Inequality in the US

Here’s a fascinating quote from Martin Ford’s Rise of the Robots:

“Surveys have shown that most Americans vastly underestimate the existing extent of inequality, and when asked to select an “ideal” national distribution of income, they make a choice that, in the real world, exists only in Scandinavian social democracies.”

The amazing thing is that most people simply don’t realize just how bad things are. Human beings have a tendency to compare their life quality with that of their neighbors and relatives, not with the millionaires and billionaires.

Surveys show that Americans generally believe that the top 20% of wealthy Americans possess just 59 percent of wealth [source]. Or that the bottom 40% possess 9 percent of wealth. This is nowhere near the truth (actually, the top 20% possess 84 percent of wealth, and the bottom 40% possess only 0.3 percent of wealth)[source].

Here’s How Bad Things Actually Are:

  • Between the years 1983 – 2009, Americans became more wealthy as a whole. But the bottom 80 percent of income earners saw a net decrease in their wealth. At the same time, the top 1 percent of income earners got more than 40 percent of the nation’s wealth increase.[source].
  • Overall, the earnings of the top 1 percent rose by 278 percent between 1979 and 2007. At the same time, the earnings of the median people (that’s probably you and me) only increased by 35 percent [source – The Second Machine Age].
  • Inequality (as measured by the CIA according to the GINI index) in the US is far more extreme than it is in places like Egypt, Croatia, Vietnam or Greece [source].
  • Between the years 2009 – 2012, 95 percent of total income gains went to the wealthiest 1 percent [source].
  • Economic mobility in the US – i.e. whether people can rise (or sink) from one economic class to another, is significantly lower in comparison to many European countries. If you were born to a family in the bottom 20% of income, you have a 42 percent chance of staying in that income level as an adult. Compare that to Denmark (25 percent chance) or even Britain (30 percent chance) [source]. That means that the American dream of achieving success through hard work is much more practical if you’re living in a Nordic country or even in the freaking monarchy of the United Kingdom.
  • Inequality also has implications for your life expectancy. Geographic inequality in life expectancy has increased between 1980 and 2014. Some counties in the US have a life expectancy lower by 20 years than the highest counties. Yes, you read that right. The average person in eastern Kentucky and southwestern West Virginia basically has twenty years less than a person in, say, central Colorado. And the disparity between the US counties shows no sign of stopping anytime soon [source].

What It All Means

Reading these statistics, you may say that inequality is just a symptom of the times and of technological progress, and there’s definitely some evidence for that.

You may highlight the fact that the ‘water rises for everyone’, and indeed – that’s true as well. Some may rise more rapidly than others, but in general over the last one hundred years, the average American’s life quality has risen.

You may even say that some billionaires, like Bill Gates and Mark Zuckerberg, are giving back their wealth to society. The data shows that the incredibly wealthy donate around 10% of their net worth over their lifetime. And again, that’s correct (and incredibly admirable).

The only problem is, all of these explanations doesn’t matter in the end. Because inequality still exists, and it has some unfortunate side effects: people may not realize exactly how bad it is, but they still feel it’s pretty bad. They realize that the rich keep on getting richer. They understand that the rich and wealthy have a large influence on the US congress and senate [source].

In short, they understand that the system is skewed, and not in their favor.

And so, they demand change. Any kind of change – just something that will shake the system upside down, and make the wealthy elites rethink everything they know. Populist politicians (and occasionally ones who really do want to make a difference) then use these yearnings to get elected.

Indeed, when you check out the candidate quality that mattered the most to voters in the 2016 US elections, you can see that the ability to bring about change is more important by far than other traits like “good judgement”, “experience” or even “cares about me”. And there you have it: from rampant inequality to the Trump regime.

Now, things may not be as bleak as they seem. Maybe Trump will work towards minimizing inequality. But even if he won’t (or can’t), I would like to think that the politicial system in the US has learned its lesson, and that the Democratic Party realized that in the next elections cycle they need to put inequality on their agenda, and find ways to fight it.

Do you think I’m hoping for too much?

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Cover image from the Economist
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Things I’ve Learned as ISIS’ Chief Technology Officer; Or – Why ISIS Loves Trump

A few months ago I received a tempting offer: to become ISIS’ chief technology officer.

How could I refuse?

Before you pick up the phone and call the police, you should know that it was ‘just’ a wargame, initiated and operated by the strategical consulting firm Wikistrat. Many experts on ISIS and the Middle East in general have taken part in the wargame, and have taken roles in some of the sides that are waging war right now on Syrian soil – from Syrian president Bashar al-Assad, to the Western-backed rebels and even ISIS.

This kind of wargames is pretty common in security organizations, in order to understand what the enemy thinks like. As Harper Lee wrote, “You never really understand a man… until you climb into his skin and walk around in it.”

And so, to understand ISIS, I climbed into its skin, and started thinking aloud and discussing with my ISIS teammates what we could do to really overwhelm our enemies.

But who are those enemies?

In one word, everyone.

This is not an overestimate. Abu Bakr al-Baghdadi, the leader of ISIS and its self-proclaimed caliph, has warned Muslims in 2015 that the organization’s war is – “the Muslims’ war altogether. It is the war of every Muslim in every place, and the Islamic State is merely the spearhead in this war.”

Other spiritual authorities who help explain ISIS’ policies to foreigners and potential converts, agree with Baghdadi. The influential Muslim preacher Abu Baraa, has similarly stated that “the world is divided into two camps. Make sure you are on the side of the Muslims. You shouldn’t be on the side of the infidels, nor should you be on the fence, neutral…”

This approach is, of course, quite comfortable for ISIS, since the organization needs to draw as many Muslims as possible to its camp. And so, thinking as ISIS, we realized that we must find a way to turn this seemingly-small conflict of ours into a full-blown religious war: Muslims against everyone else.

Unfortunately, it seems most Muslims around the world do not agree with those ideas.

How could we convince them into accepting the truth of the global religious war?

It was obvious that we needed to create a fracture between the Muslim and Christian world, but world leaders weren’t playing to our tune. The last American president, Barack Obama, fiercely refused to blame Islam for terror attacks, emphasizing that “We are not at war with Islam.”

French president Francois Hollande was even worse for our cause: after an entire summer of terror attacks in France, he still refused to blame Islam. Instead, he instituted a new Foundation for Islam in France, to improve relations with the nation’s Muslim community.

The situation was clearly dire. We needed reinforcements in fighters from Western countries. We needed Muslims to join us, or at the very least rebel against their Western governments, but very few were joining us from Europe. Reports put the number of European Muslims joining ISIS at barely 4,000, out of 19 million Muslims living in Europe. That means just 0.02% of the Muslim population actually cared enough about ISIS to join us!

Things were even worse in the USA, in which, according to the Pew Research Center, Muslims were generally content with their lives. They were just as likely as other Americans to have earned college degrees and attended graduate schools, and to report household incomes of $100,000 or more. Nearly two thirds of Muslims stated that they “do not see a conflict between being a devout Muslim and living in a modern society”. Not much chance to incite a holy war there.

So we agreed on trying the usual things: planning terror attacks, making as much noise as we possibly could, keep on the fight in the Middle East and recruiting Muslims on social media. But we realized that things really needed to change if radical Islam were to have any chance at all. We needed a new kind of world leader: one who would play by our ideas of a global conflict; one who would close borders for Muslims, and make Muslim immigrants feel unwanted in their countries; one who would turn a deaf ear to the plea of refugees, simply because they came from Muslim countries.

After a single week in ISIS, it was clear that the organization desperately need a world leader who thinks and acts like that.

Do you happen to know someone who might fit that bill?

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Brexit: The Revenge of the Working Class

In the last few days we’ve been hearing all kinds of allegations about the Brexit voters. They’ve been accused of racism, of narrow mindedness, and stupidity in general. We’ve been assured that the Brexit voters are the radical right-wing nationalists. But now come the results of the surveys and demonstrate that the reasons behind Brexit are more complex. It turns out that the main force that turned the tables came from the working-class voters.

In other words, the decision was made by the people who are most frustrated about the new economy and their perceived and very real inability to influence it.

A few months ago I wrote in this blog that the UK is turning into a plutonomy: a nation in which the wealthy and the prosperous are driving the economy, while everybody else tags along. The term plutonomy first appeared in a memo sent by the global bank Citigroup to its wealthiest clients. As the writers of the memo report –

“There is no such thing as “The U.S. Consumer” or “UK Consumer”, but rich and poor consumers in these countries… The rich are getting richer; they dominate spending. Their trend of getting richer looks unlikely to end anytime soon.”

The data reveals that this analysis has much merit. As The Equality Trust reports, the top 10% of earners in the UK have an income over 27 times larger than that of the poorest 10%.

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Income distribution in the UK. Source: The Equality Trust

It also turns out that in terms of income distribution, the UK is one of the most unequal developed countries in the world.

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Income inequality in different countries in the developed world. Source: The Equality Trust

Of course the rich and the wealthy – residing mainly in London and in the South East – are largely satisfied with current affairs. In the 2014 State of the Nation poll inquiring about the level of trust citizens place in the UK political parties in general, those two regions were the most trusting of all. In the meantime, citizens from all other parts of the country gave devastatingly low grades (an average of 3.54 out of 10) to indicate their lack of trust in UK political parties.

Unsurprisingly, the wealthiest regions had the lowest percentage of Brexit voters.

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Percentage of Brexit voters by region. Source: BBC

 

The evidence, when taken together, means that the working class is dissatisfied and frustrated. The average worker in the UK knows he or she has no real power, and is feeling increasingly alienated from the political, economic and cultural elites in London. As Peter Mandler recently wrote –

“…the rest of the country has felt more and more excluded, not only from participation in the creativity and prosperity of London, but more crucially from power.”

So what happens when those citizens of a plutonomy, who realize they have no real power, are suddenly given the option to influence events? They eagerly grab at the rope they’ve been given, and yank on it – and damn the consequences. This is the real story behind Brexit: that of people who’ve been deprived of power for the last decade or two, suddenly being given the chance to make themselves heard. And they certainly did.

This analysis has implications for the future of other countries as well. The United Kingdom is not the most unequal nation in terms of income distribution. There are five other countries in the developed world with worse inequality: Mexico, Israel, Spain, Greece and the United States of America. These are all countries in which large parts of the electorate feel neglected and removed from power in the day-to-day happenings. But once every four years in America, the public gets the chance to choose who’ll sit in the White House – and Donald Trump campaign’s success shows just how much the public wants change and distrusts the current state of affairs.

 

Conclusions

Brexit is a demonstration of how the inherent tensions in plutonomies can explode, since the rich and wealthy may control the economy, but the current political system still gives some power to the public. This means that the rich still can’t allow themselves to ignore the general public, or the public will come back to bite them when they least expect it.

Right now, the general consensus among the wealthy and the celebrities of the UK is that the public is dumb. It’s not. It’s just frustrated and wants to make a point. If the people on top want to avoid such disastrous decision making in the future, they should stop blaming the public, and instead find ways to change the political environment so that the public will gain more power in the daily affairs of nations. Any other course of action would lead to tensions building up again and being released explosively at the next Spainexit, Greecexit, or – who knows – maybe even Trumpexit.