The Jackpot Ecomony
Amid soaring stocks and tightening labor markets, last month’s disclosure that U.S. wage growth fell to a 20-year low sharply challenges popular justifications for this decade’s staggering income inequality. It’s time to refocus on one of the era’s most striking developments: the unprecedented cleansing of working-class concerns from America’s once-progressive politics.
The widespread, but surprisingly unexamined idea that technological change chiefly accounts for rising global poverty, falling real wages and astounding wealth concentration highlights the new political elitism. Wealth inequality, it turns out, is just the birth pain of the Information Age. The PC revolution heavily rewards Internet savvy and punishes those with “old economy” skills: construction workers, aerospace engineers, service employees, farmers and the like. Worldwide assets naturally flow to the high-tech elite. Huge wealth differentials are the result.
Part of this “technology story” is undeniably true. Even in the booming United States, let alone struggling Asia or Central Europe, wage inequality is dramatically growing.
According to Economic Policy Institute economist Jared Bernstein, median inflation-adjusted U.S. wages fell by 3.1% during 1989-1997. Hourly pay, meanwhile, stagnated or fell for the bottom 60% of the U.S. work force, including 80% of all male workers. Real wages fell by 6.7% for male workers and rose by just 0.8% for women, about one-tenth as fast as in the 1980s. U.S. poverty rates rose to nearly 14%, historically quite high, while middle-class wealth fell by 3%.
Concurrently, the share of total national wealth held by the top 1% of U.S. households ballooned from 37.4% to 39.1%. The wealthiest 10% of all households pocketed nearly 90% of the profits from the ‘90s’ stock-market run. Average corporate-ex-.ecutive pay has doubled since 1989 and is now a record 116 times what a typical worker earns.
There’s little evidence that a microchip-induced “technology shock” unique to the 1990s can even remotely account for all this. Research by Bernstein and colleague Lawrence Mishel shows that technology’s impact is now a less significant factor affecting wages and is actually more favorable to many lower-wage workers than in previous decades. Productivity rates, which should be exploding if the computer revolution were generating huge returns for high-tech skills, grew no faster in the 1990s than in the 1980s; they are now lower than in the precomputer 1950s and 1960s.
More telling still, throughout the 1990s, average starting wages for college graduates, the most technically advanced and computer-literate workers, fell by a stunning 10%. Newly minted biologists, chemists and physicists saw their starting salaries plummet from 11% to 14.5%. Offers to computer programmers dropped by more than 9%, and from 2% to 3% for new computer scientists and engineers.
These findings decisively contradict claims that education and computer-related skills explain contemporary wealth disparities.
But if the technology story is so weak at explaining wage inequality, why is it so popular? In previous decades, after all, “trickle down” and other rationales for wealth inequality were relentlessly attacked.
What’s different today is the unparalleled influence that a new, fabulously privileged elite--including Web-site and computer gurus, actors, directors, media magnates and financial power brokers--wields over the mainstream left. To be sure, the wealthy, such as the Kennedys or Roosevelts, long played influential roles in U.S. progressivism. Never before, however, have their interests been so dominant, yet less scrutinized.
Cheered by a star-struck media, the new elites have redirected the left’s focus from working-class survival to matters of suburban “livability.” Welfare was easily expendable, but racial and gender preferences even the wealthiest might claim were religiously defended. Hundreds of thousands of manufacturing jobs were sacrificed by a Democratic administration so that bargain-basement luxuries could be imported.
Everyone seemed to win. As the stock market rose during 1993-1997, the super-rich got even wealthier and paid taxes at far higher rates than if the same income were spread among more people. According to the Congressional Budget Office, had U.S. wealth distribution stayed the same as in 1993, the country would still suffer a multibillion-dollar federal deficit. Instead, the budget miraculously balanced.
The technology story conceals what, in many ways, is an old-fashioned jackpot economy. Great wealth flows to the few corporate executives, celebrities, professionals and Internet hustlers who catch the fancy of cash-flush U.S. investors. It’s much nicer to attribute good fortune to better education, or a high-tech revolution, than to low interest rates, global impoverishment, social connections and dumb luck.
Hollywood, the epicenter of U.S. faux progressivism, dramatically illustrates how working-class interests are undermined by the left’s elitist agenda. In the early 1990s, filmed entertainment was evolving into what many thought would be a true “new” economy: a dense network of highly collaborative, flexible companies that collectively produced high-quality products for global distribution. The industry’s resulting job growth and high skills and wages helped lead Southern California from recession.
The jackpot economy upset these trends. Exploiting investors’ gullibility and celebrity infatuation, Hollywood’s “above the line” talent--big-name directors, actors and writers--demanded and increasingly got exorbitant fees for their services. This upward flow of wealth came at the expense of the “below the line” craft and blue-collar work force, whose share of production budgets steadily fell. Wages and job growth contracted. Employment security and work conditions worsened.
America’s most self-consciously liberal industry inaugurated a classic labor squeeze. Hollywood’s heavily unionized work force made repeated concessions, often in the face of threats to move production to low-wage, subsidized and nonunion locations like Canada and Australia.
To date, however, the progressive media have largely ignored these realities. Rank-and-file union members like Michael Everett, an L.A. County Federation of Labor delegate, were shocked when the left’s flagship journal, the Nation, ran a gossipy, cream-puff series about Hollywood. “Had even one of the contributors bothered to check beneath the surface glitz,” he laments, “they would have discovered a factory town in deep distress.”
Politicians supported by Hollywood similarly balk at questioning the disparate bargaining power and locational opportunism their patrons employ against the working class. Most want to dangle subsidies of their own, a strategy that would likely provoke a new bidding war with other states and countries. Even worse, locational subsidies perversely transfer public revenues badly needed for other purposes to an already wealthy elite.
Does it matter if U.S. progressives care less about a chicken in every pot than latte for all who can afford bone china? Although it’s possible to disagree about ultimate policies, America sorely needs an authentic working-class politics.
The dramatic deflation of overseas economies that has accompanied the U.S. economic boom, for instance, is breeding potentially severe future consequences. China’s intransigent example--aggressively unequal trade exploiting huge labor-cost differentials, a closed economy and overt military espionage--is gaining currency as the preferred response to U.S. hubris. A working-class politics would force U.S. leaders to more carefully consider trade, labor, social and security issues that the jackpot-happy elite all too readily ignores or downplays.
It’s also unclear how most Americans will react when the good times end and the technology story no longer pacifies. As upward mobility is increasingly truncated by elite-dominated politics, and working-class concerns are treated as fringe issues by both political parties, social unrest is a real possibility.
That’s the problem with a jackpot economy. The glitter and excitement surrounding inconceivably big payoffs seem so seductive, so achievable. Yet, it’s only in the make-believe world of a heavily guarded casino that almost everyone can lose, and the house always wins, without serious consequences.*
