TCS Daily


The New Populism and the iPod Economy

By Nathan Smith - November 30, 2006 12:00 AM

Does the Democrats' victory in the 2006 congressional elections herald a coming era of populism? Perhaps. Consider Senator-elect Jim Webb's recent Wall Street Journal op-ed, "Class Struggle," begins by echoing John Edwards' "two nations" theme:

"America's top tier has grown infinitely richer and more removed over the past 25 years. It is not unfair to say that they are literally living in a different country. Few among them send their children to public schools...

"In the age of globalization and outsourcing, and with a vast underground labor pool from illegal immigration, the average American worker is seeing a different life and a troubling future. Trickle-down economics didn't happen. Despite the vaunted all-time highs of the stock market, wages and salaries are at all-time lows as a percentage of the national wealth...

"Manufacturing jobs are disappearing. Many earned pension programs have collapsed in the wake of corporate 'reorganization.'..."

Some objections must be made here. Manufacturing jobs may be disappearing, but this is not causing a rise in unemployment which, at 4.4%, is near its all-time low. American workers are moving from manufacturing to services, partly because of outsourcing, partly because of rising productivity in manufacturing, which allows manufacturers to make more goods with fewer workers. But fortunately, these workers are not being left without jobs. Thirty years ago, when the manufacturing sector was relatively larger, there was much more unemployment than today.

Also, wages are rising. Employee compensation has climbed over 5.3% in the past year. If "wages and salaries are at all-time lows as a percentage of the national wealth," this is not because the numerator has fallen, but because the denominator has increased.

But Webb is right that US inequality has been increasing. In fact, according to statistics published by the US Census Bureau, it has been increasing for forty years.* It's important that we know the answer to the following question: why is inequality rising in the US?

The Restaurant Economy and the Ipod Economy

The best explanation is what economist Sherwin Rosen in 1981 called the economics of superstars. But a new metaphor may help bring the argument up to date. The economy is shifting from being like a restaurant to being like an Ipod.

What does a restaurant have to do with an Ipod? Both are means of production. Both are little factories for supplying a timeless human pleasure: cooked food, and musical entertainment, respectively.

At lunchtime I sometimes go to one of the restaurants near where I work. Ordering lunch in a restaurant hasn't changed much since, say, the 1960s. The food varies in quality, reflecting the chefs' skills. Prices vary with the quality of the food, but not that much: the cheapest lunch in the neighborhood costs $3-$5; the priciest (out of my range) cost $30-$50. Presumably chefs' wages vary with the revenues they bring in. Most nearby restaurants have had some business from me.

Most mornings while commuting to work, I listen to my Ipod. Ipods are cutting-edge technology, infinitely superior to the LP records that my parents listened to in the 1960s. In a device half the size of my palm, there is almost 50 days' worth of the best music ever made. I divide my listening time very unequally between the thousands of songs that I have at my fingertips. Many I haven't listened to, even once, while others I've listened to 100 times or more. Hardly any of the songs in my Ipod are by local artists.

And lots of pretty good musicians will never get into my Ipod at all. I would happily eat food cooked by a second-tier or third-tier chef. But there's no reason for me to listen to a second-tier singer, because I can afford the best. The Billy Joels and Bruce Springsteens of gourmet cookery will always be out of my price range, but the Billy Joel and Bruce Springsteen of rock-n-roll are accessible to any teenager earning minimum wage.

And this has implications for the pay structure of the respective professions. The best chefs earn $100K - $150K, less than 10 times more than a minimum-wage McDonald's worker. Meanwhile, Paul McCartney's net worth is $1.5 billion, in a profession that is home to thousands of the proverbial "starving artists."

Why the difference? It's because of the costs of reproduction. There is no way to cheaply mass-produce the art of a master chef. As a result, one of his meals is only worth as much as one affluent customer is willing to pay for it. And since the master chefs can only satisfy a tiny share of total demand, there's plenty of room for chefs of lesser talents. But since Billy Joel's music can be reproduced ad infinitum at almost zero cost, he gets his royalties from thousands or millions of listeners, and makes a fortune. And since a handful of rock stars can make enough music for everyone, lesser musicians—even some of considerable talent—are left out in the cold. And even for the rock-n-roll greats, success is precarious. As Billy Joel sings in his 1974 song "The Entertainer":

"But if I go cold I won't get sold
I'll get put in the back in the discount rack
Like another can of beans."

Computers and the internet, by reducing the costs of reproducing information, are making our economy less like the restaurant and more like the Ipod. In the Ipod economy, money buys more, but rewards for work seem crazily out of proportion.

How Economic Revolutions Change the Nature of Work

In his Journal essay, Webb champions "American workers" against "the elite." In doing so, Webb commits a revealing false dichotomy. The distinction is nonsense, because the ultimate working class in America today IS the elite. A recent study finds that "between 1979 and 2002, the frequency of long work hours increased by 14.4 percentage points among the top quintile of wage earners, but fell by 6.7 percentage points in the lowest quintile." That is, the rich work more; the poor work less.

But Webb is using the "worker" in the special, Marxist sense of the term. During the Industrial Revolution, factory workers had trouble understanding why managers, merchants and entrepreneurs, and financiers ("the bourgeoisie") got more money, when they didn't—so it seemed to them—do much work. It seemed this way because the nature of the bourgeoisie's work was so different from that of the industrial proletariat. The "working classes" are those who work in a normal, easily recognizable way, rather than applying mysterious specialized skills.

Think of all work as occurring on two metaphysical planes: physical space and Design space. (The term "Design Space" is the philosopher Daniel Dennett's.) To plant a garden, you must dig holes and pull weeds—physical work—but also plan how to align the furrows and decide what crops to plant—Design work. To cook a meal, you have to dice onions and cut potatoes—physical work—but also decide the ratios of the ingredients, and judge how long to leave the pot on the stove—Design work. Physical work is the work of the hands. Design work is the work of the mind.

As civilization advances, muscle power tends to be replaced by machine power. At the same time, mankind acquires increasing power to reproduce Design. This tends to make the best Design work more and more valuable, while rendering the second-best Design work worthless. People need to adapt to both of these changes.

Sometimes economic change turns people from Design workers into mere physical workers. For example, in the Industrial Revolution, many rural peasants became factory workers. Rural agriculture and husbandry require forethought and skill, which was passed down from generation to generation. Factory work was more mechanical and required less thought. As their own Design work was lost, new kinds of Design work were pioneered by industrial inventors, entrepreneurs, managers, and distributors, which workers—"workers"—didn't understand.

There was (then as now) a trickle-down effect: industrial progress raised workers' living standards even as it made the fortunes of the tycoons. But "workers" felt a double insult: their own work had been dumbed down, while the mysterious prosperity of the bourgeoisie gave them a feeling a relative poverty. This seemed "unfair." They were working, they were playing by the rules they knew. They deserved, they thought, an equal share of the rewards.

The American middle class today enjoys far higher living standards than the factory workers of the early Industrial Revolution. They also understand that merely working is not enough to earn an average living. One must get educated, go to college, acquire professional skills. But now the Information Revolution is changing the nature of work again. As economists Lawrence Katz, David Autor, and Melissa Kearney wrote last January:

"[The] 'polarization' of the U.S. labor market, with employment polarizing into high-wage and low-wage jobs at the expense of middle-wage work [can be explained by] a model of computerization in which computers most strongly complement the non-routine (abstract) cognitive tasks of high-wage jobs, directly substitute for the routine tasks found in many traditional middle-wage jobs, and may have little direct impact on non-routine manual tasks in relatively low-wage jobs." (my emphasis)

If "the non-routine (abstract) cognitive tasks of high-wage jobs" sounds cryptic, it is. "Abstract" work occurs at the frontiers of knowledge, of Design Space, and it is inherently difficult to understand. This is part of the reason that it is so well-paid; few people are able to do it. Though college educations are as useful as ever, a college degree is not enough. The secrets of cutting-edge value-creation in the Information Age have not yet been standardized into skills that can be taught in any school.

The Populist Temptation

Webb warns us of "a steady drift toward a class-based system, the likes of which we have not seen since the 19th century." But is it a bad thing for our times to resemble the 19th century? The century between Waterloo and World War I (1815-1914) was a golden age of peace and progress. It was the age of the railroad and the steamship and the telegraph and the photograph. It witnessed the advent of universal manhood suffrage and major advances in the rights of women. Modern Italy and Germany were born. The 19th century was an era of steady advance in every field of human endeavor, from food production to finance to physics to free trade, from music to medicine to metallurgy, from literature to longevity, from biology to biography, from social science to sewer systems.

The story of how all that ended is sad and strange. It ended, of course, with "the guns of August" in 1914, but the seeds of its end were planted long before: a rising tide of protectionism which exacerbated national rivalries; the rise of nationalism and socialism; a vague discontentment among the intelligentsia, which longed to overthrow the old order in favor of they-didn't-really-know-what; frustrated envy and impotent confusion on the part of the still-relatively-poor as they witnessed the prosperity of the unprecedentedly-rich. The wave of progress had a populist undertow.

Nathan Smith is a writer living in Washington, D.C.

* It's worth noting that while US income inequality has been increasing of late, world income inequality has been decreasing, and for some of the same reasons, such as outsourcing, trade, and globalization. When labor-intensive industries relocate to poor countries, they help those countries to get a foothold on the ladder of development. Thanks in large part to globalization, a golden age of growth is now underway in the developing world, which is the best hope of ending the heart-breaking extreme poverty in which hundreds of millions are trapped. When "populists" like John Edwards and James Webb try to put the brakes on this process, they have their moral priorities very, very wrong.


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22 Comments

Two brief comments...
Workers earn their money, consume most of it and save precious little. Capitalists build businesses, balance sheets and accumulate capital. It should not seem remarkable that capital continues to build faster than wages rise, especially as productivity makes the manufacturing process more capital intense and, by definition, less labor intense. It is only the math. This phenomenon has been going on for longer than 40 years and it will continue.

Capitalists leverage their work over the productivity of workers. Whereas a surgeon is fundamentally limited by his own hands an industrialist earns a small piece of the wealth generated by each worker under his management. American industrialists once earned their money with American workers. Now American capitalists earn a margin of the wealth created by many more workers in India, in China, in Mexico... Of course, the total wealth in America will grow much faster than the wages or the net worth of American workers. "This is no social crisis." Just mathematics.



Very interesting
Great food for thought. My father taught that change is inevitable and good. It is the evolution of economies. Like all change there will be those left behind who refuse to adapt, like the buggy whip makers of long ago.

Those who embrace the brave new world shall reap the rewards.

Mr. Smith: Why support illegal immigration?
Most are unskilled labor. We need more design space workers.

College Education
"If "the non-routine (abstract) cognitive tasks of high-wage jobs" sounds cryptic, it is. "Abstract" work occurs at the frontiers of knowledge, of Design Space, and it is inherently difficult to understand. This is part of the reason that it is so well-paid; few people are able to do it. Though college educations are as useful as ever, a college degree is not enough. The secrets of cutting-edge value-creation in the Information Age have not yet been standardized into skills that can be taught in any school."

And perhaps they never can be. What if the very structure of a traditional college education is to produce an obsolete set of skills. Certainly it can hone critical thinking, but it cannot teach *lateral* thinking, which is the key to abstract design.

In addition to the skyrocketing costs of college, this may be another reason that many more young people are opting out of college than in recent decades.

I agree
I think a popular cause in the United States is the movement to prevent illegal immigration. We haven't heard much talk from members of Congress about returning illegal immigrants to their native countries, but that will eventually happen. The desire of U.S. citizens to stop illegal immigration is probably the closest social phenomenon to 19th century populism currently in existence.

College
Another limitation placed by college, in my opinion, is they exist to train "workers" to get a job. The leading edge typically is performed by non conformists who work outside the envelope of tradional practice and thinking. While many advances are made by large companies in todays market privateers tend to push the envelope in terms of radical thought, markets and products or inventions (perhaps it was always this way).

Two questions: (1) standardize-ability of skills, (2) adaptability of colleges
The issue of whether cutting-edge value-creation can be standardized into skills that can be taught in school can be broken down into two.

1) Can the highest-value-creation skills in the Information Age be standardized so as to be teachable in any kind of mass education institution?

2) Can our college system make the adaptations necessary to be the kind of mass education institution to instill cutting-edge skills?

I think the answer to (1) is "yes" (bearing in mind that tasks that are initially creative change a bit as they become more mimetic, but they are still the same to a large extent), while the answer to (2) might be "no." At any rate, I think that in the Information Age, MORE education might be necessary to reach the cutting edge: a Masters degree will be the new Bachelors degree, even when Masters programs are better honed to new tasks.

It might be necessary to have educational innovations too. Deliberate lifelong learning may become an essential part of the career path of all top professionals. And the blogosphere (or parts of it) might evolve into an educational institution of sorts, an essential supplement to formal, college-campus-type education.

College-Eh?
I've seen what the "colleges" and Universities are producing; once their done, it's my job to "train" the new hire in the ways of the workplace. I'm not at all impressed with the College product and to say they are producing workers is a joke. They are producing "watchers" who like to watch me work and then attempt, (with little enthusiasm) to mimic what I've done. And they can only do that for a few hours a week.

A bit harsh
but I agree generally. I have met a lot of very good college grads that are capable and hard working. Alas, they are, however, the minority. And the "trade" specific college departments (Nursing schools, Journalism Schools, Law schools, etc.) are all too often turning out very inferior products. It seems our business schools and Medical schools are still doing a pretty good job, but I have to wonder for how much longer.

The real talent in most fields have traditionally forgone education, especially college. The trend continues, at least as it concerns traditional 4-year institutions. I see this becoming more prevalent as time goes on. The more serious students will forego spending "wasted" time in a liberal arts college and the less affluent will look for a better deal. The truely talented already forgo formal education and follow their abilities, as they always have.

College was always for the worker who wanted a bit more in their paycheck, it was never a means to true wealth, to finding your calling or to a useful education for most. This is less so now than ever before in history.

Value of education
I found my degree opened doors and taught me the ability to analyze problems in a more defined fashion.

Once in the door it was up to me to prove myself. I have never wanted for work as I have always performed. Now that I am self employeed the option to sit has evaporated, by choice.

I still value my education deeply but it in no way prepared me for productivity. It was a tool that opened doors and has aided me greatly.

That would be the "critical thinking" that I alluded to...
... but the rest of your story supports (as I read it) my notion that a traditional college educatio offers little else of lasting value. College didn't train you to work hard; that was always a part of you.

Trades
Your description of Masters degrees as being specific and "honed to new tasks" makes me think of old fashioned trade schools. But that may be the way things evolve. Where someone may once have been an apprentice to a blacksmith or a carpenter, they may now become an apprentice to a CPA or IT administrator.

Agreed
I agree

on that i agree
for myself as well as many I know, having a college education helped open some doors. But those doors are not remaining open in the same way. Many would rather you had no more than a 2-year degree so they cna train you to do things their way.

i do not value my original years, but do value the many seminars, classes, and professional development courses I've taken since. They covered topics i needed to learn about and were much more "no nonesense" than college was. I do, however, have fond memories of my college years; but they have more to do with non-classroom activities than anything I learned from some professor.

College
I majored in physics. This opened all sorts of doors for me in terms of understanding physical science. I have then self taught myself electrical engineering and software development with which I now consider my proffesion. Without the formal physics education I would not have done this I suppose. I rarley use the physics as a pure science anymore but it gives me insite into how to analyze and understand systems I develop and that is were it payed off.

My formal education was electronics technical
Part of that was basic electronics engineering. I worked in the field for a while then did a few other things before settling in the journalism field. That meant back to school, but not for a degree, just for professional training.
Since then I've done a little web page design, but stayed with the Journalism thing as well. I have more credit hours out of the formal education setting that I got in it; odd to many I suppose, but true.

Many young people I know in electronics and computer programming and operation are no longer going the BS in computers route; often they take a certificate program or a two-year degree and head off to get a job with Dell, Microsoft or HP.

and that is just one field. I see this in others, especially in the tech trades.

Foot in the door
My father always said the degree was only a foor in the door and for the most part he was correct.
Once in the door, however you get in, the rest is up to the individual. I still think management in most corporations tend to be pulled from the university level. One thing that does differ is that starting a company nowdays in a technical field has many opportunities that didn't exists before allowing those who choose business over education a chance to excel in technical fields once reserved for the few.

Exactly right
No arguement at all.

My only point is this: as the work world continues to change, the amount of "foot in the door" opportunities a degree of any sort, besides one specific to that job, will get you is, and will continue, to decrease.

I'm certainly willing to admit that time could prove me wrong, but I'm not seeing it right now.

(1) They already do but don't know it, (2) It already does
The highest-value-creation-skill period is the ability to learn. It's not creating web pages or writing C++ code. Nor is it building nanobots or designing bridges out of carbon fiber. It's being able to pick up the book and learn the skill you need at the time, or invent your way out of the hole you've dug for yourself. 4 years of college times 3 quarters per year times 4 courses per quarter = 48 distinct opportunities to learn or teach yourself something new in a short period of time and apply your knowledge to some new task. Completing that routine by earning a degree is still a strong indication that you can learn or teach yourself or invent new things, and over a career, a college diploma still gives a tremendous earning advantage.

(2)... Our colleges should not be technical training grounds. Especially our universities. Like I said as a student in an upper division computer science course 16 years ago when others were whining about the difficulty of the lab work, "this is the University of California, not ITT Tech". The majors need to teach within a decade's or so approximation, the fundamentals of the academic field, and supplement those fundamentals with courses that track current trends and near future (within 5 year) trends and connect the trends to the fundamentals. There you have the description of a well-run academic department. Universities not only serve to churn out top professionals, but also to turn out academics who can teach and further the academic field.

What the 80s and 90s taught us, especially in engineering and computer fields, was that the University is an anchor of innovation. That research ideas can be commercialized, and that, especially in the 90s, students and profs may take their academic innovations and turn them into startups that create products. If there is one improvement that needs to be made to universities, it's a recognition of entrepreneurship in all fields, rather than maybe just some obscure grad level course in the econ department.

P.S. Writing and communicating are super important too! The university needs to make them more fun and more relevant to students.

couldn't disagree more with some of this
If you haven't "learned to learn" by the time you hit college you are, and should be, doomed to failure in college. The fact that our grade and high schools are failing at this is just more evidence of a system with problems.

But the idea of a general education being the do-all, say-all greatest thing was already on the way out when I was in college in the 70s.

What "Tremendous earning edge" are talking about? You must be a teacher or professor, they are about the only ones who talk that gibberish in the past couple of years.

Throw out those who require more than a Bachelors (like doctors or Lawyers) and I defy you to compare their wages to any non-degreed field worker. Teachers, nurses, general social workers, and on and on don't make any more (and often make less) than a lot of laborers with no high school diploma. While that may not be true in L.A. or New York, it is true in much of the country.

In fact, many high school guidance counselors are starting to direct graduates away from traditional four-year colleges and show them options for certificate, 1 year and 2 year programs that cater to their interests and/or abilities. Why? It's cheaper, it is what some industries are now looking for, and the present earnings potential is as high or higher in many cases.

You make some points I do agree with. Universities need to tracka nd anticipate trends, in fact they need to do a much better job of it than they are now doing. But they do need to put more emphasis on major field work and less on non-related required course work as well. That is the lesson of the effects of the 80s and 90s and research on campus.

I compltetly agree with you on writing and communicating; I would also add reading and comprehension.

But the successful University as we have known it for centuries is not the University of the coming future. True universities are, and should remain, places of great general knowledge and learning. But, to survive, they are also going to have to become more effecient.

Career wages
Pauled- I'm pretty sure I said "wages over a career". I'm pretty sure if you looked at say 35 year olds today (12-15 years out of college), you'd find strong earning power differences in aggregate between college grads and non-grads. It can be explained in both career fields that require a degree (or advanced training) and those that don't.

In my own professional field, software development, there are blaring, obvious, marked differences in capability between even the weakest who have degrees in the field and the strongest who don't -- those differences favoring the degreed. Not that there aren't exceptions, but they are exceptions, 1 in 100 if thaat. Even the laziest of the degreed tend to be wise about how to be lazy, whereas the most type-A workaholic of the non-degreed will do a bunch of work in the wrong direction.

For example, if you got a CS degree in the early 90s when everyone thought CS majors were all gonna be fodder for the aerospace companies, you've seen all the development and language trends that are so "hot" today. Object oriented languages, C dialects of course, waterfall model, spiral model, software economics, etc... When someone gets all excited about C#, you know it's just another language that will have its strengths and weaknesses. When someone gets all excited about Agile Development, you know it's just the spiral model with some Branch Davidian twists. You've seen the "layered" approach to engineering, so when someone says the Internet is a bunch of tubes, you know they're extra chromosome stupid AND you know why.

As a practical matter, having worked with degreed and non-degreed people in software and technology... The person who doesn't have a degree in the field and can manage the abstract is still rare enough to safely ignore. About half the wisdom in the field is best acquired through staged academic exercises and the other half through real world challenges. You just can't skip the first half forever and expect to be a top performer over the course of a career.

really good stuff
very thoughtful: scholarly and useful at the same time. Thanks,

Jerry Bowyer

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