics we’ve been looking at in the past few weeks.
  • The combination of long-term wage stagnation and spiraling rentier profits has driven economic inequality to levels rivaled only by pre-revolutionary France, the Gilded Age of the Robber Barons, and the Roaring 20s.
  • Further, because the rentier economy depends on government policy, it is particularly susceptible to plutocracies, oligarchies, “crony-capitalism,” and other forms of corruption, leading to public mistrust in big business, government, and the social/economic elite.
  • These developments have put globalization on the defensive, resulting in reactionary politics such as populism, nationalism, authoritarianism, and trade protectionism.

As you see, my attempt to put some numbers to the terms “rent” and “rentier” led me straight into some neighborhoods I’ve been trying to stay out of in this series. Finding myself there reminded me of my first encounter with the rentier economy nine years ago, when of course I had no idea that’s what I’d run into. I was at a conference of entrepreneurs, writers, consultants, life coaches, and other optimistic types. We started by introducing ourselves from the microphone at the front of the room. Success story followed success story, then one guy blew up the room by telling how back in the earliest days of the internet, he and Starbucks’ Howard Schultz spent $250K buying up domain names for the biggest corporations and brand names. Last year, he said, he made $76 Million from selling or renting them back.

He was a rentier, and I was in the wrong room. When it was my turn at the mic, I opened my mouth and nothing came out. Welcome to the real world, my idealistic friend.

As it turns out, following the rentier pathway eventually leads us all the way through the opinionated commentary and current headlines to a much bigger worldwide issue. We’ll go there next time.

 

Kevin Rhodes studies and writes about economics in an effort to understand the world his kids are growing up in, which is also the world he’s growing old in. You might enjoy his latest LinkedIn Pulse article “The Fame Monster: Rockstars And Rockstar Entrepreneurs.”

The Pledge

19th Century Steel Baron Andrew Carnegie was (a) more than okay with the right to make as much money as you want; but he (b) was not okay with spending it any old way you like. He had some very specific notions about the latter:[1]

By the late 1880s, Carnegie’s place as one of the wealthiest men in the United States was cemented… With the time afforded him as the controlling shareholder, Carnegie put forth theories on capitalism. the human condition, and the American Republic. In 1889, Carnegie wrote an article simply titled “Wealth” — it would soon become known as “Gospel of Wealth.” . . . In it he offered an unapologetic defense of the system that enabled great wealth such as his.

[Carnegie believed that] the price for… material progress — “cheap comforts and luxuries” — was great wealth inequality. . . . Any thinking person, Carnegie surmised, would conclude “that upon the sacredness of property civilization itself depends — the right of the laborer to his hundred dollars in the savings bank, and equally the legal right of the millionaire to his millions.” But his defense of capitalism was a setup for a most startling conclusion.

In the article Carnegie argued that the greatest of men, capitalists, should be unencumbered to accumulate wealth. But once great wealth was achieved, these men should, during their lifetimes, give it away. As the possession of wealth was proof to society of great achievement, aptitude, industriousness, and ability, it made little sense that it should be bequeathed to descendants. Inherited wealth would undermine the argument that those with wealth earned it, deserved it.

Next, he held that if men waited until death to give the money away, less competent men unused to large sums would squander it thoughtlessly, however well-intentioned. While Carnegie viewed wealth as a symbol of intellectual mastery, the actual possession of it should be considered only a trust fund, with “the man of great wealth becoming mere trustee for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer, doing for them better than they would or could for themselves. The man who dies thus rich, dies disgraced.”

Carnegie was hailed by newspapers, socialists, workingmen, and, more discreetly, even his fellow capitalists . . . for such enlightened views.

Carnegie’s legacy of endowments endures to this day. (I have clear memories of our small town Carnegie library.) Carnegie’s fellow Robber Barons created similarly enduring legacies, such as those reflected in the following names: Johns Hopkins, Leland Stanford, Ezra Cornell, Cornelius Vanderbilt, and James Duke.

Carnegie’s philosophy also endures today. albeit expressed in terms more in tune with the ethos of our times. Consider, for example, the Giving Pledge, formed “in an effort to help address society’s most pressing problems by inviting the world’s wealthiest individuals and families to commit more than half of their wealth to philanthropy or charitable causes either during their lifetime or in their will.”

As of May 2018, 183 individuals or couples from 22 countries had taken the pledge, representing total net worth closing in on a trillion dollars. Some of the Pledgers are household names; most aren’t. I randomly clicked several of their photos on the Giving Pledge home page, which takes you to their statements about why they took the pledge. Noticeably absent is Carnegie’s belief that capitalists are “that the greatest of men,” that “the possession of wealth [is] proof to society of great achievement, aptitude, industriousness, and ability,” or that wealth is a “symbol of intellectual mastery.” Nor is there an expressed fear that “less competent men unused to large sums would squander it thoughtlessly, however well-intentioned.” Instead, there’s a certain humility to many of the statements: they often mention lessons learned from forebears or other role models, and often express gratitude for having been “blessed” or gotten lucky, such as this one:

Allow me to start by saying that I am not sure I am a worthy member of this group of extraordinary individuals. I consider that I have been lucky in life.

Other themes in the statements are (a) a recognition that attaining great wealth is not solely a matter of rugged individualism, but that cultural and historical context deserve a lot of credit, and (b) a belief that giving back is a way to honor this reality. I.e., wealth made possible by historical and cultural circumstance ought to benefit all members of that culture, including the most needy. As it turns out, this isn’t just a kind-hearted philosophy of life, it’s a statement of the economic terms upon which much wealth has in fact been created and in the past and continues to be created today.

State-sponsored policies that favor timely and innovative ideas and technologies represent a significant type of societal support for wealth creation . We’ll look at that next time.


[1] Americana: A 400-Year History of American Capitalism, Bhu Srinivasan, (2017).

 

The Great Gatsby Lawyer

How okay are we, really, with the right of everyone (a) to make as much money as they want, and (b) to spend it any way they like? If we would limit (a) or (b) or both, then how and why?

Consider for a moment what your (a) and (b) responses have been to the upward mobility stories we’ve looked at so far: Richard Reeves, Matthew Stewart, Steven Brill. Travie McCoy. David Boies, Eric and I. Now consider this story from an article in Above the Law:

[P]ersonal injury attorney Thomas J. Henry threw a lavish bash to celebrate his son, Thomas Henry Jr.’s, 18th birthday. And the price tag for the Gatsby-mixed-with-burlesque-themed fête? A cool $4 million.

To rack up such a hefty bill, the event had lots of performers which included showgirls, aerial performers, art installations, and contortionists (oh my!). Plus, there were musical performances and celebrity guests.

And don’t think the over-the-top party was the only gift the birthday boy received:

The star of the party, who sat on a throne-like chair when he wasn’t dancing, was given a fully loaded blue Ferrari, an IWC Portugieser Tourbillion watch and a custom-made painting from Alec Monopoly.

Henry’s work as a trial attorney is obviously pretty lucrative. The big payouts he’s been able to secure for his clients have made him a member of the Multi-Million Dollar Advocates Forum.[1]

Henry is known for throwing giant parties. Just last year, he spent $6 million for his daughter’s quinceañera. I guess we know which one is really daddy’s favorite.

The writer telegraphs her attitude about the story with the article’s tone and with the understated lead line, “this seems extreme.” Apparently she would cast a vote for limitations on (b). When I’ve shared the story with friends, the response is usually stronger than “this seems extreme.”

I wonder why. Maybe it’s because this looks like a case of conspicuous consumption, which never goes down well. Economist/sociologist Thorstein Veblen coined the term in his 1889 book, The Theory of the Leisure Class, to describe how the newly prosperous middle class were buying things to communicate their move up the social ladder. The neighbors were rarely impressed — that is, until they made their own purchases, and then the game turned into keeping up with Joneses.

The conspicuous consumption shoe might fit here: Mr. Henry’s website tells a bit of his upward mobility story — German immigrant, raised on a farm in Kansas, etc. Or maybe there’s something going on here that transcends his personal story. In that regard, the term “affluenza” comes to mind.

The term “affluenza” was popularized in the late 1990s by Jessie O’Neill, the granddaughter of a past president of General Motors, when she wrote the book “The Golden Ghetto: The Psychology of Affluence.” It’s since been used to describe a condition in which children — generally from richer families — have a sense of entitlement, are irresponsible, make excuses for poor behavior, and sometimes dabble in drugs and alcohol.

From an article by Fox News. See also these descriptions from CNN and New York Magazine.

Definitions of the term come loaded with their own biases, judgments, and assumptions. This is from Merriam-Webster:

Affluenza: the unhealthy and unwelcome psychological and social effects of affluence regarded especially as a widespread societal problem: such as

feelings of guilt, lack of motivation, and social isolation experienced by wealthy people

extreme materialism and consumerism associated with the pursuit of wealth and success and resulting in a life of chronic dissatisfaction, debt, overwork, stress, and impaired relationships

And this is from the popular PBS series that came out shortly after The Golden Ghetto:

Af-flu-en-za n. 1. The bloated, sluggish and unfulfilled feeling that results from efforts to keep up with the Joneses. 2. An epidemic of stress, overwork, waste and indebtedness caused by dogged pursuit of the American Dream. 3. An unsustainable addiction to economic growth.

Affluenza made quite a splash in the estate planning world where I practiced, spawning a slew of books, CLE presentations, and new approaches to legal counseling and document design. Affluenza went mainstream in 2014 with the highly-publicized trial of Ethan Couch, the “Affluenza Teen,” when a judge reduced his sentence on four counts of intoxicated manslaughter and two counts of intoxicated assault after an expert witness testified that his wealthy upbringing had left him so psychologically impaired that he didn’t know right from wrong.

For a great number of my clients, that their kids might catch affluenza was their worst nightmare.[2] Their fear suggests this consensus to Thomas Henry’s partying habits:

(a) it’s okay to make all the money you want,

(b) but it’s not okay if you use your money to make your kids a danger to themselves and to others.

I wonder — would it temper our rush to categorize and judge Mr. Henry if we knew his philanthropic history and philosophy? This is from his website:

Mr. Henry’s overall philosophy is that helping others when you have the good fortune of being successful is not an elective decision but a mandatory decision. People who achieve success have a duty to help others.

That statement closely mirrors the beliefs of Robber Baron Andrew Carnegie. We’ll look at that next time, along with the perceptions of other 0.01 percenters about the social responsibilities of wealth.


[1] The Forum’s website says that “fewer than 1% of U.S. lawyers are members,” which appropriately signals Thomas Henry’s position in the economic strata.

[2] I used to tell my clients that if I had a dime for every time a client said, “I don’t want my money to ruin my kids,” I would have been a rich man. That was hyperbole, of course: a dime each time wouldn’t have made me rich. On the other hand, a million dollars each time might have made me a billionaire. A billion is a BIG number.

 

Rebel Without A Cause

Continuing with David Graeber’s analysis of Eric’s job experience from last time:

What drove Eric crazy was the fact that there was simply no way he could construe his job as serving any sort of purpose.

To get a sense of what was really happening here, let us imagine a second history major — we can refer to him as anti-Eric — a young man of a professional background but placed in exactly the same situation. How might anti-Eric have behaved differently?

Well, likely as not, he would have played along with the charade. Instead of using phony business trips to practice forms of self-annihilation, anti-Eric would have used them to accumulate social capital, connections that would eventually allow him to move on to better things. He would have treated the job as a stepping-stone, and this very project of professional advancement would have given him a sense of purpose.

But such attitudes and dispositions don’t come naturally. Children from professional backgrounds are taught to think like that from an early age. Eric, who had not been trained to act and think this way, couldn’t bring himself to do it.

Like Eric, I couldn’t bring myself to do it either — although it was not so much that I couldn’t, it was more a case of not knowing how. I was bright enough, had a knack for the all-important “likeability factor” with clients and colleagues, and worked with lots of clients and other professionals who were members of the Red Velvet Rope Club. But like Eric, I remained on the outside looking in, and I spent a lot of time feeling envious of others who fit in so easily.

Those dynamics dogged the early years of my law career. In time, a general sense of inadequacy became depression, which I compensated for by nursing a rebel-without-a-cause attitude.

My experience didn’t have to be that way. Consider, for example, the story of super-lawyer David Boies. Like Eric and me, Boies was also born to working class parents and grew up in a farming community, but that’s where the resemblance ends. Chrystia Freeland introduces him this way in her book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else(2012):

As the world economy grows, and as the super-elite, in particular, get richer, the superstars who work for the super-rich can charge super fees.

Consider the 2009 legal showdown between Hank Greenberg and AIG, the insurance giant he had built. It was a high-stakes battle, as AIG accused Greenberg, through his privately-held company, Starr International, of misappropriating $4.3 billion worth of assets. For his defense, Greenberg hired David Boies. With his trademark slightly ratty Lands’ End suits (ordered a dozen at a time by his office online), his Midwestern background, his proud affection for Middle American pastimes like craps, and his severe dyslexia (he didn’t learn how to read until he was in the third grade), Boies comes across as neither a superstar or a member of the super-elite. He is both.

Boies and his eponymous firm earned a reputed $100 million for the nine-month job of defending Greenberg. That was one of the richest fees earned in a single litigation. Yet, for Greenberg, it was a terrific deal. When you have $4.3 billion at risk, $100 million — only 2.3 percent of the total — just isn’t that much money. Further sweetening the transaction was the judge’s eventual ruling that AIG, then nearly 80 percent owned by the U.S. government, was liable for up to $150 million of Greenberg’s legal fees, but he didn’t know that when he retained Boies.

What did Boies have that Eric and I didn’t? Well, um, would you like the short list or the long? Boies is no doubt one of those exceptionally gifted and ambitious people who works hard enough to get lucky. I suspect his plutocrat switch was first activated when his family moved to California while he was in high school, and from there was exponentially supercharged by a series of textbook upwardly mobile experiences: a liberal arts education at Northwestern, a law degree from Yale, an LL.M. from NYU, joining the Cravath firm and eventually becoming a partner before leaving to found his own firm.

That’s impressive enough, but there’s more to his story: somehow along the way he was transformed into the kind of person who belongs — in his case, not just to the 9.9% club, but to the 0.1 %. Yes, his human capital was substantial, but it was his personal transformation that enabled him to capitalize (I use that term advisedly) on the opportunities granted only by social capital.

And now, if the 9.9 percenters we heard from a couple weeks back are correct, the pathway he followed is even more statistically rare (if that’s even possible) than when he travelled it — in part because of an economic principle that’s at least as old as the Bible.

We’ll talk about that next time.

Eric and Kevin’s Most Excellent Career Adventures

       

David Graeber’s book Bullshit Jobs is loaded with real-life job stories that meet his definition of “a form of employment that is so completely pointless, unnecessary, or pernicious that even the employee cannot justify its existence even though the employee feels obliged to pretend that this is not the case.” One of those stories rang a bell: turns out that “Eric” and I had the same job. The details are different, but our experiences involved the same issues of social capital and upward mobility.

Eric grew up in a working class neighborhood, left to attend a major British university, graduated with a history major, landed in a Big 4 accounting firm training program, and took a corporate position that looked like an express elevator to the executive suite. But then the job turned out to be… well, nothing. No one would tell him what to do. He showed up day after day in his new business clothes and tried to look busy while trying in vain to solve the mystery of why he had nothing to do. He tried to quit a couple times, only to be rewarded with raises, and the money was hard to pass up. Frustration gave way to boredom, boredom to depression, and depression to deception. Soon he and his mates at the pub back home hatched a plan to use his generous expense account to travel, gamble, and drink.

In time, Eric learned that his position was the result of a political standoff: one of the higher-ups had the clout to fund a pet project that the responsible mid-level managers disagreed with, so they colluded to make sure it would never happen. Since Eric had been hired to coordinate internal communication on the project, keeping him in the dark was essential. Eventually he managed to quit, kick his gambling and drinking habits, and take a shot at the artistic career he had envisioned in college.

My story isn’t quite so… um, colorful… but the themes are similar. I also came from a strong “work with your hands” ethic and was in the first generation of my family to go to college, where I joined the children of lawyers, neurosurgeons, professors, diplomats, and other upper echelon white collar professionals from all 50 states and several foreign countries, At the first meeting of my freshmen advisory group, my new classmates talked about books, authors, and academic disciplines I’d never heard of. When I tackled my first class assignment, I had to look up 15 words in the first two pages. And on it went. Altogether, my college career was mostly an exercise in cluelessness. But I was smart and ambitious, and did better than I deserved.

Fast forward nine years, and that’s me again, this time signing on with a boutique corporate law firm as a newly minted MBA/JD. I got there by building a lot of personal human capital, but my steel thermos and metal lunch bucket upbringing was still so ingrained that a few weeks after getting hired I asked a senior associate why nobody ever took morning and afternoon coffee breaks. He looked puzzled, and finally said, “Well… we don’t really take breaks.” Or vacations, evenings, weekends, or holidays, as it turned out.

A couple years later I hired on with a Big 4 accounting firm as a corporate finance consultant. My first assignment was my Eric-equivalent job: I was assigned to a team of accountants tasked with creating a new chart of accounts for a multinational corporation and its subsidiaries. Never mind that the job had nothing to do with corporate finance. Plus there were two other little problems: I didn’t know what a chart of accounts was, and at our first client meeting a key corporate manager announced that he thought the project was ridiculous and intended to oppose it. Undaunted, the other members of the consulting team got to work. Everybody seemed to know what to do, but nobody would tell me, and in the meantime our opponent in management gained a following.

As a result, I spent months away from home every week, trying to look busy. I piled up the frequent flyer miles and enjoyed the 5-star accommodations and meals, but fell into a deep depression. When I told the managing partner about it, he observed that, “Maybe this job isn’t a good fit for you.” He suggested I leave in two months, which happened to be when our consulting contract was due for a renewal. Looking back, I suspect my actual role on the team was “warm body.”

Graeber says that, at first blush, Eric’s story sounds like yet one more bright, idealistic liberal arts grad getting a real-world comeuppance:

Eric was a young man form a working-class background… fresh out of college and full of expectations, suddenly confronted with a jolting introduction to the “real world.”

One could perhaps conclude that Eric’s problem was not just that he hadn’t been sufficiently prepared for the pointlessness of the modern workplace. He had passed through the old educational system . . . This led to false expectations and an initial shock of disillusionment that he could not overcome.

Sounds like my story, too, but then Graeber takes his analysis in a different direction: “To a large degree,” he say, “this is really a story about social class.” Which brings us back to the issues of upward mobility and social capital we’ve been looking at. We’ll talk more about those next time.

In the meantime, I can’t resist a Dogbert episode:

 

Upward Mobility — Pop Music Style

I had a different post planned for this week, but then I heard a song over the gym soundtrack last week that perfectly illustrates the dynamics of social capital and upward mobility and the perils of the rags-to-riches journey. It also captures an attitude that often accompanies that feeling of having your nosed pressed up against the glass: wanting to move up but feeling blocked. That’s a lot of economics to pack into one pop song, so I just had to feature it.

I talked about all of that in the very first post in this series just a bit over a year ago, when I wondered out loud whether money can make us happy:

I mean, all these famous (and mostly rich) people are entitled to their opinion, but we’d like to find out for ourselves if money could make us happy — we’re pretty sure we could handle it.

Rapper Travie McCoy was pretty sure he could handle it, too. He wrote a song saying so — the one I heard at the gym — then lived his own upward mobility rise, fall, and eventual comeback. His experience couldn’t be more different than that of the 9.9 percenters we heard from last week. Apparently the social capital of the pop music red velvet rope club isn’t the same as the club covered by Forbes.

McCoy teamed up with Bruno Mars to do the song back in 2010. Obama was president, we were just coming off the Great Recession, it was five years after Hurricane Katrina and four years before Bruno Mars did his first Super Bowl halftime. Last time I checked, the song’s official video was closing in on 330 Million views. Obviously it hit a sweet spot. The song made an appearance on Glee— the unofficial version I found had nearly a million views — more hitting a sweet spot.

Judging from what happened next, McCoy might have been wrong about whether he could handle it. A “whatever happened to Travie McCoy?” search suggests his big hit didn’t give him the life or make him the person he visualized in the song. Among other things, there was a steep decline into opioid then heroin addiction, but since then he has clawed his way back into the music scene.

We’ll let the song deliver its economic lessons on its own terms. If you want to take a short break for a catchy tune, you can watch either the official video or the unofficial Glee version below. (The latter is an excellent cover, with the lyrics spruced up for prime time TV, as reflected in the lyrics below.)

I wanna be a billionaire so frickin’ bad
Buy all of the things I never had
I wanna be on the cover of Forbes Magazine
Smiling next to Oprah and the Queen

Oh every time I close my eyes
I see my name in shining lights
Yeah, a different city every night oh right
I swear the world better prepare
For when I’m a billionaire

Yeah I would have a show like Oprah
I would be the host of everyday Christmas
Give Travie a wish list
I’d probably pull an Angelina and Brad Pitt
And adopt a bunch of babies that ain’t never had **it
Give away a few Mercedes like here lady have this
And last but not least grant somebody their last wish
It’s been a couple months that I’ve been single so
You can call me Travie Claus minus the Ho Ho
Get it, hehe, I’d probably visit where Katrina hit
And damn sure do a lot more than FEMA did
Yeah can’t forget about me stupid
Everywhere I go Imma have my own theme music

Oh every time I close my eyes
I see my name in shining lights
A different city every night oh right
I swear the world better prepare
For when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire

I’ll be playing basketball with the President
Dunking on his delegates
Then I’ll compliment him on his political etiquette
Toss a couple milli in the air just for the heck of it
But keep the five, twenties tens and bens completely separate
And yeah I’ll be in a whole new tax bracket
We in recession but let me take a crack at it
I’ll probably take whatever’s left and just split it up
So everybody that I love can have a couple bucks
And not a single tummy around me would know what hungry was
Eating good sleeping soundly
I know we all have a similar dream
Go in your pocket pull out your wallet
And put it in the air and sing

I wanna be a billionaire so frickin’ bad
Buy all of the things I never had
I wanna be on the cover of Forbes Magazine
Smiling next to Oprah and the Queen
Oh every time I close my eyes I see my name in shining lights
A different city every night all right
I swear the world better prepare for when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire
Oh ooh oh ooh for when I’m a billionaire

I wanna be a billionaire so frickin’ bad!

More upward mobility stories coming up — one of them is my own.

The End of Horatio Alger

“I know perfectly well that men in a race run at unequal rates of speed.
I don’t want the prize given to the man who is not fast enough to
win it on his merits, but I want them to start fair.”

~Teddy Roosevelt

In economic terms, a fair start is about equal opportunity. There’s no more enduring version of that particular ideal than the rags-to-riches story codified into the American Dream by Horatio Alger, Jr. during the Gilded Age of Andrew Mellon, John D. Rockefeller, Cornelius Vanderbilt, Andrew Carnegie, and the rest of the 19th Century Robber Barons. If they can do it, so can the rest of us, given enough vision, determination, hard work, and moral virtue — that was Alger’s message. And according to Roughrider Teddy and politicians like him, government’s job is to guarantee equal opportunity for all, then get out of the way and let the race to riches begin.

These days, however, it seems as though the notion of a fair start is a thing of the past — so says Richard V. Reeves in his book Dream Hoarders, which we looked at briefly last time. Reeves begins by confessing that his disenchantment over the demise of the Horatio Alger ideal will no doubt seem disingenuous because he didn’t grow up American and is now a member of the Red Velvet Rope Club himself:

As a Brookings senior fellow and a resident of an affluent neighborhood in Montgomery County, Maryland, just outside of DC, I am, after all, writing about my own class.

I am British by birth, but I have lived in the United States since 2012 and became a citizen in late 2016. (Also, I was born on the Fourth of July.) There are lots of reasons I have made America my home. But one of them is the American ideal of opportunity. I always hated the walls created by social class distinctions in the United Kingdom. The American ideal of a classless society is, to me, a deeply attractive one. It has been disheartening to learn that the class structure of my new homeland is, if anything, more rigid than the one I left behind and especially so at the top.

My new country was founded on anti-hereditary principles. But while the inheritance of titles or positions remains forbidden, the persistence of class status across generations in the United States is very strong. Too strong, in fact, for a society that prides itself on social mobility.

Reeves also wrote a Brookings Institute monograph called Saving Horatio Alger: Equality, Opportunity, and the American Dream, in which he said the following:

Vivid stories of those who overcome the obstacles of poverty to achieve success are all the more impressive because they are so much the exceptions to the rule. Contrary to the Horatio Alger myth, social mobility rates in the United States are lower than in most of Europe. There are forces at work in America now — forces related not just to income and wealth but also to family structure and education — that put the country at risk of creating an ossified, self-perpetuating class structure, with disastrous implications for opportunity and, by extension, for the very idea of America.

The moral claim that each individual has the right to succeed is implicit in our “creed,” the Declaration of Independence, when it proclaims “All men are created equal.”

There is a simple formula here — equality plus independence adds up to the promise of upward mobility — which creates an appealing image: the nation’s social, political, and economic landscape as a vast, level playing field upon which all individuals can exercise their freedom to succeed.

Many countries support the idea of meritocracy, but only in America is equality of opportunity a virtual national religion, reconciling individual liberty — the freedom to get ahead and “make something of yourself” — with societal equality. It is a philosophy of egalitarian individualism. The measure of American equality is not the income gap between the poor and the rich, but the chance to trade places.

The problem is not that the United States is failing to live up to European egalitarian principles, which use income as a measure of equality. It is that America is failing to live up to American egalitarian principles, measured by the promise of equal opportunity for all, the idea that every child born into poverty can rise to the top.

There’s a lot of data to back up what Reeves is saying. See, e.g., this study from Stanford, which included these findings:

Parents often expect that their kids will have a good shot at making more money than they ever did.

But young people entering the workforce today are far less likely to earn more than their parents when compared to children born two generations before them, according to a new study by Stanford researchers.

A new study co-authored by Stanford economist Raj Chetty describes an economic portrait of the fading American Dream; growing inequality appears to be the main cause for the steady decline

Reeves and Stanford’s researchers aren’t the only ones who feel that way. We’ll hear from a couple others next time.

 

Kevin Rhodes writes about individual growth and cultural change, drawing on insights from science, technology, disruptive innovation, entrepreneurship, neuroscience, psychology, and personal experience, including his own unique journey to wellness — dealing with primary progressive MS through an aggressive regime of exercise, diet, and mental conditioning. Check out his latest LinkedIn Pulse article: “Rolling the Rock: Lessons From Sisyphus on Work, Working Out, and Life.”