The issue of the Winner-Take-All economy was raised by economist Alan Krueger in a speech at Cleveland’s Rock and Roll Hall of Fame. Krueger explains how globalization and technology are the two major forces driving income and wealth inequality in the world today. Unfortunately, Krueger identifies the cause, but completely fumbles the solution.
The maldistribution of the gains from globalization and technology cannot be solved by increasing wage incomes because the major driver of the increase in wealth to the 1% is the ownership of financial capital. This capital combines with the exploding supply of labor in the developing world to drive up residual profits while driving down world wages. Policies to reverse this by favoring domestic labor unions only hamper national growth in a competitive world economy where capital is highly mobile and seeks out the highest risk-adjusted rate of return. The only solution is to increase the participation of the workforce in risk-taking capital investment and capital accumulation (think entrepreneurship). The present policies of the Obama administration and the Federal Reserve impede this participation and are hollowing out the middle class. If anyone has benefited from these policies, it is the 1% in the financial sector.
The following is reprinted from the WSJ with a link to the original remarks by Krueger.
…four key factors driving the “superstar” economy: technology, scale, luck and an erosion of social norms that compress prices and incomes.
By Sudeep Reddy
The U.S. economy is looking increasingly like the music industry: a small sliver of people are capturing the largest gains.
That’s the view from the White House’s resident expert in the economics of rock and roll, who is wrapping up a tour as chairman of the president’s Council of Economic Advisers.
Alan Krueger, who became a leading scholar in Rockonomics long before his time in the Obama administration, says in a speech Wednesday evening at the Rock and Roll Hall of Fame in Cleveland that the U.S. is “increasingly becoming a ‘winner-take-all’ economy,” following the long experience of the music industry.
“Over recent decades, technological change, globalization and an erosion of the institutions and practices that support shared prosperity in the U.S. have put the middle class under increasing stress,” he says, according to his prepared remarks. “The lucky and the talented — and it is often hard to tell the difference — have been doing better and better, while the vast majority has struggled to keep up.”
In Cleveland speech, titled “Land of Hope and Dreams: Rock and Roll, Economics, and Rebuilding the Middle Class,” Mr. Krueger outlines the key income trends in the music industry across recent decades:
The music industry has undergone a profound shift over the last 30 years. The price of the average concert ticket increased by nearly 400% from 1981 to 2012, much faster than the 150% rise in overall consumer price inflation. And prices for the best seats for the best performers have increased even faster.
At the same time, the share of concert revenue taken home by the top 1% of performers has more than doubled, rising from 26 percent in 1982 to 56 percent in 2003. The top 5 percent take home almost 90 percent of all concert revenues.
This is an extreme version of what has happened to the U.S. income distribution as a whole. The top 1% of families doubled their share of income from 1979 to 2011. In 1979, the top 1% took home 10 percent of national income, and in 2011 they took home 20%. By this measure, incomes in the entire U.S. economy today are almost as skewed as they were in the rock ‘n roll industry when Bruce Springsteen cut “Born in the U.S.A.”
He highlights four key factors driving the “superstar” economy: technology, scale, luck and an erosion of social norms that compress prices and incomes.
On the latter point, Mr. Krueger says: “As inequality has increased in society in general, norms of fairness have been under pressure and have evolved. Prices have risen for the best seats at the hottest shows — and made it possible for the best artists to make over $100 million for one tour — but this has come with a backlash from many fans who feel that rock ‘n roll is straying from its roots. And this is a risk to the entire industry.”
Those four same forces shaping the music industry are also shaping the U.S. economy, Mr. Krueger says. The end result: 84% of the total income growth in the U.S. from 1979 to 2011 went to the top 1% of families. All the income growth from 2000 to 2007 went to the top 1%.
Mr. Krueger runs through the most important research and trends in income inequality in the U.S. over the past century. Read his full remarks here.