Haves And Have-Nots

I often ask my students to predict the social effects of particular new products or technologies. And a common error is that they expect every new thing to increase inequality. Their argument is that any new thing costs money, which rich people can better afford. So the rich must more gain advantage from each new product. A similar argument is given for a new kind of job – those better suited to that kind of job will do that job, and gain an advantage over people with other jobs, increasing the job induced inequality.

An obvious flaw in this argument is that it works way too well – it applies to pretty much anything new. Yet the net effect of all the new things that we’ve ever seen has been at most a modest increase in inequality. Thus the average inequality produced by each new thing must be pretty small. Also, there have been eras when inequality has decreased – but how could that happen if each new innovation increases inequality?

Students are often tempted to imagine an extreme division of society into haves and have-nots, like the Eloi and Morlocks of H.G.Well’s novel The Time Machine. The imagined groups are entirely distinct and separate, with little variation within each group. And of course these groups are in a moral struggle, to the death. This seems an obvious consequences of thinking about the future in a far mental mode – which leans one toward fewer categories with more uniform members, more moralizing, and less moral compromise.

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  • http://www.gwern.net gwern

    Aren’t they right? To quote Gregory Clark from memory, ‘there now walk the earth both the poorest and richest people ever to live’ (since vaccination etc. means the lowest possible subsistence wage is smaller than in the past).

    And in an em future, there would be even largest extremes. (Don’t power laws also imply this? I recall someone noting that power laws have no averages because the tails dominate whatever is being measured and any average will depend on how much of the tail winds up being present.)

    • Poelmo

      That’s because in capitalism you can make money with money you already have, that’s separate from inventions.

    • Daniel

      If a new job is primarily taken by those with lower wages and it moves them more towards the middle, it would decrease inequality.

      I think anyone living at substinance wage is equally poor. The fact that their money wouldn’t go as far to the average person is irrelevant.

    • http://expectedoptimism.blogspot.com/ Scott

      If the subsistence wage is lower now than it used to be, that doesn’t mean we have poorer people now than we use to have. It just means that more of the poor are able to survive. To accept the Gregory Clark quote, you’d have to think that the poor aren’t actually poor as long as they die quickly.

  • David

    I know that this is not a popular view, but I think that the rich have sort received the short end of the stick in the recent boom of consumer electronics. Take the arguably most important personal device of the day, the smartphone. The best among these is the new iPhone, so when you’re very rich, that’s what you buy. But then you realize that dirty bums on the bus also have your precious phone!

    I don’t think this is an isolated case: Brilliant new devices don’t get produced unless there is a mass market for them, which means that the unwashed masses have gear which is just as good as the best gear of the bluebloods. That to me looks like a practical closing of the rich-poor gap through technology. Not all technology has this effect in principle. But it’s interesting how there is no such thing as a phone or computing tablet for elites, in the way there are watches and cars for elites.

    • Jeffrey Soreff

      Another crucial point is that the benefits of many devices
      saturate. There is no point in trying to talk
      into a dozen smartphones at once. There is a limited
      point in using wealth to buy multiple copies of some items
      like this (having spare devices when they break, for instance),
      but the this yields rapidly diminishing returns. If this wasn’t true,
      if buying a dozen widgets was typically a dozen times more
      useful than buying one, then many novel inventions would
      increase inequality.

    • AspiringRationalist

      The poverty level in the United States for a single person (no kids) in 2011 was $10,890. The worldwide average income (depending on your source) is ~$7-8k. While many of America’s “unwashed masses” may have iPhones, I am quite confident that the common people of China and India (not to mention Africa and the poorer parts of Asia and Latin America) do not.

    • Aaron Armitage

      “the rich have sort received the short end of the stick”

      Anytime you find yourself having that thought, please punch yourself as hard as you can right in the nads.

  • Will

    Mass production, it would seem, is the key equalizing technology. The more amenable a good is to mass production, the more equally it is shared.

  • david

    It is not in advances in generic consumer goods per se, but in the technology for producing them, that diminishes inequality. We are used to thinking of technology at the bleeding edge because of the wonder that is the fabricated chip, where the two move at pretty much the same rate, but many consumer goods are not like this.

    What’s your fridge like? Your washing machine? Who in society uses the very latest advances in fridge technology?

    Ask your students what they thought of the invention of the assembly line.

    • Dave

      My new fictitious thousand dollar washing machine washes clothes. The old cheapo Sears brand washed just as well but was less energy efficient and quiet.
      In the past the question was who washed your clothes,your wife or your domestic employee and did they use a washboard or a washing machine.

      Did they or you wife use a polishing machine or get down on their knees to wax the floor? We Americans all live differently than in the past in technological terms.

  • Poelmo

    Inventions don’t increase inequality on their own. It’s only when the rich get away with taking all the profits that inequality goes up. When something can be produced more efficiently everyone wins if the benefits are divded (prices go down for the consumer and the workweek gets shortened if people lose their job because of the increased efficiency), but only the rich win when they manage to keep prices the same (through tricks like establishing brand names or cartels) and isolate those who lost their jobs. It’s really politics that decides what happens.

  • http://davidscrimshaw.blogspot.com David Scrimshaw

    It’s been said that Howard Hughes bought a TV station in Las Vegas so that he could watch cowboy movies all night long in 1968.

    You don’t have to be a billionaire to watch your favorite movies whenever you want these days.

  • Matt Flipago

    The problem with saying that innovation increases inequality, is the assumption that the “haves” have not a already spent all the money they wish. So when a new invention comes out, those who buy it, don’t buy more things, they swap it for an old item they would have bought. This is why more inventions don’t increase inequality.

  • zzk

    I see it the other way, especially in regards to computer tech… Early adopting rich people are essentially duped into buying expensive gadgets that won’t be as good as future models.

    History has shown that everyone will be on the wrong side of Moore’s Law, but probably the rich people who could afford computers in the early 90s did not gain a tech income advantage over the average Joe who owned a far superior computer in the early 2000s (in other words, those differences were not effected by computers, which most people don’t know how to make money off of anyway).

    The same thing with automotive technology.. it is treated as a luxury item until its cheap enough for everyone to own, and therefore no longer an advantage.

  • bellisaurius

    How many inventions actually decrease or increase inequality? I mean, it’s nice to have an iphone or smartphone, but it doesn’t so much give me he opportunity to make more money, as much as it makes life just a little easier.

    I guess the washing machine and microwaves decreased inequality, I mean, it was no longer tremendously hard for her to get a job since the house maintenance stuff was made quicker/easier, eventually, the wife and husband are more equal economically speaking.

    I can think of a couple inventions that make things easier for the middle class than the poor, but not for the rich vs the middle class: the phone (keeping up with clients), the car (I can go further for work), the computer (I can look stuff up/do my paperwork).

    One could argue healthcare benefits the rich most, but I’m not sure the numbers in terms of mortality entirely bear this out.

    • Ken

      I mean, it’s nice to have an iphone or smartphone, but it doesn’t so much give me he opportunity to make more money, as much as it makes life just a little easier.

      This sentence doesn’t make sense to me. How does a smartphone make your life easier and at the same time not afford you the opportunity to make money?

      There are (at least) two ways to “make money”: 1) Increase revenue (or income) or 2) decrease costs. You seem to focus on 1), but ignore 2), or don’t think of 2) as “making money”.

      Smartphones lower your costs, even though in many instances they don’t increase revenues or income. Your life is made easier by having access to information that otherwise cost too much to access or made the same information cheaper, so you consume more of it, or buy less of it. As a result, you are more profitable because your costs have decreased, and you have made more money.

      • bellisaurius

        Good point,ken. The two thoughts lead in the opposite direction I said.

  • Lord

    New inventions increase both inequality and equality. They do the latter through destruction of existing means of inequality and entrenched interests. This results in churn in the economy. There are fewer wealthy so people have less experience of them and once gone unremembered. The wealthy are often in position to seize on innovations but often do not because they undermine their existing income and wealth and doing so is difficult.

    • Lord

      I suspect this is because most people think of the wealthy as having their wealth in dollars in the bank or in a pile of gold rather in capital assets that can deteriorate or depreciate. If they thought of it as business ownership they could think of all sorts of losses and bankruptcies.

  • Mark M

    It’s easy to see new inventions increasing the gap between the rich and poor. The rich have time and money to invest in new inventions, which makes them richer. The not-rich don’t have so much time and money, but still buy gadgets and such, making the rich richer and the poor poorer.

    You can follow this to the end and say society will evolve (devolve?) into the Eloi and Morlocks, but society will eventually reach a critical mass where the poor can’t buy more gadgets, preventing the rich from mjaintaining their wealth. When the rich use their wealth and influence to force the poor into giving up even more, you get revolution of one kind or another: from bloody coups to tax and other legal reforms.

    The rich need a large consumer class and can selfishly do better for themselves in the long run by making sure the consumer class does not devolve into the poor.

  • Evan

    I think the reason people intuitively think of these changes is that their intuitions evolved in a Malthusian environment where there were fixed resources and much less division of labor. Division of labor is what creates wealth, it means people focus on what they’re best at and hence create more wealth than if they had generalized, as per the Law of Comparative Advantage. In a world of generalists, however, technological improvements are more likely to change distribution rather than increase wealth.

    In the modern environment making someone better at producing something, be it with training or by giving them machines, increases the wealth for everyone, because it allows new divisions of labor that increase productivity, generating positive pecuniary externalities. In a Malthusian environment where resources are fixed making someone better at something would result in them being able to take more resources at everyone’s expense, creating negative pecuniary externalities. In a Malthusian environment improving people doesn’t always help everyone by creating wealth, oftentimes it’s more like counterfeiting, where you just change how the wealth is distributed. So in a Malthusian environment you can harm other people by making someone better at doing things. Tribes solved this by developing strong egalitarian intuitions that encouraged people to share their wealth. It’s those intuitions that are causing Robin’s students to react the way they do.

    Because our intuitions evolved in this Malthusian environment we tend to intuitively think that making people more efficient by creating new technologies and jobs is likely to just change distribution of wealth, rather than the total amount of wealth. We think it’s like counterfeiting money, rather than creating new wealth. Economists have to work hard to counter this view and help people understand that, in a non-Malthusian environment, technology and increased division of labor benefit everyone. For this reason they’ve argued that we should adopt the heuristic that pecuniary externalities are never harmful, they are always Pareto efficient.

    I think one of the main flaws in Robin’s thinking when he argues that a future of Malthusian brain emulators would be a good thing is that he is still applying this Dreamtime economist’s heuristic that pecuniary externalities are never harmful, even in an environment where it’s no longer applicable. In the current environment creating a new person generally benefits everyone because it creates new wealth by allowing greater division of labor, allowing us to find and process resources more efficiently. But in a world of Malthusian emulators where people are created faster than scientists and engineers can find resources and faster than entrepeneurs can find new divisions of labor for them, creating a new person isn’t like discovering new resources, it’s like counterfeiting money. It doesn’t create new wealth, it just speads existing wealth out among more people. Counterfeiting hurts everyone except the counterfeiter and their close associates, and creating a new em hurts everyone except the em that was created and its close associates. In fact, you could argue that creating a new em is worse than counterfeiting money, since many people believe creating someone isn’t helping them.

    @Mark

    You can follow this to the end and say society will evolve (devolve?) into the Eloi and Morlocks, but society will eventually reach a critical mass where the poor can’t buy more gadgets, preventing the rich from mjaintaining their wealth…….

    ….The rich need a large consumer class and can selfishly do better for themselves in the long run by making sure the consumer class does not devolve into the poor.

    The rich do not need a consumer class. If the poor have nothing to offer the rich in exchange for their goods the rich can just buy and sell from each other and let the poor starve. The reason this doesn’t happen in real life is that a rich person is still only one person and needs the help of poor people to process their resources. Therefore the poor have something to offer the rich.

    In a world with brain emulators like Robin describes the rich wouldn’t need the poor at all. Instead of having to pay poor people to process their resources they could just make lots of copies of themselves to do so and let the poor starve. If they don’t have all the resources they need they can trade with other rich em clans. The result would be that the world population would shrink from 7 billion people to a few hundred thousand people who each have millions of copies of themselves.

    • Poelmo

      @Evan

      The modern world is not non-malthusian: we are already consuming more resources than this world can handle. We are at a point where we need new technologies not to make life easier but to keep our way of life from imploding.

      On the rich not needing the poor to make stuff for them, that’s a bit of a contradiction. If the rich would make their own stuff themselves they wouldn’t be rich anymore being rich they would demand a very high wage, which would lead to inflation making the rich less rich, this comes on top of them being able to produce less in the first place because the poor classes were always more numerous. If the rich got clones or androids to do the work then those clones or androids would be the new poor. If the rich got non-sentient robots to do the work then the rich wouldn’t be able to hold on to hold their wealth because if the poor got hold of a handful of these robots it would only be a matter of time before the poor would climb up to the level of the rich (they’d have their robots build more robots), making everyone middle class by definition.

      • Wonks Anonymous

        I call a world “Malthusian” when resources limit population growth. Right now the highest population growth is in some of the poorest countries, so I would not characterize the world as Malthusian.

      • Poelmo

        And I’m saying we are already “Malthusian” because the Earth already cannot sustain the current world population with its current level of consumption and technology. If I have a bunch of kids and because of them I have to spend $2000 a month while I only make $1000 a month and I have $10.000 in savings than my family is in a Malthusian state, even though we won’t actually starve for 10 months.

      • Poelmo

        I’m not kidding either: there will be no copper mines left on Earth by the end of this century, to give you an example, meaning copper use would not be able to expand from then on (it would even have to decrease if it’s not recycled 100%), that’s pretty Malthusian, don’t you think? Yet it’s what will happen even if we freeze population growth and consumption today.

  • Orphan

    The presumption in the comments seems to be that the wealthy have more time and more money. This doesn’t bear scrutiny; the wealthy have -less- time, precisely because their time is more valuable. Ten minutes spent away from managing their wealth, directed into learning a new gadget, is almost certainly a net loss. There’s a reason time management is such a critical skill.

    Cheap, available time is the domain of the middle classes, not the upper.

  • Andy

    It’s clear that not every innovation increases inequality. In particular, say wealthy people have an expensive, superior method A of doing something while most of us have to make do with the cheap but mediocre method B. If there is a new innovation that provides a new method, C, of doing this, then there are nine possible cases:

    1. Price: A > B > C, Quality: A > B > C
    This reduces inequality, since some very poor people can now at least afford C, whereas before they had nothing.

    2. Price: A > B > C, Quality: A > C > B
    This reduces inequality, since all the non-rich people now have a better method that puts them closer.

    3. Price: A > B > C, Quality: C > A > B
    This reduces inequality, since now everyone just switches to C.

    4. Price: A > C > B, Quality: A > B > C
    No one will buy C in this case.

    5. Price: A > C > B, Quality: A > C > B
    This is a mixed bag. On the one hand, some people get to move closer to the best way, but now there is more inequality among the non-rich. So call it a draw.

    6. Price: A > C > B, Quality: C > A > B
    This is also mixed. More people are able to use C, reducing inequality, but since C is better than A that increases inequality.

    7. Price: C > A > B, Quality: A > B > C
    No one will buy C in this case.

    8. Price: C > A > B, Quality: A > C > B
    No one will buy C in this case.

    9. Price: C > A > B, Quality: C > A > B
    This increases inequality.

    So most of the configurations either reduce inequality or are mixed. Only the last one is a clear increase. So it seems like most people intuitively assume that #9 is the type of innovation that happens. I don’t know whether that’s actually true, but I suspect more often innovations are of type 2 or 3.

    (Depending on how you define inequality you might get slightly different results for each of the cases, but I tried to stick to intuitive ideas rather than focus on all possible distributions.)

    • Lord

      Some of these are more ambiguous than suggested. In 1, real wages of the non-rich may be allowed to fall until they can only afford C increasing inequality, in 2, some of the rich may decide C is sufficient quality and divert their spending to other goods producing more equality in these but less in others.

  • http://daedalus2u.blogspot.com/ daedalus2u

    You miss what would actually happen when quality C>A>B, price A>B>C. Wealthy guy makes manufacturer of C an “offer he can’t refuse”, no longer sells C, rather rents C out such that now the rental price of C>A>B.

    Wealthy guy gets even more wealthy.

    As an example, why are cell phones more expensive than land lines? Why is “unlimited” data being throttled but per GB data is not? Hint, it is not about the capacity of the network, it is about the capacity of the wallets the service provider is trying to fill.

  • http://meteuphoric.wordpress.com Katja Grace

    “there have been eras when inequality has decreased – but how could that happen if each new innovation increases inequality?”

    There are factors other than innovation that affect inequality?

    • Poelmo

      Yup, the rich can actually lose money when they lose against a pension fund on the Wall Street casino, when an inheritance gets divided, when they give money to charity, buy 20 Ferraris or when the state redistributes their wealth. Usually (and in the long term) they (as a group) make money faster than they lose it, but that doesn’t mean there cannot be periods when they lose more than they gain.

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  • Furslid

    If innovations always increase inequality, then wouldn’t any banning of technology decrease inequality?

    Consider the world were product X banned tomorrow. It’s different somehow. The day after product X is allowed, effectively reinventing it. The world goes back to the way it is today. Because innovation always increases inequality then the current world has more inequality than the world in which product X was banned.

    This seems strange as the banned product could be one that almost only poorer people use (ex. long distance bus travel like Greyhound).

    It also implies that the price of technology is inequality, and that tradeoff may be very worthwhile.

  • http://daedalus2u.blogspot.com/ daedalus2u

    Social inequality and level of technological development are completely unrelated.

    Social inequality is about how people interact with each other. Technological development is about what technology is used to make tools and artifacts.

    Tools and artifacts can be used to promote social equality or social inequality. Social inequality is what most technological innovation is used for. The first stone weapons were very likely used to enrich the lives of those who could make and use stone tools at the expense of those who could not.

    Then, social inequality related to the tools and artifacts one could make and use, as well as the tools and artifacts that one could steal and barter for.

    Now social inequality depends mostly on legacy wealth and the social power that legacy wealth buys.

    That legacy wealth is being used to foment strife between groups to their detriment and to the advantage of those who control legacy wealth. Keep the poor desperate and they will be compelled to do desperate things. Raise the specter of boogie men under every bush and hoodie, and desperate desperate people will do desperate things.

    As we have seen in Florida, those who can purchase guns and are ignorant enough to believe and subscribe to racial bigotry can be frightened enough to use them and kill innocent children.

    What is all that technological advancement being used for? It is being used by Fox News to spread disinformation to demonize minorities to stir up xenophobia to get Republicans elected so they can lower taxes on the wealthy and make the poor ever more desperate. The poor do desperate things, so they get locked up which is why the US has the largest prison system in the world and the highest incarceration rate, in the world.

    With 5% of world population, the US has 23% of the world’s prisoners.

    https://en.wikipedia.org/wiki/Incarceration_in_the_United_States

    The US is the worlds police state. What could we do if we didn’t have to spend ~$50k per prisoner? What could we do if those prisoners and guards were productively employed? What could we do if we built factories and schools instead of prisons?

  • http://www.dirksayers.com Dirk Sayers

    Does not the very division dichotomous division into “haves” & “have nots” beg oversimplification? Have what? (or how much, or how much of what?)

    I feel another poorly reasoned plea for endless relativism coming on, here…which I will resist with might & main. Still, the post & the aggregate comments following suggest to me that either/or thinking works really well in hypothesis testing, but perhaps less well when we’re talking about how most of us frame the world. Juuussst a thought…