Inequality is not your problem to fix
Why entrepreneurialism can't bailout a broken system that works against us all.
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We publish every Sunday.
And now, inequality.
This week will mark exactly six months since stay-at-home orders were implemented across most of the country. If we are to believe this pandemic will be a two-year process, we are now officially entering the second quarter.
A consistent theme in The Discourse as well as this newsletter has been rates of change — what has happened, how quickly, how slowly, what will stick, and what won’t?
I have been both dubious about claims that we’re seeing a decade of change in one year and also remain fairly convinced that things won’t be going back to “normal” whenever something like normal does arrive.
But an idiom that is still broadly fair to describe the current economic and political crisis is that any trend anywhere in anything that existed in the pre-pandemic world has seen COVID act as an accelerant.
And an economic trend getting short shrift in discussions about what has changed and by how much is inequality.
“Inequality is a problem in America” is a statement almost no one will challenge.
How we got here is obvious: policy choices. Decades worth of lawmaking has been aimed at empowering capital over labor in various ways for generations of political and corporate leaders and look at that, capital wins. The only solution to inequality is to distribute society’s gains more equally.
Lobbyists and consultants do and will work very hard to make sure this does not happen. Commentators will fixate on what exactly “gains,” “distribute,” and “equally” really mean. We’ve been having a version of this conversation now for a decade.
So but the way that COVID has accelerated inequality is only beginning to be understood. The immediate impact in the labor market has seen average earnings shift dramatically higher because those hit harder by mass layoffs in the spring — and still out of work now — are disproportionately in the lower-earning services sector. As Fed chair Jay Powell said this week, “The economic downturn has not fallen equally on all Americans, and those least able to shoulder the burden have been hardest hit. In particular, the high level of joblessness has been especially severe for lower-wage workers in the services sector, for women, and for African Americans and Hispanics.”
There are bidding wars for homes in wealthy suburbs of NYC while employment is down more than 11 million from February and there are food lines across America. Inequality is not hard to find.
The most popular antidote to an unequal system now viewed as an intractable part of American capitalism is the individual. You, me, us. Individuals have become responsible for fixing this societal ill. Because while it is obviously correct that policy choices by those in power create, contribute to, and perpetuate inequality, the current business-cultural push towards corporate individualism suggests a kind of Stockholm’s Syndrome taking hold among those who believe they can — but never will be — part of the 1% in a world that works only for the 1%.
And it suggests we risk seeing a generation with the power to demand change cede economic agency to moneyed interests once again not only by voting but also acting against their economic self-interest.
Influencer culture is a simple example of how this modern dynamic manifests. Individuals posting on social networks gain a following — usually for being attractive or just funny enough (or both) — and then get paid by brands to hawk products. But what the influencer and their brand partner sell isn’t really the product. Or at least not only that. Influencers also sell the image of being the kind of person who could, on their own, grow enough of a following that is worth selling against. Influencing doesn’t just say “I love this new startup’s shorts.” It also says that if you wear this startup’s shorts you can break free from the demands of The Man and become an influencer yourself. It’s multi-level marketing without the living room parties.
And while the influencer and the company that makes the shorts do in fact want you to buy things, what Facebook wants you to buy is this process, this myth, this message. Facebook wants you to quit your job and start selling shorts on Instagram because if you embrace the instability of our current corporate socialism as a matter of professional necessity, you won’t seek to turn away from these social networks or vote for lawmakers who want higher corporate taxes, but will need these powers-at-be more than ever. Gone is a conversation about whether Facebook and its services are a pox on social democracy, whether the network’s unfettered access to our data and time ought to be regulated. Absent is any discussion about how minds young and old are re-wired by the gamified incentives of the platform. Facebook is now an essential worker in a distributional emergency because the only path to whatever we’re calling economic freedom requires use of their tools.
Individualism as a matter of consumer spending is well-trodden territory in post-Reagan America. But the last decade’s novel twist on the theme includes one’s professional life and ambitions as part of this same message. Growing inequality in the ‘80s, ‘90s, and ‘00s wasn’t as offensive when framed through the lens of consumer choice and personal responsibility. And so applying the same message to professional decisions creates a framework wherein an over-educated, upwardly-ambitious generation now moving into its prime earning years sees the lack of opportunity to work for the kind of life they enjoyed as children as a personal rather than societal failing.
The reason you cannot work an average American job and make enough money to enjoy what we’d call a middle class life — safe housing, food security, transportation, adequate education for your children — is because business owners in the last several decades went from being framed as one part of the value chain to the chain itself. You’re not an owner, you’re a job creator. You’re not a proprietor, you’re an entrepreneur.
And the reframing of this station in the economy changed the owner’s take from a surplus to a deficit. In other words, business owners and stakeholders — be they small business, large business, private equity, public market, venture, and so on — don’t see their profits as the outcome of a well-run operation but as the remainder of what is left once every unnecessary cost is stripped away. And no cost is greater than labor, is greater than you and me.
As Minneapolis Fed president Neel Kashkari said on Friday:
[The Fed] heard repeatedly from businesses who complained that they couldn’t find workers. Some said we had a “historic worker shortage.” At the same time, wages were only rising modestly. I learned that businesses want qualified workers at wages they are used to paying. If they can’t readily find workers at historical wage levels, then they declare a worker shortage. The fact that wages weren’t climbing more quickly helped me to see through their complaints and realize that there was likely still slack in the labor market.
And so while Fed officials and economists are out here talking about consumers anchoring inflation expectations below 2% as a major risk to achieving their stated policy goals, it seems this same establishment is content to ignore a more damaging and stubborn anchoring from the management class about what they think jobs are really worth.
The cultural impulse we see today to celebrate risk-taking among individuals in all fields is less an elevation of entrepreneurism than it is a demonization of labor. We don’t seek to uplift the individual so much as degrade anyone content to push papers and take home a decent check. Even as the opportunity to do as much dwindles as a matter of policy.
A recent study from RAND found that if median incomes today had risen in line with inflation over the last several decades, a worker in the middle of the U.S. workforce would be making somewhere in the low-$90,000s per year, not the ~$50,000 that worker makes today.
“Unlike the growth patterns in the 1950s and 1960s, the majority of full-time workers did not share in the economic growth of the last forty years. The third quartile saw some income growth that was primarily concentrated in the 1990s and the 2010s. This was only a third of what would have been expected given the growth in the broader economy. On the other hand, the top of the distribution saw higher and more consistent growth. During this time period, only the very top of the income distribution saw growth that matched or outpaced the real per capita GDP rate of the same timeframe. The growth for the top one percent was well above GDP growth. The threshold to enter the top one percent grew at 166 percent of the per capita GDP and the growth rate of the average income within the top one percent was over 300 percent of GDP growth. Fundamentally, the majority of workers did not share in the benefits of economic growth to any significant degree.”
Put another way, the RAND study finds that the bottom 90% of all earners made just 50% of taxable income in 2018 compared to 67% in 1975. The top 1% of earners brought in 22% of all taxable income in 2018 compared to 9% in 1975.
And, of course, “taxable” is the operative word here, because much of the wealth of the richest Americans is in passive, non-taxed investments. In other words, this chart really understates wealth distribution.
And while this is an institutional problem which is downstream from policy choices made by lawmakers and preferences stated by the wealthy donor-class for generations, inequality is now reframed as a professional challenge for the individual.
Taking control of your financial future — the cri de coeur of the personal finance industry — is not about encouraging and empowering those who want to be involved in their finances but punishing those who don’t.
As if being alive in America today requires you to possess advanced knowledge of financial habits that will maximize present and future savings because working a job and spending what you make won’t cut it, either at your dinner table or for the bottom line of Chase. When you hear people cry about the lack of “financial literacy” in America today, ask what it is they think folks don’t understand and where they learned that.
The inadequacy of the checks we do get to take home has become excused away by the mythology of a worker’s individuality, a worker’s agency, and the necessity of a solopreneurial spirit that manages to strip away all considerations of what really determines our stations in life: luck and policies that shape our access to this luck.
When Joe Biden said on Thursday that the election is “Scranton vs. Park Avenue,” several prominent media members had meltdowns about this framing. The most viral of which was MSNBC anchor Stephanie Ruhle’s complaint that she worked really hard to get to where she is and even happens to live “pretty close” to Park Avenue. But this gripe ignores that most people work hard. Really, really hard. It’s only some people who are lucky enough to grow up in a wealthy New Jersey suburb, go to an elite private college, make their way to Wall Street, pivot to the media, and then get a coveted anchor role on a national cable news network. Usually in America, you work really hard, don’t take any vacations, then die poor in a place that looks a lot like Scranton.
Sri Thiruvadanthai of the Jerome Levy Forecasting Center wrote a post back in 2017 that I think about all the time and which helps situate the perils of the individual’s risk against those which the corporation sees as sensible. In this post, Sri outlines how socializing risk is the bedrock of capitalism and why investors must understand this dynamic. The bull cases for assets like crypto and precious metals which are premised on a collapse of the system fail to see the most basic fact about our crisis response impulse in the West — which is to further bolster the system these folks are betting against.
And while a longer discussion of Sri’s work will be forthcoming in a later edition of this letter, his framing is essential for understanding what we are asking when we say — “Where does the present state of our inequality come from?”
The answer, of course, is “capitalism.” But only insofar as we agree that our economic system is called capitalism. Because our economy is, in practice, a series of disparate markets regulated in favor of the so-called capitalists that happen to control an industry at any given point in time. Socialism for me, capitalism for thee. Inequality, seen this way, is not what the system creates but what it protects. Corporations matter more than individuals, industries matter more than companies, profits matter more than jobs.
But we now see an inversion of these ideas in modern business culture. And this reframing will perpetuate inequality far more than it has any chance of fixing it.
Risk taking is now viewed as an individual imperative though there exist no safeguards for those who take risks beyond a valorization of the failure. A failure that is more than likely to be ignored with the burdens falling solely on the shoulders of the failed.
The only exception, of course, is Silicon Valley, a geographic place which still thrives in a world where internet connections ought to make physical co-location obsolete because if you’re present in the Valley your failure will be treated the “right” way. Meaning that you’ll either be able to get a job at Google or raise money for another venture. The social safety that the Bay Area creates for a certain type of Stanford grad trying to modernize, say, “our antiquated medical billing system” or whatever, creates what eventually becomes — for that industry and its investors — a durable cycle of experimentation, failure, and eventual success. The stories about how the venture industry is really serving some kind of higher purpose we could do without, but it is clearly a system that for a certain in-group does work. It’s just an incredibly small, insular group which socializes a tiny risk pool and divides the winnings among an even smaller fraction of the tribe. There is no public analogue for the Valley.
And so to suggest that this form of trial-and-erroring one’s career and life is desirable for the average college-educated professional — much less the under-educated average citizen deprived of access to the networks required to even get a chance to fail — is to provide cover for the decades of policy choices aimed explicitly at protecting the wealthy and connected at the expense of those at the lowest ends of the income spectrum. Exceptions to the rule are merely that.
So when we think about where inequality goes from here, we must acknowledge that its continued existence as the defining feature of our economic moment is a choice. Our leaders choose to allow the majority of Americans to work for substandard wages and struggle to offer safe shelter and adequate nutrition to their families.
Medical care is a contingent part of an increasingly stratified professional class, something this pandemic has only made more clear to too many. In America, two generations of workers have learned that basic protections do not exist for all citizens, only those who can pay. A global medical emergency does not change this.
And so let us not be fooled into thinking that it is on us as private citizens to risk-take our way out of this system designed to exploit an inability for individuals and new businesses to exist on a level playing field with entrenched power. The pre-pandemic trend that saw vested interests shift the burden of economic opportunity away from institutions and towards individuals must be rejected.
As Powell said last week, “The productive capacity of the economy is limited when not everyone has the opportunity, has the educational background, and the healthcare, and all the things that you need to be an active participant in our workforce.”
And “all the things” Powell gestures towards are downstream from a government that works for the people not against them. Let not this moment pass without action.