Steve Randy Waldman[new draft post] Why does wage compression underwhelm? https://drafts.interfluidity.com/2024/03/25/why-does-wage-compression-underwhelm/index.html
Kent Willard@interfluidity I think a lot of growth in the lower wage cohort is from those with higher job mobility. For example, those with lower wages who are older or in a small city or rural area won't change employers or industries. Their employers know it, so their raises are small.
Alon@kentwillard @interfluidity That's every wage increase, though. Growth doesn't mean everyone gets the same 2% real wage increase; it means more productive workers get more. The problem is when populists have latched onto the least productive workers (e.g. ones who won't move to opportunity) as the representatives of the real working class.
@Alon @kentwillard If we are concerned abt welfare, we are concerned abt the welfare of all the humans, not just those willing or able to move to opportunity under current circumstance, even if that wld increase their productivity. If we are concerned abt democratic politics, we are concerned about the humans in proportion to their numbers, and if the fraction willing or able to move to opportunity is modest, don't blame "populism" for the bankruptcy of a politics that slights the place-bound.
@Alon @kentwillard None of this prejudices the solution space. One way to address the disconnect is to make it easier for people to live the dynamism imagined of homo economicus. Another way is to reshape productivity, so that, for example, geographical dynamism is less necessary because remote work. Lots of possibilities!
@Alon @kentwillard But if most of the working class still live within 15 miles of their parents, any "populism" — any functional democracy — will put a great deal of weight on those people as "representatives of the real working class".
@interfluidity @kentwillard *All* reduction in inequality involved moving to opportunity, it was just once called urbanization and today it's called moving to a different city.
The idea that "most of the working class still live within 15 miles of their parents" is just wrong. It comes from a single survey of American women over the age of 50 asking them where their children lived; it's been publicized way past its statistical power precisely because it moralizes against migration.
@Alon @kentwillard Urbanization creates growth, not equality. On the contrary. cf China. We can quibble about surveys, but it remains true that there is a very, very large cohort of people who have and likely will always, absent very sharp changes in our circumstances, remain near family and childhood community, close to the place they were born. Trying to undo this is quite a radical project, utopian or dystopian. Ignoring this cohort is morally indefensible and politically catastrophic.
@interfluidity @kentwillard No, urbanization creates both growth and equality: China has high inequality with fast urbanization, India has even higher inequality with slow urbanization and repeated failed attempts at growth-in-place.
And the cohort that I'm ignoring is not "people who'd like to stay" but "people who'd like the children they abused to stay." It's okay not to give them money, same way it really is okay not to give farmers special welfare when they riot.
@Alon @kentwillard It's shocking that people with the perspective you are offering have a hard time winning votes from people who choose — perhaps, because by definition in your view their parents abused them — to live grounded in their natal communities. You may not like these people, but either we have a democracy that accommodates them, or we have an authoritarianism where either you prevail over them, or they prevail over you. I'm for the democracy that accommodates them.
@interfluidity @kentwillard Farmer and other reactionary riots are not actually popular, though. The few times the state pushes back, it turns out to be a crowd pleaser, like when Macron repressed the anti-vaccination riots in 2021. Farmer interests have mostly skirted past their unpopularity through clientelism; a lot of midwit conservatives and populists then try to portray clientelism as more moral than ideology. To your original post's point, inflation is less unpopular than unemployment.
@Alon @kentwillard My friend, I think you are doing a great deal of wishcasting of your own preferences. I wish inflation were less popular than unemployment. From a welfarist perspective, inflation is less harmful. But at least as popularity is refracted through democratic politics, inflation is much, much less popular. Unemployment harms a small fraction of the public grievously, and holds the bulk relatively harmless. Inflation harms all the way through past the median voter.
@Alon @kentwillard Farmer riots and truck parades are certainly not broadly popular. Neither are labor strikes. All these things inconvenience normies and piss them off. But they are narrow actions that seek to advance the interests of large groups, groups which may not be majorities but which correctly enjoy political power in democracies, mechanically because coalitions require them, morally because they are big enough their welfare is an important component of the polity's.
@interfluidity @kentwillard The practice is that the high unemployment of the Great Recession was incredibly unpopular for everyone who was in power at the time. In elite discourse inflation is portrayed as worse because it hurts elites, like rich, recession-proof Northern Virginia. So elite pressure can lead to excessive austerity. But then you look at the political divisions in high-unemployment, low-inflation environments, and they're way worse.
@interfluidity @kentwillard It's actually remarkable how little of the unpopularity of European incumbents now has to do with inflation; it just isn't something opposition comms talk about much. In Sweden and Finland, opposition comms attack the government for being a far right coalition - a lot of people voting center-to-center-right expected a centrist coalition and not a coalition with SD or PS. And here, right-wing media is turning anti-environmentalism into a culture war, not economics.
@Alon @kentwillard "divisions…way worse" is very subjective. I agree that unemployment divides the policy into people suffering horribly and people who ignore them and get on with their lives, and that's worse morally. But politically, it is just the case that a recession that cleaves workers into unemployment is less destructive of incumbent votes than an inflation than harms the median voter. 1/
@Alon @kentwillard Places that are long-term depressed, high-unemploymnt, low-growth, low-inflation are full of discontent and division for sure. Failure and poverty breed fascism. https://drafts.interfluidity.com/2023/08/14/fascism-as-triage/
But that's a very different question than the question that faces political actors, whether a near-term downturn is better met with austerity to stimulus over the next electoral window. A hopefully transient unemployment is more survivable than an inflation.
/fin
@interfluidity @kentwillard Unemployment hurts a lot more than just the jobless - workers worry about losing their jobs, and businesses worry about poor sales. The reason Germany successfully uses Kurzarbeit is that this system removes the threat of joblessness, making recessions much smoother.
Politically, we see this in extreme right voting: high unemployment correlates with it, but the unemployed themselves rarely vote far right - rather, employed workers get status-anxious and vote fash.
@interfluidity @kentwillard Then, in the long term, you can see how people perceive hot economies versus stable, stagnant ones. Italy has had sub-German inflation and no net economic growth for 20 years; people in both countries perceive Italy to be an economic failure compared with Germany. The US's high growth and high inflation generate positive soft power elsewhere (I suspect this is related to anti-environmental culture wars: "SUVs are for American boors" bites less now than it used to).
@Alon @kentwillard Yes. I agree completely. The problem is time inconsistency. Over the long term, running economies hot yields more growth, more labor bargaining power, more equality, more optimism, less fash, everything better. But over the short term, running the economy hot risks inflation, and inflation is more dangerous over an electoral horizon than unemployment. That is the conundrum we have to figure a way out of.
@Alon @kentwillard I love the german work-sharing approach, on welfarist grounds. I hope it yields political stability dividends too, but I don't know. I think the correlations you point to are not fluctuations in employment, but regions with chronic unemployment which yes, does breed the fash. The tragedy, tho, is that near-term, austerity is safer than stimulus from an electoral perspective. Long-term, yes, absolutely, that risks the fash, if austerity becomes bakes-in as chronic depression.
@interfluidity @kentwillard The correlations of high unemployment and fash voting are diachronic - I believe I read them in a Cas Mudde paper, looking at the national unemployment rate in various elections all over Europe over a period of time.
The spatial correlation *within* a country is that the sort of people who move to opportunity tend to vote more progressive.
@Alon @kentwillard Re the paper, diachronic is too nonspecific for me to really understand or comment about.
Re the spatial correlation, yes. But then progressive just become a geographically segregated faction in a zero-sum game to have its interests looked after. That's what we want to avoid. Rewarding migration without accommodating and somehow coopting into a forward-looking politics those who remain exacerbates zero-sum factionalism, rather than coparticipation in a shared, joint project.
@interfluidity @kentwillard Usually democracies have higher taxes and lower inequality than autocracies, because of the median voter theorem (I presume you've seen the paper that made the rounds on this on Econ Twitter pre-Musk?). That India has a Gini of 0.5 (China: 0.41; US: 0.39 pre-corona) is an indictment of an entire strategy of trying to grow without urbanization or labor-intensive industry.
@Alon @kentwillard The relationship between urbanization and inequality is complex, like the relationship between growth and inequality is complex. It is not defensible to say that urbanization creates equality. It is also not defensible to say urbanization always creates inequality, although that is usually its very short-term effect. 1/
@Alon @kentwillard But trying to impose a preference for urbanism and geographic dynamism on the coat tails of egalitarian values is definitely not defensible. There have been more equal and less equal agrarian and urban societies. We don't know what the shape of the future is. Perhaps you have a very particular urbanistic, dynamic, egalitarian development path in mind, but mere "urbanization" is not necessarily, not remotely necessarily, egalitarian. /fin
Misuse Case@interfluidity @Alon @kentwillard Urbanization isn’t necessarily a driver of egalitarianism…but freedom to migrate, either towards a better situation or away from a bad situation, is *definitely* a driver of egalitarianism.
@MisuseCase @Alon @kentwillard I don't think that's true in general. It might be true if everyone were equally situated to be able to move, so everyone would optimize towards equally good situations. But in real life, some people simply cannot move for a variety of reason, so freedom to migrate often exacerbates inequalities. Those who were already relatively well-situated move to even better circumstance. Those who were poorly situated are left-behind in places and circumstances now much worse.
@interfluidity @Alon @kentwillard No, that’s what I mean.
If people are free to move around and aren’t constrained by, say, poverty or government restrictions on movement (or, let’s get really radical, borders!) that fosters egalitarianism.
I am actually in favor of abolishing things like immigration restrictions and closed borders for precisely this reason.
@MisuseCase @Alon @kentwillard I'm in favor of free movement too, because freedom and movement are both good! but I think it's a mistake to imagine they foster egalitarianism. As you suggest, if we want "good" fee movement, we have to overcome economic barriers (e.g. poverty) and social not just legal that foreclose geographical choice. That is, equality is a prerequisite of good mobility, more than it is a result.
Diego@interfluidity @MisuseCase @Alon @kentwillard In a high migration environment, the "left behind" are an increasingly irrelevant minority. That's how inequality is reduced, a smaller and smaller share of the population living in a persistently poor place.
And I don't think migrating away makes things worse for those left behind, if the process continues to its bitter end everyone left can have a productive job in farming (or services for the farmers).
@DiegoBeghin @MisuseCase @Alon @kentwillard Like a lot of plans, you have an end state in mind where everything's hunkydory. If everyone's a migrant, there's no left-behind to trouble us. But how does the transition to that exalted stat work, when for now at least 30-40% will not for the foreseeable join the program? 1/
@DiegoBeghin @MisuseCase @Alon @kentwillard You can tell a just-so story about migrants making life better for those who remain. The marginal product of workers decreases in quantity, so those who remain will have better, more productive jobs, so everyone will be better off! 2/
@DiegoBeghin @MisuseCase @Alon @kentwillard At the same time, the migration destinations aren't underpopulated places, but huge cities. Here the just-so story is agglomeration effects mean that in fact the marginal product increases in the number of humans! 3/
@DiegoBeghin @MisuseCase @Alon @kentwillard Empirically, just-so story 2 seems pretty definitively to win, under our current economic arrangements. Places that depopulate do poorly in aggregate, and the people who live there do poorly on average and at median. Place that populate, and the people who live there do well at least on income grounds, though high costs blunt the benefit. 4/
@DiegoBeghin @MisuseCase @Alon @kentwillard That's not to say these things wouldn't work out differently with different economic and social arrangements. Place-based policy could make both just-so stories true in their respective places. Which is why I support it. /fin
@interfluidity @DiegoBeghin @MisuseCase @kentwillard The story of what happens should take into account class divisions within places and not just between them. So you should think of the interplay between potential migrants (who are workers) and the petite bourgeoisie classes of both rural and urban areas. Place-based policy has a tendency to empower the rural petite bourgeoisie, which is extremely reactionary.
@interfluidity @DiegoBeghin @MisuseCase @kentwillard (Sarah Taber writes a lot about it in the context of the rural US, especially the South.)
So these place-based subsidies tell people in rural and exurban areas that their ability to access services depends on intermediaries who comprise the rural petite bourgeoisie, which gains soft power as a result. (Likewise, empowerment of unions gives union leadership soft power over workers, which has the opposite political effect.)
@Alon @DiegoBeghin @MisuseCase @kentwillard That depends on the form of the subsidy. My favorite place-based policy is just a UBI, which disintermediates local elites. https://www.interfluidity.com/v2/6674.html
@interfluidity @DiegoBeghin @MisuseCase @kentwillard Basic income is the exact opposite of place-based policy for this reason; in US advocacy at least, what is called place-based policy is building infrastructure to deindustrialized or any other not-rich-central-city areas, plus favoring local contractors. Social security is not a place-based policy, and makes low-productivity, low-wage employers (such as small businesses, especially outside cities) less competitive.
@Alon @DiegoBeghin @MisuseCase @kentwillard I argue that we should think of UBI as place-based policy, because cost-of-living means a UBI equal in nominal terms is much more valuable in rural and exurban places. Like social security, it would leave places in some sense "less competitive" — less desperate people won't compete to wages as low — but I think that's a plus, not a minus, in welfare as well as social and political health.
@interfluidity @Alon @MisuseCase @kentwillard If that's what you mean by place-based policy, that's great. What's bad is giving massive subsidies for a steel mill to continue operating. Or worse, a coal mine!
@interfluidity @DiegoBeghin @MisuseCase @kentwillard Basic income can be adjusted for living costs (and is in Sweden - the guaranteed minimum income is local rent plus a fixed amount). But even if it is, it's obviously much higher relative to local wages outside cities, which drives the local petite bourgeoisie out of business. This, relatedly, is why postwar Christian democrats turned so much against welfare - it disempowered local elites. It's an "I welcome their hate" strategy, not a buy-in.
@Alon @DiegoBeghin @MisuseCase @kentwillard I favor UBI without regional adjustments. I'm interested in winning the support of broad publics, not local elites, which UBI does. Thinking about how programs politically survive the opposition of threatened elites is important, of course. It's also important to think about what's good in what is threatened and how one might preserve that. Maybe big-box chains aren't permitted to be drawn to compete for that now dispersed purchasing power.
@interfluidity @DiegoBeghin @MisuseCase @kentwillard Big box stores are cheap groceries for the large majority of people who interact with them. There's a lot of populism in the US involved in support for pop-beats-mom stores, but then you can find New York City populists who complain that the city isn't letting Walmart in and then move to the Sunbelt.
@interfluidity @DiegoBeghin @MisuseCase @kentwillard (Evidently, the closest thing to a UBI in the world, the Swedish guaranteed minimum income, is adjusted for local rents. Sweden is generally rather developmentalist about these things.)
@Alon @DiegoBeghin @MisuseCase @kentwillard Oh I know. It's a debate very much with two sides, and I am very, very familiar with both sides. If you think it's an easy question, the only easy answer is that you are wrong. But some localities may well choose to keep them out, and that's a perfectly legitimate choice, a navigation of trade-offs.
@Alon @DiegoBeghin @MisuseCase @kentwillard Place-based bourgeoisie is reactionary. Urban plutocracy is socially liberal but economically predatory. I want to improve people's welfare + build an economically cohesive society in which shared fates mean we can agree on the big things and tolerate one another's idiosyncracies. I'm neither on team urban nor team rural. I like cities, freaks, and queers, but wish my rodeo-going co-citizens only the best and would love to share an afternoon with them.
@interfluidity @DiegoBeghin @MisuseCase @Alon There's a doom loop as those best able to compete leave an area. Once it starts, taxes and labor pool are reinforcing. Imagine other nations become like aging Japan, where there's consolidation in few MSA's, but where shelter is expensive in those mega-cities.
@interfluidity @MisuseCase @Alon @kentwillard Yup, like in East Germany or Eastern Europe in general, where incomes have converged with the West despite massive emigration.
Edit: despite? Or partially thanks to?
@DiegoBeghin @interfluidity @MisuseCase @kentwillard Yeah, and the people who have remained in East Germany are extremely resentful of this. But then in actual Eastern Europe it's different - Poland views itself as successful; populism there is not "we're poor because of a (((conspiracy)))" but "we're really successful and don't need to do what the EU says."
I don't think it's either a despite or a thanks-to - rather, the same thing, namely German/EU integration, causes both.
@DiegoBeghin @MisuseCase @Alon @kentwillard Income has not converged with the West in Eastern Europe. I spend a lot of time in Romania. Romanians earn substantially less than Western Europeans, which is why a very substantial fraction of the younger population has migrated West. Much of Romania's economic support is remittences from that migrant population. Even with those remittences and the relative scarcity of workers, there is no where near convergence of salary levels. 1/
@DiegoBeghin @MisuseCase @Alon @kentwillard (There is instead, ironically, importation of South Asian labor that lacks the right to work elsewhere in the EU or family that does. Capital does not simply accommodate labor growing scarce and expensive.) /fin
@interfluidity @MisuseCase @Alon @kentwillard EEurope has been growing faster than Germany since they've joined the EU. Is there any doubt that the Gini coefficient of what is now the EU-27 has gone down since 2004?
@DiegoBeghin @MisuseCase @Alon @kentwillard I think probably the Gini has gone down but the top 1% share has gone up. As I've said, the EU is doing better at convergence than the globe as a whole, and better than in a counterfactual where the EU did not expand, sure. But it is hardly on a glide path towards cosmopolitan egalitarianism, in the same way that the even more geographically converged United States risks collapse to fascism. 1/
@DiegoBeghin @MisuseCase @Alon @kentwillard Convergence to highly economically and geographically polarized norm will not constitute durable or sustainable success (unless we don't score authoritarianism as failure). You won't just get everybody to move to superstar cities, so you'd better find ways to include populations that don't in a shared prosperity and identity. /fin
@interfluidity @DiegoBeghin @MisuseCase @kentwillard EU Gini is about 0.3: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Living_conditions_in_Europe_-_income_distribution_and_income_inequality&oldid=528159#Income_distribution
Judging by the numbers for EU countries, this looks like disposable income, on which metric the US is currently at 0.37 (maybe back up to 0.39?). The UK is about 0.3 as well, due to reductions in inequality under New Labour and to some extent also under the New Tories (read: they wrecked London's finance economy so incomes are stagnating but those at the top suffered most).
@interfluidity @DiegoBeghin @MisuseCase @kentwillard Romania is the second poorest Eastern EU member (after Bulgaria). Look at Poland, Czechia, Slovakia, Slovenia, and the Baltic states. Hungary has had weaker growth - turns out endemic corruption is not developmental.
@Alon @DiegoBeghin @MisuseCase @kentwillard Some states have converged more, some states less. Overall I'd agree the EU is doing better on convergence than, say, the globe. (Less well than the United States, but that's not a fair comparison.) Nevertheless, assuming urban-centered growth policy will yield convergence to a broadly shared prosperity has been tried and failed, both across and within polities. That's not to say that urban-centered growth is bad, but more than that is needed.
@interfluidity @DiegoBeghin @MisuseCase @kentwillard This thread uses World Bank data: https://mastodon.social/deck/@Alon/111908051250105662
@Alon @DiegoBeghin @MisuseCase @kentwillard Sure. There's not anything so surprising there I think. In growth terms there has been convergence towards in the East, the faster growth of still developing economies. But they are far from converged, and the social stresses of the way they are converging (or just the way the whole is arranged, as the west similarly suffers) is leading to political instability rather than the stability we imagine with convergence.
@interfluidity @DiegoBeghin @MisuseCase @kentwillard I'm not seeing this instability in Poland or Czechia or the Baltics or even Slovakia to the same extent as in Italy. Hungary, sure, but a) MSZP really did get caught in a corruption scandal and reacted shamelessly and b) the 2010 election was in a recession, not inflation.
@Alon @DiegoBeghin @MisuseCase @kentwillard Poland was just ruled by a near fascist political party for 8 years, and is now suffering the hangover that comes when liberal feel they have to resort to procedurally hardball means to uproot what near fascists entrenched, contributing to a risk of continuing polarizarion. In Romania, the fastest growing political party is neofash AUR.
@Alon @DiegoBeghin @MisuseCase @kentwillard The Baltics are great, in a way I think that belies your generalization about hinterland petite bourgeoisie. The Baltics have a high degree of local cohesion and control, which has yielded extraordinarily good governance, despite by rights being an EU hinterland. Localist outcomes (like density outcomes) depend a great deal on initial conditions. Good initial conditions get magnified, but so do bad.
Veza85UE@interfluidity @Alon @DiegoBeghin @MisuseCase @kentwillard
Yeah and half of them will scurry back to/sign up on the baronial coalition parties lists because that's where the money is/will continue to be at after the elections. Especially at local level where the biggest element of polarisation is which Balkanic turbo disco band to hire for the New Years party. It's likely the most ideology-adverse EU member. And 90% of countries on the planet would snap your hand off for Poland's "hangover".
Yeah and half of them will scurry back to/sign up on the baronial coalition parties lists because that's where the money is/will continue to be at after the elections. Especially at local level where the biggest element of polarisation is which Balkanic turbo disco band to hire for the New Years party. It's likely the most ideology-adverse EU member. And 90% of countries on the planet would snap your hand off for Poland's "hangover".
@interfluidity @DiegoBeghin @MisuseCase @Alon @kentwillard
"Income has not converged with the West in Eastern Europe."
Was that ANYONE'S expectation for one of the poorest countries in Europe? Did anyone back in the mid 2000s think that was an achievable 17-year-post-accession goal for a country that was a laggard even in its own region?
"Income has not converged with the West in Eastern Europe."
Was that ANYONE'S expectation for one of the poorest countries in Europe? Did anyone back in the mid 2000s think that was an achievable 17-year-post-accession goal for a country that was a laggard even in its own region?
@DiegoBeghin @interfluidity @MisuseCase @kentwillard Something that I pointed out on Discord and should blog is that in Japan and South Korea, there's very little capital region GDP per capita premium. GDP per capita is not a great figure for measuring domestic regional wealth, but usually it magnifies differences because of where corporations are HQed, so if anything the wage premium should be lower. France has a higher capital region wage premium; the UK has a much higher one.
@Alon @interfluidity @MisuseCase @kentwillard And then we can relate that to Ile-de-France building *some* housing, while London doesn't?
@DiegoBeghin @interfluidity @MisuseCase @kentwillard No, this goes back to before the recent acceleration of housing growth in Ile-de-France. The UK just has more zombie industries in the North; it tried fixing that through place-based subsidies after WW2 and all that did was help accelerate the decline of Birmingham too.