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economics financial

And even more income disparity stuff

So I’ve been trying to say that the top 1% income earners aren’t by default crooks, and I’ve even tried to say that it’s no big deal if over the past 30+ years the top 1%’s incomes have gone up dramatically while hourly wages have gone down by 7% or so. Keep in mind, I’m not too sure of those numbers, but I’ll take it for granted that they are right. What could I possibly think would cause that and still be OK with it?

I’ve been trying to think about what the top 1% of earners could do directly that would cause their incomes to go up AND for folks beneath them to have lower salaries. The only thing I can think of is outsourcing. I am going to set that aside for a moment, I’ll do another blog post on it. It requires a bit more thought than I want to dedicate in this post.

Ok, so what’s an alternative story? It’s in two parts. First, what has changed in the last 30 years that could allow someone’s income to grow so much? Globalization. If you were a corporation, athlete, or author in the US in 1976, how big was your possible customer base? 200 million? 300 million? These days, it is closer to 3 billion. Not only has globalization allowed products and services into more markets, there are now many more people that can afford to buy things than ever before. The last 30 years have seen tremendous gains in Eastern Europe, Latin and South America, Africa, South Asia, and especially eastern Asia. People tend to think of things like cars and computers when they think of selling to other countries, but things like Clorox, condoms, cigarettes, soap, clothes, books, entertainment like sports, and gas have been exploding in popularity all over the world.

When you have markets that large, there are going to be vast sums of money involved. People involved in providing products and services to that many people are going to make a lot of money. How many customers does a big international company like Clorox or Exxon have? How many does a plumbing company have? You see where I’m going? The plumbing company (or just the plumber) could be doing just fine while his neighbor down the street could be making millions selling widgets worldwide. That’s a big income discrepancy. I do think a lot of the discrepancy results in comparing jobs that have very different ceilings when it comes to profit potential.

There are more companies doing business worldwide, or manage the money of people that do business worldwide, and that’s going to lead to more money for those people. Most professions do not allow you to make a killing, but that does not mean that the ones that do are bad.

Ok, what about the other end of the spectrum? If the top 1% aren’t causing wages to go down in real terms, what has? I think a lot of it can be explained with a single word, immigration. how many immigrants have come to the US in the last 30 years? I have no idea, but I’m sure it’s a lot. here’s the thing about averages, they can be thrown off by enough data points being added to the pool. If we take the average immigrant over the last thirty years, I think it’s reasonable to assume that they make less than your typical American when they first show up. If that’s the case, it is also likely that they have brought the average down even if no one else got worse.

Think about that for a second, if we are faced with a statistic that claims that hourly wages have fallen 7% over the past 30 years, what does it actually tell us? The average does not tell us how any person measured in 1976 is doing now. It doesn’t tell us how immigration has affected people that were already working here.

I’m not going to claim that these explanations explain everything, but I do think they are likely to explain a lot. I like to see reasons that don’t involve class warfare. It’s also nice to see how it’s possible that these groups of people could all be doing better. I am always suspicious of aggregates, especially when they aren’t carried over across time. The top 1% of income earners today weren’t the same as they were last year let alone 30 years ago. People that were poor back then are now doing better, and people that were fantastically wealthy before have dropped down as well.

There’s no need to worry about income discrepancies if my story is mostly true, and I think it is. There’s no reason to look for bad guys, and there’s no reason to look for ulterior motives based on what income bracket you fall into. Let’s spend our energies wondering why people in the bottom percentiles are there instead of gnashing our teeth over how much money some folks make.

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