Wednesday, March 13, 2013

1%, Quintiles, GDP

Most of us have jobs in the static economy. If I lose or leave my job, someone else gets it, at about the same salary. My loss, their gain, net effect zero.

For all the conservative arguing about job growth, dynamic economies, making-the-pie-larger, entrepreneurship - frustrated at all those folks out there who just cannot get it, I think this is the major obstacle.  We can preach continually that the economy is dependent on private sources creating jobs, but most people just don't live in that world. They don't see it.  It's not real to them.  Their life, and lives of those around them, aren't like that.  They - we - live in a world where a job exists; one person gets it, another doesn't, and that's the end of it.

Business owners, or those connected intimately to the whole idea of expanding markets and creating business, understand this at least somewhat, which is why they tend to be supportive of free-market policies even if their own fortunes are tanking.  They know that this is how growth happens, even if it's not happening to them - and they know that statist, liberal, Democrat, European...whatever label you want to give them...people just don't get it.

Side note.  Those folks can end up voting for liberals anyway, because of advantages to their particular industry, a particular cause, or in self-defense because the economy has tanked and they need health care for their kids regardless of who caused the mess.  Voting and politics are complicated, and we make tradeoffs.  But it is not accidental that business owners, small, medium, and large, vote for free-market policies.  They know that is what works long term, however much disregulation, chaos, and misery happens in the short run.

So absorb that fact.  80% of us live in the world of static economy, witnessing that the pie might okay, well, grow a little bit because of entrepreneurship, but basically not.  My gain is your loss.  Hunker down.  Protect your turf.  All this talk about creative destruction is alarming.  It's not because we are stupid.  It's because what we see is what we call real.

Okay, some of it is because we're stupid. But who can blame us when most of the world is that way.  Adventurous investors bought mines and mining equipment; they sent ships to sail and trade for spices; they built fiberoptic networks, new containers for shipping, new access to entertainment.  Many of them absolutely screwed over their competitors and the public, and we can read exposes about it in Mother Jones or the Nation now, tut-tutting about their evil, which should never have been allowed.

Except we're all richer.  The truth sucks, doesn't it?

Whenever someone starts talking about the 1%, you need to instantly remind yourself that they don't get this.  In that range, the economy does not work in terms of what we see every day, where your gain is my loss.  Among the 1% (and to a lesser extent among the risk-takers all along the income spectrum), if Harry doesn't make that money, then no one makes that money.  If Tiger Woods doesn't get a new endorsement contract, some other golfer gets a different contract, unrelated to Tiger's numbers. There are only so many dripping faucets for the local plumbers to fix, but if one guys hustles to get a few more people to upgrade their whole system, that is new money. Plumbers B & C don't just automatically get those dollars in some sort of award handed out by the economy if Plumber A doesn't hustle.

Some of the 1% are doctors.  Lots of them perform elective procedures.  That's new money, a change in culture, a difference in what the rich buy which will eventually become the culture of what we buy. If one hedge fund doesn't get the investments, it might not go into another hedge fund - it will likely go to a more cautious investment.

There is not a static amount of therapy that is needed out there.  Some signing up for counseling is constant, based on insurance networks or court orders, but sometimes, therapists convince people to come to them electively.  If they don't, that money does not automatically get distributed among the other therapists listed in the phone books.  Growing an industry, convincing people that they need dental appointments every six months or motivational speakers at the yearly convention, is what a market economy is all about.

This is not an enhanced understanding of an economy at the margins by knowing some cool tool to apply to discussions.  This is huge.  It is central.  It is the economic history of the West.  It's why Germany is not Guyana, or America is not Albania.

Thus, when someone applies GDP to any domestic discussion, they simply don't understand this.  There is not an amount of money or worth in a country that "just exists," waiting for the system to divvy it up fairly or unfairly.  80% of an economy looks like this, but those people don't change the wealth of the group.  GDP is an artificially-constructed statistic that is very useful for comparing one country to another, or one year to another in a single country.  But it has no value in looking at America from inside.

Analogy: Someone wants to compare American inventors, and so divides them up into those who invented things weighing less than five pounds, less than ten pounds, less, than fifteen pounds, or more than fifteen pounds.  You could do that.  Why would it have any meaning?  Or learning:  If we whacked the top 1% of chemists on the head to make them stupid, would that make the rest of us know more about chemistry?  If we destroyed the corn of the top 1% of growers, would more ears appear in my garden?  (If we took all their corn for redistribution, we would have more for a year. then they would move and we'd have less.) 

Liberals, or Democrats, or socialists, or progressives, or whatever-labels talk about the 1%, or quintiles, or GDP as if they have meaning because at root, they think it is a static economy.  Those people have because others don't, and there is thus something wrong with their having that much.  They believe it has to be changed. There just isn;'t any other way to that POV.  If you get worked up about the 1%, you must believe that their actions do not expand the economy for all of us, but take something from us instead.  It's an asumption you don't see.

Similarly, dividing us up into quintiles and comparing who has got what is flawed from the outset.  The people in the lowest quintile are immigrants, people starting out, people who have made bad decisions, and people who have hit some unfortunate circumstance not of their own doing.  None of that group is much affected by the highest quintile making zillions of dollars or being crooks (except if they were directly affected by being given a job or being ripped off by one.)  Bernie Madoff hurt individuals badly. He didn't hurt America much.  We punish such folk so that there aren't more of them.

The people in the highest quintile, if we stopped them from making money, would not create some disbursement to the rest of us.  Some of them are greedy, or crooks.  Duh.  Where would you expect greedy or crooked people to gravitate?  They are pretty good at defining for the rest of us where the honest money is to be made, frankly.  But they are not crooked per se, many of them are quite decent.  But if you take too much of their money or interfere with their ability to build something cool, they will go elsewhere, even if you call them bad names.  Especially if you call them bad names, actually.

Some things that look like data and statistics are so flawed by their initial assumptions as to be useless right out of the gate.

Rant over.


Texan99 said...

I agree with you, but I wonder why so many people should have a hard time experiencing the effect of growth. Whether I was flipping burgers as a teenager, or finding work with a painting company or an environmental engineering firm later, or landing a job with a law firm opening a new office in Houston, every time I got a job it was because someone was expanding into a new niche -- not because someone else lost a job and I took it.

The more marginal your job skills are (and mine were extremely marginal until I began working as a lawyer in my late 20s), the bigger the connection between business growth and the ability to shoehorn your way into a job for which you weren't the obvious candidate by training or aptitude or stereotype. The painting contractor I worked for after college in the late 70s certainly wouldn't have wanted to hire a chick with no experience if business hadn't been booming and applicants scarce.

In the post-student flophouse/commune sort of place we lived back then, where everyone was trying to scratch out a living, our housemates were sending their relative back East copies of the local paper's wantads, to induce them to move to Houston. Many did. When the economy is expanding, almost anyone can find a job.

You should see what's going on in the Eagle Ford shale north and west of here.

jaed said...

The dotcom boom is an area where this happened on a large, obvious, and broadly media-covered scale. By the end of the boom, there were thousands of companies, millions of jobs, and dozens of job titles that just hadn't existed in 1990. (Granted the bust took some of these back down, but not most.)

You'd think people would take the hint.

Der Hahn said...

I like Texan99's comment. There's more to this than a lack of experience with how economic changes influence employment. With due respect, the idea that 80% of people have 'static jobs' is way high. That kind of stability in job availability (not necessarily employment) regardless of economic conditions is more a feature of government or academia.

I live in a town divided by a river with a pretty nasty and long-standing political split between the two 'sides'. It's guaranteed that any debate about economic development projects will include claims that the benefits will accrue to the 'wrong' side. People are recognizing that the pie (at least in a local sense) will get bigger but are willing reject the opportunity because of a perception that their slice won't grow as much as somebody else's.

Assistant Village Idiot said...

Yes, 80% may be much too high. I pulled it out of the air. I believe I was thinking from the other direction that only 20% have the intense version of seeing the volatile economy. But of course there are many others who get a pretty good view, and might see things as the 20% do.

Sam L. said...

Growth in the3 economy can be hard to believe without seeing it. I can't see North Dakota, but I do believe the stories telling me that shale gas and oil are creating jobs up there.

Others just refuse to believe there is NOT only one size of a pie, and that more can be made.

Earl Wajenberg said...

My problem with the 1% does not relate to the size or growth-rate of the national pie, but with the way they have grown enormously richer than the average. And the problem with that is not that I envy them (I don't) or that I think they don't deserve it (though I don't), but that I don't want an oligarchy. I don't want so big a concentration of power among so few people.

Assistant Village Idiot said...

I think that type of power is less dangerous to the rest of us than in past eras. They are indeed able to bend the system - not at will, but enough - to enable them to make more money. But that's rather circular. Their power to make others do what they wish is far less than in the era of the robber barons, or even in the middle of the 20th C, where one family could essentially run a town.

Power is more diffuse now, and your local police (or zoning board) have far more ability to exercise power over you than Warren Buffet or Bill Gates. It is regulatory power that I find encroaching. The rich have some ability to exempt themselves from consequences, but nothing like the old days.

jaed said...

Yes. The 1% of top earners (or 1% of top wealth-owners, depending on how you figure it) don't have power. They have wealth. Wealth can sometimes buy power (or more likely buy freedom from the exercise of someone else's power), but it isn't power in itself.

Barack Obama is wealthy but not in the top 1%, but he has enormous power. Kathleen Sebelius similarly. Lisa Jackson. Michael Bloomberg is very wealthy, but his power isn't the same as his wealth; he's powerful because of the office he holds.

The mandarin class generally is very powerful, and that power is often hereditary, but while they tend to be affluent, they don't tend to be in the top 1%.