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How a Quest by Elites Is Driving ‘Brexit’ and Trump

Neil Irwin

Consider an experiment published last year in the journal Science. Four economists tested people with a computer simulation in which they could either be greedy and keep tokens that had real cash value, or share them with others. The catch: If they shared them, the total number of tokens would decline. In other words, the more evenly the pie was divided, the less pie there was to go around. There was a trade-off between equality and maximizing income, a version of economic efficiency.

Among the general American public, about half of those who played the game favored equality over efficiency.

But the researchers also did the experiment at Yale Law School, an elite bastion filled with people who become Supreme Court clerks, White House aides and richly compensated lawyers. Among the Yale students who played the game, 80 percent preferred efficiency to equality. They were more worried about the size of the pie, apparently, than making sure everyone got a slice.

“The people who are destined to fill these elite positions tend to have a strong efficiency orientation,” said Raymond Fisman, a Boston University economist and lead author of the study. “One underlying explanation may be that, if the system has been kind to you, and you find yourself at Yale Law School, you know you’re going to make out O.K. in the end, and so you don’t worry about widening the distribution of outcomes.”

James Firnhaber
You can see versions of this play out in a wide range of areas. For example, economists almost uniformly argue that rent control laws are a terrible tool to try to make housing more affordable. As Paul Krugman once wrote, “the analysis of rent control is among the best-understood issues in all of economics, and — among economists, anyway — one of the least controversial.”

Yet among people grappling with soaring rents, the policies are persistently popular — even, recently, in the free-market-oriented boomtowns of Silicon Valley.

It’s easy for an economist to chalk up support for rent control as idiocy that depresses the home construction that might reduce housing prices for everyone. I have thought of it that way.

But maybe it is really important for people who live in a place to be able to stay there indefinitely. Maybe the idea that things should stay the way they are, without new people moving in and new buildings going up, is not as inherently irrational as Economics 101 would suggest. Yes, rent control is a bad idea if you’re worried about the long-term prospects for economic efficiency. But maybe the people who advocate these policies know exactly what they’re rooting for, and that’s not it.

The rent control debate can be viewed as a microcosm of the debate about globalization and international trade.

Some of the best analysis of trade agreements comes from the Peterson Institute for International Economics. Its examination of the pending Trans-Pacific Partnership is 119 pages and describes how the deal among the United States and 11 Pacific Rim nations will affect different industries and the economy as a whole.

It projects that the deal will add $131 billion a year to Americans’ incomes by 2030, or 0.5 percent of G.D.P. It will neither create nor destroy jobs, but is projected to add to churn — job changes — in the economy as work moves into higher-paying, more export-centric industries. The authors predict that the trade deal will mean an extra 53,700 job changes a year, but they note that 55.5 million people a year in the United States change jobs for all sorts of reasons, and that this extra churn will barely change those overall numbers.

But for a window into how this plays out among real people, consider an article in The Wall Street Journal in February. In that account, a woman named Andrea Howell holds down a good job at BMW’s manufacturing plant in South Carolina, making her one of globalization’s winners. She supports Mr. Trump, she said, because she doesn’t want other countries to beat the United States at trade, and because two uncles lost their jobs at a cotton mill that closed in the 1980s, presumably because of globalization.

To economists, 53,700 jobs churned each year is a small cost to be paid for a richer overall economy. To people who are among those 53,700, the pain may be enough to drive someone’s niece to vote for an antitrade candidate 30 years later.

So what’s a policy elite to do? Of course the only way a society can become richer over time is to increase national income. And if rigorous analysis shows that Policy X is the way to do it, the fact that Policy X is going to disadvantage a few thousand people often isn’t a reason to abandon the idea.

But there’s an obligation to think about individual lives. Life isn’t just about money, and jobs aren’t just about income. A sense of stability, of purpose, of social standing — all these things matter in ways that economic models don’t do a very good job of taking into account.
If there is one crucial lesson from the success of Mr. Trump and Brexit, it is that dynamism and efficiency sound a lot better to people who are confident they’ll always end up being winners.

Heidi Canada July 1, 2016
Thank you for this perceptive analysis of our current situation. My only critique is with the description of job "churn". It implies that everyone gets another equally good job after they are laid off. That is not the experience of the people I know about. Once you train the folks from Costa Rica to do your job -- provide customer support in the computer industry (real example) -- you get laid off and realize ALL the customer support jobs in the computer industry have been moved to Costa Rica or India or wherever. You look for work unsuccessfully and finally retrain to design websites, as a freelancer, and make far less money with no benefits and lots of insecurity. That's today's economy and that's a happy ending. There are plenty of people who never get another job after a layoff. Imagine that disruption playing out over and over in households throughout the US, Canada and the U.K. Then you understand Brexit and Trump, And the rest.

Sallie McKenna San Francisco, Calif. July 1, 2016
At last, a bone is thrown to the real purpose of society...if it can be said to have one....and that is to support the people in it. There is no intrinsic good to efficiency, only in the sense that it serves the greater good. When it becomes an end in itself - or an end that serves the few -, it is at best useless and at worst destructive.

All ideas and theories should be continually tested against the human effects. There is ample evidence showing that the very very few are benefitting in obscene proportions. This is not rocket science. The table is tilted and all but a pittance runs into the gargantuan ever expanding pockets of the tilters.

Now it is a moral question and its not hard to parse. We've had to do it before and always...and now again.

Denver California July 1, 2016
We do ZERO to help the "losers" -- the huge swath of lower-paying middle class industrial workers now out of work...ZERO. We let the uber rich hide taxes, we let corporations park profits in Europe, we cut the "basic income" idea of welfare (thank you NOT Bill Clinton), we stigmatize the poor, we refuse to realize 50% of workers make so little they don't pay income taxes. We need income redistribution by whatever means possible..for the people and for the safety of our democracy..Wage insurance? How about a try.

Mary Stromquist Florence, OR July 1, 2016
....Kudos for addressing one element of the issue. Yes, we're all aware of how technology has permanently changed employment. The big "however", for me is, the ethos of our current iteration of capitalism. Forbes recently called Milton Friedman's assertion about returning value to shareholders as the overarching priority of the CEO of a public company the "dumbest idea in the world." The arc of the past 40 years (yes, I've lived them) has been to minimize the expense of employees to the lowest possible to produce a rational result. What has evolved is the C-suite is being paid ludicrous remuneration, while low-end employees receive pay at or near rates where they qualify for government assistance. Elevating a belief in markets has become a religion, particularly in light of how our markets currently function. This ain't gonna end well unless and until massive change is effected. Ha! President Trump? I will not be surprised.

jim Florida July 1, 2016
I don't beleive the question is should inefficiency be less so that there can be more equality. This framing of the question is what has led us to our current situation. This definition is what justifies the current lopsided winner take all distribution of the growth in our GDP. The question has alway been how the rewards of efficiency be shared in our society. The rules of the game need to be changed so that those at the bottom 90% of the bell curve share somewhat in the nations productivity gains brought about by globilization and automation efficiency. Our leders both right and left need to come together to fix this. Otherwise get used to the idea of a person like Trump becomming president.

TSK MIdwest July 1, 2016
Their is a social cost to pursuing efficiency that economic models do not include. When industries are moved local economies collapse and the social wreckage is profound. Towns decline, families are dispersed and wrecked, unemployment is paid, substance abuse escalates and suicides increase.

Government and elites fail to protect people from these impacts and costs so people don't trust them and for good reason.

George Powell Carmel California July 1, 2016
You are way over-thinking this. The problem is the elites, who engineered and implemented globalization, rigged it so they have been receiving 100% of the productivity gains of the past 35 years. To call it mere oversight seems disingenuous to me.

Alice Clark Winnetka, Illinois July 1, 2016
Perhaps voters bristle at more trade agreements because they suspect that free trade only works when it boosts corporate profits. Voters see no push for free trade in many things they buy when freer trade threatens powerful lobbies.

How else to explain the total lack of free trade in legal drugs? Americans can't import legal drugs made by U.S. companies from Canada or anywhere else. Why? Because foreign governments negotiate with drug companies to lower prices for their citizens and free trade would let Americans benefit from those lower prices.

The same can be said for regional codes put on DVDs. They serve no other purpose than preventing Americans from using cheaper legally made DVDs from abroad.

Where was the free trade community when John Wiley & Sons sued Thai graduate student Supap Kirtsaeng, who used eBay to resell copies of the publisher's copyrighted books that his relatives first bought abroad at cut-rate prices? Do free traders support opening up the US market to cheaper foreign textbooks now?

MJ Northern California July 1, 2016
"A sense of stability, of purpose, of social standing — all these things matter in ways that economic models don’t do a very good job of taking into account."
That's an understatement. Economic models don’t take them into account, period. Witness the recent article or op-ed here in the Times stating that people's reluctance to simply pick up and move to a new place for a job was hurting the economy.

What economists seem to always forget is that the economy is supposed to work for people, not the other way around, as we used to complain about the Soviets thinking.

Nancy Duncan Indiana July 1, 2016
Who was it that started referring to the 0.1% as the "elite"? Perhaps resurrecting the 19th century term, "robber barons" would be more accurate both economically and socially.

Scott Seattle July 1, 2016
A nation comprised of frightened citizens who can't count on their job being around next year is a nation that will ultimately crash. The equation of capitalism requires a large pool of customers with disposable cash to buy what is produced by the economy. We're doing an excellent job of destroying that side of the equation.

In the end, no amount of clever gaming of the system will work when half of the nation is starving and the other half are hiding behind walls to avoid being robbed by the masses of unemployed.

If the elite want to continue to be elite, they had better consider the quality of life of their workers. Without them, they can produce nothing by themselves.

John Williams Petrolia, CA July 1, 2016
I was raised and remain an atheist, but I think Pope Francis understands economics better than most economists and Irwin's elite. Laudato si was not just about climate change; give it a read.

George Michigan July 1, 2016
Mr. Irwin is struggling, but still doesn't get it. His understanding is still clouded by a refusal to reexamine basic tenets in light of actual experience--clothed in the same condescension he thinks he is countering.
He says:
"Of course the only way a society can become richer over time is to increase national income. And if rigorous analysis shows that Policy X is the way to do it, the fact that Policy X is going to disadvantage a few thousand people often isn’t a reason to abandon the idea."

But "of course" national income has increased greatly in the United States over the past forty years. And, incredibly, the means by which it has been increased has disadvantaged not "a few thousand people," but some tens of millions. And, perhaps more important for the way people think, this great increase in "national" wealth has failed to create much advantage for most of the remainder of the population Until these facts--and they really are facts--are accepted, no analysis is worth much.

Peter Schaeffer Morgantown July 1, 2016
Short persons are less likely to be fond of playing a sport like basketball, where size matters. Most people like activities that all them to be successful at least some of the time. The same goes for an economy, which makes only a minority successful. Before long, the majority will ask to play a different game or change the rules to give them a better chance. To prevent this, economists cannot continue to largely ignore equity issues and focus almost all of their attention on efficiency or dissatisfaction among the majority will continue to grow.

John Cologne, Gemany July 1, 2016
The globalist plan is simple.

The U.S. will outsource the low end, labor intensive jobs to low wage countries. Jobs that can't be moved will be filled with low wage legal/illegal immigrants.

In the meantime, the U.S. will become a high value-added country within the system. We'll produce the products and services that required high levels of knowledge and creativity. This includes particularly managing capital.

That's a good concept, in theory, since we get low cost products, high value jobs, and get to essentially maintain control of the system.

In practice, it doesn't work. We have only a fixed number of people capable of filling high knowledge/creativity jobs. Only about 1/3 of U.S. adults have a college degree, and that number is limited not by costs or people's laziness, but simply their ability to do college level work. Therefore, the problem is that the U.S. loses the lower end jobs for less educated people, but then can't move them into higher end jobs. Moreover, the job losses and wage suppression among these workers depresses consumer spending and the economy in general.

The benefits of the globalist system therefore flow to foreign workers who are "lifted out of poverty" and the 10% capital/knowledge class in the U.S., leaving a large percentage of U.S. workers to suffer - and vote for Sanders or Trump.

Yukon John LA CA July 1, 2016
The author does well to be more introspective about what they perceive as irrational decision making by the electorate. However, there are economists that are pointing out the inherent flaw of the free-market theorist, and this is an article about Milton Friedman style laisez-faire economics. Economists like Yanis Varoufakis who has pointed out that "Capitalism cannot outlive its own technological inventions." This expression explains the current environment of slow growth even as central banks are postured at their most accommodative stance in history. Why? It's because our economy is built on consumerism and debt, and as the pool of consumers with disposable incomes declines due the capitalism's tendency to always push unit costs lower, the demand side dwindles, while the debt infused floor for financial instruments persists. These two taken together are undermining the implied agreement between labor and capital...labor has lost its "stake" in the success of capital and they are now reaching for ropes like someone drowning and in the throes of survival. The elite, in the boat, look around hearing the noise and wonder, why all the fuss?
It's amazing this cycle is such a surprise to many. I now know why some religious sects require vows of poverty. It's clear to me now having any material distractions obscures ones thoughts and renders them biased an less capable of empathy.

RM is a trusted commenter Vermont 2 days ago

American CEOs are paid outlandish sums. In the name of economic efficiency, we should outsource this work to some extremely intelligent managers from Vietnam and India, who will be able to do the same work for one tenth the cost. Maybe even less.

Economists too!!

Kwrudy San Diego July 1, 2016
This is a really fascinating discussion and perhaps a decent explanation about why there is so much angst within the population that has been negatively affected by globalization. However, what the author did not discuss was ways in which those lives negatively affected by globalization can be improved. If a country's economic output can improve because of more trade, then some of that improvement, rather than staying in the coffers of multi-national corporations or in the pockets of wealthy investors/shareholders, should be used for improved and lower cost retraining and education, as well as for reinvestment in our country's infrastructure. That type of reinvestment, not only helps to keep our country competitive, but the investment stays local. It would help to re-employ workers who have lost jobs and get them trained for higher paying jobs.

So the problem has been that the new country wealth created by globalization has stayed too concentrated in too few hands, creating too much inequality and too little investment in our country's competitiveness. This creates populist backlash too.

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