Author: Bryan Hooper

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Current Affairs: Inequality and increasing job automation, March 15, 2018

Discussion leader: Bryan Hooper

The American Dream is still alive, but it has been fading into the distance with the growth of inequality of income and wealth distribution over the past few decades. There are some good research guides to help us understand the current situation and provide a basis for discussion of how changes in automation might affect the situation in future. In particular, the economists Thomas Piketty of the Paris School of Economics and Raj Chetty of Stanford University specialize in the study of inequality and its causes and possible cures, and the reading items suggested in these notes draw on their work.

  • The first recommendation is the World Inequality Report, which was part-authored by Thomas Piketty, and released in December, 2017. Download the executive summary from their website below and you will see in pages 4 through 16 a comprehensive review of the global situation, including an analysis of reasons for the rise in inequality and some suggestions to change the situation into a more equitable distribution. The use of well-designed charts is outstanding, and Figure E3 that illustrates the comparison between the USA and Western Europe is a good example. It shows that in the USA over a period of 36 years the share of national income of the top 1% doubled to 20% through 2016, while the bottom 50% saw its share decline from 20% to 13%. In Western Europe, in contrast, the top 1% share grew from 10% to 12%, and the bottom 50% declined from 24% to 22%. Figure E8 shows that the share of wealth (as opposed to income) rose for the top 1% in the USA from 22% in 1980 to 39% in 2014. The report is on:

    For those of you with really limited time go to the review of key findings from the report in a New York Times article from 12/14/2017:

    • The second major recommendation is to pull up The Equality of Opportunity Project website, and look at the second chart on the home page that provides the support for the first sentence of these notes. To quote, “Our work shows that children’s prospects of earning more than their parents have fallen from 90% to 50% over the past half century.” One of the Project Directors is Raj Chetty and a podcast on Freakonomics Radio expands on his research on the American Dream: there is a link to the podcast in the second paragraph of the item on Project Motivation next to the chart. You can either listen to the 40 minutes of the broadcast, or for the time-challenged, try reading the on-screen transcript instead. To save even more time read a summary of his key points below:
    Young kids who move out of a high-poverty neighborhood do much better later on in life because of several factors:
    – Residential integration.
    – Income inequality.
    – Family influence.
    – Social capital.
    – School quality.
    The investment in moving these children is repaid to society by the income taxes they pay back on the higher earnings they eventually make as adults.
    The website is:

    Chetty is also working on a project using Facebook data to help understand better the causes of inequality:

    The Brookings Institution has Chetty in 14 Charts on this site:

    • A third suggestion is to read the key points from the IPPR report titled Managing Automation which is mainly about the UK economic outlook in this area, but contains on page 17 chart 1.6 using data from the McKinsey study cited below indicating that 60% of occupations in the USA consist of activities that are 30% automatable. (Does that mean that 18% of those jobs will disappear?) It also states that occupations with zero chance of being automated include psychiatrists and legislators! The executive summary on pages 2 to 5 is a quick read, but section 2 on pages 24 to 30 covers their forecast for the growth of inequality due to automation. The potential loss of wages associated with automating activities is estimated as $1.1 trillion in the USA.

    • The fourth recommendation is to review the key findings of a McKinsey Global Institute study titled A Future that Works: Automation, Employment and Productivity. Pages ii to iii provide a quick summary. The subsequent executive summary is on pages 1 to 3, and for those with perseverance the full report covers an additional 16 pages of analysis and opinion. Themes/Digital Disruption/Harnessing automation for a future that works/MGI-A-future-that-works-Executive-summary.ashx

    • For the fifth reference point, if you still have the time and energy, have a look at the debate on Intelligence Squared from October, 2014, Income Inequality impairs the American Dream of Upward Mobility. Again, you can download a transcript to read in a shorter time than listening takes – 1:44 hours – and it will also save you having to listen to the self-centered moderator. Note that the motion was judged to have failed by their scoring system, but a majority of the audience ended up supporting it.

    • And for those with even more stamina here is a selection of newspaper articles to browse on this subject:
    From the New York Times 2/28/18: The Unmet Promise of Equality:

    As the World Economic Forum convenes in Davos, the powerful are feeling optimistic because of waning worries about populism and global economic growth.

    From The New York Times: Open Societies Under Siege. Trump is a symptom, not a cause. That is why he will be hard to dislodge.

    Hidden in the middle of this article is McKinsey’s estimate that “roughly half of all jobs are at risk of automation in the next 20 years.” Increased expenditures on training and development of people is suggested as the answer to the problem.
    From The New York Times: How C.E.O.s Should Spend Their Tax Cuts. Bonuses are nice, but the best investment is in training your employees.

    From The New York Times:The Redemption of Chris Hughes. The Facebook co-founder’s rise was meteoric. He argues that the same forces that helped him succeed have made it harder for others. In a new book, “Fair Shot,” he proposes a bold solution.