The Economics of Compassion

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America’s elite class would argue that the US economic policies of the past half century have been, overall, quite successful. They produced strong economic growth while supporting the ever-expanding role of governments (federal, state and local) in American society. Adhering to an ideology of compassion that was adopted by the Democratic party of the Great Society era, these policies reeked with concern for the poor, the marginalized, the little guy — often including poor, marginalized, little guys in other countries. Yet, even under the enormous fiscal drag of their profligate benevolence, the US economy performed as desired. Consumption and corporate profits soared, and GDP growth tripled. Our rulers no doubt admire their work.

But admiration from American workers should be withheld. For only the expression of compassion has reached the American working class. The revealed compassion for the average worker has been wage stagnation, and for many millions of displaced workers and their families immeasurable harm. Until 1973, wage rates rose with productivity gains; workers were rewarded for their efforts. From 1973 to the present, however, while worker productivity increased 77%, wages for the average worker increased only 12.4%. Gains for the top 1% of wage earners exceeded 150% during this period; those of the bottom 90% increased by a meager 21%. The reason, explains the Economic Policy Institute: “the fruits of their labors have primarily accrued to those at the top and to corporate profits.”

Prior to 1973, those at the top (let’s call them the old aristocracy), paid workers a wage dictated by the limited supply of American workers. Ironically, the old aristocracy had few, if any, compassionate policies toward its workers. In those days, compassion was the responsibility of individuals, families, churches, local charities, and community organizations. Nevertheless, wages kept pace with productivity gains. By 1973, those at the top (let’s call them the new aristocracy) had shifted the responsibility for compassion to government and large corporations. Through War on Poverty programs, hiring quotas for women and minorities, education and welfare reforms, and many others, and through the decline of labor unions, the new aristocracy emerged as the champion of the working class — while stanching its wage increases. It began paying workers a wage dictated by a large supply of foreign labor. Outsourcing jobs to, and importing labor from, Third World nations suppressed the wages of American workers and threw millions of them into chronic unemployment.

From 1973 to the present, while worker productivity increased 77%, wages for the average worker increased only 12.4%.

After 50 years of ignoring wage stagnation and its effect on American workers and American families, the champions are prepared not only to ignore its continuation but additionally to ignore the ongoing, frenetic wave of automation. Even as numerous studies (e.g., here, here, and here) predict that by 2030 automation could reduce the demand for US workers by tens of millions, the new aristocracy pursues policies (e.g., higher fertility and more immigration) to increase the supply. It would be hard to find a better prescription for suppressing wage rates and widening the income inequality gap. A study by the Council on Foreign Relations, which is hardly an anti-immigration or anti-globalist group, warns that “automation and artificial intelligence (AI) are likely to exacerbate inequality and leave more Americans behind.”

Leaving Americans behind is a core economic principle of the new aristocracy. As far back as 1992, The Revolt of the Elites and the Betrayal of Democracy, by liberal historian Christopher Lasch, described the new aristocracy as a globalist, professional-managerial class that is cosmopolitan in its world view, and unlike the aristocracy that it replaced, holds only a weak sense of civic responsibility to its local and regional communities. Happy to internationalize the division of labor, it follows policies that have diminished middle-income America and condemned low-income America to a permanent lower class. Lasch lamented its rise to power, chastising its members for “turning their back on the heartland and cultivating ties with the international market in fast-moving money, glamour, fashion and popular culture. It is a question whether they think of themselves as American at all. . . . Theirs is essentially a tourist view of the world.”

This tourist view has shaped economic policies that prioritize the growth of GDP over the welfare of those who produce it, including the welfare of their families and communities and of American society. The new aristocracy professes its concern for American workers but treats them with disdain. In his 2012 book Coming Apart, libertarian Charles Murray discussed what he called the New American Divide, in which the common civic culture once maintained by the old aristocracy has been unraveled by the new aristocracy. In Murray’s account, one side of the divide lives in upper-middle-class suburbs, statistically represented by a fictitious neighborhood called Belmont. Its inhabitants have “advanced educations, often obtained at elite schools, sharing tastes and preferences that set them apart from mainstream America.” Its most powerful residents, our new aristocracy, run the country: “they are responsible for the films and television shows you watch, the news you see and read, the fortunes of the nation's corporations and financial institutions, and the jurisprudence, legislation and regulations produced by government.”

This tourist view has shaped economic policies that prioritize the growth of GDP over the welfare of those who produce it.

In contrast, the fictitious neighborhood of Fishtown represents working class America. Its inhabitants “have no academic degree higher than a high-school diploma.” They hold blue-collar jobs, low-skill service jobs, or low-skill white-collar jobs, if they work at all; the work ethic, along with the institutions of marriage and religion, plummets. Of the unraveling, Murray writes:

If you were an executive living in Belmont in 1960, income inequality would have separated you from the construction worker in Fishtown, but remarkably little cultural inequality. You lived a more expensive life, but not a much different life. . . . Your house might have had a den that the construction worker's lacked, but it had no StairMaster or lap pool, nor any gadget to monitor your percentage of body fat. You both drank Bud, Miller, Schlitz or Pabst, and the phrase "boutique beer" never crossed your lips. You probably both smoked. If you didn't, you did not glare contemptuously at people who did.

Little has changed since the publication of Coming Apart. If anything, the new aristocracy’s sense of civic responsibility has weakened. It glares even more contemptuously at Fishtown.

In his article “The Working Hypothesis,” Oren Cass asks, “What if people’s ability to produce matters more than how much they can consume?” and offers the hypothesis “that a labor market in which workers can support strong families and communities is the central determinant of long-term prosperity and should be the central focus of public policy.” Policies that have catered to “marginalized” identity groups and the cheap-labor demands of corporate America have failed to bring true prosperity to mainstream America. Without meaningful work at a wage that rewards the worker with dignity and respect, families suffer (if they are formed at all) and communities crumble. Who would marry a man who could not find a job, or one whose wages are so low that it’s not worth building a robot to replace him? Who would want to live in a decaying community overrun with unemployed and unmarried men, pacified by drugs and videogames, and unencumbered by civic responsibility? Writes Cass, “In a community where dependency is widespread, illegality a viable career path, and idleness an acceptable lifestyle, the full-time worker begins to look less admirable — and more like a chump.”

Yet this is the society that has emerged from the policies of the new aristocracy — an unraveled, divided culture in which any desire to rehabilitate the citizens of Fishtown has long since left Belmont. Equally shameful, it is a society that can find no productive use for tens of millions of its working-age adults. These citizens constitute an immense, chronically unemployed underclass that has been omitted from the political arithmetic of GDP growth because they have been deemed unsuitable for work: criminals, alcoholics, the homeless, the disabled, the suicidal, not to mention the victims of welfare dependence, family disintegration, and opioid addiction. Not that many members of this forlorn cohort are without responsibility for their predicament, but there are effectively no procedures to redeem their productive value. It makes better economic sense to replace them with clever machines and cost-effective foreign labor.

Who would marry a man who could not find a job, or one whose wages are so low that it’s not worth building a robot to replace him?

Indeed, mere replacement may not be enough. In a tasteless satire called “Only Mass Deportation Can Save America,” New York Times opinion columnist Bret Stephens recommends that to spur GDP growth “complacent, entitled and often shockingly ignorant” Americans should be deported. Why go through the trouble of making underclass Americans better citizens? Simply ship them out and order “new and better” upgrades: immigrants from the Third World. America’s criminals, academic underachievers, the unhealthy, infertile couples, and shockingly ignorant mothers (of out-of-wedlock children) are contemptible enough, laments Stephens, to jeopardize his deportation plan. “O.K.,” he comments, “so I’m jesting about deporting ‘real Americans’ en masse. (Who would take them in, anyway?)”

But aristocratic preference for younger, more fertile, harder working foreign labor could fade — as new and better immigrants are replaced by new and better machines. According to a recent Pew Research report, immigrants will constitute 100% of the increase in the US labor force between now and 2030. To a very large extent, however, the jobs that immigrants perform are the very jobs that, by 2030, automation will eliminate. For example, a 2016 Obama administration study found that automation-induced job destruction will be “highly concentrated among lower-paid, lower-skilled, and less-educated workers,” noting that “83 percent of jobs making less than $20 per hour would come under pressure from automation.” And the elite upper class will come under pressure to express its compassion for the millions of hastily invited immigrants who will then be herded into the underclass.

The idea that meaningful work might be important to the worker, and to American society, has escaped the new aristocracy, especially its members who inhabit America’s centers of economic power — hulking citadels for millionaires, hipsters, and tourists. In terms of consumption and GDP, they are the only cities that matter. Yet these cities are smothered by dense low-income populations, immigrant and native-born, and their diverse miseries. The new aristocracy is as oblivious to these miseries as it is to life in America’s heartland. It is not concerned that the economy that has enriched itself is headed to a lopsided state in which the number of unemployed exceeds the number of employed — the underclass outnumbering the chump class. Nor is it concerned that its policies have produced citadels such as San Francisco, where homelessness is rampant, “poop patrols” clean human feces from the sidewalks, and injection drug addicts outnumber high school students.

New Aristocratic preference for younger, more fertile, harder working foreign labor could fade — as new and better immigrants are replaced by new and better machines.

The new aristocracy should worry that working-class America will discover the hoax of liberal compassion. American gilets jaunes might take to the streets of Washington DC, the wellspring of policies that have relegated the working class to what French writer Christophe Guilluy would call “peripheral America.” In Guilluy’s view, while the globalist economic model produces much wealth, “it doesn’t need the majority of the population to function. It has no real need for the manual workers, labourers and even small-business owners outside of the big cities.” In France, as in America, the model is embraced by “celebrities, actors, the media and the intellectuals,” who are unconnected with life outside New York, Boston, Chicago, Los Angeles, and other economic juggernauts.

Chic liberal thinkers see no downside to the ongoing wave of automation. New compassionate polices, they assume, will surely be developed to help the many millions of workers — citizens of Fishtown — whose jobs will be eliminated. Displaced workers will be retrained; they will go back to school; and surely, this group will do better than the shiftless, slothful underclass that has already been left behind. But the new aristocracy, warns Guilluy, “needs a cultural revolution, particularly in universities and in the media. They need to stop insulting the working class, to stop thinking of all the gilets jaunes as imbeciles.” America’s imbeciles should heed Lasch’s warning that, with the liberal elite, “compassion has become the human face of contempt.”




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Visitor

Here is an example of how an “overall compensation” works.
Imagine that you are working for $10 an hour and your job is making little plaster dwarfs. Further assume, to make the example really easy to follow, that it takes you exactly one hour to make one dwarf and that the material, energy, tooling and overhead costs for one dwarf are negligible as well as any taxes. Also imagine that you are working for a nice company that lets you buy the product you make there at just the cost of producing it. (1) That means that you have to work almost exactly one hour to buy one dwarf i.e. primarily your own one hour of work in our very simplified example.
But there is no safety net which offends the sensibilities of some do-gooders and so they propose that everybody should be mandated to purchase some insurance and they figure that 30% of everybody's pay should cover it. That means that your take home pay would go from $10 an hour to $7 an hour. So what the extra security would mean for you is that you would now have to work 1.43 hours to buy the same dwarf that you could have for one hour work before. (Note here that although $3 is 30 % out of $10, it is 43% out of the $7 you would be left with.)
Obviously such a proposal would not go very far as the workers would object that they can barely make ends meet as is and they can't afford to pay for the extra security they got by without just fine so far. But do-gooders never give up easily on their perfect society dreams and so they proclaim that that is not what they meant, they merely want the employer to pay what is rightfully yours, what you are due and your pay should not be affected by it. That of course you can get behind and so it happens. So now your pay — calculated with benefits — rose substantially. By how much? Since the $10/hr could not be touched and the insurance to be viable has to be at least 30% of the covered pay, we have to find what is $10 seventy percent off of and that is $14.3 ( X times 0.7 =$10 ). And so how does your "pay raise" affects your buying power? Well you are still making one dwarf in one hour but you now cost your employer $ 14.3/hr and therefore the dwarf's breakeven cost has to be adjusted to $14.3 minimum and so, to buy your own one hour work, you now have to work . . . 1.43 hours? How did that happen?
But of course some will think it is worth it and will insist on still more "benefits". How much more? In case you missed it, the breakdown of a typical welfare state paycheck in several central European countries I am familiar with looks roughly like this (and please pay attention to percentages as they remain about the same but the actual pay will vary by country):
The SuperGross employee wage(cost to employer); $ 3500 = 100% = what employee has to earn to be worth employing
Gross wage (that employee pays taxes, etc. on ) : $2400 = 68%
Employee Net wage (after Taxes, etc.- typically 30%) : $1750 = 50% that is what you would bring home.
And then we have the
Value Added Taxes which further reduce that to : $1400 = 40% of Super gross wage
(They are almost everywhere in Europe at about, or over 20% on everything you buy ).
And those are paychecks of regular working people with average or lower incomes. And so where are the benefits and other rewards that the employees that don't abuse the unemployment system get? If you would ask the people if they want the$ 3500 and then decide by themselves what insurance they want to buy, how many do you think would choose the present system if it was properly explained to them? How many insurance companies and welfare state bureaucrats live off of them? The “overall compensation” is not so much a compensation at all but rather a very clever way of robbing the poor Peter to pay the rich or richer Paul while counting on the support of both. Some taxes would of course still be paid, and retirement contribution deducted, but 60%? It may be pointed out that the poor consume more of the social services but how much of it is due to the fact that they are not left with enough to save or get a mortgage and thus they are deprived of the opportunity to acquire appreciating assets that would eventually free them of the biggest burden of all- parting with the majority of their paycheck every month on rent? (I know this sounds bad after 2008 but still).
I forgot who said this or even what the correct wording is but it goes something like this:
"Leftist or socialist is someone who offers to help you, with your own money, to get you out of a difficult situation in which you would never found yourself if it was not for them trying to help you."
And market defenders should stop saying that everything is honky dory because, when the government assistance is counted in the people at the bottom don't have it so bad. Because if it is only through the government assistance that some working people aren’t destitute then it means that the market , or whatever system it is that we have, has failed. By accepting such a math we are driving a stake through our own hearts.

Visitor

Wage stagnation is a misleading reference point for the author's arguments, as it ignores overall compensation.

If one considers the enormous compensation the typical worker receives in health care benefits, wage stagnation is either mythical or greatly overstated.

Steve Murphy

Good point. Worker compensation includes more than just wages. But let's say that when benefits such as healthcare are added into the mix, average worker compensation had doubled, increasing by 25% since 1973, instead of only 12.4%. Such an increase still pales in comparison with the 150% wage increase received by the top 1%. Furthermore, the essay primarily addresses the plight of America's underclass -- tens of millions of below average workers, whose wages have increased by even less than 12.4%. The compassionate policies that began in the 1960s (e.g., welfare, education, trade, and immigration [especially, immigration]), have decimated the underclass. To its members, wage stagnation — notwithstanding the recent increases in real wages during president Trump's tenure — has been neither mythical nor greatly overstated.

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