Inequality, Apple Edition

In his debut post for Slate, Matt Yglesias comments on this op-ed by Lawrence Summers about inequality. While generally agreeing with Mr. Summers on most points, he picks a particular bone over this comment:

Why has the top 1 percent done so well relative to the rest? The answer lies substantially in changes in technology and in globalization. When George Eastman revolutionized photography, he did very well, and because he needed a large number of Americans to carry out his vision, the city of Rochester, N.Y., had a thriving middle class for two generations. When Steve Jobs revolutionized personal computing, he and Apple shareholders did very well, but those shareholders are all over the world, and a much smaller benefit flowed to middle-class American workers, both because production was outsourced and because the production of computers and software was not terribly labor-intensive.

To which Yglesias responds:

The real differences from the Kodak era are twofold. One is that we arguably have fewer of these companies. America in 2011 has a few high-tech clusters, including the three names above and also Seattle, Austin, and arguably Washington DC. But we used to have dozens of cutting-edge manufacturing clusters. The other thing is that back in the day if you wanted to take advantage of the growth and prosperity in Rochester, you just had to go move to Rochester. Today, a working class person looking to get ahead by moving to the Bay Area is going to find that it’s prohibitively expensive to afford a reasonable place to live.

Anyone who regularly reads Yglesias knows that his hobby-horse is urban economics (his forthcoming book covers such a subject), so it doesn’t surprise me to see him jump on this subject. While I generally agree Summers discounts the fact that America has fewer of these companies, I also think Yglesias unfairly discounts the accompanying outsourcing phenomenon. Such a factor, in my opinion, would exacerbate the downsides of having fewer of these companies. I would conjecture that this exacerbation would be of greater importance than the prohibitive expense of moving to the Bay Area.


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