Why Average Incomes Tell Us Nothing About Real World Inequality

When the experts tell us that average incomes have risen, what does that actually tell us? Not much that’s useful in understanding real world politics and the inequities of economic life. I know that most of us understand averages, now don’t we? What’s there to explain? Well, let’s have a look at average incomes.

Incomes can be looked at using three measures of central tendency: the mean (the average), the median and the mode. For a technical explanation of these terms see: https://statistics.laerd.com/statistical-guides/measures-central-tendency-mean-mode-median.php.

Each of these measures has its advantages and disadvantages.  If we take a population and want to figure out their average height, it’s simple: measure each individual in the population, add the heights of all of them together and divide by the number of individuals measured. It’s unlikely that all people in a population would be of the same stature, and it doesn’t tell us anything about the range of heights. It’s always good to know what the range is otherwise there’s no way of judging just how variable the heights are in a population. Same goes for incomes. Scenario A below is of a fictitious population of income earners that each earns $100 thousand dollars each per year. That makes the total incomes earned by the group $1 million dollars and the average is $100 thousand. If you know where such a world exists, please let me know.

Scenario A  
Income Earner Income $ % of total income
Income earner 1 100,000 10
Income earner 2 100,000 10
Income earner 3 100,000 10
Income earner 4 100,000 10
Income earner 5 100,000 10
Income earner 6 100,000 10
Income earner 7 100,000 10
Income earner 8 100,000 10
Income earner 9 100,000 10
Income earner 10 100,000 10
Total Income 1,000,000 100
Average Income 100,000  

Now, let’s consider Scenario B below. The total income of all ten earners is still $1 million and the average is still $100 thousand. What’s changed? The distribution. In this scenario, the highest income earner brought in $200 thousand while the lowest earner brought in $45 thousand. That’s a significant difference and means that there is substantial income inequality but if a government wanted to obfuscate rather than clarify the issue, it might want to argue that average incomes haven’t changed. What are you worried about?

Scenario B  
Income Earner Income $ % of total income
Income earner 1 200,000 20.00
Income earner 2 150,000 15.00
Income earner 3 130,000 13.00
Income earner 4 100,000 10.00
Income earner 5 95,000 9.50
Income earner 6 85,000 8.50
Income earner 7 75,000 7.50
Income earner 8 65,000 6.50
Income earner 9 55,000 5.50
Income earner 10 45,000 4.50
Total Income 1,000,000 100.00
Average Income 100,000  

Now, consider this third scenario. The total incomes are still $1 million, the average is still $100 thousand. However, in this scenario, the highest income earner is taking in 72.7 of the total income. This scenario pushes income inequality to a much greater degree.

Scenario C  
Income Earner Income $ % of total income
Income earner 1 726,990 72.70
Income earner 2 85,000 8.50
Income earner 3 45,000 4.50
Income earner 4 20,430 2.04
Income earner 5 20,430 2.04
Income earner 6 20,430 2.04
Income earner 7 20,430 2.04
Income earner 8 20,430 2.04
Income earner 9 20,430 2.04
Income earner 10 20,430 2.04
Total Income 1,000,000 100.00
Average Income 100,000  

Now, think of a situation where aggregate incomes rise, but the lowest earners retain their share of earnings at 2.04 percent. Now the government can say: What are you worried about? Your income hasn’t changed at all and the country is getting richer. Silly you. Maybe you should just work a little harder.

Calculating median income isn’t much more helpful. The median income is the point where half the incomes are above and half below. That will tell us if a population distribution is changing in broad terms, but the median income in scenario C is $20,430.00. What does that tell you about the distribution of incomes in this population.

Calculating the modal income is interesting. The modal income is the one that appears most often in a distribution. In scenario C, the modal income is clearly $20,430.00. That’s the income most people make. It still doesn’t shed much light on the inequality in a distribution.

So, we always need more than a measure of central tendency to tell us what’s really going on in the world in terms of income inequality. If the government, or the head of the Bank of Canada for example, tells you that average incomes are rising, know that you’re not being told the whole story.

If you’re not concerned about these things, never mind.

Note: this post was inspired by a section of Robert Sapolsky’s book: Why Zebras don’t get ulcers.

 

Engineers thwarted by business men.

I’ve been rereading Thorstein Veblen. What a character he was. He came from a family of Norwegian immigrants living in Minnesota. He refused to say when he was born but we know he died in California in 1929. He studied at various American universities including Cornell and Yale and settled first at the University of Chicago to teach economics, economic history and related fields in the late 19th century. I’m not writing a biographical note here so if you want more details on the life of this amazingly intelligent but difficult man, just google his name.

The book that secured Veblen’s public notoriety and reputation is The Theory of the Leisure Class. It’s a compendium of commentary on the mores and institutions of the United States in the late 19th and early 20th centuries. It’s available free online. Once you become familiar with his unusual use of language, he makes for a very entertaining and enlightening read. His chapters Pecuniary Emulation, Conspicuous Consumption, Conspicuous Leisure, and Dress as an Expression of the Pecuniary Culture are a classic dissection of the institutions that affect us all daily. He lays bare where our wants, needs, desires, and dreams come from. His conclusion is that they come from our ‘pecuniary’ culture. Pecuniary means relating to or consisting of money. For Veblen, our money culture and it’s predominant ruling class of ‘captains of finance’ determine how we see and act in the world. They are the preeminent institutions of our world.*

Now, and finally addressing the title of this post, Veblen was particularly interested in parsing out the various components of the economic institutions that dominate our lives. In his book The Engineers and the Price System, available as a Kindle book, he argues that business men, particularly investment bankers and financiers in general, not your run-of-the-mill corner store operator, farmer, or forestry contractor, are constantly at odds with the engineers that actually run industry. For Veblen and most economists  business and industry are two separate things. We often conflate them today. In our world business dominates industry but it doesn’t have to be that way and, of course, it wasn’t always that way. In feudal Europe, the manorial lord drove industry, not the incipient mercantile class.

Industry, for Veblen, does not mean only the factory system and machine production, it means all the physical activities in which humans engage to produce what they need and want as well as the knowledge needed to do so. He concludes that in our world business finance curtails industrial production (particularly commodity production) as a means of increasing or maintaining profit levels. This is easily observable, but it seems strange to think this is true for some people.

For Veblen, profit making often requires the curtailment of supply. Producing as much and as fast as possible, efficiently and effectively, is the aim of engineering. This imperative constantly goes against the business need to make profit where curtailment of production can ensure prices remain high. These ideas, of course, are not revolutionary, and they are behind Canada’s supply management policies regarding poultry, eggs, milk, doctors, and lawyers.

For a good example of how engineers are thwarted by financial interests, one just has to look at how urban infrastructures are built and maintained. Let’s take Courtenay for example. It’s a smallish city on the east coast of Vancouver island, typical in every way. It has the requisite shopping malls, hospital, schools, service businesses and residential neighbourhoods. Now, the municipal government is made up of elected officials, management staff and workers. The elected officials represent pecuniary interests although they claim to represent all city residents. The management staff includes civil engineers, urban planners and the like. If decisions about where to build streets, what they would look like, the materials used in their construction, etc., were left to the engineers, the city would look entirely different than it does. The monetary interests constantly impose cost restrictions on the engineers with the result that street design, urban planning and related activities, are a hodgepodge of compromise including irritating merge lanes and intersections, inadequate bridge structures and neglected maintenance that leaves many roads a hazard to drive on. However we think about it, engineers are systematically constrained by the vested interests represented by elected officials. Of course, not all elected officials see themselves as representing the vested financial interests, but if they didn’t follow the policies imposed on them by the provincial government with regard to fiscal ‘responsibility’, they would soon be removed from office. And, of course, there must be some oversight of the work of the engineers. The point Veblen makes is that the oversight is the prerogative of business interests in the name of maximizing profit, and not for creating the greatest good for the greatest number of people, in this case, the residents of Courtenay.

By the way, Veblen is off the mark when it comes to the role of engineers in a potential overthrow of the ‘kept classes’, but he wasn’t beyond speculating on the way the pecuniary culture would come to an end. I have to reread his book Imperial Germany to determine what his views are on globalization, but that’s my next Veblen read. Karl Marx was very conscious of globalization and, for him, the end of the capitalist domination of industry and production was predicated on the advanced globalization of capital accumulation. Veblen wrote extensively about Marx and admired his materialist historical method. He did have reservations about Marx’s work, but that will be for another blog post.

 

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For Veblen institution means a ‘crystallized’ habit of thought or life, crystallized meaning that they are spread throughout society so as to be essentially unquestioned by most people.

Don’t buy into the right/left political divide.

My next blog post will be a follow-up of my last one about what a post-capitalist world would look like. Before I undertake that one, however, I need to get this off my chest.

There’s lately been a move among ‘leftists’ to describe themselves as progressives. That’s all fine and dandy, but the left/right distinction is still in common use. I’ve always thought it stank of conservative righteousness.

We know that right is generally associated with correct. Going back to biblical references there’s the whole right hand of God thing which implies the correct side of God. On the left side of God is nothing good and that’s in fact where we first find Lucifer. It seems that right is always associated with correct and with conservative politics. The left, as we all know, is sinister. The technical term for left-handedness is sinistral. Well, I’m left-handed and that designation, frankly, pisses me off. The left is generally associated with clumsiness, ineptitude and political parties like the social democrats (New Democrats in Canada). I know some of my more conservative friends would think that was just fine, but I think it is a complete distortion of reality and panders to the powers that be.

Moreover, man has long been associated with right and woman with left. Man with the sun, woman with the moon. That should piss women off too.

So, in future blog posts, I will not use a left/right model of political discourse. I suppose they can be useful shorthand terms, but I  think they profoundly prejudice, distort, and colour our thoughts about politics. Enough of that.

 

 

 

The Wealthy Need The Poor

Just a quick note to start off the day. The title says it all. The wealthy need the poor. In fact, it doesn’t matter who ends up poor, it just matters that many people do. I mean, who can know if someone is wealthy if there are no poor people around to compare them to? No, poor people are essential to the wealthy for many reasons. First, they make a great cautionary tale, as in, “see what can happen to you, my child if you don’t put your nose to the grindstone, work hard, aspire to the things that make us rich and believe in free entreprise, because mygawd it’s our way to glory and eternity.” Of course, in the same vein, they are also a great example of how not to live your life. “Those people have made a poor choice in parents. You’ve at least started life not making that mistake!” They are also a great source of cheap labour and can’t save any money so everything they make goes right back into the hands of business. What a great setup.

Actually, it’s  really quite simple. We live in a class society no matter how much we attempt to deny it. Wealth and poverty are a consequence of that, not the cause. So we have rich and poor people as an inevitable consequence of the way our society has evolved. Wealth is a major moral goal so poverty must be a major moral failure. So we merrily blame the poor for their circumstances and for all the ills of the world. We don’t have the good sense to see who and what are really to blame.

Strangely enough, there is no such thing as ‘capitalism’, which is a word that would describe a system of wealth accumulation that can be compared to the evil isms, socialism and communism. Capitalism is an a-historical concept that fails to take history into account. Capital accumulation and the rapid concentration of wealth in finance capital will come to an end. What will come after? I have some sense of that in very broad terms but that’s the subject of another post.

Recent Developments in the Canadian Economy: Fall 2016

This Economic Insights article examines the extent to which the lifetime income of children is correlated with the lifetime income of their fathers—a topic known as intergenerational income mobility. The analysis uses data from Statistics Canada’s Intergenerational Income Database, which links together children and their parents using tax files. The data provides information that permits the comparison of the income of children to those of parents at a similar stage of the lifecycle.

Source: Recent Developments in the Canadian Economy: Fall 2016

This article by staff at StatsCan looks pretty straightforward at first glance. It tells the story of the ‘Canadian economy’ for the year leading up to this fall. However, the real story lies elsewhere. As I’ve noted a hundred times, Canada doesn’t trade, ‘it’ doesn’t produce goods. it doesn’t sell goods. Those activities are carried out by business, largely in the form of large multinational corporations. That’s where you have to look if you really want to figure out what’s going on in the world of ‘economics.’ More on this soon, although a search through my archives will yield a lot of writing on this topic.

 

The power of what we think we know or: Marx was a dumbass, we know that!

The power of what we think we know or: Marx was a dumbass, we know that!

by Roger JG Albert

[I published this post in November of last year on another one of my blogs now defunct. I thought I’d publish it again, because I think it is relevant now.]

I write. I used to teach. I suppose that in some individual cases I may have even convinced a few people to change their minds about the way they perceived the world. Mostly my efforts are and were in vain.

Our dominant ideologies around possessive individualism, the nature of countries and what we value in life are so powerful as to frustrate and flummox the efforts of the most competent of teachers to get people to change their minds about anything. 

I’ve changed my mind a number of times in my life but generally in line with added knowledge gained from reading and researching writers and authors who compelled me to see beyond what I had previously accepted as true. I came to understand fairly early in my career that there is no absolute truth, only tentative truth which must be abandoned when confronted with superior ways of explaining things. 

For the first few years of my career as a sociologist I was a Marxist through and through. That early dedication to Marx’s work was soon tempered in many ways by the works of Harold Innis, Thorstein Veblen, Emile Durkheim, Sigmund Freud, Thomas Szasz, R. D. Laing, Erving Goffman, Ernest Becker, Otto Rank and many others. It’s been a ride. Although I’ve gone beyond Marx in many ways, I still often come back to one of Marx’s aphorisms about history in which he said (and I paraphrase): Human history will begin when we stop being so barbaric towards one another. 

He was an optimist who actually believed that this would come to pass with the eventual eclipse of class society, a time in which there would no longer be any reason to kill and exploit because of the rise of technology and the elimination of labour exploitation. 

 

Faced with the litany of accounts of death and destruction perpetrated by groups of people over the face of the earth going back millenia and it becomes difficult to accept Marx’s promise. I also being an optimist agree for the most part with Marx on this especially given globalization, the concentration of capital, the erosion of national sovereignty and the degradation of the natural world. These aren’t particularly uplifting processes for me, but they all point to a time in the future where capital will do itself in by increasingly attenuating the profit margin. 

Strangely, I write this knowing full well that the vast majority of people who on the off chance might read this will not have read Marx and will have no idea of what I’m writing about here. People are generally quick to dismiss ideas that don’t agree with their preconceived notions about things. That’s certainly true when it comes to Marx’s work. People can easily dismiss Marx (and most other fine writers in history) by thinking they know what Marx (and most other fine writers in history) argued and can therefore cheerfully scrub him (and the others) from their minds. Or they think of themselves as anti this or that, in Marx’s case ‘anti communist’ so that anything that Marx argued just cannot be ok. Mind shut, let no light enter. 

One of Marx’s most important ideas was that the division of society into classes would inevitably be relegated to the dustbin of history and along with it barbarism of all kinds. I like that idea, but ‘inevitably’ in this context will probably still be some time in the future. There’s plenty of time left for ignorant, highly suggestible “cheerful robots” (a term from C. Wright Mills) to commit mass murder or other kinds of atrocities in the name of eliminating the evil that they feel is blocking their prosperity or their road to heaven. 

Probably the most influential writer for me over the last 40 years of my career has been Ernest Becker.  His little book Escape From Evil published in 1975 after his untimely death in 1974 of cancer at the age of 49, has most profoundly influenced my way of thinking and seeing the world. Escape from Evil, in my mind contains all the knowledge one would ever need to explain the bloody massacre in Paris on November 13th or all the other atrocities ever committed by us towards others and vice-versa over the last 10,000 years, or for the time of recorded history, and probably even further back. It’s all there for anyone to read. But people won’t read it and even if they do, they will read it with bias or prejudice and will be able to dismiss it like they dismiss everything else that doesn’t accord with their ideology or interests. And there’s the rub.

It’s people’s interests rather than their ideas that drive their capacity to change their minds. Change the way people live and you just may change the way they think. It doesn’t work very well the other way around. 

Given Marx’s long term view on barbarism and senseless violence we cannot hope for much in the short term. We just have to wait it out. Of course our actions speak louder than our words, so within the bounds of legality, it’s not a bad idea in my mind to oppose talk that can incite some unbalanced people among us to violent action. It’s also a good idea to support peaceful solutions to conflict rather than pull out the guns at the first sign of trouble. Violence can easily invite violence in retaliation. We can resist that. It’s tough when all we want to do is smack people for being so ignorant and senselessly violent, but we can forgive rather than fight, tough as that may be. Turn the other cheek as some historical figure may have said at one point a couple of millenia ago. 

We will be severely challenged in the years to come to keep our heads as globalization increasingly devalues our labour and the concentration of wealth makes for more and more poverty. Sometime, somewhere we will have to say enough is enough and mean it in spite of the forces trying to divide us. We can regain our humanity even though it’s tattered and in shreds at the moment. It’s either that or we won’t have much of a future on this planet.

Don’t get me started on Syrian refugee refuseniks!

For the moment I will allow  that this is a democratic country and people have a right to their opinions no matter how ‘out there’ they might be.

Yes, I understand  that the current federal government was elected with less than a 40% majority and yes, I know that the Conservatives would take a very different approach to the issue of refugees.

Yes, I’ve had a look at what it takes to become a refugee to Canada from Syria and I’m sure that all those women and children are potential ‘terrorists’ but let me tell you that if my neighbourhood was bombed to smithereens like many in Aleppo as shown in this SANA image, I would be looking to get my ass out of there pronto. And if I didn’t get a helping hand to get out of there and resettle instead of rotting in a camp somewhere in Jordan or Turkey, I might just consider a career with ISIS.

Put yourself in the shoes of the average Syrian and you may get a little sympathy for what they’re going through. If you believe that they’re all terrorists, there is nothing for me to say to you.

Yes, the odd miscreant may slip  through the immigration dragnet and come to Canada to later rob a grocery store, but that’s to be expected of any population. We have our own homegrown miscreants of course, quite a few of them, and they’re not all petty crooks and jail fodder. I’m confident the Syrian refugees will not add at all to the quota of miscreants we already have.

Most refugees don’t want to be refugees. They would much rather go back to their homes. But just look at the photo above and tell me what there is  to return to.

So, please stop with the fear-mongering. Stephen Harper is gone and we don’t have to be afraid anymore of Muslims under our beds waiting to slit our throats as soon as we fall asleep or some terrorist suicide bomber blowing herself up in downtown Cumberland. We never did have to be afraid of those things.

Make no mistake, there’s no 100% guarantee of your safety. There never has been and  there never will be. One thing for certain is that women in this country are in more danger in their own homes via domestic violence than they will ever be at the hands of a Syrian refugee.

One thing though, if Syrian president Assad should ever apply for refugee status, we need to deny it. We already have enough assholes here.