Inequality and the Second Gilded Age
from David Ruccio
Grotesque inequalities in the distribution of income characterize our time, the Second Gilded Age. The question is, what is causing those inequalities?
The only way you can answer that question is based on a theory of value—a theory of how commodity values are determined and how the resulting flows of value are distributed to different participants in the economy.
For mainstream economists, both commodity values and distributions of income are determined by the forces of supply and demand in markets. Therefore, the kinds of inequalities we have witnessed in recent decades in the United States can be explained, first, by the functioning of those markets and, then, by the “corrections” made by taxation and other government programs.
And that’s where a debate has emerged among mainstream economists. On one side, Brad DeLong, who admits that he was wrong to presume that the late-20th century America would be “a much more equal place than early 20th century America,” focuses on exogenous factors such as winner-take-all markets in an increasingly globalized world and skill-based technical change to explain growing inequalities in the Second Gilded Age. Mark Thoma, on the other side, emphasizes “the changing political tide over the last few decades, and how that has altered public policy towards institutions such as unions that were able to help workers get a fair share of the output they produce.”
Within mainstream economics, it’s not really a debate about economics versus politics; it’s more about technology versus politics. And both of them—technology and politics—are taken as given. The result is that the unequal distribution of income is explained by the market-determined prices of different groups, either as a reflection of given technology (DeLong) or given politics (Thoma).
However, if you start from a different theory of value—one in which commodity values contain a surplus, which workers produce but don’t appropriate, and which when appropriated by capitalists is then distributed to still others—you end up with a very different theory of inequality within the Second Gilded Age. Yes, of course, technology and politics matter within this alternative theory. But they’re not taken to be given, exogenous factors. Both technology and politics reflect and participate in determining the conditions whereby commodity values are produced and the resulting flows of value—including the surplus—are distributed to different participants in the economy.
A useful starting point is the recognition that real corporate profits per employee and the labor share have been moving in opposite directions in recent decades.
Consider, in addition, that the labor share contains some of the surplus that does not show up as corporate profits, which means that the share going to the direct producers has fallen even more than what is registered in the usual national accounts.
We have, then, the beginnings of a very different story about inequality in the Second Gilded Age, one that starts with the structure of production instead of market prices. It is that structure of production that determines how and when technological changes and political decisions the resulting distributions and redistributions of value.
The result is not only a different theory of the causes of the inequalities that characterize the Second Gilded Age. It’s also a different theory of what needs to be changed in order to eliminate those inequalities.
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Real-World Economics Review Blog 
The issues involved in the maldristribution of Wealth in the Second Guilded Age have to do with who has the power of decision making in deciding who gets what, and that is a question of law. American capitalism works under a system of director-primacy, the CEO and his minions on the Board of Directors decide who gets what. The employees and even the stockholders, dispite the recent history of stockholder revolt have little to say in the matter. And unionns have been marginalized. That’s pretty uch the essence of what has happened since the 1980s, except that something could be said abbout how corporate loyyyistsw rewrote the laws to help firms el9minate long term legacy costs. All this “economics” misses the point. It hAS TO DO WITH THE CONSTITUTION OF THE FIRM AND WHOS HAS POWER THERE.
i’m not so sure that the use of surplus value and the then jump to the capitalists is correct. What about the inequality that comes from renting money and the change in how taxes are charge on money.
while I know its way to simple for you all here for a dumb guy like me (i’m really an electronics engineer by career/profession with a bs in physics and a minor in history and always interested in all those other fun fields like neuroscience and sociology, anthropology and psychology…ect.)
There was an article a number of years ago by a mathematician Brian Hayes called “Follow the Money” that was very interesting, particularly the game introduced to produce the singularity that always resulted without some other interventions the might amuse you. Basically it was a game with few rules and simple actions and no workers except the owner of the yard that one. NO surplus value needed for the singularity to happen, only a system where having goods gives advantage for more and going bankrupt takes one out of the game. http://www.americanscientist.org/issues/pub/follow-the-money
leaving that little detour lets go back to the problem at hand, how wealth accumulates and there are lots of losers. From my physics background I learned scale and the forces involved and how they are impacted by scale makes big differences. So if we look at a mouse we find it has to eat lots because the surface area of heat loss is a certain ration to its volume/stomach/digestive system and the muscle mass that produces heat from the food, an elephant on the other hand has a ratio of surface to the insides much different and given it eats lots and inefficient food calories, eat proportionally eats MUCH less then a mouse. Strength is a surface phenomenon and as strength resides on the surface yet mass is a volume, a mouse is actually much less susceptible to damage from a fall then an elephant, much less proportionally.
Simple examples so now lets look at a cell. A cell gets it energy and delivers its produces through the surface. As the cell gets larger the surface area grows SLOWER then the volume and so there is a limit to the size of the cell depending upon what its got to deliver or to exert in shape change that is limited to the ability to move things into and out of the cell through its surface. Obviously the number of pores in the surface per unit area have an effect as do the size of the pores but there is a real scale limit. If the efficiency of the internals changes then certain size can change and this works to a point but for any or even the most efficient systems possible the scale limit still exists. Major advances can allow major incremental jumps but the limits eventually are there.
Now take a company or corporation. They have a surface also and a volume. HECK lets take a socialist system and a communist system into consideration as they have the same issues if there is a surface, ie. a central organization or organizations that serve and outside interest that is their energy source AND consumes the output.
This is one of the complex relationships driving size and labor. Labor is a surface phenomena, the supporting structure and machinery not involved with the product or service are essential for support of the surface. As layers increase the amount of worth the decision makers can increase because they control it all but EVEN if the money was distributed EVENLY and no Profits other then minimal living cost were taken by everyone in a fair fashion the scale limits would exist…….period.
There are games that can be played by divisions and the use of outside contractors who receive less compensation then internal work would require the limits are there. Changing the shape is equivalent to changing the way surface to volume scales with a sphere being the worst shape and very flat the best shape but then there are administration effects or inefficiencies that result.
I am not saying gaming does not take place or that the CEO does not rape the corporation and the employees. But the incentive to reduce labor at the surface to as little as possible is the driving force. Lack of empathy and class division simple decouple the human aspects of doing this allowing it to proceed, hence the Gilded Age of class.
I would add that this effect/relationship is true in every ISM of economics and in every non-profit also – in every bureaucracy.
Going back the the Follow the Money article the mechanisms to prevent a singularity are interesting and are essentially ways of redistributing money. I had never considered Greed and Fraud as being positive in anyway until i realized given no other option they WORK to prevent the singularity where it all comes tumbling down.
I could say a lot more but im out of my league here. feel free to shoot me at will. I do like Steve Keens work and ideas as they have helped me take apart some of the complexity chaos mess and see the underlying patterns. I think the Private Debt issue I had notice but never considered. Jubilee was stated for me before but makes much sense the way he presented it and to realize the singularity is avoided. I also the thought about Potlatch traditions and realize they do the same thing. Lots of ways to skin the inequality to a level that prevents collapse….and from the NECSI study on food cost and civil unrest all this makes much more sense.
Then there are the oldies from the days of the Gilded, like Veblen and others and the concept of money(?) rent. Is that it? The idea of making money off money and the separation of the banking system of the citizens and businesses from the people who make money by shuffling other peoples money around, definitely not a producers of goods but one place where huge profits have come from…..and…unearned income not taxed……..
enough for this light weight here :)
“What about the inequality that comes from renting money”
What about the inequality that comes from land rent? It’s being collected, but by whom? Certainly not via the system, which is how it should be.
Correction ‘system’ => ‘tax system’
have you read Veblen? – Michael Hudson, one of the contributors here had this on his blog about Veblen…… pretty amazing head and eyes on that mans shoulder there was. I read him in soc class many years ago, we did the theory of the leisure class and it was excellent. we looked at it from a soc perspective rather then economic. but then we were not in the second gilded age in the 1970’s, only at the very start i guess. this article really says it well about renting money and land and you name it. I’m surprised it never made it here on RWER. – http://michael-hudson.com/2012/07/veblens-institutionalist-elaboration-of-rent-theory/ For as long as I can remember it there was this talk all the time about taxing money twice. The Libertarians were big on it as were the rich, now we can see the results, them more times around they can rent the same money the more money is generated from the debt. the money is created on the spot with the debt but paid back over time so it can go around a few times until it all comes apart.
If you read the Follow the Money article Hayes talks about ways to stop the singularity and on of them is greed and fraud. Another is community property marriage. the best is a progressive tax system but i had never considered community property as an equalizer OVERALL for a society nor had I considered the greed and fraud were also about redistribution of wealth but it does make sens if one thinks about it, it is just the mark of a system that has not dealt well with their inequality plus works when there is massive inequality such as now. Bet that crime is on the rise now.
I just cant get over how some of the best economic advice comes from looking back at the concerned and intelligent outsiders of those times, but then while the technology has changed the basic interactions have not.
Mark Thoma makes a brilliant observation here, but I doubt he recognized it himself… “…that has altered public policy towards institutions such as unions that were able to help workers get a fair share of the output they produce.”
Since public institutions output NOTHING and are purely service-oriented and tax-funded, there is absolutely no reason for unions in the public sector. Good job Mark!
What? Unions are as free market as any corporation. They sell a service and do form monopolies but then do many private utilizes and other natural monopolies the exist and are run for profit. Since free speech rulings say what they say and are used like they are used unions have every right to free speech.
To say they produce nothing directly is to say the same thing for banks and finance. They are enablers as unions are. One of the things I did when while teaching electronics part time at night at a local CC was to get a day Job as a steel worker. A friend checked me out on some of the apprentice tools/structures used to train/educate people in the union and certify. I certainly consider these programs as products. A trained worker who uses the union to advertise and obtain work. Think of this like a distribution center IR a free market distributor.
In many fields, especially the text fields, there are organizations that support standard the industry needs to make things. And to test endurance and saftey and educate – a few – SAE, IEEE, EIA, and many more that while not producing anything directly that is sold furnish what is necessary for standard that are required.
Unions can and fo the same thing. You are free to make your own car if you wish and either ignore the standards OR take advantage of the parts made by many different companies that grow to feed the car manufactures. I think labor has the right to do similar things.
If ‘public institutions’ produce nothing, then presumably neither do private health and education service providers.
The idea commodity values and contained surplus are part of such an old-fashioned marxist theory of value – I didn’t realize people still talked about that. There is no inherent commodity value. Value is subjective, based of each market participant’s trade-offs, which aggregates to supply and demand. What drives income inequalities fundamentally is luck enabled by scale economies and credit.
Joe Magner’s modesty and pattern recognition are so much more valuable than Clemens Lampe’s arrogance and second-hand dogmatism. As George Spencer Brown put it so elegantly, not knowing is the condition of being able to learn.
Don’t mistake my forthrightness about this for arrogance in return. Over the last seventy years I like Joe have done my share of listening to, trying to understand and joining in debate, despite the indignity of learning I had “expressed by the best ideas in by far the worst manner” and now, once again, stupidly composing my best ideas on micro-economic misaggregation on this site, forgetting they were likely to disappear for no obvious reason and without backup via control Z. Ah well. “More haste, less speed”.