Category: Law and Inequality

Global Inequality: Legitimation Crisis?

Fractal inequality continues apace: the Wall St. Journal reports that the global wealth gap is getting bigger:

According to a study to be released tomorrow by Boston Consulting Group, the world’s wealth grew by 7.5% in 2006, reaching $97.9 trillion. The study also showed that the wealth gap between the haves and the have-nots continued to widen over the past five years, with much of the global wealth gains going to the wealthy.

Pope Benedict XVI offers wisdom on the topic:

Capitalism should not be considered the only valid model of economic organization. . . . The emergencies of famine and the environment demonstrate with growing clarity that the logic of profit, if predominant, increases the disproportion between the rich and the poor and leads to a ruinous exploitation of the planet. . . . When the logic of sharing and solidarity prevails, it is possible to correct our route and point it toward fair and sustainable development.

Of course, people like Gary Becker might view such sentiments as merely the product of “simple jealousy and envy,” and intellectuals’ “remove[] from the real world.” Views like Becker’s are enormously powerful, but perhaps someday he will recognize that the legitimacy of globalization depends on its fulfilling basic human needs–and not some abstract measure of wealth maximization:

While the supporters of an exclusively private-sector driven globalization may resent the idea of vesting tax-raising authority for the first time in history into a global agency, they cannot fail to notice that the very process they support undercuts, in an ironic twist, their own position. It does so by rendering the gap in wealth more obvious, and the fairness of the existing global distribution, more questionable. They will ultimately realize that their self-interest lies in supporting some form of global action to deal with both poverty…and inequality.

(From Branko Milanovic, Global Income Inequality: What it Is and Why it Matters.)

Is Flatter Freer?

Bill Henderson’s excellent posts on the bimodal distribution of lawyer salaries have sparked a lot of commentary in the blogosphere. But the stratification of lawyers’ salaries shouldn’t be surprising–inequality pervades the economy. As Robert Frank and Philip Cook observed in The Winner Take All Society (in 1995), professionals like lawyers, doctors, and dentists need clients–and those most adept at serving the interests of the 1% or so in control of over 40% of the nation’s financial wealth are going to prosper. The bimodal distribution of dentist incomes was observed even by the mid-1990s.

How does rising inequality affect career choices? I found this excerpt from Daniel Brooks’s book The Trap pretty compelling:

In 1970, when starting teachers in New York City made just $2,000 less than starting Wall Street lawyers, people who wanted to teach taught. Today, when starting teachers make $100,000 less than starting corporate lawyers and have been priced out of the region’s homeownership market, the considerations are very different. It may be counterintuitive, but talented young people actually have less control over their lives in a society in which they can get rich quick because, in such a society, the consequences of not getting rich quick become much more serious. When a middle-class income no longer buys a middle-class life, things that rarely or never make one rich become harder and harder to pursue. When it comes to the distribution of wealth, you’re freer when it’s flatter.

The mainstream media don’t like to talk about such counterintuitive ideas. But Brooks’s observations ring true with many. In today’s society, your class can determine whether your kids end up in a decent school, whether you have health insurance, even whether you can maintain friendships:

If, as Samuel Butler said, friendships are like money, easier made than kept, economic differences can add yet another obstacle to maintaining them. More friends and acquaintances are now finding themselves at different points on the financial spectrum, scholars and sociologists say. . . . As people with various-sized bank accounts brush up against each other, there is ample cause for social awkwardness, which can strain relationships, sometimes to a breaking point. Many find themselves wrestling with complicated feelings about money and self-worth and improvising coping strategies.

Brooks thinks those coping strategies are hard to come by; he asserts that in a “nation of self-financed higher education, tenuous health-care coverage, and out-of-control housing costs, Adam Smith’s ‘invisible hand’ has hardened into an invisible fist.” Provocative thoughts. I guess there might be some objective harms from inequality.

Authenticity Arms Race

I’ve been concerned about America’s burgeoning culture of cosmetic surgery, and bloggers across the ideological spectrum have commented on the issue (see, e.g., here and here). Meanwhile, the great American forces of libertarianism and self-assertion are steamrollering ahead:

Not only have cosmetic procedures become more acceptable, but they’re being promoted in less sensationalized ways to whole new markets. Increasingly, reality TV’s Cinderella tale of surgical transformation is being replaced with a smart woman’s narrative of enlightened self-maintenance. . . . [M]edia sources now compliment potential customers as mature women who are “smart,” “talented” and “wise.” Such women are supposedly savvy enough to appreciate their own wisdom — but, then again, they should want to soften the telltale marks of how many years it took them to acquire it. “I am not using these injectables to look 25,” Madsen insists. “I don’t want to be 25. I just want to look like me.”

Carl Elliott’s book Better than Well documents a range of people who believe that their “true selves” are most truly expressed in some change of appearance–usually for the younger, slimmer, and stronger (which may be why almost everyone’s avatar on Second Life is so . . . robust).

The aspirations of the people Elliott writes about end up sounding like second-hand dreams (for a mass-produced individuality). Thomas Frank’s Commodify Your Dissent captured the worry well a decade ago:

Consumerism is no longer about “conformity” but about “difference.” Advertising teaches us not in the ways of puritanical self-denial (a bizarre notion on the face of it), but in orgiastic, never-ending self-fulfillment. It counsels not rigid adherence to the tastes of the herd but vigilant and constantly updated individualism.

Thus the latest co-optation of “left” culture by the beauty industry: its “repackaging and reselling the feminist call to empower women into what may be dubbed ‘consumer feminism.'”

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Starvation via Gas Guzzling

The book Hungry Planet compares the average food consumption of families around the world. For example, the Aboubakar family lives on $1.23 per week. It looks like times are getting even tougher for families like these.

The impact of rising food prices on food aid is part of a broader debate about the long-term impact on the world’s poorest people of using food crops to make ethanol and other biofuels, a strategy that rich countries like the United States hope will eventually reduce dependence on Middle Eastern oil.

Some advocates for the poor say rising food prices could benefit poor farmers in developing countries, providing them with markets and decent prices for their crops. But others warn that the growing use of food crops to make fuel, especially if stoked by large subsidies in rich countries, could substantially increase food prices. That could push hundreds of millions more poor people into hunger, especially landless laborers and subsistence farmers, according to a recent article in Foreign Affairs magazine.

Thom Lambert provides good background on the issue. Certainly we should suspect the subsidies that threaten to divert ever more resources from the poor to the rich. But we should also look beyond the mercenary lobbying evident here to a broader range of phenomena afflicting buyers of products with a somewhat inelastic supply when rivals move in with vastly greater buying power.

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The Care/Profit Tradeoff in Nursing Homes

We’re often told that inequality helps keep the US economy efficient. Cut regulation and give high rewards to those at the top, and they’ll work hard to cut costs and compete on quality, providing better and cheaper goods and services for all. Private equity firms like Carlyle Group might be considered the apotheosis of such a market-based approach, taking over companies and forcing them to meet market imperatives.

Here’s a fascinating NYT study of their influence on the nursing home industry, which “compared investor-owned homes against national averages in multiple categories, including complaints received by regulators, health and safety violations cited by regulators, fines levied, [and] the performance of homes as reported in a national database known as the Minimum Data Set Repository.” The findings describe an extraordinary combination of business efficiency and deflection of legal responsibility:

The Times analysis shows that . . . managers at many . . . nursing homes acquired by large private investors have cut expenses and staff, sometimes below minimum legal requirements. Regulators say residents at these homes have suffered. At facilities owned by private investment firms, residents on average have fared more poorly than occupants of other homes in common problems like depression, loss of mobility and loss of ability to dress and bathe themselves, according to data collected by the Centers for Medicare and Medicaid Services. The typical nursing home acquired by a large investment company before 2006 scored worse than national rates in 12 of 14 indicators that regulators use to track ailments of long-term residents.

The law plays an important role in preventing accountability here; “private investment companies have made it very difficult for plaintiffs to succeed in court and for regulators to levy chainwide fines by creating complex corporate structures that obscure who controls their nursing homes.” So perhaps the key “innovation” here was the decision to aggressively reduce care and skillfully deploy legal strategies to prevent any liability for injuries that reduced care caused. It certainly worked well for investors; “A prominent nursing home industry analyst, Steve Monroe, estimates that [one investment group’s] gains from [its sale of a nursing home chain] were more than $500 million in just four years.”

I have to confess that I’ve always wondered what business practices could “create the value” that’s resulted in such extraordinary gains at the top of the income scale. The Times has done us a great service by putting a human face on some of them. . . and on the legal strategies that make them possible.

Questionable Advice On Net Neutrality

The DOJ Antitrust Division’s just-released public comment on net neutrality (available here) has been getting a lot of press. Unfortunately, it appears that the shoddy analysis that Jack Goldsmith saw in the DOJ’s torture memos may also be infecting its approach to net neutrality. I just want to raise three worries apparent on a quick read of the document:

1) Pollyanna Prevails: The DOJ document presumes that a laissez-faire approach has done wonders for US broadband access. But just as visitors from Japan and Europe find our cell phones crippled, so too our internet access is lagging. As the WaPo notes, “In sharp contrast to the Bush administration over the same time period, regulators [in Japan] compelled big phone companies to open up wires to upstart Internet providers”–and saw extraordinary results. But (again, on a quick read), I did not see a single reference in the DOJ document on how other countries handle the policy issues the FCC is facing, except for the Canadian Telus dispute (which it called “irrelevant”).

2) Shunning the Scholars: From a quick text-search of the document’s footnotes, it appears that DOJ fails to reckon with the work of a single one of the following prominent pro-net-neutrality scholars: van Schewick, Economides, Frischmann & Waller, Crawford, or Wu.

van Schewick’s work provides an interesting contrast to many of the citations in the DOJ filing:

Barbara van Schewick [argues that there is a] severe threat of discrimination without network neutrality regulation, and that discrimination will reduce application-level innovation. van Schewick’s work is not funded by any of the special interests involved in this issue — nor is it sponsored by the “independent” think tanks that are funded by the special interests involved in this issue.

Even more surprisingly, the DOJ fails to cite the leading legal academic voice against net neutrality, Christopher Yoo.

3) Errant Economism: Economic analysis has its place, and DOJ does cite several economists who claim that network neutrality rules would “skew investment, delay innovation, and diminish consumer welfare.” Even if I were to cede that very questionable claim, is that the end of the issue? Economic analysis is one tool among many for evaluating the normative desirability of a policy proposal. Would the DOJ think FCC Commissioner Deborah Taylor Tate out of line for being concerned about sex and violence as she helps craft these rules? A narrow focus on economics does not help us achieve what the DOJ itself admits is the clear “public policy objective here. . . .: a thriving and dynamic Internet capable of meeting the demands of consumers for fast and reliable access to a rich variety of content and applications.”

Flying the Stratified Skies

edna.jpgTravel has always served to remind us of the divisions our “classless society” tries so hard to downplay. Sam Walton may have driven an old truck, but you’d be hard-pressed to find most top executives or trust-funders flying in less-than-first-class digs. As the song in Chitty-Chitty Bang-Bang put it,

O the posh posh traveling life, the traveling life for me

Pardon the dust of the upper crust – fetch us a cup of tea

Port out, starboard home, posh with a capital P. . .

Admittedly, for those of us crushed into coach, there was always a happy flipside to the narrative: the profligates up front were paying so much more for their seats, effectively subsidizing the rest of us.

But that subsidy effect has been on the wane in recent years. And now wealthy fliers have found a new way to effectively assure that the rest of us are subsidizing them:

Corporate jets pay a fraction of the taxes and fees that commercial airliners do. The F.A.A. estimates that private planes, which include both corporate jets and weekend fliers, account for 16 percent of the air traffic control system’s overhead but contribute only 3 percent of the fees earmarked to run the system.

***

The Air Transport Association has . . . created a Web-based ad campaign featuring a fictional traveler, Edna, complaining about the fee disparity while the computer screen displays waves of corporate jets filling the skies before and after sporting events like the Kentucky Derby and the Masters golf tournament.

It’s enough to wilt the mint in your julep. As the campy YouTube ad sloganeers, travelers like “wearing big wigs, not subsidizing them!” Edna (pictured above) wonders “Why should the rest of us pay ten times more using the same services?”

Fortunately, the FAA has heard her pain, and is planning on “sharply increasing the fuel tax for private jets and also hitting corporate fliers with extra charges to land at any of the country’s 30 most congested airports.”

The Inequality/Insecurity-Industrial Complex

photo_01.jpgIf you want to see a film where lawyers are unabashedly portrayed as “the heros,” the free-wheeling documentary Manda Bala would be a great choice. Brazilian AG Claudio Fonteles and other attorneys pursue a corrupt politician for years. I won’t spoil the ending, but rather focus on how the film’s other main theme–the kidnapping crisis in Sao Paulo–challenges the idea that lawyers drag down the economy by redistributing (rather than creating) wealth.

Sao Paulo’s population of 20 million is a study in extremes. Millions lack basic infrastructure, but there is more money concentrated there than the rest of Latin America combined. Recalling Lang’s Metropolis, the upper class lives in high-rises and country houses, maintaining a massive fleet of helicopters to avoid the favelas and traffic below. The helicopters aren’t merely a convenience: an epidemic of kidnapping has made driving (even in bulletproof cars) extremely dangerous. The movie draws an uncomfortable parallel between the politicians who siphon off state funds designated for the poor northern provinces, and the kidnappers who demand ransom from wealthy urbanites: “One steals with the pen, the other with the gun.”

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The World as the Text of the Thoughts of a Programmer

robot4.jpgAdam Kolber has posted on a New York Times article by John Tierney that “discusses the possibility that our world was created as a hobby or as an experiment by members of some more technologically advanced civilization.” The piece is based on “a discussion with the-always-insightful Nick Bostrom, Director of the Future of Humanity Institute at Oxford University:”

Dr. Bostrom assumes that technological advances could produce a computer with more processing power than all the brains in the world, and that advanced humans, or “posthumans,” could run “ancestor simulations” of their evolutionary history by creating virtual worlds inhabited by virtual people with fully developed virtual nervous systems.

Tierney estimates “that the odds are better than 20 percent, maybe better than even” that we are living in a simulation, but consoles us that “just because your neural circuits are made of silicon (or whatever posthumans would use in their computers) instead of carbon doesn’t mean your feelings are any less real.”

Query: What exact meaning of “real” is being invoked here–authentic? genuine? important? I think the “real” agenda of people like Bostrom is to get us to understand ourselves as a pattern of thoughts and reactions to the world–a kind of behaviorism that I critique in this post.

The speculation about a “prime designer” reminds me of the intelligent design movement’s effort to fuse science and religion. Tierney’s piece reveals to me a lot more about the human need for the sacred than it gives me a sense of whether we’re all just butterflies dreaming that we’re persons. (The estimated 20% chance is a nice example of quantificationism–wouldn’t our estimate of the chance of being a simulation itself be a a part of the simulation, and thus impossible to verify?).

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Objective Harms from Inequality

stretchlimo.jpgMy last three posts (on doctor rankings, SUV’s, and family-obligation discrimination) all have a common thread. They involve what economist Robert Frank calls “positional arms races”–efforts to attain a ranking or relative position whose value depends on how well others are doing.

Driving around in a small car isn’t so scary if everyone else has a small car–but if you’re in litte sedan and you’re surrounded by Escalades, you’re in trouble if there’s a crash (to put it precisely, at least four times more likely to die than if hit by a small car). Similarly, the workplace can often be a rat race with success judged by hours worked–and not necessarily quality of work, a far more difficult thing to measure. Finally, the doctor rankings are a purely positional good: no matter how good the bottom half gets, as long as the top half is better, it will always be known as the bottom half. Similarly, there are only 20 “Top 20″ law schools on any given ranking system; no matter how good the teaching & research gets among schools generally, there is an absolute limit on top spaces.

The mere fact of a positional arms race says nothing about the desirability of a given state of affairs. A well-designed doctor-ranking system might well lead to pay-for-performance rather than pay-for-procedure. Similarly, most law schools rely on a grading “curve” as a spur to excellence–even if it causes some anxiety.

But Robert Frank identifies a number of “arms races” that have hidden costs–both to those participating in them and those left behind.

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