Why the future will be unfair

An economist argues that the US needs to start looking at inequality (as, indeed, do other developed economies) in a more dispassionate and analytical way.

Of all the many changes to American society since the 1960s, one of the most unexpected is also one of the most overlooked. Between 1969 and 2009 the median income for men in the US fell somewhere between 9 and 28 per cent, depending who you talk to. This is the departure point for Tyler Cowen’s new book, Average Is Over.

Having chronicled the US’s economic vulnerability in The Great Stagnation, Cowen, an economist at George Mason University in Virginia, says we have entered the age of “hypermeritocracy”, in which the top 10 to 15 per cent of Americans are “extremely wealthy” and lead “fantastically comfortable lives” and the rest work in “stupid and frustrating” jobs for falling or stagnant wages.

These trends are clearly evident in the US today. He writes that 60 per cent of the jobs lost during the recession were mid-wage jobs, while 73 per cent of the jobs created were for workers on $13.52 (£8.36) an hour or less. In the longer term, intelligent computers will further dampen demand for mid-wage jobs and only those with the ability to work with intelligent machines, or whose skills are irreplaceable, will benefit.

Free online education – something that Cowen is already pioneering with his online economics courses at the Marginal Revolution University – will offer opportunities to those from deprived backgrounds to join the new elite, and so the future will be both “more meritocratic and more unfair”.

Cowen says that many will struggle to reconcile this tension between meritocracy and fairness. “This juxtaposition is a kind of deliberate confusion,” he says to me when we speak over the telephone. “The point is that this world will be confusing and it will be disorientating . . . The final picture is one with both utopian and dystopian elements.”

He says he doesn’t want to tell his readers what to think, but argues that the US needs to start looking at inequality (as, indeed, do other developed economies) in a more dispassionate and analytical way. “There are many books on inequality but quite quickly they tend to run on the left to preaching some message; and on the right, maybe a kind of denialism or moralising about people who aren’t doing as well,” he says. “I tried to avoid both directions to see if we can get our understanding a bit further.”

Cowen was New Jersey’s youngest-ever chess champion, aged 15 when he won in 1977, and he devotes a whole chapter to the intrigues and wider implications of freestyle chess, in which players are allowed to use computer programs to improve their game. In the future, the “wisest” of us will entrust computers to make decisions for us, not only on chess moves but for affairs of the heart, he believes.

For Cowen, algorithms can hold the key to a happy marriage. He met his wife through the online dating site match.com in 2003. She is a liberal but he describes himself as a “libertarian” and “conservative”, and admits that his wife might have been less keen on a first meeting if she had known his political leanings. The medium of online dating forced her to abandon her usual intuitions – to their mutual benefit.

“I have quite a few friends who are single and I find a lot of them have quite arbitrary standards,” he says. “Over time, programs are going to nudge us out of that. The people who are willing to be nudged will on average marry better and they will make a lot of better choices.” If average is over, so is romance.

Russian chess world champion Vladimir Kramnik plays his sixth and last chess match against chess computer 'Deep Fritz'. Image: Getty

Sophie McBain is a freelance writer based in Cairo. She was previously an assistant editor at the New Statesman.

This article first appeared in the 07 October 2013 issue of the New Statesman, The last days of Nelson Mandela

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.