At Bloomberg Alexandre Tanzi and Mike Dorning put some meat on the bones of something I have been whinging about around here for some time—the tremendous change over the last several decades in the distribution of wealth in the United States:

After years of declines, America’s middle class now holds a smaller share of U.S. wealth than the top 1%.

The middle 60% of U.S. households by income — a measure economists often use as a definition of the middle class — saw their combined assets drop to 26.6% of national wealth as of June, the lowest in Federal Reserve data going back three decades. For the first time, the super rich had a bigger share, at 27%.

and if you extend that graph back to 1970 the change is all the more dramatic. Back then most of the wealth was held by the middle class rather than the wealthy.

I do wish they’d distinguish among income, wealth, and class rather than muddling them up. I’ll repeat my definition of class. If you earn one standard deviation or more below median income and especially if what you do earn you are paid by the hour, you are lower class. If you earn all the way up to $500,000 per year or even more per year and most of that income is derived from a salary, you are middle class. You may be lower middle class or upper middle class but you are middle class. If you earn $500,000 or more per year and most of that income is derived from the ownership of assets (rents, royalties, or dividends), you are upper class. We do have an upper class in the U. S. but there aren’t very many of them and most of the top 1% of earners aren’t upper class. In other words upper income ≠ upper wealth ≠ upper class. In my second incarnation I lived next door to and went to school with some people who were genuinely upper class.

One might claim that the post-war period was the anomaly and we are returning to the norm except for one thing: it doesn’t explain the sharp difference since 2000. I believe that can mostly be explained by quantitative easing and its attendant asset inflation.

Rather than go into a discussion of the sources of income and wealth, I’ll just make another claim. I don’t believe that the United States can continue as a liberal democracy if the concentration of wealth illustrated by the graph at the top of the page continues. I can’t prove it but I do believe it.

There seems to be a belief abroad in the land that the tax system can be used to change that distribution. All I can say is prove it. Show me one period of more than a few years during which the tax system resulted in wealth being more evenly divided in the United States. Show me that for any multi-ethnic, multi-racial, multi-confessional country. I think that you will find that it is unheard of but what is extremely common is being able to use the tax system to redistribute from one group of well-to-do people to another group of well-to-do people.

I believe that the change in the distribution of wealth has been created by policies and can be reversed by undoing those policies. It’s like the old Henny Youngman joke. “Doctor, it hurts when I do this. Then don’t do that.”

At Indian Express Devesh Kapur and Arvind Subramanian make a plea to “clean up” the World Bank and International Monetary Fund:

Something is rotten on 19th Street in Washington DC. And on both its sides, occupied by the Bretton Woods institutions, the World Bank (Bank) and International Monetary Fund (IMF), respectively. As evidence, consider the following roll-call of individuals and ask what is common to them: Paul Wolfowitz, Jim-Kim, David Malpass, Rodrigo Rato, Dominique-Strauss Kahn, Christine Lagarde, and Kristalina Georgieva.

The obvious one is that they are seven of the eight most recent heads of the Bank and IMF. The second commonality is that they have all become heads via a dual monopoly selection procedure: Only an American can head the Bank and only a European can head the IMF. That is the result of a long-standing arrangement among the western powers to share the spoils.

The third commonality is that the personal integrity of each of them has been called into question, the most recent being the revelations of malfeasance at the World Bank where data was apparently massaged to make at least two major countries — China and Saudi Arabia— look better than they would otherwise have been. Liberals and conservatives are converting this into a battle of political interests, cherry-picking the evidence, when in fact what is at stake is integrity, not ideology, as Justin Sandefur of the Center for Global Development has carefully documented recently. Indeed, both Democrat and Republican administrations in the US and their counterparts in Europe have been complicit in that roll-call.

There’s a question that neither author seems to consider. Why do the World Bank or IMF exist at all? Maybe both of those institutions have reached their “sell-by” date.

The World Bank and IMF were created after World War II and, not to put too fine a point on it, but circumstances were very different then than now. The Chinese have been doing a masterful job of exploiting the global financial system without fully being a participant in it. Given China’s position in the global economy, maybe the World Bank and IMF are obsolete.

I wonder how Mssrs. Kapur and Subramian think the heads of the institutions should be selected? Do they think it’s time for an Indian head of the World Bank? Just to place things in perspective, India’s GDP is roughly that of France.

What I think we’re seeing in the World Bank and IMF is that they largely exist to promote the interests of a narrow clique. Time to go.

The editors of the Wall Street Journal react to the recent BLS Labor Situation Report:

Employers are crying for workers but they can’t find them even when they pay more. According to the National Federation of Independent Business, 67% of small businesses reported hiring or trying to hire in September, and 42% raised compensation. But a record 51% still have openings they couldn’t fill.

So what’s causing the worker shortage? One possible culprit is government and employer vaccine mandates that set ultimatums for workers. President Biden’s vaccine order first applied to nursing homes, which lost jobs in the month. Many states and school districts have also imposed mandates, and state and local education employment fell 161,000. The White House claims its vaccine mandates will boost job growth, but not if unvaccinated workers quit.

Democrats have also made quitting an easier economic option. Pandemic enhanced unemployment benefits ended in early September, but that was only one week before Labor’s monthly jobless survey ended. Next month might provide better data on that score. But there are still many other federal financial payments that don’t require work, including a $300 monthly allowance per child, food stamps and rental assistance. Many people have saved some of their transfer payments, and now Democrats are promising more.

Inflation may also be tilting the scale to leisure instead of work. Average hourly earnings are rising fast—up 4.6% from a year ago and 7.4% at an annualized rate. But wage growth after inflation has been declining for many lower-income Americans, who spend more of their incomes on food and energy.

In a somewhat similar vein in her recent Washington Post column Megan McArdle observes:

There’s no one reason those jobs are going unfilled. Some of it may just be residual friction from the displacement of the pandemic: workers who moved and have to arrange to move back; parents who are having trouble arranging reliable child care. Some can be chalked up to ongoing difficulties with covid-19, as the immunocompromised or other at-risk groups resist working in person while the virus still circulates. And some of it undoubtedly represents people who are burned out in jobs that suddenly became much more demanding during the pandemic — as well as those who were ready to leave their jobs even before last year but decided not to take the plunge mid-plague.

But much of it seems to reflect the phenomenon that Anthony Klotz, an associate professor of management at Texas A&M, dubs the “pandemic epiphanies”: people who decided that the old normal simply wasn’t good enough for them.

This trend seems most pronounced in the hospitality industry, where restaurant and hotel jobs are going begging. But you can see it all over, from workers who say they’re ready to quit rather than get vaccinated or return to the office, to the International Alliance of Theatrical Stage Employees (IATSE), one of Hollywood’s most powerful unions, which just overwhelmingly voted to authorize what would be the first strike in the union’s history. Much of the unrest seems to be driven by the pandemic: “If COVID has taught us something, it’s that we need to pause and rethink how we’re doing a lot of things,” Katie Sponseller, a production coordinator, told Variety.

Here’s another possibility. Maybe the labor force isn’t as large as it used to be. By a lot. Maybe during the lockdowns migrant workers returned home. Better to live where it’s less expensive than remain and not be eligible for benefits or bringing in a paycheck. That’s a risk of having such a large portion of the labor force be migrants from a nearby country. That might partially explain the larger than expected surge at the border as those workers try to return to the U. S. I wonder how you’d go about testing that hypothesis?

One of the things that I think is happening is relying on low productivity workers is coming back to bite us. It takes capital investment to increase productivity after all. As I’ve noted before you can build massive buildings with enormous gangs of workers or you can require a lot fewer workers assisted by machines and the skills to use the machines.

A bipartisan majority in both houses of Congress supports the Infrastructure Investment and Jobs Act while a minority in the House is holding out for the “Build Back Better” which a majority in neither house supports. Yet somehow this Congressional impasse is the fault of the majority. Could someone explain that one to me?

I’m at a loss on this one. In the Wall Street Journal James Freeman reports:

Amazing as it may sound, the American worker shortage is getting even worse. For the second consecutive month, the number of small businesses reporting they could not find workers to fill open positions set a new record high. Given this historically tight labor market, it’s no surprise that the number of small firms raising compensation also hit a record high. That’s according to the latest monthly employment survey from the National Federation of Independent Business, due out later today.

“Fifty-one percent (seasonally adjusted) of all owners reported job openings they could not fill in the current period, up 1 point from August and a record high reading for the second consecutive month. The number of unfilled job openings far exceeds the 48-year historical average of 22 percent,” reports NFIB Chief Economist William Dunkelberg.

In some sectors the gap is more grievous than in others:

Some firms have had to reduce hours of operation and even close due to the inability to find staff. “Eighty percent of construction firms reported few or no qualified applicants (up 13 points). The shortage of workers has slowed the construction of new homes, and home prices have soared,” adds Mr. Dunkelberg.

They say they’re raising the compensation they’re offering.

What’s going on? I could offer some conjectures but it wouldn’t be much more than that.

I wanted to call attention to this passage in Ezra Klein’s piece in the New York Times on progressive pollster David Schor’s gripes about the present trajectory of the Democratic Party:

Shor believes the party has become too unrepresentative at its elite levels to continue being representative at the mass level. “I don’t think it’s a coincidence that the people we’ve lost are likely to be low-socioeconomic-status people,” he said. “If you look inside the Democratic Party, there are three times more moderate or conservative nonwhite people than very liberal white people, but very liberal white people are infinitely more represented. That’s morally bad, but it also means eventually they’ll leave.” The only way out of this, he said, is to “care more and cater to the preference of our low-socioeconomic-status supporters.”

which is amplified by this quotation:

“In the summer, following the emergence of ‘defund the police’ as a nationally salient issue, support for Biden among Hispanic voters declined,” Shor said in a March interview with New York magazine. “So I think you can tell this microstory: We raised the salience of an ideologically charged issue that millions of nonwhite voters disagreed with us on. And then, as a result, these conservative Hispanic voters who’d been voting for us despite their ideological inclinations started voting more like conservative whites.”

You may notice that closely resembles things I have been drawing attention to for some time.

If you believe that affiliation is dispositive and that Democratic voters will continue to vote for Democratic candidates because they’re Democratic candidates, that’s nothing to worry about. But if you believe as I do that, while affiliation is an important factor not only it not the only factor but it has been attenuating as a factor among the very voters on whose support many Democratic candidates depend. In many jurisdictions it wouldn’t take a massive switch of blacks or Hispanics to the Republican Party to deny Democrats who were expected to win election—just a few percentage points. That’s only impossible if affiliation is dispositive.

There are a number of good insights in this post at OilPrice.com by Leonard Hyman and William Tilles about the global electricity problems going on now. The first is their main point:

These and similar problems are not accidents and do not result from one-off difficulties or calamities.

but then they immediately lose sight of their opening observations: these problems are happening all over the world, in places that adopted “neoliberal economic policies” and those that didn’t, e.g. Germany, China. I agree with them that the federal government needs to provide incentives including funding to accomplish goals that a pure market system will not reach, e.g. redundancy. For such a goal to be accomplished within a market system there would need to be serious penalties for failures which would in turn reduce the efficiency of markets. That is one of the reasons there are hybrid systems practically everywhere in the world including in the United States. But this is an equally important observation:

A well-functioning just-in-time inventory management system is a thing of beauty, efficiency, and cost minimization. But because of the extreme interdependency, one factory relies on the output of another, often thousands of miles away, any break in this carefully choreographed manufacturing process results in chaos and dysfunction. This corporate mentality has resulted in electricity systems that are now relatively low-cost but increasingly fragile.

In my view a “carrot and stick” approach needs to be put in place and that is very difficult to sustain due to a pesky phenomenon known as “regulatory capture”, particularly prevalent in the energy sector. To provide a single example of the power of regulatory capture much of the story of the Deepwater Horizon oil spill was one of regulatory capture, notorious in the now-defunct Minerals Management Agency which notionally should have been able to prevent the catastrophe.

Here’s another interesting observation:

Installing individual, non-fuel power generation and storage systems provide the energy user with long-term price stability. Once installed, a solar and battery storage system provides long-term price stability for the life of the system, possibly 20 or 30 years! This is a gigantic inflation hedge— although not looked at that way at present. In inflationary times self-generation permits power users to cap their (self-generated) rates for an extended period—a considerable benefit against a backdrop of volatile energy prices.

Read the whole thing.

You might find this post at TIPP Insights on the latest IBD/TIPP poll of economic confidence:

The IBD/TIPP Economic Optimism Index, a leading measure of consumer confidence, declined 1.7 points or 3.6%, from 48.5 in September to 46.8 in October. The current drop follows a steep 5.1-point decline in September.

After eight consecutive months in the positive territory, the index entered the negative territory in September.

Confidence in October is 21.7% below its pre-pandemic level of 59.8 in February 2020.

Of the 21 demographic groups surveyed only 8 were optimistic. I was unable to uncover the breakdowns by group.

I suspect that the reason for the lack of optimism is largely inflation.

This brief post is a distillation of my reaction to a half dozen posts and articles I’ve read today. The problem of Portland, Seattle, and Chicago is not the damage that has been done to those cities’ “brands” or, more precisely, it is not just the damage that has been done to those brands. That is far too post-modern a view of events. The problem is the at best ineffectual responses of government in those cities and others in response to the events of the last 18 months and the run-on economic effects of those responses. So, for example, Amazon started moving its workers out of Seattle long before COVID-19 or the reactions to the death of George Floyd due to the hostile business and living environment that the city was creating. If they can’t get the people they want to work for them to move to Seattle, that is a genuine concern and cost for the company. And it’s more than just a branding problem.