Does the Democrats' victory in the 2006 congressional elections herald a coming era of populism? Perhaps. Consider Senator-elect Jim Webb's recent Wall Street Journal op-ed, "Class Struggle," begins by echoing John Edwards' "two nations" theme:
"America's top tier has grown infinitely richer and more removed over the past 25 years. It is not unfair to say that they are literally living in a different country. Few among them send their children to public schools...
"In the age of globalization and outsourcing, and with a vast underground labor pool from illegal immigration, the average American worker is seeing a different life and a troubling future. Trickle-down economics didn't happen. Despite the vaunted all-time highs of the stock market, wages and salaries are at all-time lows as a percentage of the national wealth...
"Manufacturing jobs are disappearing. Many earned pension programs have collapsed in the wake of corporate 'reorganization.'..."
Some objections must be made here. Manufacturing jobs may be disappearing, but this is not causing a rise in unemployment which, at 4.4%, is near its all-time low. American workers are moving from manufacturing to services, partly because of outsourcing, partly because of rising productivity in manufacturing, which allows manufacturers to make more goods with fewer workers. But fortunately, these workers are not being left without jobs. Thirty years ago, when the manufacturing sector was relatively larger, there was much more unemployment than today.
Also, wages are rising. Employee compensation has climbed over 5.3% in the past year. If "wages and salaries are at all-time lows as a percentage of the national wealth," this is not because the numerator has fallen, but because the denominator has increased.
But Webb is right that US inequality has been increasing. In fact, according to statistics published by the US Census Bureau, it has been increasing for forty years.* It's important that we know the answer to the following question: why is inequality rising in the US?
The Restaurant Economy and the Ipod Economy
The best explanation is what economist Sherwin Rosen in 1981 called the economics of superstars. But a new metaphor may help bring the argument up to date. The economy is shifting from being like a restaurant to being like an Ipod.
What does a restaurant have to do with an Ipod? Both are means of production. Both are little factories for supplying a timeless human pleasure: cooked food, and musical entertainment, respectively.
At lunchtime I sometimes go to one of the restaurants near where I work. Ordering lunch in a restaurant hasn't changed much since, say, the 1960s. The food varies in quality, reflecting the chefs' skills. Prices vary with the quality of the food, but not that much: the cheapest lunch in the neighborhood costs $3-$5; the priciest (out of my range) cost $30-$50. Presumably chefs' wages vary with the revenues they bring in. Most nearby restaurants have had some business from me.
Most mornings while commuting to work, I listen to my Ipod. Ipods are cutting-edge technology, infinitely superior to the LP records that my parents listened to in the 1960s. In a device half the size of my palm, there is almost 50 days' worth of the best music ever made. I divide my listening time very unequally between the thousands of songs that I have at my fingertips. Many I haven't listened to, even once, while others I've listened to 100 times or more. Hardly any of the songs in my Ipod are by local artists.
And lots of pretty good musicians will never get into my Ipod at all. I would happily eat food cooked by a second-tier or third-tier chef. But there's no reason for me to listen to a second-tier singer, because I can afford the best. The Billy Joels and Bruce Springsteens of gourmet cookery will always be out of my price range, but the Billy Joel and Bruce Springsteen of rock-n-roll are accessible to any teenager earning minimum wage.
And this has implications for the pay structure of the respective professions. The best chefs earn $100K - $150K, less than 10 times more than a minimum-wage McDonald's worker. Meanwhile, Paul McCartney's net worth is $1.5 billion, in a profession that is home to thousands of the proverbial "starving artists."
Why the difference? It's because of the costs of reproduction. There is no way to cheaply mass-produce the art of a master chef. As a result, one of his meals is only worth as much as one affluent customer is willing to pay for it. And since the master chefs can only satisfy a tiny share of total demand, there's plenty of room for chefs of lesser talents. But since Billy Joel's music can be reproduced ad infinitum at almost zero cost, he gets his royalties from thousands or millions of listeners, and makes a fortune. And since a handful of rock stars can make enough music for everyone, lesser musicians—even some of considerable talent—are left out in the cold. And even for the rock-n-roll greats, success is precarious. As Billy Joel sings in his 1974 song "The Entertainer":
"But if I go cold I won't get sold
I'll get put in the back in the discount rack
Like another can of beans."
Computers and the internet, by reducing the costs of reproducing information, are making our economy less like the restaurant and more like the Ipod. In the Ipod economy, money buys more, but rewards for work seem crazily out of proportion.
How Economic Revolutions Change the Nature of Work
In his Journal essay, Webb champions "American workers" against "the elite." In doing so, Webb commits a revealing false dichotomy. The distinction is nonsense, because the ultimate working class in America today IS the elite. A recent study finds that "between 1979 and 2002, the frequency of long work hours increased by 14.4 percentage points among the top quintile of wage earners, but fell by 6.7 percentage points in the lowest quintile." That is, the rich work more; the poor work less.
But Webb is using the "worker" in the special, Marxist sense of the term. During the Industrial Revolution, factory workers had trouble understanding why managers, merchants and entrepreneurs, and financiers ("the bourgeoisie") got more money, when they didn't—so it seemed to them—do much work. It seemed this way because the nature of the bourgeoisie's work was so different from that of the industrial proletariat. The "working classes" are those who work in a normal, easily recognizable way, rather than applying mysterious specialized skills.
Think of all work as occurring on two metaphysical planes: physical space and Design space. (The term "Design Space" is the philosopher Daniel Dennett's.) To plant a garden, you must dig holes and pull weeds—physical work—but also plan how to align the furrows and decide what crops to plant—Design work. To cook a meal, you have to dice onions and cut potatoes—physical work—but also decide the ratios of the ingredients, and judge how long to leave the pot on the stove—Design work. Physical work is the work of the hands. Design work is the work of the mind.
As civilization advances, muscle power tends to be replaced by machine power. At the same time, mankind acquires increasing power to reproduce Design. This tends to make the best Design work more and more valuable, while rendering the second-best Design work worthless. People need to adapt to both of these changes.
Sometimes economic change turns people from Design workers into mere physical workers. For example, in the Industrial Revolution, many rural peasants became factory workers. Rural agriculture and husbandry require forethought and skill, which was passed down from generation to generation. Factory work was more mechanical and required less thought. As their own Design work was lost, new kinds of Design work were pioneered by industrial inventors, entrepreneurs, managers, and distributors, which workers—"workers"—didn't understand.
There was (then as now) a trickle-down effect: industrial progress raised workers' living standards even as it made the fortunes of the tycoons. But "workers" felt a double insult: their own work had been dumbed down, while the mysterious prosperity of the bourgeoisie gave them a feeling a relative poverty. This seemed "unfair." They were working, they were playing by the rules they knew. They deserved, they thought, an equal share of the rewards.
The American middle class today enjoys far higher living standards than the factory workers of the early Industrial Revolution. They also understand that merely working is not enough to earn an average living. One must get educated, go to college, acquire professional skills. But now the Information Revolution is changing the nature of work again. As economists Lawrence Katz, David Autor, and Melissa Kearney wrote last January:
"[The] 'polarization' of the U.S. labor market, with employment polarizing into high-wage and low-wage jobs at the expense of middle-wage work [can be explained by] a model of computerization in which computers most strongly complement the non-routine (abstract) cognitive tasks of high-wage jobs, directly substitute for the routine tasks found in many traditional middle-wage jobs, and may have little direct impact on non-routine manual tasks in relatively low-wage jobs." (my emphasis)
If "the non-routine (abstract) cognitive tasks of high-wage jobs" sounds cryptic, it is. "Abstract" work occurs at the frontiers of knowledge, of Design Space, and it is inherently difficult to understand. This is part of the reason that it is so well-paid; few people are able to do it. Though college educations are as useful as ever, a college degree is not enough. The secrets of cutting-edge value-creation in the Information Age have not yet been standardized into skills that can be taught in any school.
The Populist Temptation
Webb warns us of "a steady drift toward a class-based system, the likes of which we have not seen since the 19th century." But is it a bad thing for our times to resemble the 19th century? The century between Waterloo and World War I (1815-1914) was a golden age of peace and progress. It was the age of the railroad and the steamship and the telegraph and the photograph. It witnessed the advent of universal manhood suffrage and major advances in the rights of women. Modern Italy and Germany were born. The 19th century was an era of steady advance in every field of human endeavor, from food production to finance to physics to free trade, from music to medicine to metallurgy, from literature to longevity, from biology to biography, from social science to sewer systems.
The story of how all that ended is sad and strange. It ended, of course, with "the guns of August" in 1914, but the seeds of its end were planted long before: a rising tide of protectionism which exacerbated national rivalries; the rise of nationalism and socialism; a vague discontentment among the intelligentsia, which longed to overthrow the old order in favor of they-didn't-really-know-what; frustrated envy and impotent confusion on the part of the still-relatively-poor as they witnessed the prosperity of the unprecedentedly-rich. The wave of progress had a populist undertow.
Nathan Smith is a writer living in Washington, D.C.
* It's worth noting that while US income inequality has been increasing of late, world income inequality has been decreasing, and for some of the same reasons, such as outsourcing, trade, and globalization. When labor-intensive industries relocate to poor countries, they help those countries to get a foothold on the ladder of development. Thanks in large part to globalization, a golden age of growth is now underway in the developing world, which is the best hope of ending the heart-breaking extreme poverty in which hundreds of millions are trapped. When "populists" like John Edwards and James Webb try to put the brakes on this process, they have their moral priorities very, very wrong.