Income Inequality in the U.S. (August 22, 2008)
Correspondent Anne S. responded to Saved by U.S. Savings? Don't Count On It (August 20, 2008) with this wide-ranging commentary on rising income inequality in the U.S. Anne touches on many large, complex drivers such as healthcare and education which are often ignored in the "ideology wars" over income distribution (Right= re-distribution: bad, Left=re-distribution: good):
As Charles points out, we should always remember distribution of wealth or income. Averages can be very misleading. Massive research attests to the fact that financial inequality has grown in the US in the past 30 or so years. Naturally enough, other inequalities follow. The pattern of inequality may be different in different places, various social strata, groups, etc. However, let's set that aside, or leave it hanging, and consider the overall rising slopes of the costs of things in the US as presented in the entry, CPI 1978-2004.Thank you, Anne, for this thoughtful, nuanced commentary. There are many subtle threads in Anne's comments; I will mention a few that struck me (and of course I will undoubtedly miss many others).
I think Anne is describing the growth of a "new elite" which feeds off the institutional/bureaucratic fiefdoms of healthcare and education which have largely escaped global competition.
She is also pointing out that some increased consumption--for example, more fatty foods and more meat--may well have been detrimental to the populace, running counter to the Standard Ideology that "more consumption is always better."
As she notes, people whose parents have college degrees are statistically much more likely to obtain higher-education degrees. Though the system remains "merit-based," the reality is that inherited wealth and status (as defined by higher education, income, healthcare, etc.) do play a major predictive role. Nonetheless, mimorities in the U.S. have made great strides in terms of higher education (see link above).
To me, these are key points: "Intangibles like knowledge and well-being created by human activity are sold; higher education and health represent a larger, expanding slice of family budgets."
In other words, manufactured goods like TVs and computers have plummeted in cost in terms of purchasing power as China and Asia's emergence as low-cost manufacturers has lowered the cost of virtually all goods which can be shipped, while "services" like healthcare and education which cannot be shipped have risen steeply and inexorably.
While "medical tourism" to India, Thailand and Mexico is rising--i.e. going abroad to obtain heart surgery for 10-20% of the cost of the operation in the U.S.-- global competition is still a small influence on the institutional fiefdoms of healthcare and education.
What I note is that the cost structures of these fiefdoms have few meaningful constraints imposed by competition. Anne touches on one reason: as "merit" and "status" play roles in gaining admission into the "new elite" of these well-funded, protected fiefdoms, then the middle classes (low, median and upper) perceive some relative competitive advantages to getting their kids into Ivy League or high-status private/public universities.
The idea that this competitive advantage is worth borrowing for, lying for, etc. then gains ground. This may be one driver for the rise in cheating which many have pondered/worried over: The Cheating Culture: Why More Americans Are Doing Wrong to Get Ahead
At the same time, rising expectations for a long, healthy life are running up against an ever-rising healthcare cost structure and a pernicious cycle of declining well-being due to excess consumption and "lifestyle" diseases. Beyond a certain point, the more you eat, the lower your well-being. Endless "entertainment" (watch 8 NFL games on one screen! I actually saw that guaranteed insanity-inducing "excess" hyped on commercials during the Olympics) has enabled a "couch potato" lifestyle with all the attendent chronic diseases.
I wonder how much fear plays a part in this seemingly desperate battle to squeeze into the ranks of the "new elite" living off the competitive-free fiefdoms. If you fear you won't measure up, then what's your response? Find some "protected" enclave--an enclave protected by legislated fiat (tariffs, subsidies, etc.) or by barriers to global wage arbitrage and global competition.
I have long suggested that the only real driver for lowering the cost structure of healthcare in the U.S. will be 100+ major state-of-the-art hospitals across the border in Mexico which cater exclusively to Americans with cash, clinics which provide the same level of care for 25%-30% of the cost of the care in the U.S.
The choice for U.S. healthcare will then be, adapt or die. Creative destruction is the core of capitalism. Fear-based moat-building and the garrisoning of fiefdoms protected from global competition can only stave off the destructive forces of bloated cost structures and inequality for so long.
So much of the "growing inequality" debate is cast into the ring of taxes and income re-distribution via "tax the rich and give entitlements to everyone else." But that ring is simply too small to account for the deep cultural and economic forces at work on macro scales and generational timelines.
RE: Oil to $70/Barrel? Don't Count On It (August 21, 2008):
More on oil and demand destruction: Frequent contributor U. Doran sent in this well-researched article on "demand destruction" for oil in the U.S.: Oil Demand Destruction & Brittle Systems which plays into my thesis presented yesterday that the vast majority of demand is inelastic and not subject to huge declines:
I've seen a number of comments, both at TheOilDrum and elsewhere, suggesting that the US is now less susceptible to supply disruptions because we have reduced our demand for oil by several hundred thousand barrels per day over the past year.
In general, I get the sense that people think we can insulate ourselves from supply disruptions, from our dependence on potentially unreliable foreign sources of oil, by improving our efficiency and eliminating "unnecessary" oil consumption.
In my opinion, this is backward. In this post, I will argue that, because the demand that is destroyed first in a free market is the demand that is easiest to eliminate, the resulting consumptive system is more inelastic, more brittle, and more susceptible to systemic shock from supply disruption. I will approach this argument by outlining what makes a system either resilient or brittle and why market-driven demand destruction creates a more brittle system. I will conclude with a few thoughts on how we can increase the resiliency of our energy-driven economy in a future environment of declining energy supplies.
New Book Notes: My new "little book of big ideas," Weblogs & New Media: Marketing in Crisis is now available on amazon.com for $10.99.
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