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The Dumb-bell or the Bell?

A Yelp employee made the news two years ago for complaining in an open letter to the CEO about how little she was paid in relation to the high cost of living in San Francisco. “Eighty percent of my income goes to paying my rent,” she wrote.  She was fired and went from the frying pan into the fire. A $1,000 in severance later, after "selling everything I owned — books, movies, clothes, all of my pots and pans and every last piece of furniture" she bought a one-way ticket to New York city where she is employed as a dishwasher.

The knowledge economy can be harsh for those who don't have it.  While it richly rewards those endowed with skill it has little use for those without it.  The result can be a two-tier society California is threatening to become. "Income inequality in California is getting worse," writes CNBC.  It's a dumb-bell shaped distribution.  There are people living the dream and there are people living in cars.

In affluent areas such as Santa Barbara, the cost of living continues to rise while wages stay stagnant, leaving residents struggling to make ends meet. Even many of those with jobs can barely afford to stay in the city they've called home for years, and more of them are now forced to live out of their cars. ... As housing prices in the Bay Area continue to rise and an increasing number of residents turn to cars and RVs as their primary residences, local officials must figure out how to support the growing population while fielding a corresponding rise in complaints about RV communities from other residents, The Mercury News reports.

This income inequality is characteristic of a "star" system where ace programmers or engineers sell "hits" while dishwashers just get by.  Conspicuously missing is the middle.  Instead of reaping the promise of Long Tail,  where ordinary people could provide small volumes of hard-to-find services to many customers the new economy still sees the same few stars hogging all the action.  The "millions of markets of tens" has stubbornly failed to replace a few tens of markets of millions.

If the world seems smaller than before it is because we all go to the same place: buy on Amazon, trade on eBay, search on Google, make friends on Facebook, vent on Twitter and compare services on Yelp.  People have not become differentiated but commoditized. One dishwasher in New York is just the same as another.  The comparative advantages that were once provided by isolation or the expense of search has been annihilated by logistics and information technology.  The niches and cracks where technology promised we could cling don't exist in the smooth carbon fiber skin of a 787.

There's a place for the stars, in aerospace, biotechnology, computing etc.  What place is there for a college dropout in the Bay Area who can only pull down $1,500 a month? Very little.

Especially if the only solution progressives can come up with for the dumb-bell is taxing the skilled and putting everyone else on welfare.  "A pair of California lawmakers want to claw back some of steep tax cuts that corporations will receive under the federal tax overhaul signed last month by President Donald Trump."  The idea is simple: if companies won't pay wages then the state will tax them to put people on benefits. This results in precisely the dumb-bell.

Democratic Assemblymen Kevin McCarty of Sacramento and Phil Ting of San Francisco announced Thursday that they will pursue a constitutional amendment to add a surcharge on large companies that do business in California, potentially raising billions of dollars to expand social services for Californians. ...

The proposal from McCarty and Ting creates a new tax for businesses in California, which already has a state corporate tax rate of 8.84 percent. Companies with annual net income of more than $1 million in California would pay an additional surcharge of 7 percent, or half their savings from the recent federal tax cut.

Unless some way to create markets for average entry level skills is found tax transfer payments will only institutionalize the star system while making politicians part of the elite as keepers of the social peace by distributing benefits to the unemployed.   The reason automation and artificial intelligence can seemingly replace all workers but politicians and bureaucrats is because government is joining the winners, becoming part of the process that is liquidating middle class jobs through "outsourcing and the development of new technology".

It is the fear of vanishing jobs not "bigotry" that is haunting the American middle class.  It explains why the CNN poll found that "DACA [is] not worth a shutdown, except to Democrats".  It is not worth it even to them.  The liberal project may find that the faltering Blue Model based on a big middle class cannot be replaced by a dumb-bell shaped distribution of economic stars at the one end and impoverished immigrant menials on the other. The Democratic decision to abandon the shutdown is a sign of how little support the outsourcing game really has. Politico reports:

Senate Democrats shut the government down in hopes of striking a deal to shield 700,000 young immigrants from deportation. In the end, they got a promise of a vote — one that Republicans argue was going to happen, anyway.

Democrats lost the shutdown war. That much was obvious when they voted to re-open the government with little to show for it. They had vowed for weeks not to back any funding bill without a bipartisan agreement to protect so-called Dreamers. But as Washington entered day three of a government shutdown, Democrats folded, voting to reopen the government barely any closer to their goal.

In the end the American economy must be allowed to innovate middle class jobs back into existence.  The vast store of human capital trapped in the middle of the Bell Curve has to be freed. That wealth will be liberated because there's an economic incentive to do it,  and the private sector has the creativity to get at it.  The government is unlikely to know how.

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For a list of books most frequently purchased by readers, visit my homepage.


Support the Belmont Club by purchasing from Amazon through the links below.

Books:

The Road Not Taken: Edward Lansdale and the American Tragedy in Vietnam, In this book, bestselling historian Max Boot chronicles the life of legendary CIA operative Edward Lansdale and reframes our understanding of the Vietnam War. Lansdale pioneered a "hearts and minds" diplomacy, first in the Philippines, then in Vietnam, a visionary policy that was ultimately crushed by America's giant military bureaucracy. With interviews and newly available documents, Boot rescues Lansdale from historical ignominy and suggests that Vietnam could have been different had we only listened.

The Case for Christ: A Journalist's Personal Investigation of the Evidence for Jesus, Retracing his own spiritual journey from atheism to faith, author Lee Strobel, former legal editor of the Chicago Tribune, cross-examines a dozen experts who are recognized authorities in their own fields. He challenges them with questions like, How reliable is the New Testament? Does evidence for Jesus exist outside the Bible? Is there any reason to believe the resurrection was an actual event? The book reads like a captivating, fast-paced novel but it’s not fiction. It’s a riveting quest for the truth about history’s most compelling figure.

Ghost Soldiers: The Epic Account of World War II's Greatest Rescue Mission, by Hampton Sides. On January 28, 1945, 121 hand-selected U.S. troops slipped behind enemy lines in the Philippines. Their mission: March 30 rugged miles to rescue 513 POWs languishing in a hellish camp, among them the last survivors of the infamous Bataan Death March. This book vividly re-creates this daring raid, offering a minute-by-minute narration that unfolds alongside intimate portraits of the prisoners and their lives in the camp.

The Square and the Tower: Networks and Power, from the Freemasons to Facebook, by Niall Ferguson. The 21st century has been hailed as the Networked Age. But in this book, Ferguson argues that social networks are nothing new. From the printers and preachers who made the Reformation to the freemasons who led the American Revolution, it was the networkers who disrupted the old order of popes and kings. Far from being novel, our era is the Second Networked Age, with the computer in the role of the printing press. Once we understand this, both the past and the future start to look very different indeed. Ferguson offers a whole new way of imagining the world.

For a list of books most frequently purchased by readers, visit my homepage.


Did you know that you can purchase some of these books and pamphlets by Richard Fernandez and share them with your friends? They will receive a link in their email and it will automatically give them access to a Kindle reader on their smartphone, computer or even as a web-readable document.

The War of the Words, Understanding the crisis of the early 21st century in terms of information corruption in the financial, security and political spheres

Rebranding Christianity, or why the truth shall make you free

The Three Conjectures, reflections on terrorism and the nuclear age

Storming the Castle, why government should get small

No Way In at Amazon Kindle. Fiction. A flight into peril, flashbacks to underground action.

Storm Over the South China Sea, how China is restarting history in the Pacific

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