The White House announced recently that President Obama will be making a series of speeches on the economy. A major theme in the first speech was that wealth is being concentrated in the U.S., which according to Obama comes at the expense of the "middle class". A favorite technique of many Presidents is to create an issue that is politically popular to divert attention from the real issue.
Concentration of wealth is measured by the Gini Coefficient. U.S. census data for the index from 1947-2009 is shown below.
(Current Gini Coefficient is approximately 47 percent.)
A few observations:
- The Gini Coefficient has been steadily increasing since 1969, a period in which the U.S. economy has experienced dramatic and comparatively consistent economic growth. Note that the post WW-II period of economic recession (1948-1958) is the only period in which the Gini Coefficent declined significantly in recent history.
- Note that the Gini coefficient began its most rapid increase beginning about 1981, which coincides with the wide spread use of computers. One could argue that this major change in fundamental technology contributed to the increased concentration of wealth. I have not seen any studies of the change in wealth concentration at the time the steam engine or the automobile became wide spread technologies, but I suspect that increased wealth concentration also took place at these times. Fundamental new technologies spawn large new companies and the founding entrepreneurs become disproportionately wealthy compared to a typical wage earner, thereby increasing wealth concentration.
I find the whole Obama conversation about wealth concentration very disturbing. Wealth concentration and its intellectual partner "centralized government planning" first appeared in the late 1800s, early 1900s and provided the intellectual foundation for the birth of communism and the wide spread adoption of socialism in Europe. To resurrect wealth concentration as a political issue at this time, in a country that has no history of socialism or communism, suggests to me that President Obama and his advisors:
- have no understanding of the history of economics
- must be thinking about some mechanism to re-distribute wealth from the wealthy to the less wealthy
President Obama would be much better served to address the much bigger issue. The middle class in this country grew its wealth from corporate jobs (spawned by computer technology) that lasted until retirement. Those types of jobs are disappearing and the rate of disappearance will only accelerate with the increased use of computers. The country needs an economic model designed for a population where 40-50 percent of people earn a living from free lance, project and consulting type work. To design such a model would require a complete overhaul of the education system and a radical reduction in the administrative burden of the government to better match the more limited resources of this free lancer work force.The chances for the Obama administration to design a new economic model, given their fondness of 19th century economics, is nil. More troubling is this article from HBR,"Why a Great Individual Is Better Than a Good Team", which discusses why groups are ineffective on complex problem solutions. To solve complex problems, one must first identify the proper question. Governments, which are run by groups, are very challenged to identify the proper question. Wealth concentration is definitely not the proper question.