
IT is the cause of rising income and wealth inequality since the 1970s [pdf] - o_nate
http://economistsview.typepad.com/files/formation-of-capital-and-wealth-draft-5-07-2017.pdf
======
nippples
I really thought it was corrupt politicians giving away public resources to
private mega corporations, irresponsible financing systems, wall street
selling lel bonds, the undermining of the national working class, bogus
copyright laws that are designed to squish small and upcoming competition, and
people purchasing garbage degrees instead of useful ones with money they don't
have guaranteeing they'll be indebted for at least two or three decades.

But no, it's just IT. How wrong I was.

~~~
jrs95
There does seem to be a hostility towards people who work in tech on the left.
To me this feels like pandering to that by Clintonian types who don't actually
have any interest in dealing with class issues.

~~~
tetraca
From what I've seen, I don't believe it's universal. The hostility is toward
certain kinds of people who encourage and enable centralization or
crystallization of power. People like Richard Stallman are generally liked,
but people like Peter Thiel or Mark Zuckerberg are not. Mind you I don't know
what the Tankie side of things really says because I loathe them.

~~~
jrs95
It's definitely not universal. But in my opinion, it's more like there are
people who think they're better than us that are upset that we're as
successful as we are. And being predominantly white men doesn't help, even if
we do tend to lean left. That shitty documentary Nancy Pelosi's daughter made
is probably a good example of that. The premise is basically that tech workers
are terrible and are destroying San Francisco. I'm sure there's similar
sentiments on the right as well, but theirs seem to be more of "these rich
tech liberals want to tell us how to live" or something along those lines.

~~~
charlesdm
Do software engineers predominantly lean left? I think the left / right debate
is quite outdated, with both sides having equally good (but also bad) ideas
about certain subjects.

Why can't you lean left on healthcare and LGBT rights, yet more right on
certain economic policies and tax issues?

~~~
jrs95
I think both are true. Software engineers tend to vote Democrat, but they're
also much more likely to be libertarians than the average person. Or even
"alt-right" to be honest. Outside of a general leftward bias, I think we seem
to be more prone to exploring ideological extremes.

~~~
cmurf
Alt-right is white nationalism. So you've gone from libertarian which is not
really left or right (depends on issue but revolves mainly around a weak
central government except as it relates to protecting civil liberties and
national defense), completely skipped moderate conservatives, conservatives,
and right wing, and even hard right, and landed on a blatantly racist movement
that has no f'n idea how the economy even works which is why they keep
thinking tax cuts for people who make over $10 million a year creates jobs,
but bank deregulation is good, but the banks f'd them over in 20008, but for
sure stop importing brown people, legal and illegal, and especially if they're
Muslim.

Most alt-right are just deeply ignorant people. But some are malevolent. The
base ideology requires people believe vicious things about "the other" who
happen to be merely different. They refer to liberals as libtards, and prefer
strong leaders like Putin, Kim, Duerte, Erdogan, and even weaker autocrats, as
compared to "vile libtards" like say Clinton (who is something like a cross
between Woodrow Wilson and Margaret Thatcher). No doubt they'd prefer Putin as
president of the United States than a Clinton.

~~~
yellowapple
"The base ideology requires people believe vicious things about 'the other'
who happen to be merely different."

The "alt-right" are not the only ones who are guilty of this, unfortunately.
This is a characteristic of the extremes of pretty much every political
position or ideology.

Personally, the whole "if you're not with us you're against us" mentality of
both of the mainstream political parties is what drove me to vote Libertarian
last election. Johnson's campaign seemed a lot more focused on welcoming folks
with differing political views (which is unsurprising, given the rather long
range of libertarianism from libertarian socialism to anarcho-capitalism, and
given the fact that the Libertarian Party is in no position to be alienating
voters), which was very refreshing amid both Clinton and Trump basing their
campaigns on how bad the other candidate is (and further on how bad the other
candidate's supporters are).

~~~
cmurf
The American political system punishes general election voters for not
compromising on one of the two major parties. It lacks runoff elections, as
well as range or preferential voting strategies so that voters are not so
harshly punished by deviating from consensus candidates.

The ensuing dissonance upon understanding this punishment is what encourages
our low voter participation rates, as well as hyper-partisan politics,
tribalism. In addition, there's a pervasive "government sucks" that
contemplating a state by state change in voting law, and it would have to be
state by state, seems like dark comedy. It would take a lot of political
committment way beyond that of voting 3rd party to fix the problem we have in
the American political system. Americans are politically lazy, content to not
vote, or vote 3rd party, and suffer the inevitable result, engage in political
denialism, than the critical thinking required to fix it.

The effect of closed primary elections also enhances this tribalism and
discourse problem. It's maybe 8-12% of the total eligible electorate that get
a presidential primary candidate the nomination for the two major parties.

Both major political parties sabotaged the Electoral College by stacking it
with party loyalists rather than, you know, smart people or even contemplative
people or even randomly selected citizens. We could hardly do worse choosing
dead people for Electors.

A case to watch is Gill vs Whitford before the Supreme Court next year.

------
m12k
Here's another possibility: The highly increased value of intellectual
property that comes from IT has made transfer pricing a much more efficient
means of tax avoidance for companies, who are free to move almost all their
profits to the Cayman Islands and other tax havens. Expecting our tax
authorities to judge whether a trade between two subsidiaries of a
multinational is at 'fair market value' makes sense if they're trading steel
bars, not so much if they're trading e.g. a 'license for the Google search
algorithm'. Intellectual property, pretty much by definition, is unique rather
than a commodity.

~~~
zerebubuth
The authors of the paper identify a trend of "growth that began in the
1970's", and say that correlates with the emergence of IT firms being able to
erect barriers to competition. It might be coincidence, but the late 1970s is
also when:

1\. The US Copyright Act of 1976 extended copyright from a fixed term of 28
years (with opt-in 28 year extension) to the life of the author plus 70 years.

2\. The Patent Cooperation Treaty became active in 1978, making it much easier
to obtain patents in multiple countries.

It would seem that IP was strengthened (both as a method of avoiding tax and
suppressing competition) in the late 1970s. The deregulation of the banking
industry which happened in the early 1980s seems like it would have helped
also.

~~~
ddxxdd
I'm just going to throw this out there as well, but 1973 was when the Great
Stagnation began ([http://macromarketmusings.blogspot.com/2011/02/great-
stagnat...](http://macromarketmusings.blogspot.com/2011/02/great-stagnation-
and-total-factor.html)), and it coincides quite closely to when Richard Nixon
ended the Bretton Woods system and allows the value of the American dollar to
float relative to other currencies.

In other words, globalization is a _huge_ factor that the authors of the paper
don't seem to be accounting for.

In fact, after Ctrl+F'ing "foreign", I get:

>By December 2015 holdings of liquid assets by foreign subsidiaries rose to
$2.4 Trillion (see Whalen and McCoy (2016)) while domestic holdings of liquid
assets rose since 2008 by about $1.9 Trillion. These foreign assets increased
due to a legal provision that allows Indefinitely Reinvested Foreign Earnings
to be free of US income tax. Hence, $2.4 Trillion are kept abroad not out of
productive needs but rather as a device to save income tax hence not necessary
for productive capacity

...so maybe American companies are using IT to store wealth abroad, but maybe
American companies are being taken over by foreign entities? That would
explain how our trade deficit has persisted for several decades.

------
jrochkind1
// Automation replaces men. This of course is nothing new. What is new is that
now, unlike most earlier periods, the displaced men have nowhere to go. The
farmers displaced by mechanization of the farms in the 20's could go to the
cities and man the assembly lines. As for the work animals like the mule, they
could just stop growing them. But automation displaces people, and you don't
just stop growing people even when they have been made expendable by the
system. Under Stalin the kulaks and all those who didn't go along with the
collectivization of agriculture were just killed off. Even then, if they had
been ready to go along, Stalin could have used them. But in the United States,
with automation coming in when industry has already reached the point that it
can supply consumer demand, the question of what to do with the surplus people
who are the expendables of automation becomes more and more critical every
day....

...As automation spreads, it will intensify the crises of capitalism and
sharpen the conflicts among the various sections of the population,
particularly between those working and those not working, those paying taxes
and those not paying taxes. Out of this conflict will grow a counter-
revolutionary movement made up of those from all social layers who resent the
continued cost to them of maintaining these expendables but who are determined
to maintain the system that creates and multiplies the number of expendables.
This in turn will mobilize those who begin by recognizing the right of these
displaced persons to live, and from there are forced to struggle for a society
in which there are no displaced persons. //

James Boggs, _The American Revolution: Pages From a Negro Worker's Notebook_,
1962(!!)

[http://www.historyisaweapon.com/defcon1/amreboggs.html](http://www.historyisaweapon.com/defcon1/amreboggs.html)

~~~
11thEarlOfMar
Another argument for basic income? The displacement of any worker who drives
for a living as at our doorstep.

~~~
jrs95
I think that sort of depends on your perspective. Some critics of UBI would
say it's basically a scheme to keep a capitalist system and a ruling class in
place that we'd be better off doing away with.

~~~
TomMarius
This is literally the first time I've seen someone call UB I a capitalist
scheme, as the absolute most of these capitalists would call UBI a socialistic
measure.

~~~
jrs95
I know it sounds odd, but the idea is that while it is a socialist program, it
actually helps maintain a capitalist system by preventing that systems
failures from leading to it's demise. A UBI paid for with a tax system similar
to our current one wouldn't really harm the ultra rich much, it would be paid
for by the middle class and wealthier people who still work for a living,
rather than just sitting on a giant mountain of cash and collecting interest.

Edit: plus, if everyone views it as socialism, and then they eventually get it
20 years from now, maybe that will keep them from pursuing the real thing.
Although I'm getting to be a bit of a paranoid conspiracy theorist with that
line of reasoning.

------
xiler
> The low labor share in the 1980's is then out of line with the rest of our
> results. However, it is compatible with the fact that wage growth and labor
> share started to fall early in the 1970's, caused by factors not present in
> our study. Political factors such as laws to weaken unions, automation,
> outsourcing, and globalization were operative even before the rise of
> monopoly power in the 1980's. Hence, by the time monopoly power came into
> play, wages and labor share were already low. Hence, apart from rising
> monopoly power, other factors had an impact on the dynamics of wages and
> labor share which are not examined here.

Indeed when we compare the inequality present in different industrialized
nations with varying degrees of unionization, nations with stronger unions
seem to have lower inequality despite experiencing an increase in automation.
As stated in an IMF report [1]:

Traditional explanations for the rise of inequality in advanced economies are
skill-biased technological change and globalization, which have increased the
relative demand for skilled workers, benefiting top earners relative to
average earners. But technology and globalization foster economic growth, and
there is little policymakers can or are willing to do to reverse these trends.
Moreover, while high-income countries have been similarly affected by
technological change and globalization, inequality in these economies has
risen at different speeds and magnitudes.

So perhaps the combination of automation together with weakened unions is
responsible for inequality in industrialized nations?

[1]
[https://www.imf.org/external/pubs/ft/fandd/2015/03/pdf/jaumo...](https://www.imf.org/external/pubs/ft/fandd/2015/03/pdf/jaumotte.pdf)

~~~
heisenbit
IT codes knowledge and techniques into machines and by that makes workers with
low and medium skill levels more exchangeable reducing their negotiation power
vs. the capital providers. Over time this leads to salaries lagging for this
part of the working population. Unions may slow this process but their
negotiation power is slowly eroding too. These days it is not unheard of that
whole factories are shifting across borders.

------
jrs95
It isn't the technology that's to blame for how the wealth it creates is
distributed. That's just silly. And honestly, an efficient socialist economy
is made much more realistic by modern technology. There's a lot that can be
done to offset some of the downsides that have been associated with it in the
past.

~~~
FussyZeus
Not the least of which is mass automation, which removes one of the worst
aspects of socialism and communism; the permanent working underclass.

A friend of mine says Communism arrived 100 years too early, I'd say that's an
excellent way to put it.

~~~
davemp
I'm curious as to where this mass automation story originated. I haven't seen
any real evidence that anything besides the most basic repetitive tasks will
be automated in the future. This automation would also likely just lead to a
new set of low pay, desirable jobs.

Sure, Moore's law and advancements in machine learning/vision push to make
automation more economically viable for certain areas that were already good
candidates. For other areas where human's adaptability is even moderately
valuable, technology is a long ways away from coming anywhere close to beating
out humans.

Technology breaking the chains of toil is a very idealistic thought. I can see
technology augmenting more jobs and allowing humans to toil more efficiently,
but not total automation.

~~~
jrs95
Trucking, fast food, and retail could face huge amounts of automation in the
next few decades, and thats a massive amount of low end jobs that could
disappear. I think the idea of "fully automated luxury communism" is pretty
silly, but there's almost definitely going to be substantial job losses, and I
think we're approaching a limit where we don't have good low skill jobs to
replace them.

~~~
davemp
I think the problem comes down to simple economic factors.

How much will it cost upfront to automate a specific area and how long will it
take for such automation to turn a profit vs human alternatives.

Right now:

\- the upfront costs are high

\- continued maintenance and update costs are uncertain

\- human are really not that expensive for what they can do

My view is that humans are actually a much more valuable resource than most
HN/reddit/social media users seem to think. Solutions that fail to account for
the __massive__ available decision making and processing power of the ~7
billion existing humans will just not be competitive. Someone will always find
a way to harness the human resource and put people to work. I just hope the
people get compensated fairly and the work won't be miserable.

------
acchow
Serious question: if technology makes everyone better off but increases
inequality, is that a bad outcome? Why or why not?

~~~
paulajohnson
To answer that you need a way of equating money with "utility" (i.e. the use
and/or pleasure that people get from their money).

I believe that utility is logarithmic with rate of expenditure. Hence doubling
your spending rate gets you a constant increment in utility. This is why we
measure pay rises in percent rather than absolute value. Another $100/week
would make a huge difference to someone on the breadline, but is lost in the
noise for a millionaire.

This means that money transferred from a rich person to a poor person will
increase utility, because the decrement in the rich person's utility is more
than outweighed by the incremenent in the poor person's utility. This
difference can also accomodate the transaction costs (i.e. running the IRS)
and the "deadweight cost" of decreasing the rich person's incentive to earn
more.

This would seem to suggest that money should be redistributed so that everyone
has the same amount, as that would maximise utility if the total amount of
money is constant. But of course that condition isn't true: in a world with
zero economic incentives there would be no economic activity. In reality of
course such a world would go horribly wrong in any number of ways.

So there would seem to be an optimum amount of inequality in a society. Too
little, and you destroy incentives to create new stuff, thereby making
everyone poorer than they would have been. Too much and you are wasting
valuable resources on gold plated baths that would be better spent giving poor
people a tolerable standard of living, education, health care etc.

~~~
klodolph
My guess is it would be more of a logistic curve (S-shaped) rather than
logarithmic. $1 does not make you much happier than 1¢, but $50k/year is a big
step up from $30k/year.

At the low end, at some point you can afford to have a roof over your head,
and an extra $20 might mean that you're eating much better for a whole week,
or you can buy new shoes, or whatever. But if you're homeless, $20 won't feed
you for very long or get you out of the rain for very long.

At the mid range, a salary bump from $30k to $50k might make a world of
difference if you're trying to raise a family. It might mean that you're not
worrying about how you're going to pay for groceries, or it might mean that
your kids are always wearing reasonable, well-fitting clothing.

~~~
JamesBarney
Why do you think going from 0k -> 20k makes less of a difference than 30k ->
50k?(And we're talking about consumption not production, so weird things like
having government benefits removed don't factor in).

~~~
klodolph
I'm saying that $3 -> $5 is less of a difference than $30k -> $50k.

------
turk-
Globalization is the cause of inequality. Technology just facilitates it.
Capitalism leads to a concentration of wealth in the hands of a few and
periods of globalization have resulted in high levels of inequality.
Inequality today is comparable to the levels during the gilded age and there
was no IT back in the 1870's.

~~~
ivl
Globalized capitalism has caused the largest reduction in poverty ever. If you
had to be randomly born anywhere in the world, only getting to pick the date,
you'd be smart to pick today if you wanted a decent shot at life.

Now, with regard to inequality in the US, that's mostly self inflicted. Moving
production to cheaper areas lowers prices. It just so happens that the US
chooses policies that increase inequality, rather than decrease it, like how
education is funded.

~~~
chroem-
>Globalized capitalism has caused the largest reduction in poverty ever.

This is a non-sequitur that often gets touted, despite totally ignoring
efforts of NGO's, improvements in technology and industrialization, as well as
decolonization. Further, the majority of the world's most developed economies,
e.g. China, Japan, and the US, all relied on heavy protectionism to at first
foster the creation of local industry. Forcing open the economies of
developing nations is a surefire way to keep them poor and totally dependent
on foreign imports.

------
paulus_magnus2
Noah Chomsky says technology is neutral: it can be used to empower companies,
automate jobs away (as it's the case right now). It also could be used to
empower employees (into super craftsmen??) but so far this direction isn't
pursued.

~~~
lhnz
Technology might be neutral, but capitalism is directing it.

(Nothing against capitalism. I just think the general direction will be profit
maximisation.)

~~~
paulus_magnus2
policy & regulation within capitalism determine whether corporations can be
commoditised by customers (a lot of market competition) or labour can be
commoditised by corporations (monopolies & job scarcity, collusion)

------
d--b
This is a very long, very technical article. I really won't understand much of
it as it is now. And that's a pity because this is a question that needs to be
understood and debated.

I think that unless there is a digestible version of the arguments along with
the general counter arguments, it's not a very useful read. And comments are
just going to be undocumented reaction to the title...

------
hidenotslide
This article shows that IT has emerged as an important new industry, but it
doesn't really convince me that it is the primary cause of inequality.

One of my favorite surveys of income inequality is a Krugman essay from 15
years ago (before he went full political).
[http://www.pkarchive.org/economy/ForRicher.html](http://www.pkarchive.org/economy/ForRicher.html)

He briefly covers globalization, technology, and returns to scale for
celebrities, but ultimately argues that changing social norms and the
resulting drop in taxes from 1980 onward explains most of the dramatic rise in
income inequality.

------
youdontknowtho
The rise in inequality also corresponds to the availability of "cheap"
personal credit.

The availability of credit also corresponds to a decreased rate of rise in
wages.

It's almost like the two are linked. Stop paying people more and give them
loans instead.

~~~
pdfernhout
That's exactly what happened. To keep the system working given both rising
inequality and rising productivity, the money was loaned to workers instead of
provided as salary; see Richard Wolff:
[http://www.mediaed.org/transcripts/Capitalism-Hits-the-
Fan-T...](http://www.mediaed.org/transcripts/Capitalism-Hits-the-Fan-
Transcript.pdf)

------
tempodox
I don't think it makes much of a difference whether it's IT or any other
segment of economy that generates the most increase in inequality. Creating
and/or maintaining some level of equality is always an uphill battle on ever
changing ground and there are enough “capitalism hackers” who know how to
leverage “the system”, the market, influence, etc to make that battle harder.

------
trhway
industrial revolution, IT, next is AI (in all shapes, from self-driving to
self-kidney-transplanting to self-QM and space-exploring) ... and that is the
emotional foundation of that scene from the "AI". Though cyborg-ization of
people may open other options. May be it will be natural that "all cyborgs are
equal" as a result of being connected to the same global AI net, etc... Though
most probably the cyborgization would be subject to heavy market segmentation
too.

Also, it seems that the short period of lesser "income and wealth inequality"
in US (all the other places were just poor, thus there was natural "equality")
during around 195x was just a temporary aberration. Not that it wouldn't be
good to repeat it, mind you.

~~~
jupp0r
Are you implying that all countries except the US were poor in the 1950s?
While the US was at the head of the per-capita GDP ranking in 1950, there were
others that followed close: [http://www.nationmaster.com/country-
info/stats/Economy/GDP-p...](http://www.nationmaster.com/country-
info/stats/Economy/GDP-per-capita-in-1950)

Notably Venezuela was 4th, which seems especially sad given the recent
developments there.

------
jokoon
Yeah, I was kind of afraid to say this, but software is getting really
efficient at so many things, so free markets just decided to reward software.

Just like everything, once there is an evolution, if you're out of it, you're
obsolete and you matter less.

Just made me think about this article where those few indispensable engineers
that get a high pay.

In a capitalist environment, technological improvement goes fast (although
technology was also developed under soviet russia), and the reward gets very
concentrated. Property means that innovation is not really shared, only sold.

One could endlessly talk about how IT seeds from the internet technologies
being developed from DARPA and made public. Hard to say if markets really
improved what DARPA developed, IMHO I'd say no.

------
paulus_magnus2
Throughout my career 90% of my work's aim was to directly or indirectly
eliminate jobs. That pushes pressure on labour and lowers / stagnates wages.

Corporations rarely use tech to fight other Corpos. When they do the best
strategy is to commoditize competitor's main market [1].

Ex1. free Google maps have killed many GIS / mapping businesses.

Ex2. Free Google Docs hurts badly MS Office (office is 33% of their revenue)

[1] Smart companies try to commoditize their products’ complements.
[https://www.joelonsoftware.com/2002/06/12/strategy-
letter-v/](https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/)

------
jernejzen
There is a huge gap between the real and financial sector regarding the value
added that goes from 70tis on.

[https://tcf.org/content/commentary/graph-how-the-
financial-s...](https://tcf.org/content/commentary/graph-how-the-financial-
sector-consumed-americas-economic-growth/)

------
Dowwie
Guns don't kill people. People kill people.

------
hasenj
Why is income inequality bad anyway?

~~~
titzer
Generally speaking, income inequality leads to social instability. In the
limit, that means violent revolution.

~~~
ue_
I'd rather say that high income inequality leads to people realising class
antagonism between the proletariat and the bourgeoisie, and the synthesis of
this conflict is Socialism.

~~~
titzer
Violent revolution is manifested throughout human history, before there was
even a concept of Socialism. They were called "slave rebellions."

[https://en.wikipedia.org/wiki/Slave_rebellion](https://en.wikipedia.org/wiki/Slave_rebellion)

~~~
ue_
This is the point - it is class conflict, Marx took this into account in his
materialist conception of history. The antagonism of proletarians and
bourgeoisie is the modern manifestation of the class war; slave rebellions the
ancient manifestation.

------
polotics
Infuriating!

An high-priest of the church of the economists does his job of exonerating
politics from ugly social change, with "IT" as the sacrificial goat.

The obvious counterpunch "what about politics" gets this answer doubling down
slimy-leech style:

(Quote)

A Final Note The IT revolution has brought about improvements in living
standards and its great technical achievements enjoy a very high level of
consumer and political support. However, these sources of social benefits are
also the cause of social losses and rising inequality that threatens the
foudation of our democrastic socieity. Th uniqueness of this study is that it
focuses on the effect of technological change on efficiency and distribution
and although we show modern developments in IT enabled higher barriers to
entry, rising market concentration and increasing monopoly power of firms, we
have avoided a policy evaluation. Yet, although these developments enjoy
substantial public popularity it is only a matter of time before we shall need
to debate the appropriate public policy to response to the social changes we
face. To illustrate the need for some urgency consider the exmple of social
networks. These are, in fact, privately owned public utilities. Subversive and
terrorist groups have used the internet and social networks for coordinating
their activities and these social networks have been a key tool for spreading
rumors and conspiracy theories or, more generally, for proliferation of "fake
news." These are national security problems and are challenges to the proper
functioning of an informative press in a Democracy. The question we face is
who should make the decisions on how to respond to these problems? Today it is
entirely up to the private firms who own these channels to formulate good
public policy decisions. This is not likely to remain a satisfactory solution.
(End of quote) What about salaries and negotiation powers, financialisation
and asset-prices inflation?

~~~
dang
Would you please not post ideological rants to HN? Even if you're right, it
lowers the quality of discussion below what we're hoping for here. Actually
being right makes it worse.

------
sexydefinesher
Hey its not our fault our line of work provides a highly valuable service of
which few people enter.

