Article 43
Monday, February 27, 2012
Rich and Spoiled
Things too easily obtained are too little esteemed.
- Psycholoogy 101
Shame On The Rich
By Elizabeth Norton
Science Magazine
February 27, 2012
For fans of the British upstairs-downstairs TV series Downton Abbey, skullduggery may seem evenly distributed among the social ranks. But in real life, it’s the upper classes that are more likely to behave dishonorably, according to new research.
Observers of human nature have long puzzled over the possibility of an ethical class divide. On the one hand, people with fewer resources and dimmer prospects might be expected to do whatever’s necessary to get ahead. On the other, wealthy types may be more focused on themselves, because money, independence, and freedom can insulate people from the plight of others. They may also be less generous: Studies involving money games show that upper-class subjects keep more for themselves, and U.S. surveys find that the rich give a smaller percentage of their income to charity than do the poor.
To see whether DISHONESTY varies with social class, psychologist Paul Piff of the University of California, Berkeley, and colleagues devised a series of tests, working with groups of 100 to 200 Berkeley undergraduates or adults recruited online. Subjects completed a standard gauge of their social status, placing an X on one of 10 rungs of a ladder representing their income, education, and how much respect their jobs might command compared with other Americans.
The team’s findings suggest that PRIVILEGE PROMOTES DISHONESTY. For example, upper-class subjects were more likely to cheat. After five apparently random rolls of a computerized die for a chance to win an online gift certificate, three times as many upper-class players reported totals higher than 12 even though, unbeknownst to them, the game was rigged so that 12 was the highest possible score.
When participants were manipulated into thinking of themselves as belonging to a higher class than they did, the poorer ones, too, began to behave unethically. In one test, subjects were asked to compare themselves with people at the top or the bottom of the social scale (Donald Trump or a homeless person, for example.) They were then permitted to take candies from a jar ostensibly meant for a group of children in a nearby lab. Subjects whose role-playing raised their status in their own eyes took twice as many candies as those who compared themselves to “The Donald,” the team reports online today in the Proceedings of the National Academy of Sciences.
In another test, participants were asked to list several benefits of greed; they were given the example that greed can help further one’s professional goals, then asked to come up with three additional benefits. Again, lower-class subjects whose attitudes toward greed had been nudged in this way became just as likely as their wealthier counterparts to sympathize with dishonest behavior (taking home office supplies, laying off employees while increasing their own bonuses, overcharging customers to drive up profits).
In a final experiment, the researchers took their hypothesis to the streets. At a busy intersection in the San Francisco Bay area, the team stationed “pedestrians” at crosswalks, with instructions to approach the crossing at a point when oncoming drivers would have a chance to stop. Observers coded the status of the cars’ drivers based on the vehicles’ age, make, and appearance. Drivers of shiny, expensive cars were three times more likely than those of old clunkers to plow through a crosswalk, failing to yield to pedestrians as required by California state law. High-status motorists were also four times more likely than those with cheaper, older cars to cut off other drivers at a four-way stop.
In an interesting twist, about one-third of Prius drivers broke crosswalk laws, putting the hybrid among the highest “unethical driving” car brands. “This is a good demonstration of the ‘moral licensing’ phenomenon, in which hybrid-car drivers who believe they’re saving the Earth may feel entitled to behave unethically in other ways,” Piff says. (The Prius results were observed but not analyzed for statistical significance in the study.)
Piff says the study may shed light on the hotly debated topic of income inequality. “Our findings suggest that if the pursuit of self-interest goes unchecked, it may result in a vicious cycle: self-interest leads people to behave unethically, which raises their status, which leads to more unethical behavior and inequality.”
“It’s a great study,” says sociologist Adam Galinsky of Northwestern University in Evanston, Illinois, who has shown that those with power are more apt to condemn behavior that they themselves engage in. He says that the findings of Piff and colleagues may tap into something more fundamental than class namely, power. “Unequal power can exist between social classes but also between an employee and boss, a wife and a husband, or two people in a negotiation.”
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Higher social class predicts increased unethical behavior
Paul K. Piffa,1, Daniel M. Stancatoa, Stphane Ct鴩b, Rodolfo Mendoza-Dentona, and Dacher Keltnera
Department of Psychology, University of California, Berkeley, CA 94720; and
Rotman School of Management, University of Toronto, Toronto, ON, Canada M5S 3E6
Edited by Richard E. Nisbett, University of Michigan, Ann Arbor, MI,
January 26, 2012 (received for review November 8, 2011)
Abstract
Seven studies using experimental and naturalistic methods reveal that upper-class individuals behave more unethically than lower-class individuals. In studies 1 and 2, upper-class individuals were more likely to break the law while driving, relative to lower-class individuals. In follow-up laboratory studies, upper-class individuals were more likely to exhibit unethical decision-making tendencies (study 3), take valued goods from others (study 4), lie in a negotiation (study 5), cheat to increase their chances of winning a prize (study 6), and endorse unethical behavior at work (study 7) than were lower-class individuals. Mediator and moderator data demonstrated that upper-class individuals unethical tendencies are accounted for, in part, by their more favorable attitudes toward greed.
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Is Inequality Necessary?
Inequality is Necessary
Notes From The Underground
April 23, 2010
INEQUALITY IS VIEWED BY MOST AS A SOCIAL EVIL that, since the progressive era, government has been called upon to remedy. However, inequality is the force that enables cooperation amongst members of a given society. Without it there would be no incentive to engage in mutually beneficial exchanges or the impetus to set goals and thus seek to overcome. What the Liberalism of today advocates is egalitarianism or essentially the system that Marx advocated. It must be clarified that Marx himself was not a communist but merely advocated a system in which the labor and capitalist class would be equal. Liberalism has taken up this charge of promoting egalitarian values and a sense of distributive justice and is bordering the line between socialism and individualism. The image of an equal society in which there is NO CLASS DISTINCTIONS or gaps between the rich and the poor seem appealing but what would such an existence entail?
Economics is crucial to the espousing of good philosophy and one of the first rules of economics is that humans respond to incentives. In an unequal society man has something to strive against or strive toward. In our daily lives we can think of many examples of this sense of wanting to overcome. Some jump to the conclusion that we strive merely for material things and seek to DISCREDIT CAPITALISM but that is not true. Many of seek to overcome obstacles or attain things that are not material such as knowledge, health, cultivation of talents, relaxation, family time etc. We engage in the market economy due to the nature of the transaction. That transaction being mutually beneficial in that the capitalist or entrepreneur is satisfied in the making of profits and the consumer is satisfied in that he has obtained a particular product or service which meets a given need on his value scale. If we did indeed live in an egalitarian society where all distinctions are removed and our earnings were near the same the ways in which we order our needs and the forces that compel us to cooperate would be removed. If the low wage laborer has nothing to strive for why work in a low wage job? If we were all equal who would put up with such conditions? Why does the capitalist continually seek out business ventures that yield returns on investment through the satisfaction of consumer desires? These men and women do so through the setting of goals and the sense that individualism instills in all of us. Of course this is only cultivated in a world of inequality.
Without inequality no one will want to work in low wage positions which by and large mean not so spectacular working conditions. Workers participate in these positions in order to save and invest while cultivating skills so as to advance to a better paying job. Thus, inequality gives them a goal to set and gives such individuals a barrier to overcome further creating the impetus to cooperate with others in order to achieve that goal within a market system. Without inequality there is no wealth creation by the capitalists. The capitalists only exists when there are needs to be met in the market economy if we were all equal and did not have barriers to overcome or goals to set the will to invest and take risks would be dramatically reduced. It is also this inequality that allows for market signals to take place that help to create some sort of order in the market system so that our needs are satisfied. Inequality is too often portrayed as a system of oppression in the market system but this is not the case. Inequality creates a diversity of needs and wants and as such gives rise to market system to satisfy those needs through a series of mutually beneficial exchanges. By being in a state of inequality we also obtain a diverse body of knowledge depending upon ones station or geographical location. This diverse body of information further promotes cooperation in that we must engage one another to meet our needs. I know nothing of fixing brakes, investment strategies, gourmet cooking, brewing, manufacturing, etc but someone does. And by virtue of the inherent inequality of society we can each take advantage of the strengths and weaknesses of others to benefit ourselves while at the same time helping others. This is the essence of a free society. Inequality creates an order out of the chaos through a market system unimpeded by government coercion so that we may flourish. This concept is also called the division of labor of which I am sure you are familiar. Through the division of labor, which in this modern era has spread across the globe, the entrepreneur and the capitalists are better able to satisfy consumer needs of greater value at a lower price and yet satisfy the capitalist or entrepreneur with a decent return on investment.
Instead of viewing inequality as bad we should understand that it is necessary to a vibrant society. The only way in which to rid inequality from the world would be to have the government intervene and forcefully reallocate resources. Human action is all about cooperation and inequality forces us to cooperate because through a series of mutually beneficial exchanges we can benefit ourselves and seek to improve our station in life. I may have used the low wage laborer example here but it can be applied in any situation. The student, working professional, capitalist, entrepreneur, manager, etc. Inequality creates an interdependence amongst individuals and allows for a civil society. The best method of taking account of the existing inequality is to simply create a general framework by which an individual may save, invest, or pursue goals that further his or her vision of success.
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Mind The Gap
By Paul Graham
2004
When people care enough about something to do it well, those who do it best tend to be far better than everyone else. There’s a huge gap between Leonardo and second-rate contemporaries like Borgognone. You see the same gap between Raymond Chandler and the average writer of detective novels. A top-ranked professional chess player could play ten thousand games against an ordinary club player without losing once.
Like chess or painting or writing novels, making money is a very specialized skill. But for some reason we treat this skill differently. No one complains when a few people surpass all the rest at playing chess or writing novels, but when a few people make more money than the rest, we get editorials saying this is wrong.
Why? The pattern of variation seems no different than for any other skill. What causes people to react so strongly when the skill is making money?
I think there are three reasons we treat making money as different: the misleading model of wealth we learn as children; the disreputable way in which, till recently, most fortunes were accumulated; and the worry that great variations in income are somehow bad for society. As far as I can tell, the first is mistaken, the second outdated, and the third empirically false. Could it be that, in a modern democracy, variation in income is actually a sign of health?
The Daddy Model of Wealth
When I was five I thought electricity was created by electric sockets. I didn’t realize there were power plants out there generating it. Likewise, it doesn’t occur to most kids that wealth is something that has to be generated. It seems to be something that flows from parents.
Because of the circumstances in which they encounter it, children tend to misunderstand wealth. They confuse it with money. They think that there is a fixed amount of it. And they think of it as something that’s distributed by authorities (and so should be distributed equally), rather than something that has to be created (and might be created unequally).
In fact, wealth is not money. Money is just a convenient way of trading one form of wealth for another. Wealth is the underlying stuffthe goods and services we buy. When you travel to a rich or poor country, you don’t have to look at people’s bank accounts to tell which kind you’re in. You can see wealthҗin buildings and streets, in the clothes and the health of the people.
Where does wealth come from? People make it. This was easier to grasp when most people lived on farms, and made many of the things they wanted with their own hands. Then you could see in the house, the herds, and the granary the wealth that each family created. It was obvious then too that the wealth of the world was not a fixed quantity that had to be shared out, like slices of a pie. If you wanted more wealth, you could make it.
This is just as true today, though few of us create wealth directly for ourselves (except for a few vestigial domestic tasks). Mostly we create wealth for other people in exchange for money, which we then trade for the forms of wealth we want. [1]
Because kids are unable to create wealth, whatever they have has to be given to them. And when wealth is something you’re given, then of course it seems that it should be distributed equally. [2] As in most families it is. The kids see to that. “Unfair,” they cry, when one sibling gets more than another.
In the real world, you can’t keep living off your parents. If you want something, you either have to make it, or do something of equivalent value for someone else, in order to get them to give you enough money to buy it. In the real world, wealth is (except for a few specialists like thieves and speculators) something you have to create, not something that’s distributed by Daddy. And since the ability and desire to create it vary from person to person, it’s not made equally.
You get paid by doing or making something people want, and those who make more money are often simply better at doing what people want. Top actors make a lot more money than B-list actors. The B-list actors might be almost as charismatic, but when people go to the theater and look at the list of movies playing, they want that extra oomph that the big stars have.
Doing what people want is not the only way to get money, of course. You could also rob banks, or solicit bribes, or establish a monopoly. Such tricks account for some variation in wealth, and indeed for some of the biggest individual fortunes, but they are not the root cause of variation in income. The root cause of variation in income, as Occam’s Razor implies, is the same as the root cause of variation in every other human skill.
In the United States, the CEO of a large public company makes about 100 times as much as the average person. [3] Basketball players make about 128 times as much, and baseball players 72 times as much. Editorials quote this kind of statistic with horror. But I have no trouble imagining that one person could be 100 times as productive as another. In ancient Rome the price of slaves varied by a factor of 50 depending on their skills. [4] And that’s without considering motivation, or the extra leverage in productivity that you can get from modern technology.
Editorials about athletes’ or CEOs’ salaries remind me of early Christian writers, arguing from first principles about whether the Earth was round, when they could just walk outside and check. [5] How much someone’s work is worth is not a policy question. It’s something the market already determines.
“Are they really worth 100 of us?” editorialists ask. Depends on what you mean by worth. If you mean worth in the sense of what people will PAY FOR THEIR SKILLS, the answer is yes, apparently.
A FEW CEOS’ incomes REFLECT some kind of wrongdoing. But are there not others whose incomes really do reflect the wealth they generate? Steve Jobs saved a company that was in a terminal decline. And not merely in the way a turnaround specialist does, by cutting costs; he had to decide what Apple’s next products should be. Few others could have done it. And regardless of the case with CEOs, it’s hard to see how anyone could argue that the salaries of professional basketball players don’t reflect supply and demand.
It may seem unlikely in principle that one individual could really generate so much more wealth than another. The key to this mystery is to revisit that question, are they really worth 100 of us? Would a basketball team trade one of their players for 100 random people? What would Apple’s next product look like if you replaced Steve Jobs with a committee of 100 random people? [6] These things don’t scale linearly. Perhaps the CEO or the professional athlete has only ten times (whatever that means) the skill and determination of an ordinary person. But it makes all the difference that it’s concentrated in one individual.
When we say that one kind of work is overpaid and another underpaid, what are we really saying? In a free market, prices are determined by what buyers want. People like baseball more than poetry, so baseball players make more than poets. To say that a certain kind of work is underpaid is thus identical with saying that people want the wrong things.
Well, of course people want the wrong things. It seems odd to be surprised by that. And it seems even odder to say that it’s unjust that certain kinds of work are underpaid. [7] Then you’re saying that it’s unjust that people want the wrong things. It’s lamentable that people prefer reality TV and corndogs to Shakespeare and steamed vegetables, but unjust? That seems like saying that blue is heavy, or that up is circular.
The appearance of the word “unjust” here is the unmistakable spectral signature of the Daddy Model. Why else would this idea occur in this odd context? Whereas if the speaker were still operating on the Daddy Model, and saw wealth as something that flowed from a common source and had to be shared out, rather than something generated by doing what other people wanted, this is exactly what you’d get on noticing that some people made much more than others.
When we talk about “unequal distribution of income,” we should also ask, where does that income come from? [8] Who made the wealth it represents? Because to the extent that income varies simply according to how much wealth people create, the distribution may be unequal, but it’s hardly unjust.
Stealing It
The second reason we tend to find great disparities of wealth alarming is that for most of human history the usual way to accumulate a fortune was to steal it: in pastoral societies by cattle raiding; in agricultural societies by appropriating others’ estates in times of war, and taxing them in times of peace.
In conflicts, those on the winning side would receive the estates confiscated from the losers. In England in the 1060s, when William the Conqueror distributed the estates of the defeated Anglo-Saxon nobles to his followers, the conflict was military. By the 1530s, when Henry VIII distributed the estates of the monasteries to his followers, it was mostly political. [9] But the principle was the same. Indeed, the same principle is at work now in Zimbabwe.
In more organized societies, like China, the ruler and his officials used taxation instead of confiscation. But here too we see the same principle: the way to get rich was not to create wealth, but to serve a ruler powerful enough to appropriate it.
This started to change in Europe with the rise of the middle class. Now we think of the middle class as people who are neither rich nor poor, but originally they were a distinct group. In a feudal society, there are just two classes: a warrior aristocracy, and the serfs who work their estates. The middle class were a new, third group who lived in towns and supported themselves by manufacturing and trade.
Starting in the tenth and eleventh centuries, petty nobles and former serfs banded together in towns that gradually became powerful enough to ignore the local feudal lords. [10] Like serfs, the middle class made a living largely by creating wealth. (In port cities like Genoa and Pisa, they also engaged in piracy.) But unlike serfs they had an incentive to create a lot of it. Any wealth a serf created belonged to his master. There was not much point in making more than you could hide. Whereas the independence of the townsmen allowed them to keep whatever wealth they created.
Once it became possible to get rich by creating wealth, society as a whole started to get richer very rapidly. Nearly everything we have was created by the middle class. Indeed, the other two classes have effectively disappeared in industrial societies, and their names been given to either end of the middle class. (In the original sense of the word, Bill Gates is middle class.)
But it was not till the Industrial Revolution that wealth creation definitively replaced corruption as the best way to get rich. In England, at least, corruption only became unfashionable (and in fact only started to be called “corruption") when there started to be other, faster ways to get rich.
Seventeenth-century England was much like the third world today, in that government office was a recognized route to wealth. The great fortunes of that time still derived more from what we would now call corruption than from commerce. [11] By the nineteenth century that had changed. There continued to be bribes, as there still are everywhere, but politics had by then been left to men who were driven more by vanity than greed. Technology had made it possible to create wealth faster than you could steal it. The prototypical rich man of the nineteenth century was not a courtier but an industrialist.
With the rise of the middle class, wealth stopped being a zero-sum game. Jobs and Wozniak didn’t have to make us poor to make themselves rich. Quite the opposite: they created things that made our lives materially richer. They had to, or we wouldn’t have paid for them.
But since for most of the world’s history the main route to wealth was to steal it, we tend to be suspicious of rich people. Idealistic undergraduates find their unconsciously preserved child’s model of wealth confirmed by eminent writers of the past. It is a case of the mistaken meeting the outdated.
“Behind every great fortune, there is a crime,” Balzac wrote. Except he didn’t. What he actually said was that a great fortune with no apparent cause was probably due to a crime well enough executed that it had been forgotten. If we were talking about Europe in 1000, or most of the third world today, the standard misquotation would be spot on. But Balzac lived in nineteenth-century France, where the Industrial Revolution was well advanced. He knew you could make a fortune without stealing it. After all, he did himself, as a popular novelist. [12]
Only a few countries (by no coincidence, the richest ones) have reached this stage. In most, corruption still has the upper hand. In most, the fastest way to get wealth is by stealing it. And so when we see increasing differences in income in a rich country, there is a tendency to worry that it’s sliding back toward becoming another Venezuela. I think the opposite is happening. I think you’re seeing a country a full step ahead of Venezuela.
The Lever of Technology
Will technology increase the gap between rich and poor? It will certainly increase the gap between the productive and the unproductive. That’s the whole point of technology. With a tractor an energetic farmer could plow six times as much land in a day as he could with a team of horses. But only if he mastered a new kind of farming.
I’ve seen the lever of technology grow visibly in my own time. In high school I made money by mowing lawns and scooping ice cream at Baskin-Robbins. This was the only kind of work available at the time. Now high school kids could writesoftware or design web sites. But only some of them will; the rest will still be scooping ice cream.
I remember very vividly when in 1985 improved technology made it possible for me to buy a computer of my own. Within months I was using it to make money as a freelance programmer. A few years before, I couldn’t have done this. A few years before, there was no such thing as a freelance programmer. But Apple created wealth, in the form of powerful, inexpensive computers, and programmers immediately set to work using it to create more.
As this example suggests, the rate at which technology increases our productive capacity is probably polynomial, rather than linear. So we should expect to see ever-increasing variation in individual productivity as time goes on. Will that increase the gap between rich and the poor? Depends which gap you mean.
Technology should increase the gap in income, but it seems to decrease other gaps. A hundred years ago, the rich led a different kind of life from ordinary people. They lived in houses full of servants, wore elaborately uncomfortable clothes, and travelled about in carriages drawn by teams of horses which themselves required their own houses and servants. Now, thanks to technology, the rich live more like the average person.
Cars are a good example of why. It’s possible to buy expensive, handmade cars that cost hundreds of thousands of dollars. But there is not much point. Companies make more money by building a large number of ordinary cars than a small number of expensive ones. So a company making a mass-produced car can afford to spend a lot more on its design. If you buy a custom-made car, something will always be breaking. The only point of buying one now is to advertise that you can.
Or consider watches. Fifty years ago, by spending a lot of money on a watch you could get better performance. When watches had mechanical movements, expensive watches kept better time. Not any more. Since the invention of the quartz movement, an ordinary Timex is more accurate than a Patek Philippe costing hundreds of thousands of dollars. [13] Indeed, as with expensive cars, if you’re determined to spend a lot of money on a watch, you have to put up with some inconvenience to do it: as well as keeping worse time, mechanical watches have to be wound.
The only thing technology can’t cheapen is brand. Which is precisely why we hear ever more about it. Brand is the residue left as the substantive differences between rich and poor evaporate. But what label you have on your stuff is a much smaller matter than having it versus not having it. In 1900, if you kept a carriage, no one asked what year or brand it was. If you had one, you were rich. And if you weren’t rich, you took the omnibus or walked. Now even the poorest Americans drive cars, and it is only because we’re so well trained by advertising that we can even recognize the especially expensive ones. [14]
The same pattern has played out in industry after industry. If there is enough demand for something, technology will make it cheap enough to sell in large volumes, and the mass-produced versions will be, if not better, at least more convenient. [15] And there is nothing the rich like more than convenience. The rich people I know drive the same cars, wear the same clothes, have the same kind of furniture, and eat the same foods as my other friends. Their houses are in different neighborhoods, or if in the same neighborhood are different sizes, but within them life is similar. The houses are made using the same construction techniques and contain much the same objects. It’s inconvenient to do something expensive and custom.
The rich spend their time more like everyone else too. Bertie Wooster seems long gone. Now, most people who are rich enough not to work do anyway. It’s not just social pressure that makes them; idleness is lonely and demoralizing.
Nor do we have the social distinctions there were a hundred years ago. The novels and etiquette manuals of that period read now like descriptions of some strange tribal society. “With respect to the continuance of friendships...” hints Mrs. Beeton’s Book of Household Management (1880), “it may be found necessary, in some cases, for a mistress to relinquish, on assuming the responsibility of a household, many of those commenced in the earlier part of her life.” A woman who married a rich man was expected to drop friends who didn’t. You’d seem a barbarian if you behaved that way today. You’d also have a very boring life. People still tend to segregate themselves somewhat, but much more on the basis of education than wealth. [16]
Materially and socially, technology seems to be decreasing the gap between the rich and the poor, not increasing it. If Lenin walked around the offices of a company like Yahoo or Intel or Cisco, he’d think communism had won. Everyone would be wearing the same clothes, have the same kind of office (or rather, cubicle) with the same furnishings, and address one another by their first names instead of by honorifics. Everything would seem exactly as he’d predicted, until he looked at their bank accounts. Oops.
Is it a problem if technology increases that gap? It doesn’t seem to be so far. As it increases the gap in income, it seems to decrease most other gaps.
Alternative to an Axiom
One often hears a policy criticized on the grounds that it would increase the income gap between rich and poor. As if it were an axiom that this would be bad. It might be true that increased variation in income would be bad, but I don’t see how we can say it’s axiomatic.
Indeed, it may even be false, in industrial democracies. In a society of serfs and warlords, certainly, variation in income is a sign of an underlying problem. But serfdom is not the only cause of variation in income. A 747 pilot doesn’t make 40 times as much as a checkout clerk because he is a warlord who somehow holds her in thrall. His skills are simply much more valuable.
I’d like to propose an alternative idea: that in a modern society, increasing variation in income is a sign of health. Technology seems to increase the variation in productivity at faster than linear rates. If we don’t see corresponding variation in income, there are three possible explanations: (a) that technical innovation has stopped, (b) that the people who would create the most wealth aren’t doing it, or (c) that they aren’t getting paid for it.
I think we can safely say that (a) and (b) would be bad. If you disagree, try living for a year using only the resources available to the average Frankish nobleman in 800, and report back to us. (I’ll be generous and not send you back to the stone age.)
The only option, if you’re going to have an increasingly prosperous society without increasing variation in income, seems to be (c), that people will create a lot of wealth without being paid for it. That Jobs and Wozniak, for example, will cheerfully work 20-hour days to produce the Apple computer for a society that allows them, after taxes, to keep just enough of their income to match what they would have made working 9 to 5 at a big company.
Will people create wealth if they can’t get paid for it? Only if it’s fun. People will writeoperating systems for free. But they won’t install them, or take support calls, or train customers to use them. And at least 90% of the work that even the highest tech companies do is of this second, unedifying kind.
All the unfun kinds of wealth creation slow dramatically in a society that confiscates private fortunes. We can confirm this empirically. Suppose you hear a strange noise that you think may be due to a nearby fan. You turn the fan off, and the noise stops. You turn the fan back on, and the noise starts again. Off, quiet. On, noise. In the absence of other information, it would seem the noise is caused by the fan.
At various times and places in history, whether you could accumulate a fortune by creating wealth has been turned on and off. Northern Italy in 800, off (warlords would steal it). Northern Italy in 1100, on. Central France in 1100, off (still feudal). England in 1800, on. England in 1974, off (98% tax on investment income). United States in 1974, on. We’ve even had a twin study: West Germany, on; East Germany, off. In every case, the creation of wealth seems to appear and disappear like the noise of a fan as you switch on and off the prospect of keeping it.
There is some momentum involved. It probably takes at least a generation to turn people into East Germans (luckily for England). But if it were merely a fan we were studying, without all the extra baggage that comes from the controversial topic of wealth, no one would have any doubt that the fan was causing the noise.
If you suppress variations in income, whether by stealing private fortunes, as feudal rulers used to do, or by taxing them away, as some modern governments have done, the result always seems to be the same. Society as a whole ends up poorer.
If I had a choice of living in a society where I was materially much better off than I am now, but was among the poorest, or in one where I was the richest, but much worse off than I am now, I’d take the first option. If I had children, it would arguably be immoral not to. It’s absolute poverty you want to avoid, not relative poverty. If, as the evidence so far implies, you have to have one or the other in your society, take relative poverty.
You need rich people in your society not so much because in spending their money they create jobs, but because of what they have to do to get rich. I’m not talking about the trickle-down effect here. I’m not saying that if you let Henry Ford get rich, he’ll hire you as a waiter at his next party. I’m saying that he’ll make you a tractor to replace your horse.
Notes
[1] Part of the reason this subject is so contentious is that some of those most vocal on the subject of wealth - university students, heirs, professors, politicians, and journalists - have the least experience creating it. (This phenomenon will be familiar to anyone who has overheard conversations about sports in a bar.)
Students are mostly still on the parental dole, and have not stopped to think about where that money comes from. Heirs will be on the parental dole for life. Professors and politicians live within socialist eddies of the economy, at one remove from the creation of wealth, and are paid a flat rate regardless of how hard they work. And journalists as part of their professional code segregate themselves from the revenue-collecting half of the businesses they work for (the ad sales department). Many of these people never come face to face with the fact that the money they receive represents wealth - wealth that, except in the case of journalists, someone else created earlier. They live in a world in which income is doled out by a central authority according to some abstract notion of fairness (or randomly, in the case of heirs), rather than given by other people in return for something they wanted, so it may seem to them unfair that things don’t work the same in the rest of the economy.
(Some professors do create a great deal of wealth for society. But the money they’re paid isn’t a quid pro quo. It’s more in the nature of an investment.)
[2] When one reads about the origins of the Fabian Society, it sounds like something cooked up by the high-minded Edwardian child-heroes of Edith Nesbit’s The Wouldbegoods.
[3] According to a study by the Corporate Library, the median total compensation, including salary, bonus, stock grants, and the exercise of stock options, of S&P 500 CEOs in 2002 was $3.65 million. According to Sports Illustrated, the average NBA player’s salary during the 2002-03 season was $4.54 million, and the average major league baseball player’s salary at the start of the 2003 season was $2.56 million. According to the Bureau of Labor Statistics, the mean annual wage in the US in 2002 was $35,560.
[4] In the early empire the price of an ordinary adult slave seems to have been about 2,000 sestertii (e.g. Horace, Sat. ii.7.43). A servant girl cost 600 (Martial vi.66), while Columella (iii.3.8) says that a skilled vine-dresser was worth 8,000. A doctor, P. Decimus Eros Merula, paid 50,000 sestertii for his freedom (Dessau, Inscriptiones 7812). Seneca (Ep. xxvii.7) reports that one Calvisius Sabinus paid 100,000 sestertii apiece for slaves learned in the Greek classics. Pliny (Hist. Nat. vii.39) says that the highest price paid for a slave up to his time was 700,000 sestertii, for the linguist (and presumably teacher) Daphnis, but that this had since been exceeded by actors buying their own freedom.
Classical Athens saw a similar variation in prices. An ordinary laborer was worth about 125 to 150 drachmae. Xenophon (Mem. ii.5) mentions prices ranging from 50 to 6,000 drachmae (for the manager of a silver mine).
For more on the economics of ancient slavery see:
Jones, A. H. M., “Slavery in the Ancient World,” Economic History Review, 2:9 (1956), 185-199, reprinted in Finley, M. I. (ed.), Slavery in Classical Antiquity, Heffer, 1964.
[5] Eratosthenes (276ח195 BC) used shadow lengths in different cities to estimate the Earth’s circumference. He was off by only about 2%.
[6] No, and Windows, respectively.
[7] One of the biggest divergences between the Daddy Model and reality is the valuation of hard work. In the Daddy Model, hard work is in itself deserving. In reality, wealth is measured by what one delivers, not how much effort it costs. If I paint someone’s house, the owner shouldn’t pay me extra for doing it with a toothbrush.
It will seem to someone still implicitly operating on the Daddy Model that it is unfair when someone works hard and doesn’t get paid much. To help clarify the matter, get rid of everyone else and put our worker on a desert island, hunting and gathering fruit. If he’s bad at it he’ll work very hard and not end up with much food. Is this unfair? Who is being unfair to him?
[8] Part of the reason for the tenacity of the Daddy Model may be the dual meaning of “distribution.” When economists talk about “distribution of income,” they mean statistical distribution. But when you use the phrase frequently, you can’t help associating it with the other sense of the word (as in e.g. “distribution of alms"), and thereby subconsciously seeing wealth as something that flows from some central tap. The word “regressive” as applied to tax rates has a similar effect, at least on me; how can anything regressive be good?
[9] “From the beginning of the reign Thomas Lord Roos was an assiduous courtier of the young Henry VIII and was soon to reap the rewards. In 1525 he was made a Knight of the Garter and given the Earldom of Rutland. In the thirties his support of the breach with Rome, his zeal in crushing the Pilgrimage of Grace, and his readiness to vote the death-penalty in the succession of spectacular treason trials that punctuated Henry’s erratic matrimonial progress made him an obvious candidate for grants of monastic property.”
Stone, Lawrence, Family and Fortune: Studies in Aristocratic Finance in the Sixteenth and Seventeenth Centuries, Oxford University Press, 1973, p. 166.
[10] There is archaeological evidence for large settlements earlier, but it’s hard to say what was happening in them.
Hodges, Richard and David Whitehouse, Mohammed, Charlemagne and the Origins of Europe, Cornell University Press, 1983.
[11] William Cecil and his son Robert were each in turn the most powerful minister of the crown, and both used their position to amass fortunes among the largest of their times. Robert in particular took bribery to the point of treason. “As Secretary of State and the leading advisor to King James on foreign policy, [he] was a special recipient of favour, being offered large bribes by the Dutch not to make peace with Spain, and large bribes by Spain to make peace.” (Stone, op. cit., p. 17.)
[12] Though Balzac made a lot of money from writing, he was notoriously improvident and was troubled by debts all his life.
[13] A Timex will gain or lose about .5 seconds per day. The most accurate mechanical watch, the Patek Philippe 10 Day Tourbillon, is rated at -1.5 to +2 seconds. Its retail price is about $220,000.
[14] If asked to choose which was more expensive, a well-preserved 1989 Lincoln Town Car ten-passenger limousine ($5,000) or a 2004 Mercedes S600 sedan ($122,000), the average Edwardian might well guess wrong.
[15] To say anything meaningful about income trends, you have to talk about real income, or income as measured in what it can buy. But the usual way of calculating real income ignores much of the growth in wealth over time, because it depends on a consumer price index created by bolting end to end a series of numbers that are only locally accurate, and that don’t include the prices of new inventions until they become so common that their prices stabilize.
So while we might think it was very much better to live in a world with antibiotics or air travel or an electric power grid than without, real income statistics calculated in the usual way will prove to us that we are only slightly richer for having these things.
Another approach would be to ask, if you were going back to the year x in a time machine, how much would you have to spend on trade goods to make your fortune? For example, if you were going back to 1970 it would certainly be less than $500, because the processing power you can get for $500 today would have been worth at least $150 million in 1970. The function goes asymptotic fairly quickly, because for times over a hundred years or so you could get all you needed in present-day trash. In 1800 an empty plastic drink bottle with a screw top would have seemed a miracle of workmanship.
[16] Some will say this amounts to the same thing, because the rich have better opportunities for education. That’s a valid point. It is still possible, to a degree, to buy your kids’ way into top colleges by sending them to private schools that in effect hack the college admissions process.
According to a 2002 report by the National Center for Education Statistics, about 1.7% of American kids attend private, non-sectarian schools. At Princeton, 36% of the class of 2007 came from such schools. (Interestingly, the number at Harvard is significantly lower, about 28%.) Obviously this is a huge loophole. It does at least seem to be closing, not widening.
Perhaps the designers of admissions processes should take a lesson from the example of computer security, and instead of just assuming that their system can’t be hacked, measure the degree to which it is.
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Income inequality is both a political problem and an economic problem for the United States.
By Jack Temple
Policy Mic
December 2011
Politically, it is clear that income inequality undermines American democracy. In order for our system of representative government to maintain its legitimacy, it is crucial that elected officials remain responsive to the majority of their constituents demands. Yet study after study indicates that in the U.S., regardless of partisan affiliation, elected officials are overwhelmingly more responsive to the interests of relatively wealthier voters. In fact, Martin Gilens of Princeton University has shown that when higher income and lower income Americans disagree on a particular issue, elected officials are overwhelmingly inclined to side with the wealthy by a factor of two to one.
Of course, one could argue that there are many ways to address this last problem Җ strong campaign finance laws that place a real cap on the amount that any individual or entity can contribute seem like an obvious start. But a self-defeating cycle emerges where the momentum required to pass these reforms can never get off the ground because of the outsized influence that wealthy Americans already have on the political system.
High levels of income inequality do more than undermine American democracy, however they also inhibit economic growth. Researchers at the IMF published a REPORT last October revealing that high levels of income inequality are associated with unstable economies prone to frequent crises and downturns. Redistributive policies that mitigate against income inequality can therefore actually help grow the overall size of the economic ֓pie rather than simply re-slicing its constituent pieces.
Moreover, if you look specifically at the U.S., itԒs clear that the policies promoting an upward redistribution of wealth come at a considerable price. According to the nonpartisan Tax Policy Center, the three most expensive exemptions in the tax budget deductions for home mortgage interest, employer-provided health insurance, and employer-provided pensions ֖ collectively cost over $330 billion every year and yet overwhelmingly benefit relatively wealthy Americans. Closing these exemptions would promote greater economic equality while also cutting off wasteful spending to help balance the budget.
So long as fair democratic representation and stable economic growth are predicated on widely shared prosperity, then public policy ought to be focused on reducing income inequality. But the story doesnt end there. Income inequality is neither an accident nor an inevitable byproduct of a capitalist economy: To the contrary, the historical record shows that, in the United States, a substantial amount of economic stratification has arisen in response to deliberately designed government policies and programs.
Take, for example, residential segregation, which prominent social scientists cite as the central force responsible for articulating and sustaining racial and economic inequality: The emergence of the white middle class suburbs and the black poverty-stricken ghetto can be traced back to redlining policies employed by the Federal Housing Administration and discriminatory public housing regulations designed by the federal government that together make economic prosperity easier for some at the expense of others.
So long as public policy itself remains responsible for producing and sustaining inequality in America, policymakers today face an obligation to reverse this AMERICAN DREAM and make the AMERICAN DREAM of equal opportunity a reality.
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The Mother of All Privacy Battles Part 23 - An Engineer Speaks Up
An Open Letter to Chris Dodd
By esr
Armed And Dangerous
February 23, 2012
Mr. Dodd, I hear youve just given a speech in which you said Hollywood is pro-technology and pro-Internet.” It seems you’re looking for interlocutors among the coalition that defeated SOPA and PIPA, and are looking for some politically feasible compromise that will do something against the problem of Internet piracy as you believe you understand it.
There isn’t any one person who can answer your concerns. But I can speak for one element of the coalition that blocked those two bills; the technologists. I’m not talking about Google or the technology companies, mind you I’m talking about the actual engineers who built the Internet and keep it running, who writethe software you rely on every day of your life in the 21st century.
I’m one of those engineers you rely on my code every time you use a browser or a smartphone or a game console. Im not exactly a leader among them as you would understand the term, because we don’t have those and dont want them. But I am a well-known philosopher/elder of the tribe (IҒll name two others later in this letter), and also one of our few public spokespersons. In the late 1990s I helped found the open-source software movement.
I’m writing to educate you about our concerns, which are not exactly the same as those of the group of firms you think of as “Silicon Valley.” We have our own culture and our own agenda, usually coincident with but occasionally at odds with the businesspeople who run the tech industry.
The difference matters because the businesspeople rely on us to do the actual technical work - and since the rise of the Internet, if we don’t like where a firm’s strategy is going, it tends not to get there. Wise bosses have learned to accommodate us as much as possible and pick the few fights they must have with their engineering talent very, very carefully. Google, in particular, got its huge market capitalization by being better at managing this symbiosis than anyone else.
I can best introduce you to our concerns by quoting another of our philosopher/elders, John Gilmore. He said: ”The Internet interprets censorship as damage and routes around it.”
To understand that, you have to grasp that the “Internet” isn’t just a network of wires and switches, it’s also a sort of reactive social organism composed of the people who keep those wires humming and those switches clicking. John Gilmore is one of them. Im another. And there are some things we will not stand having done to our network.
We will not have it censored. We built the Internet as a tool to make every individual human being on the planet more empowered. What the users do with the Internet is up to them - not up to Hollywood, not up to politicians, and not even up to us who built it. Whatever else we Internet geeks may disagree on among ourselves, we will not allow our gift of fire to be snuffed out by jealous gods.
Because we will not have the Internet censored, we are also implacably hostile to any attempts to impose controls on it that could be used for censorship whether or not that is the stated intent of the controls. That is why we were absolutely unanimous against SOPA and PIPA, and a significant reason that you lost that fight.
You speak as though you believe that the technology industry stopped SOPA/PIPA, and that by negotiating with the industry you can set up the conditions for a successful second round. It won’t work that way; the movement that stopped SOPA/PIPA (and is now scuttling ACTA) was much more organic and grass-roots than that. Silicon Valley cant give you the political firepower or cover you’d need. All youll get from them is a bunch of meaningless press conferences and empty platitudes from CEOs who have nothing actually to gain by helping you and really wish you’d go away so they can get back to their jobs.
Meanwhile, the engineers inside and outside those companies will take it as their duty to ensure that you lose that battle again if you try to fight it again. Because there aren’t a lot of us, but the vast mass of Internet users - who do vote in numbers large enough to swing elections have figured out that we֒re on their side and were their early-warning system. When we sound the tocsin - as we did, for example, by blacking out Wikipedia - they will mobilize and you will be defeated.
Accordingly, one of the cardinal rules for any politician who wants to have a long career in a 21st-century democracy has to be “Dont screw with the Internet.” Because it will screw you right back. At least two primary challenges to SOPA/PIPA sponsors are in the news right now because they wouldnt have happened without the popular outrage against it.
Hollywood wants you to screw with the Internet, because Hollywood thinks it has problems it can solve that way. Hollywood also wants you to think we (the engineers) are foes of “intellectual property” and in willing cahoots with criminals, pirates, and thieves. Neither of these claims is true, and it’s important that you understand exactly how they’re not true.
Many of us make our living from “intellectual property.” A few of us (not including me) are genuinely opposed to it on principle. Most of us (including me) are willing to respect intellectual property rights, but there’s a place where that respect abruptly ends. It stops at exactly the point where DRM threatens to cripple our computers and our software.
Richard Stallman, one of our more radical philosophers, uses the phrase “treacherous computing” to describe what happens when a PC, or a smartphone, or any sort of electronics, is not fully under the control of its user. Treacherous computers block what you can see or hear. Treacherous computers spy on you. Treacherous computers cut you off from their full potential as communications devices and tools.
Treacherous computing is our second line in the sand. Most of us don’t actually have anything against DRM in itself; it’s because DRM becomes a vehicle for treachery that we loathe it. Not allowing you to skip the advertisements on a DVD is a small example; not allowing you to back up your books and music is a larger one. Then there was the ironically pointed case of the book 1984 being silently disappeared from the e-readers of customers who had paid for it
Some companies propose, in order to support DRM, locking up computers so they can only only run “approved” operating systems; that might bother ordinary users less than those other treacheries, but to us would be utterly intolerable. If you imagine a sculptor told that his new chisel would only cut shapes pre-approved by a committee of shape vendors, you might begin to fathom the depths of our anger at these proposals.
We engineers do have an actual problem with Hollywood and the music industry, but its not the one you probably assume. To be blunt (because there isn’t any nice way to put this) we think Big Entertainment is largely run by liars and thieves who systematically rip off the artists they claim to be protecting with their DRM, then sue their own customers because theyre too stupid to devise an honest way to make money.
I’m sure you dont agree with this judgment, but you need to understand how widespread it is among technologists in order to get why all those claims about piracy and lost revenues find us so unsympathetic. It’s bad enough that we feel like our Internet and our computers are under attack, but having laws like SOPA/PIPA/ACTA pushed at us on behalf of a special-interest group we consider no better than gangsters and dimwits makes it much worse.
Some of us think the gangsters behavior actually justifies piracy. Most of us don’t agree that those two wrongs add up to a right, but I can tell you this: if you make the technologists choose between the big-media gangsters and the content pirates, effectively all of us will side with the content pirates as the lesser of the two evils. Because maybe both sides are stealing on a vast scale, but only one of them doesn’t want to screw with our Internet or cripple our computers.
We’d really prefer to oppose both groups, though. Our sympathies in this mess are with the artists being ripped off by both sides.
Consider this letter our Do’Ғt tread on me!. Our agenda is to protect our own liberty to create and our users’ liberty to enjoy those creations as they see fit. We have no give and no compromise on either of those, but long as Hollywood stays out of our patch (that is, no more attempts to lock down our Internet or our tools) well stay out of Hollywood’s.
And if youd like to discuss some ways of fighting piracy that don’t involve trampling on us and our users, we do have some ideas.
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Saturday, February 25, 2012
Rising Of The Telecom Underclass Part 11
Tents Return As Occupy Atlanta Protests AT&T Layoffs
By Teresa Albano
Peoples World
February 15, 2012
AT&T CEO RANDALL STEPHENSON received $27 million last year and the telecommunications giant saw its revenues soar to $126.7 billion.
Yet, last month the Fortune 500 corporation announced hundreds of layoffs as part of their “business changes” with 740 union workers, in the southern region alone, FACING PINK SLIPS in an economy that has a record number of families in poverty, jobless and in foreclosure.
Inspired by the Occupy movement and protests by Verizon workers, union members in Atlanta REFUSED TO TAKE THE LAYOFFS SITTING DOWN. They sent the company a letter giving them until Feb. 13 to rollback the lay-offs.
Protesters from Occupy Atlanta, various unions, Jobs with Justice and other groups showed up at AT&T headquarters in Atlanta to hear the company’s answer. Twelve protesters staged a sit in afterwards and were arrested.
Tents now line the sidewalk outside the corporate giant’s building. Protesters vow to stay until the company rescinds the layoffs.
Listed as the second most profitable company in the world by CNNMoney, AT&T is attempting to win public opinion by saying the laid off workers have a “guaranteed job offer” - IF QUALIFIED - in its unionized wireless division.
However, protesters say the job offers come with less pay and benefits.
Communications Workers of America Local 3204 President Walter Andrews said the jobs offered would mean substantial financial sacrifice for the workers.
“They make less wages, their benefits are awful the working conditions are deplorable,” Andrews said.
“Yes, you have a job offer, but your PAY IS CUT OVER HALF AND YOUR BENEFITS ARE CUT IN HALF and you have NO MORE PENSION.”
Protester Matt Magnuson told the media people have to hold corporations like AT&T accountable.
“To tell these 740 workers that we’re going to fire you, but we’ll hire you at half the pay with no benefits, those are your options, you can either have no job or you can have a job at half the pay with no benefits in this current situation, and no one’s there to tell the corporations that that’s not OK,” he said.
OCCUPY ATLANTA said the fight at AT&T is part of the occupy movement’s mission.
“We are out here for love of our fellow persons, the 99%. We are here to keep good jobs for the people,” according to a statement on the website.
“At a time when unemployment is at a record high in the state of Georgia, we can’t afford to lose one more job.”
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Friday, February 24, 2012
Bad Moon Rising Part 48 - Greece
Who Needs Democracy
By Ron Beasley
Newshoggers
February 24, 2012
If you haven’t been paying attention there has been a coup in Greece. Yes, the home of democracy has been taken over by the global banksters. Unelected technocrats, some from Greece but most not, are now calling all of the shots in Greece. They are pillaging the country in an attempt to extract as much wealth before the inevitable default of the country. And Greece is JUST THE BEGINNING.
Predatory bankers make serial killers look good by comparison. Their business model creates crises to facilitate grand theft, financial terrorism, and debt entrapment.
They steal all material wealth and then some. They systematically rob investors and strip mine economies for self-enrichment.
They demand they get paid first. They hold nations hostage to assure it. They turn crises into catastrophes.
They leave mass impoverishment, high unemployment, neo-serfdom, and human wreckage in their wake.
Their Federal Reserve/ECB/IMF/World Bank/political class lackeys do their bidding.
They’re more dangerous than standing armies. They wage war by other means. They cause “demographic shrinkage, shortened life spans, emigration and capital flight,” explains Michael Hudson.
They’re a malignancy ravaging societies and humanity. Greece is the epicenter of what’s metastasizing globally. The latest bailout deal highlights out-of-control pillage.
The people of Greece are screwed. While they may not be entirely blameless most of the blame has to go to a government that made little or no attempt to collect taxes from the top 20% while borrowing money that the banks should not have lent them.
The austerity being forced on the citizens of Greece will not only guarantee that will never be able to repay the loans but also send the country into a deep depression. The banksters know this which is why they are pillaging while they can. This is as aggressive as any military invasion. The Greek people are rioting and burning - who can blame them. They can see what’s going on even if the rest of the world can’t.
You think this doesn’t impact you. Think again! It should remind you of the attacks on Social Security and Medicare here in the US while the hegemonic military and taxes on the wealthiest remain untouched.
Bad Moon Rising
Part 1 - Part 2 - Part 3 - Part 4 - Part 5
Part 6 - Part 7 - Part 8 - Part 9 - Part 10
Part 11 - Part 12 - Part 13 - Part 14 - Part 15
Part 16 - Part 17 - Part 18 - Part 19 - Part 20
Part 21 - Part 22 - Part 23 - Part 24 - Part 25
Part 26 - Part 27 - Part 28 - Part 29 - Part 30
Part 31 - Part 32 - Part 33 - Part 34 - Part 35
Part 36 - Part 37 - Part 38 - Part 39 - Part 40
Part 41 - Part 42 - Part 43 - Part 44 - Part 45
Part 46 - Part 47 - Part 48 - Part 49 - Part 50
Part 51 - Part 52 - Part 53 - Part 54 - Part 55
Part 56
Section Bad Moon Rising •
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