More on the causation of the growing inequality

As I continue to contemplate the increase in inequality that has occurred over the last twenty five years (which everyone has been blogging about lately) I have become increasingly certain that the process is driven primarily by the increase in power of CEOs relative to shareholders. This has the dual effects of skewing the wage income distribution as well as possibly causing a flight of capital from equities to debt (which also seems present in the eighties and nineties in the top fractions of a percentile in table A7 on page 80) in order to finance these enterprises that eliminate the principal-agent problem by not having shareholders.

It may be entirely possible that CEO power was influenced by the lowered marginal rates, but I suspect some more direct method was at work. Possibly some sort of change in regulation over corporate boards enacted by Nixon or Reagan. No matter what cause has allowed corporate executives to take advantage of the shareholders, this certainly represents a disturbing breakdown in our business institutions.

Growing income inequalitiy

What could be happening is that the WWII order was dismantled by Reagan and Thatcher in both the US and UK. By WWII order, I mean the tangle of regulation and large corporate entities that emerged out of the necessity of WWII, to have a concrete example, take AT&T. This deregulation created a fragmentation of firms that previously was impossible due to the necessity of size. Large size was necessary in order to bargain with government and influence regulation (the era of the man in the gray flannel suit). This fragmentation allows successes to be concentrated on smaller groups of individuals, whereas in a large corporate entity they would be reinvested diffused through the wage structure and dividends.

To summarize table A7 (pg. 81), we see the inexorable consumption of the small and medium business by the large corporate entity illustrated in the decline of entrepreneurial income and corresponding increase in wage income in lower percentiles from the fifties to the early eighties (these are still all in the top ten percentiles, so we are taking about shop owners or corporate franchise managers). In the very top percentiles we see the effects of the transfer of power away from corporate boards to corporate executives in the decline of dividend income and increase in wage income over a similar time period. However, by the late eighties there was some force that allowed a resurgence of entrepreneurial income that eventually reverses the trend towards corporatization in lower percentiles and produced an explosion of entrepreneurial income for the highest income earners (raising the level of entrepreneurial income for the top ten-thousandth to levels not seen since WWII).

Of course, it could also be that we reached some sort of technological slip point, where the stagnation that developed under corporate group think finally gave way to a spurt of pent up innovation, bursting through the relief valve of entrepreneurship. But that fails to explain the absence of similar trends in some European countries.

The gheyest shit I have ever heard

Before I get to the gheyest shit I have ever heard, a few words on gheyness:

There was a time when scientist would use the ridiculous scale to measure the quantity of absurdity inherent in a given person, object, or event, however with the advent of Television there were ever increasing number of phenomena that did not fall within the commonly observed spectrum on the ridiculousness scale. After the election of Ronald Reagan, a gradual momentum built among the leading journals calling for the adoption of a super-ridiculous scale of absurdity. Though the tale is apocryphal, it is believed by some that the “gheyness” scale of absurdity was adopted in response to the Reagan administration’s response to the AIDS crisis.

The necessity of the gheyness scale is due to the lack of adequacy of the ridiculous scale to describe the quantity of absurdity produced by systems as complex as intelligent beings, let alone collections of intelligent beings. For centuries a scientist would see something like a horse trying to mount a cow and say to his companions something like “That’s ridiculous!” and it would suffice. However, after the advent of mass media it was only a matter of time before we would quickly outpace the ridiculous scale.

The gayness scale measures the degree to which a designed thing defeats the purpose for which it was designed. The more mundane the nature of the screw-up, the higher the quantity of absurdity due to the seeming ease of the task the system is mishandling. To give a sense of scale here are some things with their associated quantity of absurdity on the gheyness scale.

getting pulled over for speeding 20 miles over	not so ridiculous
a cat driving an automobile	pretty ridiculous
your car doesn’t start	fucking ridiculous
your car doesn’t start right after driving back from the mechanic	gay
getting pulled over for driving 5 miles over	pretty gay
getting pulled over for driving 1 mile over	pretty fucking gay
getting pulled over for being black	ghey
getting arrested for being black	pretty fucking ghey
Reagan AIDS policy	pretty fucking ghey
Clinton impeachment	The gheyest shit I have ever heard
Bush v. Gore	The gheyest shit I have ever heard

Few objects, entities and events achieve a state of near perfect gheyness, in a similar way to absolute zero, there can be more then one thing that can be said to be “The gheyest shit I’ve ever heard,” within measurement error.

With that said:

The misfortunate three Arabs in Michigan I wrote about a few days ago are no longer accused of plotting to blow up the Mackinaw bridge. They are now accused of buying up discount cell phones in bulk and erasing the proprietary software then reselling them. The crux of the case is whether they are allowed to call the phones Nokia phones after the deletion of the software (which tries to sell you on a prepaid cell service from a third party, Tracfone).

That is the gheyest shit I’ve ever heard.

Outrage

Three Arab Americans are arrested for buying cellphones at Walmart and I have to find out about it through the MSM? Shame on you blogosphere!

This is an outrageous illustration of how our security-state is hampering individualistic entrepreneurial initiative.

In Favor of Urban Minimum Wages

In this post Becker is complaining about a minimum wage law in Chicago that would be targeted at “Big Box” retailers. He uses the same basic general arguments used by all conservatives against minimum wage laws: it will simply encourage some inefficient substitution towards capital or labor outside the jurisdiction of the wage law and push up prices. He adds his Beckerian political twist by arguing this is insane for the poor citizens of Chicago to do because it will force the stores to the suburbs or encourage substitution of capital and higher skilled workers.

I don’t think either case is that plausible. How precisely could someone substitute more capital in a retail store? Robot stock boys and automated floor sweepers?

There is a location premium that comes from being in an urban center, especially one like Chicago. I would imagine that any difference between store profitability in the city and out in a suburb are accounted for in rental prices.

So what does this boil down to? Minimum wage laws of any kind in a dense urban area allow labor to capture more of the location premium at the expense of land owners. It creates an automatically higher cost for labor in these areas which depresses the amount businesses will be willing to pay in rent. This lowers rental prices for tenants and exerts upward pressure on wages.

I think this is especially applicable to urban areas, however I am too lazy to think about its broader applicability right now.