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Inequality Bulletin, 2013

Redistribution of wealth up
as the essence of neoliberalism
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006

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[Dec 23, 2013] Inequality: Government Is a Perp, Not a Bystander By Dean Baker

High levels of unemployment put downward pressure on workers' wages, especially those in the bottom third of the labor force. This means we have a federal budget that limits growth and employment in a way that redistributes income upwards.
December 23, 2013 | Truthout

And the macroeconomic policy run by the government has also worsened inequality. Budgets are crafted by politicians, not the gods or nature. The decision not to run a more stimulatory policy to reduce unemployment is every bit as much a conscious act as would be the decision to try to bring the economy to full employment with further stimulus.

In other words, Congress and the president have decided to craft budgets that lead to tens of millions of people being unemployed or underemployed. As Jared Bernstein and I point out in our new book, high levels of unemployment put downward pressure on workers' wages, especially those in the bottom third of the labor force. This means we have a federal budget that limits growth and employment in a way that redistributes income upwards.

There is a much longer list of ways in which the government has acted to redistribute income upwards over the last three decades. I have a fuller discussion in my book, The End of Loser Liberalism: Making Markets Progressive.

But the key point is that inequality didn't just happen, it was the result of government policy. That is why people who actually want to see inequality reduced, and for poor and middle class to share in the benefits from growth, are not likely to be very happy about President Obama's speech on the topic. His comment about the government being a bystander ignores the real source of the problem. Therefore it is not likely that he will come up with much by way of real solutions.


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[Dec 28, 2013] The Danger of Front-Loading Income Inequality

Dec 28, 2013 | EconomistView

Lane Kenworthy:

Living Standards in an Open Economy: The Danger of Front-Loading Income Inequality, by Lane Kenworthy: Over the past decade, the American left has directed a growing share of its attention at income inequality.[1]
Indeed, for some, reducing income inequality seems to have become the central goal.
There are compelling reasons to object to America's high and rapidly rising level of income inequality.
One is fairness. Much of what determines a person's earnings and income - intelligence, creativity, physical and social skills, motivation, persistence, confidence, connections, inherited wealth, discrimination - is a product of genetics, parents' assets and traits, and the quality of one's childhood neighborhood and schools. These aren't chosen; they are a matter of luck. A non-trivial portion of income inequality is therefore undeserved.
Second, income inequality may increase inequality of other valuable things, such as education, health and happiness. Even if we think greater inequality in the distribution of income is acceptable, we may feel that greater inequality in the distribution of health, schooling and subjective well-being is not.
Third, a rise in income inequality contributes to slower absolute income growth for those in the middle and at the bottom.[2]
These, however, are not the rationales commonly put forward for worrying about income inequality. Instead, the most common arguments are that inequality is bad for the economy, overall health, opportunity and democracy. "Of all the competing and only partially reconcilable ends that we might seek," writes Tony Judt in Ill Fares the Land, 'the reduction of inequality must come first. Under conditions of endemic inequality, all other desirable goals become hard to achieve?" Is that true? ...[continue]...

Larry said...

Let's try this again. What is a fair distribution of income and on what basis do you make that claim? Marx told us how. Rawls told us something different. Then there's Rand. The best I've gotten from the left in the last year or so is "More progressive. Because progressive." Some go with "the good old days were fine" which is OK, except that they were saying the same thing back then, about other, older, gooder days...

Peter K. said in reply to Larry...

Good old days 1945-1973. Higher taxes, higher unionism, more growth and broad based wage gains.

Conservative took charge: cut taxes on the rich, destroyed unions, deregulated.

Bubble/bust/financial crises, slack labor markets, slow growth and higher inequality, income and wealth redistributed by government policy upwards.

bakho said in reply to Peter K....

Yes. Increase in inequality was by design. LK talks about more government goods and services. However, the wealthy elites have tried to destroy consensus on this by means testing services (middle class doesn't benefit) and shifting the tax burden onto the middle class. Their policy was designed to erode support.

Goods and services that do benefit the middle class (such as public education) are under attack. If you don't unstained that rise in inequality is the result of policy designed to achieve just that, you haven't been paying attention. Fighting inequality will require a long term concerted effort. The side of equality is disorganized and flooded with disinformation from the wealthy elites who can afford an extensive advertising campaign.

Roger Gathman said in reply to Larry...

I think the what is fair is the wrong question: the question should be: does fairness require economic sacrifice? I mean, I could well understand someone saying I don't care if it is fair that I have my million dollars, cause I love my million dollars. But the claim that fairness is "profitable" - that fairer systems are systems that generates, say, more economic productivity - is another matter. Perhaps they don't. Perhaps fairness is an economic cost.

The latter alternative would be fine with me, by the way. Economics should be the servant of our lifestyle arrangements, I think, and not the master. It is easy to imagine that a poorer community with greater fairness would be a more livable community. Affluence should allow one to choose the kind of paths that would take one to greater affluence. Because, of course, greater affluence too has a cost.

Larry said in reply to Roger Gathman...

If you can't define what "fair" even means, how do you know you're getting more of it, beyond the banal generalities that this thread displays?

roger gathman said in reply to Larry...

If I defined fairness with precision, it would screw up any discussion of fairness, since fairness, like the rest of the concepts that float in the public consciousness, is not mine to "make up" or "define". Rather one instances it from where it really occurs: for instance, in legal documents and laws (such as those concerning unfair practices), in opinion surveys, in novels and poems, in newspaper stories. You can trace its use in history - many translators have taken aequitas as used by the medievals to signify fairness.

In fact, I think that the intersection between the symbol of fortuna - which, in modern translation, is the likewise mythical 'market" - and Justicia, both blindfolded, both great forces of distribution, is at the heart of the discussion of fairness even not.
But these questions should not lead to downplaying banal generalities, which are in fact what we are after - tell me how the concept of fairness is being used and I'll tell you what it means.

roger gathman said in reply to Larry...

But your example isn't very good. Define health. You find a buncha definitions right away. Since the government is already in the health business - this is what sewage is about, food inspection, and licencing medical personell, among other things, as well as giving monopoly power to doctors to unlock drugs for the public through a legally mandated prescription system - the question doesn't go away by talking about single payer. A single payer system leads to a variety of mixes of health care systems - such as one sees in different European countries, for instance.

Fairness, like health, is a multi-splendored thing, and the conversation isn't just about the government raising taxes on the wealthy. Conservatives like to force the conversation that way, instead of, for instance, allowing capital and labor to battle it out without the state being on capital's side. Myself, I think the state should intervene on many fronts to make for fairness.

You seem to want to find proxies for fairness, which is different from "defining" it. The traditional way of doing this is to use an index - some marginal disutility function - that would give one a sense of the ease of access to various goods and services, and how much that cuts into the lifestyle. On such reasoning the progressive income tax was brought to America, and was applied, very justly, in its first couple decades only to the rich and the near rich. That's a good example of fairness - or if you will, equity - in action.

Larry said in reply to roger gathman...

You don't have to define health to define a health care system although there are definitions out there like QALY that I think are pretty good. Single payer is a system. It has variations, but the basic notion is hugely popular among lefties.

Let's talk about an equality system. What kind of system are you advocating? Does it have a name?

Finally, we used to talk about "equality of opportunity" vs "equality of outcome". Are we reduced to "equality of income and wealth"?

roger gathman said in reply to Larry...

No, your question was about fairness. You can define equality, I think. But who said equality and fairness are the same thing?

Getting back to the topic you started and then ignored, the place of fairness in contemporary conservative/libertarian thought puzzles me. Take the case of a rich man who bribes a judge at his murder trial. I don't see how a libertarian or a Romney style conservative could call this unfair, any more than it is unfair that the rich man can afford a "dream team" of lawyers. From the liberal point of view, this is a classical violation of equity - but from the libertarian point of view, isn't this just a market working efficiently? And if it isn't, why? What is unfair about it?

DeDude said in reply to Larry...

You are asking for an absolute answer to something that is relative. The absolute distribution that would be reaching the absolute "fairness" is not definable. However, in the current situation a more equal distribution of income would be more fair.

grizzled said in reply to Larry...

I see that down thread has basically ignored this question, which is what it deserves. It's a typical right-wing diversionary tactic, similar to invocations of the "law of unintended consequences." Conclusion: since we can't say with complete certainty that the outcomes of any action we might take will be as desired we should take no action.

This ignores the certainty that taking no action will not lead to our desired outcomes.

I am not able to give a general definition of fairness but I'm nonetheless quite certain that the current situation is massively unfair. How to I know this? It requires willful blindness not to know it.

anne said in reply to gordon...

It's very worrying when the people you expect to come up with first-best policy options start offering second-best or third-best on the basis of political expediency....

[ Agreed. ]

Dan Kervick said...

I find it quite interesting that all of the center left managerial liberalism types who spent the past several years supinely supporting the Democratic Party's ridiculously ineffective, misguided, budget-obsessed political agenda now have their panties in a bunch about the growing egalitarian movement and have taken to concern-trolling it everywhere. They now warn us not to put it ahead of other important things, and not to "take our eyes of the ball" of things like unemployment - something else that Washington spent the past five years do nothing about! Tell me about those important eyes on the unemployment ball. When others were saying unemployment was Job One, the party men and women were focused on grand bargains and monetary masturbation.

The smell of fear is everywhere in this latest wave of warnings. Establishment Democrats are terrified that their plutocracy-friendly, crony-capitalist, privilege-protecting, elitist political machine is falling apart, and have wheeled out a new campaign to deflect, disparage, co-opt and disarm the egalitarians before they really get moving.

[Dec 23, 2013] Inequality: Government Is a Perp, Not a Bystander By Dean Baker

High levels of unemployment put downward pressure on workers' wages, especially those in the bottom third of the labor force. This means we have a federal budget that limits growth and employment in a way that redistributes income upwards.
December 23, 2013 | Truthout

And the macroeconomic policy run by the government has also worsened inequality. Budgets are crafted by politicians, not the gods or nature. The decision not to run a more stimulatory policy to reduce unemployment is every bit as much a conscious act as would be the decision to try to bring the economy to full employment with further stimulus.

In other words, Congress and the president have decided to craft budgets that lead to tens of millions of people being unemployed or underemployed. As Jared Bernstein and I point out in our new book, high levels of unemployment put downward pressure on workers' wages, especially those in the bottom third of the labor force. This means we have a federal budget that limits growth and employment in a way that redistributes income upwards.

There is a much longer list of ways in which the government has acted to redistribute income upwards over the last three decades. I have a fuller discussion in my book, The End of Loser Liberalism: Making Markets Progressive.

But the key point is that inequality didn't just happen, it was the result of government policy. That is why people who actually want to see inequality reduced, and for poor and middle class to share in the benefits from growth, are not likely to be very happy about President Obama's speech on the topic. His comment about the government being a bystander ignores the real source of the problem. Therefore it is not likely that he will come up with much by way of real solutions.

[Dec 20, 2013] Are There No Workhouses? Are There No Prisons?

The only thing that Obama has in common with Franklin Roosevelt is that they were both '"raitors to their class."
Dec 20, 2013 | Jesse's Café Américain
Don't bother sending news of the cruel propaganda stunt by Peter Schiff saying that if Walmart pays its employees a living wage, then the price of goods at Walmart will have to rise substantially. That canard has been used to justify every abuse of human beings and their labour since the days of Pharaoh.

Read this instead: Walton Family Earns $29 Billion In Six Months

"Income inequality is continuing to set records, and the Waltons are emblematic of this trend. Just last week it was reported that the top 1% of U.S. earners took home 19.3% of household income last year.

This is the highest proportion in a century; we have officially surpassed Great Depression-era levels of income concentration at the top. For the other 99% of Americans, household income went up a whopping 1% in 2012."

"No business which depends for existence on paying less than living wages to its workers has any right to continue in this country."

stunney said...


How to stick it to the poor: A congressional strategy
By Samantha Paige Rosen
14 hours ago
The Week

Well, it's certainly been an eventful year.

The 113th Congress has stuck it to the poor at pretty much every opportunity. In fact, if you take all their past and future plans into account, it looks like they have accomplished that rare feat: To close in on enacting an overarching, radical agenda without control of the Senate or the presidency. How did they do it? Probably by escaping scrutiny through a piecemeal approach to legislation, a president who is willing to meet them halfway, and one diabolic word: Sequester.

Let's drill down into each piece:

1. Kick 'em to the curb
Congress will basically start kicking poor people out of their homes early next year. The idea is, if you can't pay for your home without government assistance, you don't deserve to live in one. In this spirit, budget cuts due to sequestration will take rental assistance vouchers away from 140,000 low-income families by the beginning of next year, making housing more expensive as agencies raise costs to offset the budget cuts. All in all, about three million disabled seniors and families will be affected. The savings? $2 billion, which is pretty much what the government shutdown cost in back-pay to federal workers.

If you're lucky enough to keep your home, don't expect to heat it. Sequester cuts to the Low Income Home Energy Assistance Program (LIHEAP) meant that 300,000 low-income families in 2013 were denied government support for energy costs.

2. Take the food out of their mouths. Literally.
The recent reduction in Supplemental Nutrition Assistance Program (SNAP) benefits has affected more than 47 million Americans and is the largest wholesale cut in the program since Congress passed the first Food Stamps Act in 1964.

The cuts to Food Stamps were implemented on November 1. Yet, Congress won't let the program rest there - House Republicans are pushing to take $39 billion from SNAP over the next decade. If their plan succeeds, the Congressional Budget Office estimates that 3.8 million low-income individuals would lose their benefits in 2014 with 2.8 million more getting kicked off the program each year. SNAP is one of the three most effective anti-poverty programs the government has, keeping four million people out of poverty last year alone. So the initial and further cuts make a lot of sense - if you despise the poor.

And don't worry, other cuts to food programs ensure both the oldest and youngest amongst us won't be spared. Cuts to Meals on Wheels will cost poor seniors four to 18 million meals next year. Meanwhile, the Women, Infants, and Children program (WIC), which provides health care referrals and nutrition to poor pregnant and postpartum women and children up to age five, has grappled with $500 million in cuts this year and faces even deeper ones next. Fair's fair, though.

3. Dim their kids' future
There's nothing that will make our economic future brighter than under-educating our children, right? That's why, again as a result of sequestration, Head Start literally had to kick preschoolers out of their classrooms this March and removed 57,000 children from the program this September (70,000 kids total are will be affected). If this weren't enough, more than half of public schools have fired personnel due to the ominous cuts - and Representative Jim Jordan (R-Ohio) said sequestration "has been one of the good things that has happened." Given that 40 percent of children who don't receive early childhood education are more likely to become a parent as a teenager, 25 percent are more likely to drop out of school, and 70 percent are more likely to be arrested for a violent crime, this is definitely the definition of a "good thing."

4. Erase the roadmap for employment
The United States has one of the stingiest unemployment programs in the developed world and it is getting even stingier. People who have been out of work for 27 weeks or more - 40 percent of the unemployed - have already begun and will continue to lose a large portion of their benefits between January and March. Eight percent of this year's sequestration cuts are coming from unemployment insurance. The logic here is that the program discourages people from looking for work, so why fund something that just makes the unemployed lazier? The evidence, however, proves that government assistance fuels the job searches of these 4.4 million Americans. Yet by the end of December, about 1.3 million will lose their extended jobless benefits if Congress doesn't renew the program. And cuts to the Temporary Assistance for Needy Families program (TANF, or welfare) means there will be even less of safety net to fall back on.

5. Make 'em work till they drop
President Obama put Social Security cuts in his budget for fiscal year 2014, and Republicans are thrilled. Switching to a new formula called Chained CPI would lead to benefit cuts of $230 billion dollars in the next ten years. Apparently, it's Social Security that's driving up the debt, as Speaker of the House John Boehner (R-Ohio) has said. The irony here, according to The New York Times' Paul Krugman, is that while debt can indirectly make us poor if deficits drive up interest rates and discourage productive investment (they haven't), investment is low because the economy is so weak, partly from cutbacks in public spending and investment - the cuts, such as this one, that supposedly protect Americans from a future of excessive debt. Democratic Senators Elizabeth Warren (Mass.) and Tom Harkin (Iowa) have been fighting an uphill battle to boost Social Security benefits. But carry on, Congress. What you're doing really makes sense here.

In just a few short decades, we've gone from LBJ's Great Society, where many of these ideas originated, to this Congress' attacks on the poor. According to the Census Bureau, safety net programs keep tens of millions of Americans out of poverty each year. But that's just not the federal government's priority anymore. This Congress' message: It's every man for himself

What Obama Left Out of His Inequality Speech Regulation

Economist's View

Thought I'd highlight this piece from today's links:

What Obama Left Out of His Inequality Speech: Regulation, by Thomas McGarity, Commentary, NY Times: President Obama's speech on inequality last Wednesday was important in several respects. He identified the threat to economic stability, social cohesion and democratic legitimacy posed by soaring inequality of income and wealth. He put to rest the myths that inequality is mostly a problem afflicting poor minorities, that expanding the economy and reducing inequality are conflicting goals, and that the government cannot do much about the matter.
Mr. Obama also outlined several principles to expand opportunity: strengthening economic productivity and competitiveness; improving education, from prekindergarten to college access to vocational training; empowering workers through collective bargaining and antidiscrimination laws and a higher minimum wage; targeting aid at the communities hardest hit by economic change and the Great Recession; and repairing the social safety net.
But there's a crucial dimension the president left out: the revival, since the mid-1970s, of the laissez-faire ideology that prevailed in the Gilded Age, roughly the 1870s through the 1910s. It's no coincidence that this laissez-faire revival - an all-out assault on government regulation - has unfolded over the very period in which inequality has soared to levels not seen since the Gilded Age. ...[continue]...

See here for more.

DeDude said...

The increased inequality and revival of laissez-faire are just two sides of the same coin. When the rich plutocrats get more power they reduce restrictions on themselves and take as big a piece of the cake as they possibly can. This all started with a rich sociopath creating Fox news and using Big Boob Blondes to brainwash the sheeple into thinking that it was in their personal inters to let the rich take a bigger piece of the pie (cause somehow by magic that would make the pie bigger).

Jesse said...

"It is too bad that so many are distracted, if not ensnared, in the well-crafted emotionalism and stage play of left vs. right puppet show which is put forward in the headlines, while the looting of the nation by its ruling class proceeds almost unimpeded to almost everyone's detriment, except for an obscenely fortunate few."

Robert Reich: JP Morgan and the Corruption of America

kievite said...

Deregulation is just one aspect of neoliberalism. And if we view deregulation though the prism of neoliberal ideology, I think international aspect of neoliberalism is very important and, unfortunately was neglected in the article. Also internally growth of neoliberal ideology parallels the growth of the national security state. In this sense the cornerstone events for deregulation were Truman's national security doctrine, JFK assassination, the collapse of the USSR and 9/11.

I don't think that the rise of neoliberalism was just a reaction of rich on "too strict" regulation of New Deal. This view can be called "the theory of revenge of financial elite." IMHO roots are deeper as neoliberalism is also an instrument of the US foreign policy and as such the main blow hit foreign nations, and only as a blowback the USA society ;-)
In the USA, while deregulation wave did exist since Reagan (or Carter) and did enormous damage, not all elements of neoliberal doctrine were implemented. For example growing external debt might be viewed as a semi-official policy of exploiting the status of the dollar as the world reserve currency to the bitter end ("After us deluge"), neoliberal theories be damned.

So while right-wing think tanks played an important role (especially turncoat Trotskyites in those tanks, such as James Burnham and Irving Kristol), fish rots from the head: it was the USA government, and first of all foreign policy establishment, that pushed neoliberal agenda as an export product for foreign nations.
BTW both Democratic and Republican administrations pushed it on foreign nations equally effectively. With democrats often doing the most dirty job (Clinton's economic rape of Russia is one well-documented example). Actually from 1990 till now neoliberalism is the cornerstone of the US foreign policy, viewed by other countries as super-aggressive, imperial ideology, displacing Marxism and National socialism.

On the other hand the internal "implementation" of neoliberalism might also be forced by the law of diminishing returns due to monopolization of most US industries, which hit the USA in 70th and coincided with the first oil crisis of 1973.

At this point the "profit sharing" with the US workers that the latter temporary enjoyed from, say 1941 to 1973 became impractical. In other words there was no longer enough sweets for all children. That's when corrupt hired-guns from Chicago school like Friedman became so valuable. Friedman's "Capitalism and Freedom" (1962) is essentially the manifest of neoliberalism.

Also in 70th it became clear the USSR became a stagnant society that represent little, if any threat to the USA ("paper tiger" as our Chinese friends aptly noted). So the US hands were freed. That weakening of the USSR position probably indirectly led to Chile coup d'état of 1973, the year neoliberalism became official US foreign policy.
And in 1991 the main obstacle for enforcing neoliberal agenda on other nations -- the existence of the USSR -- disappeared. At this point Neoliberal ideology was enshrined as the economic orthodoxy and IMF became the tool for "shock therapy" of unsuspecting nations. This neocolonial approach based on pushing foreign load (which can't be repaid due to natural backflow of money to Western banks by corrupt government officials) and then dictating draconian condition (structural adjustments) for refinancing them. Conditions that open the country like a can for the US (and other Western) multinationals (aka "Washington Consensus".). That's an interesting way to exploit corruption in the third world, while officially fighting it.

Larry said...

The interesting part is where policies that lead to greater equality diverge from those that grow the economy. McGarity's claim that "Obama put paid to" such a possibility is probably better phrased as "Obama denied".

He listed "economic productivity and competitiveness; improving education, from prekindergarten to college access to vocational training; empowering workers through collective bargaining and antidiscrimination laws and a higher minimum wage; targeting aid at the communities hardest hit by economic change and the Great Recession; and repairing the social safety net"

All those items save productivity and K-12/higher education/training are about slicing the pie regardless of how they impact its size. It's a profound retreat from his earlier, albeit episodic, focus on "jobs, jobs, jobs".

If he plays it right, it may help his popularity. Do the math. There are a lot more people with jobs who'd like a raise than there are those who would like to get a job in the first place. If he can convince workers that his policies will produce higher incomes, everyone can forget about the unemployed and live happily ever after.

The only policy that will directly (rather than indirectly by e.g., fixing monetary policy) increase both jobs and incomes is wage subsidies. While they have troubles of their own, they maintain the incentive to work and the incentive to hire at costs a tiny fraction of the 00s of thousands per job that came from O's stimulus plan. A subsidy of say $2.50/hr for every incremental hour over the prior year would push incomes up and create jobs as well.

Other than that, he should stick to running his drones.

There is already sufficient regulation that the government can force any private actor to do anything it wants. E.g., see the JPM settlement last month or the nonsense about Reagan landing slots and the AA/USAIR merger. Our "limited" government is effectively limited only by what the media rather than Constitution will allow. The rest is just full employment for lobbyists, lawyers and accountants. They gotta eat just like you and me, so there you are.

kievite said in reply to Larry...

> The interesting part is where policies that lead to
> greater equality diverge from those that grow the
> economy.

Good point. I would add that sometimes internal policies can become hostage to foreign policy agenda that benefits only mutinationals.

> There is already sufficient regulation that the
> government can force any private actor to do
> anything it wants.

Another good point. So absense of regulation is not sufficient condition for deregulation. You need also the absense of will to regulate as a pre-condition. Putting cronies in regulatory agencies as Bush II did was essentially a stealth deregulation without changing any laws.

> Our "limited" government is effectively limited
> only by what the media rather than Constitution
> will allow.

It goes without saying. That's the part of the elite control. That's how saving of financial industry was sold to the nation.

Also returning to the inequality issue, nowhere in MSM you can read that people working in WalMart (many of them single mothers) actually are living not in the USA but in some third world country with hunger at the end of the month as a common problem.

So the problem (and this is a complex problem) exists but the government is off the hook and can safely ignore it. WalMart workers interests have no representation in MSM and never will unless riots occure.

Larry said in reply to kievite...

You don't think Dems put cronies in reg agencies? Have you looked at NLRB lately? Fannie Mae? OCR? The whole point is that cronyism is the inevitable consequence of the intrusive state. Why do you think DC became the richest neighborhood in the country during the Obama years.

While single mothers do work in low-wage jobs, so do lots of others. It's up to the women to decide when to have kids, but is it incumbent on the rest of the country to, e.g., pay higher prices and higher taxes because of the choices those women make? The rapid decline in the teenage pregnancy rate in recent years shows that women exercise autonomy in these matters. Further, we have enormous numbers of social programs to help them out. But never mind. Let's give them more free stuff to help them along.

kievite said in reply to Larry...


> You don't think Dems put cronies in reg agencies?

Do you really think there is a big difference between Repugs and Dems?

Obama actually is to the right of Teddy Roosevelt, Eisenhower and Nixon, is not he?

Looks to me like one party with two wings, much like CPSU in the USSR.

> Let's give them more free stuff to help them along.

OK, let's assume those women are either reckless or stupid. But why children need to suffer? Also why military budget should have higher priority then those children?

We don't punish reckless (and criminal) AIG executives with their outsize bonuses after bailout, do we?

So this is a much more complex issue that you are trying to imply. And fixation of punishment does not help...

mrrunangun said...

Deregulation has been a big problem in areas of the economy where the beneficiaries of changes in the law purchased the deregulatory changes from the people who controlled the federal government. In most other areas of the economy federal regulation has become ever more extensive and intrusive. In education, health, manufacturing, extractives, exim, regulatory squeeze has gotten tighter over the same period that the SEC and the Fed turned a blind eye to violations of what laws remained to potentially restrain the financial sector. It is the financial sector which purchased laissez faire for itself while the regulatory federal anaconda squeezed everybody else tighter and tighter.

Rusty said...

Logically, regulations benefit those that have a hand in creating them - politicians and lobbyists who represent entrenched business interests. Certainly politicians will try with at least lip service towards some equitable aim in the public interest, but they must work with the entrenched interests to acheive anything and to maintain power. So it makes sense that often regulations serve entrenched interests and thereby increase inequality.

[Nov 26, 2013] Calif. conservative pushes for higher minimum wage By JENNIFER MEDINA

The Seattle Times

A conservative Silicon Valley millionaire is pursuing a goal that has stymied liberals: raising the minimum wage, because he says it would help curb government spending on social services, strengthen the economy and make more jobs attractive to U.S.-born workers.

Ron Unz, a Silicon Valley millionaire, rose to fame by promoting a ballot initiative that essentially eliminated bilingual education in California. He went on to become publisher of The American Conservative, a libertarian-leaning magazine.

But after decades in the conservative movement, Unz is pursuing a goal that has stymied liberals: raising the minimum wage.

He plans to pour his own money into a ballot measure to increase the minimum wage in California to $10 an hour in 2015 and $12 in 2016.

Currently, it is $8. That's 75 cents higher than the federal minimum.

Using what he sees as conservative principles to advocate a policy long championed by the left, Unz argues that significantly raising the minimum wage would help curb government spending on social services, strengthen the economy and make more jobs attractive to U.S.-born workers.

"There are so many very low-wage workers, and we pay for huge social-welfare programs for them," he said.

"This would save something on the order of tens of billions of dollars. Doesn't it make more sense for employers to pay their workers than the government?"

Unz plans to submit the ballot language to the California secretary of state on Tuesday, declaring his intention to gather enough signatures to place it on the ballot in 2014.

President Obama has called for raising the federal minimum wage to $9 from $7.25, but has received little support from Congress.

Unz has spent nearly $1 million on previous ballot measures and said he was prepared to spend some of his own fortune on this initiative.

He added, though, he expected the cost to be "minimal" because he anticipates widespread support.

But businesses would almost certainly spend to defeat the measure.

Earlier this year, Gov. Jerry Brown, a Democrat, signed legislation to increase the minimum wage to $10 an hour in 2016.

The California Chamber of Commerce labeled the bill a "job killer" and said such a large increase would raise the unemployment rate and put the state's precarious economic recovery at risk.

A spokeswoman for the group declined to comment on Unz's proposal.

Unz brushes aside such criticism, saying the size of California's economy - which, at about $1.9 trillion, is bigger than most countries' - would prevent any large-scale movement of jobs to other states.

National polls suggest raising the minimum wage is popular, and Unz said he believed such a measure would pass easily in California, where an estimated 1.6 million residents earn less than $10 an hour.

Unz wrote in the magazine last year that manufacturing "sweatshops" that rely on immigrant workers, including those in the country illegally, were among the few industries that would be devastated by a higher minimum wage.

[Nov 26, 2013] Pope attacks 'tyranny' of markets, urges renewal in key document by Naomi O'Leary

Yahoo News

Pope Francis called for renewal of the Roman Catholic Church and attacked unfettered capitalism as "a new tyranny", urging global leaders to fight poverty and growing inequality in the first major work he has authored alone as pontiff.

The 84-page document, known as an apostolic exhortation, amounted to an official platform for his papacy, building on views he has aired in sermons and remarks since he became the first non-European pontiff in 1,300 years in March.

In it, Francis went further than previous comments criticizing the global economic system, attacking the "idolatry of money" and beseeching politicians to guarantee all citizens "dignified work, education and healthcare".

He also called on rich people to share their wealth. "Just as the commandment 'Thou shalt not kill' sets a clear limit in order to safeguard the value of human life, today we also have to say 'thou shalt not' to an economy of exclusion and inequality. Such an economy kills," Francis wrote in the document issued on Tuesday.

"How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses 2 points?"

The pope said renewal of the Church could not be put off and said the Vatican and its entrenched hierarchy "also need to hear the call to pastoral conversion".

"I prefer a Church which is bruised, hurting and dirty because it has been out on the streets, rather than a Church which is unhealthy from being confined and from clinging to its own security," he wrote.

In July, Francis finished an encyclical begun by Pope Benedict but he made clear that it was largely the work of his predecessor, who resigned in February.

Called "Evangelii Gaudium" (The Joy of the Gospel), the exhortation is presented in Francis' simple and warm preaching style, distinct from the more academic writings of former popes, and stresses the Church's central mission of preaching "the beauty of the saving love of God made manifest in Jesus Christ".

In it, he reiterated earlier statements that the Church cannot ordain women or accept abortion. The male-only priesthood, he said, "is not a question open to discussion" but women must have more influence in Church leadership.


A meditation on how to revitalize a Church suffering from encroaching secularization in Western countries, the exhortation echoed the missionary zeal more often heard from the evangelical Protestants who have won over many disaffected Catholics in the pope's native Latin America.

In it, economic inequality features as one of the issues Francis is most concerned about, and the 76-year-old pontiff calls for an overhaul of the financial system and warns that unequal distribution of wealth inevitably leads to violence.

"As long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world's problems or, for that matter, to any problems," he wrote.

Denying this was simple populism, he called for action "beyond a simple welfare mentality" and added: "I beg the Lord to grant us more politicians who are genuinely disturbed by the state of society, the people, the lives of the poor."

Since his election, Francis has set an example for austerity in the Church, living in a Vatican guest house rather than the ornate Apostolic Palace, travelling in a Ford Focus, and last month suspending a bishop who spent millions of euros on his luxurious residence.

He chose to be called "Francis" after the medieval Italian saint of the same name famed for choosing a life of poverty.

Stressing cooperation among religions, Francis quoted the late Pope John Paul II's idea that the papacy might be reshaped to promote closer ties with other Christian churches and noted lessons Rome could learn from the Orthodox such as "synodality" or decentralized leadership.

He praised cooperation with Jews and Muslims and urged Islamic countries to guarantee their Christian minorities the same religious freedom as Muslims enjoy in the West.

[Nov 16, 2013] In Public Education, Edge Still Goes to Rich

"There aren't many things that are more important to that idea of economic mobility - the idea that you can make it if you try - than a good education," President Obama told students at the State University of New York in Buffalo in August.

It is hardly a partisan belief. About a decade ago, on signing the No Child Left Behind Act, President George W. Bush argued that the nation's biggest challenge was to ensure that "every single child, regardless of where they live, how they're raised, the income level of their family, every child receive a first-class education in America."

This consensus is comforting. It provides a solution everyone can believe in, whether the problem is income inequality, racial marginalization or the stagnation of the middle class. But it raises a perplexing question, too. If education is a poor child's best shot at rising up the ladder of prosperity, why do public resources devoted to education lean so decisively in favor of the better off?

The anguished and often angry national debate over how to improve American educational standards, focused intently on grading students and teachers, mostly bypasses how the inequity of resources - starting at the youngest - inevitably affects the outcome.

"The debate about education reform is a lot about process," said David Sciarra, executive director of the Education Law Center in Newark, an advocacy group for disadvantaged students. "To a large extent it is a huge distraction. We never get to the question of what resources we need to get the students to meet the standards."

[Nov 11, 2013] Debt and deficit as shock therapy by Ismael Hossein-zadeh

Nov 6, 2013 | Asia Times

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

When Naomi Klein published her ground-breaking book The Shock Doctrine (2007), which compellingly demonstrated how neoliberal policy makers take advantage of overwhelming crisis times to privatize public property and carry out austerity programs, most economists and media pundits scoffed at her arguments as overstating her case. Real world economic developments have since strongly reinforced her views.

Using the unnerving 2008 financial crash, the ensuing long recession and the recurring specter of debt default, the financial oligarchy and their proxies in the governments of core capitalist countries have embarked on an unprecedented economic coup d'état against the people, the ravages of which include extensive privatization of the public sector, systematic application of neoliberal austerity economics and radical redistribution of resources from the bottom to the top. Despite the truly historical and paradigm-shifting importance of these ominous developments, their discussion remains altogether outside the discourse of mainstream economics.

The fact that neoliberal economists and politicians have been cheering these brutal assaults on social safety-net programs should not be surprising. What is regrettable, however, is the liberal/Keynesian economists' and politicians' glaring misdiagnosis of the plague of austerity economics: it is all the "right-wing" Republicans' or Tea Partiers' fault, we are told; the Obama administration and the Democratic Party establishment, including the labor bureaucracy, have no part or responsibility in the relentless drive to austerity economics and privatization of public property.

Keynesian and other liberal economists and politicians routinely blame the abandonment of the New Deal and/or Social-Democratic economics exclusively on Ronald Reagan's supply-side economics, on neoliberal ideology or on economists at the University of Chicago. Indeed, they characterize the 2008 financial collapse, the ensuing long recession and the recurring debt/budgetary turmoil on "bad" policies of "neoliberal capitalism," not on class policies of capitalism per se. [1]

Evidence shows, however, that the transition from Keynesian to neoliberal economics stems from much deeper roots or dynamics than pure ideology [2]; that neoliberal austerity policies are class, not "bad," policies [3]; that the transition started long before Reagan arrived in the White House; and that neoliberal austerity policies have been pursued as vigorously (though less openly and more stealthily) by the Democratic administrations of Bill Clinton and Barack Obama as their Republican counterparts. [4]

Indeed, it could be argued that, due to his uniquely misleading status or station in the socio-political structure of the United States, and equally unique Orwellian characteristics or personality, Obama has served the interests of the powerful financial oligarchy much better or more effectively than any Republican president could do, or has done - including Ronald Reagan. By the same token, he has more skillfully hoodwinked the public and harmed their interests, both in terms of economics and individual/constitutional rights, than any of his predecessors.

Ronald Reagan did not make any bones about the fact that he championed the cause of neoliberal supply-side economics. This meant that opponents of his economic agenda knew where he stood, and could craft their own strategies accordingly.

By contrast, Obama publicly portrays himself as a liberal opponent of neoliberal austerity policies (as he frequently bemoans the escalating economic inequality and occasionally sheds crocodile tears over the plight of the unemployed and economically hard-pressed), while in practice he is a major team player in the debt "crisis" game of charade, designed as a shock therapy scheme in the escalation of austerity economics. [5]

No president or major policy maker before Obama ever dared to touch the hitherto untouchable (and still self-financing) Social Security and Medicare trust funds. He was the first to dare to make these bedrock social programs subject to austerity cuts, as reflected, for example, in his proposed federal budget plan for fiscal year 2014, initially released in April 2013. Commenting on this unprecedented inclusion of entitlements in the social programs to be cut, Christian Science Monitor wrote (on April 9, 2013): "President Obama's new budget proposal ... is a sign that Washington's attitude toward entitlement reform is slowly shifting, with prospects for changes to Social Security and Medicare becoming increasingly likely."

Obama has since turned that "likelihood" of undermining Social Security and Medicare into reality. He did so by taking the first steps in turning the budget crisis that led to government shutdown in the first half of October into negotiations over entitlement cuts. In an interview on the second day of the shutdown (October 3rd), he called for eliminating "unnecessary" social programs and discussing cuts in "long-term entitlement spending". [6]

Five days later on October 5th, Obama repeated his support for cutting Social Security and Medicare in a press conference, reassuring congressional Republicans of his willingness to agree to these cuts (as well as to cuts in corporate tax rates from 35% to 28%) if the Republicans voted to increase the government's debt limit: "If anybody doubts my sincerity about that, I've put forward proposals in my budget to reform entitlement programs for the long haul and reform our tax code in a way that would ... lower rates for corporations". [7]

Only then, that is, only after Obama agreed to collaborate with the Republicans on ways to cut both the entitlements and corporate tax rates, the Republican budget negotiators agreed to the higher budget ceiling and the reopening of the government. The consensus bill that ended the government shutdown extends the automatic across-the-board "sequester" cuts that began last March into the current year. This means that "the budget negotiations in the coming weeks will take as their starting point the $1 trillion in cuts over the next eight years mandated by the sequestration process". [8]

And so, once again, the great compromiser gave in, and gave away - all at the expense of his (unquestioning) supporters.

To prepare the public for the long-awaited attack on Social Security, Medicare and other socially vital programs, the bipartisan ruling establishment has in recent years invented a very useful hobgoblin to scare the people into submission: occasional budget/debt crises and the specter or the actual pain of government shutdown. As Sheldon Richman recently pointed out:

"Wherever we look, there are hobgoblins. The latest is … DEFAULT. Oooooo.

Apparently the threats of international terror and China rising aren't enough to keep us alarmed and eager for the tether. These things do tend to wear thin with time. But good old default can be taken off the shelf every now and then. It works like a charm every time.

No, no, not default! Anything but default!". [9]

Economic policy makers in the White House and the Congress have invoked the debt/deficit hobgoblin at least three times in less than two years: the 2011 debt-ceiling panic, the 2012 "fiscal cliff" and, more recently, the 2013 debt-ceiling/government shutdown crisis - all designed to frighten the people into accepting the slashing of vital social programs. Interestingly, when Wall Street speculators needed trillions of dollars to be bailed out, or as the Fed routinely showers these gamblers with nearly interest-free money through the so-called quantitative easing, debt hobgoblins were/are nowhere to be seen!

The outcome of the latest (2013) "debt crisis management," which led to the 16-day government shutdown (October 1-16), confirmed the view that the "crisis" was essentially bogus. Following the pattern of the 2010, 2011 and 2012 budget/debt negotiations, the bipartisan policy makers kept the phony crisis alive by simply pushing its "resolution" several months back to early 2014. In other words, they did not bury the hobgoblin; they simply shelved it for a while to be taken off when it is needed to, once again, frighten the people into accepting additional austerity cuts - including Social Security and Medicare.

The outcome of the budget "crisis" also highlighted the fact that, behind the apparent bipartisan gridlock and mutual denunciations, there is a "fundamental consensus between these parties for destroying all of the social gains won by the working class over the course of the twentieth century". [10] To the extent there were disagreements, they were mainly over the tone, the temp, the magnitude, the tactics, and the means, not the end. At the heart of all the (largely contrived) bipartisan bickering was how best to escalate, justify or camouflage the brutal cuts in the vitally necessary social spending.

The left/liberal supporters of Obama, who bemoan his being "pressured" or "coerced" by the Tea Party Republicans into right-wing compromises, should look past his liberal/populist posturing. Evidence shows that, contrary to Barack Obama's claims, his presidential campaigns were heavily financed by the Wall Street financial titans and their influential lobbyists. Large Wall Street contributions began pouring into his campaign only after he was thoroughly vetted by powerful Wall Street interests, through rigorous Q & A sessions by the financial oligarchy, and was deemed to be their "ideal" candidate for presidency. [11]

Obama's unquestioning followers should also note that, to the extent that he is being "pressured" by his political opponents into compromises/concessions, he has no one to blame but himself: while the Republican Party systematically mobilizes its social base through offshoots like Tea Partiers, Obama tends to deceive, demobilize and disarm his base of supporters. Instead of mobilizing and encouraging his much wider base of supporters (whose more numerous voices could easily drown the shrill voices of Tea Partiers) to political action, he frequently pleads with them to "be patient," and "keep hope alive."

As Andre Damon and Barry Grey have keenly observed, "There was not a single mass organization that denounced the [government] shutdown or opposed it. The trade unions are completely allied with the Obama administration and support its policies of austerity and war". [12]

Obama's supporters also need to open their eyes to the fact that, as I have shown in an earlier essay, [13] Obama harbors ideological affinities that are more in tune with Ronald Reagan than with FDR. This is clearly revealed in his book, The Audacity of Hope, where he shows his disdain for

"...those who still champion the old time religion, defending every New Deal and Great Society program from Republican encroachment, achieving ratings of 100% from the liberal interest groups. But these efforts seem exhausted…bereft of energy and new ideas needed to address the changing circumstances of globalization". [14]

(Her own shortcomings aside, Hillary Clinton was right when, in her bid for the White House against Obama, she pointed out that Obama's economic philosophy was inspired largely by Reagan' supply-side economics. However, because the Wall Street and/or the ruling establishment had already decided that Obama was the preferred choice for the White House, the corporate media let Clinton's comment pass without dwelling much on the reasons behind it; which could readily be examined by simply browsing through his own book.)

The repeated claim that the entitlements are the main drag on the federal budget is false - for at least three reasons. To begin with, the assertion that the large number of retiring baby-boomers is a major culprit in budgetary shortfalls is bogus because while it is true that baby-boomers are retiring in larger than usual numbers they do not come from another planet; before retiring, they also worked and contributed to the entitlement trust fund in larger than usual numbers. This means that, over time, the outflow and inflow of baby-boomers' funds into the entitlement trust fund must necessarily even each other out.

Second, even assuming that this claim is valid, the "problem" can easily be fixed (for many years to come) by simply raising the ceiling of taxable income for Social Security from the current level of $113,700 to a slightly higher level, let's say, $140,000.

Third, the bipartisan policy makers' hue and cry about the alleged budget/debt crisis is also false because if it were true, they would not shy away from facing the real culprits for the crisis: the uncontrollable and escalating health care cost, the equally uncontrollable and escalating military/war/security cost, the massive transfer of private/Wall Street debt to public debt in response to the 2008 financial crash, and the considerable drop since the early 1980s in the revenue side of the government budget, which is the result of the drastic overhaul of the taxation system in favor of the wealthy.

A major scheme of the financial oligarchy and their bagmen in the government to substitute the New Deal with neoliberal economics has (since the early 1980s) been to deliberately create budget deficits in order to justify cuts in social spending. This sinister feat has often been accomplished through a combination of tax cuts for the wealthy and spending hikes for military/wars/security programs.

David Stockman, President Reagan's budget director and one of the main architects of his supply-side tax cuts, confirmed the Reagan administration's policy of simultaneously raising military spending and cutting taxes on the wealthy in order to force cuts in non-military public spending: "My aim had always been to force down the size of the domestic welfare state to the point where it could be adequately funded with the revenues after the tax cut". [15] That insidious policy of intentionally creating budget deficits in order to force neoliberal austerity cuts on vital social needs has continued to this day - under both Republican and Democratic administrations.

Although the bipartisan tactics of austerity cuts are subtle and obfuscating, they can be illustrated with the help of a few simple (hypothetical) numbers: first (and behind the scenes), the two sides agree on cutting non-military public spending by, let's say, $100 billion. To reach this goal, Republicans would ask for a $200 billion cut, for example.

The Obama administration/Democratic Party, pretending to represent the poor and working families, would vehemently object that this is too much ... and that all they can offer is $50 billion, again for example. Next, the Republican negotiators would come up with their own counter-offer of, let's say, $150 billion. Then come months of fake haggling and passionate speeches in defense of their positions ... until they meet eventually half way between $50 billion and $150 billion, which has been their hidden goal ($100 billion) from the beginning.

This is, of course, an overly simplified hypothetical example. But it captures, in broad outlines, the essence of the political game that the Republican and Democratic parties - increasingly both representing big finance/big business - play on the American people. All the while the duplicitous corporate media plays along with this political charade in order to confuse the public by creating the impression that there are no alternatives to austerity cuts, and that all the bipartisan public bickering over debt/budgetary issues vividly represents "democracy in action."

The atmosphere of panic and anxiety surrounding the debt/deficit negotiations is fabricated because the central claim behind the feigned crisis that "there is no money" for jobs, education, health care, Social Security, Medicare, housing, pensions and the like is a lie. Generous subsidies to major Wall Street players since the 2008 market crash has lifted financial markets to new highs, as evinced by the Dow Jones Industrial Average's new bubble above the 15000 mark.

The massive cuts in employment, wages and benefits, as well as in social spending, have resulted in an enormous transfer of economic resources from the bottom up. The wealthiest 1% of Americans now own more than 40% of the entire country's wealth; while the bottom 80% own only 7%. Likewise, the richest 1% now takes home 24% of the country's total income, compared to only 9% four decades ago. [16]

This means that there really is no need for the brutal austerity cuts as there really is no shortage of financial resources. The purported lack of resources is due to the fact that they are concentrated largely in the deep coffers of the financial oligarchy.

Ismael Hossein-zadeh is Professor Emeritus of Economics, Drake University, Des Moines, Iowa. He is the author of The Political Economy of U.S. Militarism (Palgrave-Macmillan 2007) and Soviet Non-capitalist Development: The Case of Nasser's Egypt (Praeger Publishers 1989). His latest book, Beyond Mainstream Explanations of the Financial Crisis: Parasitic Finance Capital, will be forthcoming from Routledge Books.

[Oct 25, 2013] Economist's View 'Why the 1% Should Pay Tax at 80%'

Emmanuel Saez and Thomas Piketty:

Why the 1% should pay tax at 80%, by Emmanuel Saez and Thomas Piketty, In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled, from less than 10% in the 1970s to over 20% today (pdf). A similar pattern is true of other English-speaking countries..., however, globalization and new technologies are not to blame. Other OECD countries ... have seen far less concentration of income among the mega rich.
At the same time, top income tax rates on upper income earners have declined significantly since the 1970s... At a time when most OECD countries face large deficits and debt burdens, a crucial public policy question is whether governments should tax high earners more. The potential tax revenue at stake is now very large. ...
There is a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares...
The ... data show that there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. ... What that tells us is that a substantial fraction of the response of pre-tax top incomes to top tax rates may be due to increased rent-seeking at the top (that is, scenario three), rather than increased productive effort....
By our calculations about the response of top earners to top tax rate cuts being due in part to increased rent-seeking behavior and in part to increased productive work, we find that the top tax rate could potentially be set as high as 83% (as opposed to the 57% allowed by the pure supply-side model). ...
In the end, the future of top tax rates depends on what the public believes about whether top pay fairly reflects productivity or whether top pay, rather unfairly, arises from rent-seeking. With higher income concentration, top earners have more economic resources to influence both social beliefs (through thinktanks and media) and policies (through lobbying)...
The job of economists should be to make a top rate tax level of 80% at least "thinkable" again
anne said...

September, 2013

Top 1 Percent Income Share in the United States, 1970-2012

(Including capital gains) *

1970 ( 9.03)
1971 ( 9.40)
1972 ( 9.64)
1973 ( 9.16)
1974 ( 9.12) Ford

1975 ( 8.87)
1976 ( 8.86) (Low)
1977 ( 9.03) Carter
1978 ( 8.95)
1979 ( 9.96)

1980 ( 10.02)
1981 ( 10.02) Reagan
1982 ( 10.80)
1983 ( 11.56)
1984 ( 11.99)

1985 ( 12.67)
1986 ( 15.92)
1987 ( 12.66)
1988 ( 15.49)
1989 ( 14.49) Bush

1990 ( 14.33)
1991 ( 13.36)
1992 ( 14.67)
1993 ( 14.24) Clinton
1994 ( 14.23)

1995 ( 15.23)
1996 ( 16.69)
1997 ( 18.02)
1998 ( 19.09)
1999 ( 20.04)

2000 ( 21.52)
2001 ( 18.22) Bush
2002 ( 16.86)
2003 ( 17.53)
2004 ( 19.75)

2005 ( 21.92)
2006 ( 22.82)
2007 ( 23.50)
2008 ( 20.95)
2009 ( 18.12) Obama

2010 ( 19.86)
2011 ( 19.65)
2012 ( 22.46)

* Top 1 percent or 803,405 families in 2012 had market income above $393,941
Top 5-1% families had income between $161,438 and $393,941
Top 10-5% families had income between $113,820 and $161,438

-- Thomas Piketty and Emmanuel Saez

foosion said...

The problem goes much deeper than tax rates - the real issue is that the best off have used government to rig the economy to balloon their income at the expense of everyone else.

For example, trade policies which increase competition for ordinary workers, but insulate doctors, lawyers and other protected interests. For example, patent protection in which the govt lets drug companies charge way over market, transferring hundreds of billions from most of us to a few. For example, too big to fail policies which transfer hundreds of billions from most of us to a few incredibly prosperous bankers.

This isn't the free market, it's deliberate policy choices.

If the argument is over tax rates, the best off have already won - redistribution of their hard earned dollars is a much more difficult argument than how they earned them in the first place.

DeDude said...

The worst thing is that we have decided to call the kind of income rich people have "capital gains" and then decided that this unearned income by rent seeking should be taxes at LOWER rates than productive income.

Perspective said in reply to DeDude...

Agreed. I know capital can "flee" easier than labor, but you cannot justify taxing my wage income at 40%+ (Fed/CA income/payroll taxes) while taxing investment income at half that rate.

[Oct 22, 2013] Questions for Free-Market Moralists

October 20, 2013 |

In 1971 John Rawls published "A Theory of Justice," the most significant articulation and defense of political liberalism of the 20th century. Rawls proposed that the structure of a just society was the one that a group of rational actors would come up with if they were operating behind a "veil of ignorance" - that is, provided they had no prior knowledge what their gender, age, wealth, talents, ethnicity and education would be in the imagined society. Since no one would know in advance where in society they would end up, rational agents would select a society in which everyone was guaranteed basic rights, including equality of opportunity. Since genuine (rather than "on paper") equality of opportunity requires substantial access to resources - shelter, medical care, education - Rawls's rational actors would also make their society a redistributive one, ensuring a decent standard of life for everyone.

If the operations of the free market are always moral then there's nothing in principle wrong with tremendous inequality.

In 1974, Robert Nozick countered with "Anarchy, State, and Utopia." He argued that a just society was simply one that resulted from an unfettered free market - and that the only legitimate function of the state was to ensure the workings of the free market by enforcing contracts and protecting citizens against violence, theft and fraud. (The seemingly redistributive policy of making people pay for such a "night watchman" state, Nozick argued, was in fact non-redistributive, since such a state would arise naturally through free bargaining.) If one person - Nozick uses the example of Wilt Chamberlain, the great basketball player - is able to produce a good or service that is in high demand, and others freely pay him for that good or service, then he deserves to get rich. And, once rich, he doesn't owe anyone anything, since his wealth was accumulated through voluntary exchange in return for the goods and services he produced. Any attempt to "redistribute" his wealth, so long as it is earned through free market exchange, is, Nozick says, "forced labor."

Rawls and Nozick represent the two poles of mainstream Western political discourse: welfare liberalism and laissez-faire liberalism, respectively. (It's hardly a wide ideological spectrum, but that's the mainstream for you.) On the whole, Western societies are still more Rawlsian than Nozickian: they tend to have social welfare systems and redistribute wealth through taxation. But since the 1970s, they have become steadily more Nozickian. Such creeping changes as the erosion of the welfare state, the privatization of the public sphere and increased protections for corporations go along with a moral worldview according to which the free market is the embodiment of justice. This rise in Nozickian thinking coincides with a dramatic increase in economic inequality in the United States over the past five decades - the top 1 percent of Americans saw their income multiply by 275 percent in the period from 1979 and 2007, while the middle 60 percent of Americans saw only a 40 percent increase. If the operations of the free market are always moral - the concrete realization of the principle that you get no more and no less than what you deserve - then there's nothing in principle wrong with tremendous inequality.

The current economic crisis is no exception to the trend toward Nozickian market moralizing. In the recent debates in the Senate and House of Representatives about food stamps - received by one out of six Americans, about two-thirds of them children, disabled or elderly - Republicans made their case for slashing food subsidies largely about fairness. As Senator Jeff Sessions, Republican of Alabama, said in his speech, "This is more than just a financial issue. It is a moral issue as well."

More From The Stone

Read previous contributions to this series.

The Harvard economist N. Gregory Mankiw recently published a draft of a paper titled "Defending the One Percent." In it he rehearses (but, oddly, does not cite) Nozick's argument for the right of the wealthy to keep their money, referring to the moral principle of "just deserts" as what makes distribution by the market essentially ethical. And in a recent issue of Forbes, the Ayn Rand apostle Harry Binswanger proposed that those earning over one million dollars should be exempt from paying taxes, and the highest earner each year should be awarded a Medal of Honor - as a reward (and incentive) for producing so much market value. Again, Binswanger explained that "the real issue is not financial, but moral."

The Nozickian outlook is often represented as moral common sense. But is it? Here I pose four questions for anyone inclined to accept Nozick's argument that a just society is simply one in which the free market operates unfettered. Each question targets one of the premises or implications of Nozick's argument. If you're going to buy Nozick's argument, you must say yes to all four. But doing so isn't as easy as it might first appear.

1. Is any exchange between two people in the absence of direct physical compulsion by one party against the other (or the threat thereof) necessarily free?

If you say yes, then you think that people can never be coerced into action by circumstances that do not involve the direct physical compulsion of another person. Suppose a woman and her children are starving, and the only way she can feed her family, apart from theft, is to prostitute herself or to sell her organs. Since she undertakes these acts of exchange not because of direct physical coercion by another, but only because she is compelled by hunger and a lack of alternatives, they are free.

2. Is any free (not physically compelled) exchange morally permissible?

If you say yes, then you think that any free exchange can't be exploitative and thus immoral. Suppose that I inherited from my rich parents a large plot of vacant land, and that you are my poor, landless neighbor. I offer you the following deal. You can work the land, doing all the hard labor of tilling, sowing, irrigating and harvesting. I'll pay you $1 a day for a year. After that, I'll sell the crop for $50,000. You decide this is your best available option, and so take the deal. Since you consent to this exchange, there's nothing morally problematic about it.

3. Do people deserve all they are able, and only what they are able, to get through free exchange?

If you say yes, you think that what people deserve is largely a matter of luck. Why? First, because only a tiny minority of the population is lucky enough to inherit wealth from their parents. (A fact lost on Mitt Romney, who famously advised America's youth to "take a shot, go for it, take a risk … borrow money if you have to from your parents, start a business.") Since giving money to your kids is just another example of free exchange, there's nothing wrong with the accumulation of wealth and privilege in the hands of the few. Second, people's capacities to produce goods and services in demand on the market is largely a function of the lottery of their birth: their genetic predispositions, their parents' education, the amount of race- and sex-based discrimination to which they're subjected, their access to health care and good education.

It's also a function of what the market happens to value at a particular time. Van Gogh, William Blake, Edgar Allan Poe, Vermeer, Melville and Schubert all died broke. If you're a good Nozickian, you think that's what they deserved.

4. Are people under no obligation to do anything they don't freely want to do or freely commit themselves to doing?

If you say yes, then you think the only moral requirements are the ones we freely bring on ourselves - say, by making promises or contracts. Suppose I'm walking to the library and see a man drowning in the river. I decide that the pleasure I would get from saving his life wouldn't exceed the cost of getting wet and the delay. So I walk on by. Since I made no contract with the man, I am under no obligation to save him.

Most of us, I suspect, will find it difficult to say yes to all four of these questions. (Even Nozick, in "Anarchy, State, and Utopia", found it hard to say yes to Question 3.) In philosophical terms, we have a reductio ad absurdum. The Nozickian view implies what, from the perspective of common sense morality, is absurd: that a desperate person who sells her organs or body does so freely, that it's fine to pay someone a paltry sum while profiting hugely off their labor, that people deserve to get rich because of accidents of birth, that there's nothing wrong with walking by a drowning man. Thus Nozick's view must be wrong: justice is not simply the unfettered exercise of the free market. Free market "morality" isn't anything of the sort.

Some might object that these are extreme cases, and that all they show is that the market, to be fully moral, needs some tweaking. But to concede that there is more to freedom than consent, that there is such a thing as nonviolent exploitation, that people shouldn't be rewarded and punished for accidents of birth, that we have moral obligations that extend beyond those we contractually incur - this is to concede that the entire Nozickian edifice is structurally unsound. The proponent of free market morality has lost his foundations.

Why worry about the morally pernicious implications of Nozickianism? After all, I said that most Western societies remain Rawlsian in their organization, even if they are growing more Nozickian in their ideology. In the United States for example, there are legal prohibitions on what people can sell, a safety net to help those who suffer from really bad luck, and a civic ethos that prevents us from letting people drown. The first answer is, of course, that the material reality is being rapidly shaped by the ideology, as recent debates about welfare in the United States demonstrate.

The second is that most Western societies hardly constitute a Rawlsian Utopia. People might be legally prohibited from selling their organs, but that doesn't remedy the desperate circumstances that might compel them to do so. The law does not stop people from falling into poverty traps of borrowing and debt, from being exploited by debt settlement companies promising to help them escape those traps, or losing their homes after buying mortgages they can't afford to pay back. And there is certainly no prohibition against the mind-numbing and often humiliating menial work that poor people do in exchange for paltry wages from hugely rich companies. A swiftly eroding welfare state might offer the thinnest of safety nets to those who fall on hard times, but it does nothing to address the lack of social mobility caused by the dramatic rise in inequality. And while it might be thought poor form to walk by a drowning man, letting children go hungry is considered not only permissible, but as Senator Sessions said, "a moral issue." These facts might be not quite as ethically outraging as walking past a drowning man, but they, too, grate against our commonsense notions of fairness.

Rejecting the Nozickian worldview requires us to reflect on what justice really demands, rather than accepting the conventional wisdom that the market can take care of morality for us. If you remain a steadfast Nozickian, you have the option of biting the bullet (as philosophers like to say) and embracing the counterintuitive implications of your view. This would be at least more consistent than what we have today: an ideology that parades as moral common sense.

Amia Srinivasan is a fellow in philosophy at All Souls College, University of Oxford. She is an occasional contributor to The London Review of Books.

[Oct 15, 2013] 10 Things You Didn't Know About US Household Income Allocation

Zero Hedge

Four decades ago no one had cell phones, the Internet, or personal computers; households had landlines, only offices or research centers had any kind of computer, and wireless anything wasn't even close on the horizon. These days, of course, there is more than 1 cell phone per person in the US, laptops are standard fare, and using dial-up or wired Ethernet is like living in the Stone Age. But each of these technological advances comes with a cost; and, more specifically, a cost a family in the 1970s didn't have to cover. The price of a cell phone plan and wireless internet is well over $1,000 per year; more if you add in the price of a $1,500 laptop or a $200 smartphone, which most of us tend to replace after a few years of wear and tear. With average post-tax income of $63,000, according to the latest Consumer Expenditure Survey, these bills might not seem like a lot to shell out – only about 4% of post-tax wages – but they're costs that the families of 1973 avoided completely. How have the households of the 21st century managed to incorporate these added expenses?

[Oct 10, 2013] Global Capitalism October 2013 Monthly Update

An excellent lecture


I really like this guy. Makes sense with no bullshit

Robin Roth

As always, informative, urgent, interesting. I wish more Americans examined Richard's works. We badly need reform. What will it take? The people should be the priority!

[Oct 05, 2013] An Empire of Money and Privilege in Decline: Portrait of a Tragic Policy Error

"Everybody, sooner or later, sits down to a banquet of consequences."

Robert Louis Stevenson

"They don't have intelligence. They have what I call thintelligence. They see the immediate situation. They think narrowly and they call it 'being focused.' They don't see the surroundings. They don't see the consequences."

Michael Crichton

The Fed is faced with a problem that is best represented by the first two charts below.

Velocity of money is a simple ratio measure of money supply and GNP. It intends to represent the number of times a unit of money is exchanged in a transaction over a period of time.

As you can see, the velocity of the two broad money supply measures is dropping to historic lows.

Is this because the great mass of people are 'hoarding money,' which implies that one should lower real interest on savings, even taking them more deeply into the negative through monetary inflation in order to encourage spending through fear of de facto confiscation?

The third chart gives some insight into the true nature of the economic problem. Most of the income gains this century and for the past two or three decades of the past have been flowing to the top few percent of US households. The median household, the middle if you will, has been steadily losing ground in large part to Fed and political policy decisions driven by a mistaken ideology and a top down or trickle down approach to prosperity.

If the Fed pursues monetary inflation, without taking strong steps, even through the use of its bully pulpit and actions as regulator, to correct the severe policy imbalances that lopsidedly favor the wealthy financiers, it will drive the US middle class over an economic cliff and destroy the very system which it is attempting to save.

That is the basis of the tragic policy error of the Fed and the ruling class. Jeffrey Sachs has noted it in a recent talk to the Philly Fed shown below, and Bill Black has some particularly scathing words today for the 'Hyper-meritocracy Led by Criminal Morons.' I might have said self-delusional narcissists or even sociopaths rather than morons. The majority of those who enable the abuse of power are merely careerists.

One can make the strong case that the primary responsibility for this is in the political leadership. But one cannot also deny that as policy influencer and regulator the Fed has favored, quite actively, the growth of imbalances and social and economic injustice by pursuing a blind allegiance to a mistaken theory of deregulation and oligopoly of banking capital.

An audacious oligarchy needs someone to rescue them from themselves. And this will not be an easy task because the system is corrupted and the powerful have been blinded by greed. The current political deadlock in Washington is a symptom of the problem. There is always an element that believes in a long range plan consisting of repression as required, disinformation, and plundering the weak.

The monied class do not 'create jobs.' Genuine organic and systemic demand for good and services creates jobs, and those who have the means respond to that demand. It is a virtuous cycle that begins with consumer demand, and the willingness and the ability to pay for it. Yes there may be a role for inorganic demand such as stimulus to 'kick start' an economy caught in a policy error trap, but it is the reforms that allow for organic growth that make it sustainable.

Moving offshore to find new demand for markets while abandoning one's domestic base to decline and failure, in the true colonial fashion of past economic empires, is a form of neurotic failure. It often lights a fire in men's minds, and becomes a sort of self-fulfilling cultural suicide. And perhaps this is embodied in the latest corporatist deal which is the infamously secretive Trans-Pacific Partnership.

How fitting that, having overturned most of the financial reforms of the past century, we stand here now on the brink, on the 75th anniversary of the New Deal, with essentially the same set of problems facing us that brought the world down so low in The Great Depression, and opened the door to the madness that followed.

"I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. But I meet a lot of these people on Wall Street on a regular basis right now. I'm going to put it very bluntly. I regard the moral environment as pathological...

If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I'm afraid to say, and no party is – I mean there's – if not both parties are up to their necks in this. This has nothing to do with Democrats or Republicans. It really doesn't have anything to do with right wing or left wing, by the way. The corruption is, as far as I can see, everywhere.

But what it's led to is this sense of impunity that is really stunning and you feel it on the individual level right now. And it's very very unhealthy, I have waited for four years, five years now to see one figure on Wall Street speak in a moral language.

And I've have not seen it once. And that is shocking to me. And if they won't, I've waited for a judge, for our president, for somebody, and it hasn't happened. And by the way it's not going to happen any time soon, it seems...

The final point, of course, is separating the politicians from the crooks, but maybe that's so close together that they can't actually be separated. Maybe it's just the same community."

Jeffrey Sachs, Fixing the Banking System For Good, Philadelphia Fed, April 17th, 2013

Moyers: Inequality For All with Robert Reich

This study of the decline of the middle class and the failure of upward mobility in the US is worth watching.

Paul Krugman: Plutocrats Feeling Persecuted

September 27, 2013 | NYT

Why is there so much anger and whining from the biggest winners in society?:

Plutocrats Feeling Persecuted, by Paul Krugman, Commentary, NY Times: Robert Benmosche, the chief executive of the American International Group, said something stupid the other day. And we should be glad, because his comments help highlight an important but rarely discussed cost of extreme income inequality - namely, the rise of a small but powerful group of what can only be called sociopaths.
For those who don't recall, A.I.G. is a giant insurance company that played a crucial role in creating the global economic crisis... Five years ago, U.S. authorities, fearing that A.I.G.'s collapse might destabilize the whole financial system, stepped in with a huge bailout. ... For a time, A.I.G. was essentially a ward of the federal government, which owned the bulk of its stock, yet it continued paying large executive bonuses. There was, understandably, much public furor.
So here's what Mr. Benmosche did in an interview with The Wall Street Journal: He compared the uproar over bonuses to lynchings in the Deep South ... and declared that the bonus backlash was "just as bad and just as wrong." ...
In 2010..., there was a comparable outburst from Stephen Schwarzman, the chairman of the Blackstone Group, one of the world's largest private-equity firms...
This is important. Sometimes the wealthy talk as if they were characters in "Atlas Shrugged," demanding nothing more from society than that the moochers leave them alone. But these men were speaking for, not against, redistribution - redistribution from the 99 percent to people like them. This isn't libertarianism; it's a demand for special treatment. It's not Ayn Rand; it's ancien régime. ...
The thing is, by and large, the wealthy have gotten their wish. Wall Street was bailed out, while workers and homeowners weren't. ...
So why the anger? Why the whining? And bear in mind that claims that the wealthy are being persecuted aren't just coming from a few loudmouths. They've been all over the op-ed pages and were, in fact, a central theme of the Romney campaign last year.
Well, I have a theory. When you have that much money, what is it you're trying to buy by making even more? You already have the multiple big houses, the servants, the private jet. What you really want now is adulation; you want the world to bow before your success. And so the thought that people in the media, in Congress, and even in the White House are saying critical things about people like you drives you wild.
It is, of course, incredibly petty. But money brings power, and thanks to surging inequality, these petty people have a lot of money. So their whining, their anger that they don't receive universal deference, can have real political consequences. Fear the wrath of the .01 percent!

Second Best:

Sociopaths, psycopaths, abusers and criminals in general rationalize their conduct through victimization of themselves rather than their victims.

It goes further. Recall when a suicide at Guantanamo was framed as asymmetric warfare by an official there, as if the victim was the captor. Torturers don't won't their victims to die because there's nothing left to torture.

Up close and personal some rich exhibit these tendencies in ways so casual it betrays them as the obvious crude thugs they have become. From their protective cocoons they see taking as making no matter the complete disconnect from economic performance.

ilsm said in reply to Second Best...

Pitiable rich, taking care of the "lucky ducky" moochers.

Now that their plunder is the excess value of labor in China...........

Darryl FKA Ron said in reply to ilsm...

Now that their plunder is the excess value of labor in China...........

[Awesome, dude!]

The Blorch said in reply to Second Best...

The rich are afraid of what the poor would do to them if the poor ever got their hands on them. The havoc the rich wreak on the poor is their way of paying it forward.

bakho said...

It's the you're on your "Ownership Society". The only society that counts owns everything.

It was only after years of labor violence that the Great Middle Class of the US was created. The Malefactors of Great Wealth don't become wealthy by giving away their money and treating others fairly. They are greedy and use their wealth and power to consolidate and improve their position at the expense of the rest of us.

It really is Class Warfare. We are told not to mention Class Warfare and those words are outside of the media donut of "can be discussed". It is time to discuss Class Warfare because the majority of us are losing the war and we need to coordinate our efforts against the Malefactors in order to level the playing field.

Perspective said in reply to bakho...

That's fair, but how much of our losing the class warfare is due to our own actions? Average $50k households hold $10k in credit card debt and $30k+ in auto loans.

It's a lot like obesity - the solution is mainly within us and our will, desire, and determination to change things.

Julio said in reply to Perspective...

Even assuming your statistics are correct, which actions are you talking about that are causing us to lose the class war?

Perspective said in reply to Julio...

We might incur credit card debt trying to pay normal bills or a healthcare issue since we don't have universal healthcare. But there's no excuse for buying/financing new cars well beyond our means. If the middle class would just stop buying/financing new cars every few years, it would go a long way toward creating better financial security.

Darryl FKA Ron said in reply to Perspective...

Maybe I am wrong, buy I thought most working class folk just want higher wages to catch up for lost relative earnings over the last thirty plus years. In parts of the country, lots of large urban parts, then there are a lot of folks that believed the housing boom would not bust and are now in over their heads on an underwater mortgage. They were foolish enough to believe the bankers, politicians, real estate agents, and economists, if that is what you mean by "due to our own actions."

I HAD TO BUY in 2004 to consolidate households with my wife. Noticing the sham, then I bought an old fixer with good bones, because that was the only thing available at a price similar to long run value trend. I really don't think I know any car poor people though.

The lower income people that I know cannot afford charge card debt. Mostly that is for young people that are starting households and families and have plenty time to pay off the debt. Years ago that was my kids. In a few years that will be my grandchildren, but not quite yet.

DeDude said in reply to Perspective...

Either that or it would further destroy jobs/income and plunge us into a deep recession. Remember that 70% of our GDP is consumption. If these working class heroes stopped consuming and paid down their debt we would all be up sh*ts creak without a paddle.


Average $50k households hold $10k in credit card debt and $30k+ in auto loans....

[ Where is the precise reference? ]

ilsm said in reply to anne...

Sources are not important, Perspective's arguments are contrived to blame the victims [people] to protect the corrupt system which makes people fail.

Charlie Baker said in reply to anne...

The New York Fed publishes a quarterly report on the composition of household debt and credit:

As the reports indicate, the overwhelming majority share of household debt is mortgage debt. The proportion of debt for cars and credit cards has been relatively stable. The primary rising sector is student loans.

DrDick said in reply to Perspective...

Who said those were mutually exclusive goals? Some of us, who are legitimately concerned about wealth concentration, favor raising the top marginal rates to Eisenhower's levels and treating all income, including inheritances, the same.

The Blorch said in reply to DrDick...

Where are you going to get the money to do that? You tax law is pay to play, don't you? You have to pay off the politicians to get favorable treatment in the tax code.

Dan Kervick said...

Heavy lies the head that wears the crown? The elite, wealthy, and powerful are always paranoid - as they should be. They always have a target on their backs, and when times are bad the target gets even larger. The powerful have always seen conspirators around every corner, lurking in every dark nook (including now the dark nooks of the internet.) They have always spent a lot of time buying protection. There is a significant global phenomenon in the 21st century of the ultra-wealthy building various kinds of gated communities, real and virtual, and creating wealth-hiding and wealth-protection schemes to hold onto what they've got. The more absurd the abundance they possess, the more obsessive and defensive they become about the imperative of holding onto it. They are trying to make themselves and their wealth invisible. Ostentatious Wall Street titans, on the other hand, are more socially exposed. And they live in a world of a fawning business press that promotes the cult of worship of individual economic dominance, and promotes monetary belt-notching and scorekeeping by reporting personal incomes and net worth.

In America there is also a traditional religion of merit. It says that wealth flows to those that deserve it, and the more that flows, the more the merit. On this view there is no such thing as exploitation. Apart from blatant illegality, all earning is both deserved and socially healthy; and all opposition to it disgusting and misguided.

Also, some of the money gluttons in the financial world often don't see their activities as connected with society in any way. As Krugman notes, some are borderline or actually psychopathic. They see their pattern of acquiring money as just a personal choice, and so hostility to it as merely a kind of discrimination.

beezer said...

Older money is almost never ostentatious. I once saw a study by Merrill Lynch that identified a Buick as the car of choice for most millionaires.

In today's world money can be accumulated incredibly fast and in unheard of amounts compared to even the recent past. Even adjusted for inflation or currency devaluation, the billionaires of today dwarf in number and amount the wealthy of even 40 years ago.

And wealth is always accumulated in a top down, authoritarian business model. There's nothing democratic about private business and never has been. Successful people in private business understand this type of environment. The idea of democracy is foreign to business owners and their managers.

Which is why the threat to democracy frequently comes from the private business ownership class. Immense power accumulates alongside immense wealth; the two are inseparable. Krugman's column simply calls attention to this power revealing itself through a few people who slip up and confirm what most adults know; the successful corporate executive works in an authoritarian world.

Adam Smith warned against government taking advice from business owners. He understood that their interests often conflict with those of the public.

It's interesting to watch Krugman, because he is an economist, work to unravel the politics and morality of our world. His tools and training are a big help to him, and to us.

Dryly 41 said in reply to beezer...

I think your observation about older money is reflected in the children of Henry Ford and John D. Rockefeller for example. They were by and large intelligent and sophisticated enough to achieve their aim. The children of Sam Walton show no sign of seeking respectability by decency and are simply mean spirited skinflints. It's true they don't hire Pinkerton men to beat up and sometimes shoot their workers as Andrew Carnegie and Henry Clay Frick did but they don't have to to beat their worker down.

As for the Schwarzmans and Benmosches, these are two of a number of people who are totally clueless as to just what horrible people they really are. They actually think their worth something and entitled to more money.

hix said in reply to beezer...

Carefull there. "old money", hides their spending better, but they do on average spend a lot more when they are among themself than the self made rich who tend to show off expensive cars to he public or buy a rolex, which everyone knows is expensive instead of the 10 times more expensive but less known so other brand.

BigBozat said...

"Why is there so much anger and whining from the biggest winners in society?"

Karl Polanyi answered this one nearly 70 years ago:

'The discovery of society is thus either the end of or the rebirth of freedom. While the fascist resigns himself to relinquishing freedom and glorifies power which is the reality of society, the socialist resigns himself to that reality and upholds the claim to freedom, in spite of it. Man becomes mature and able to exist as a human being in a complex society. To quote once more Robert Owne's inspired words: "Should any causes of evil be irremovable by the new powers which men are about to acquire, they will know that they are necessary and unavoidable evils; and childish, unavailing complaints will cease to be made."'
- The Great Transformation (1944), pg. 268

In other words, the plutocrats have yet to discover (or, more accurately, have forgotten) the reality of society and have not yet [again] resigned themselves to that reality... thus the childish complaints.

Bill Ellis said...

Mark said..."I have a theory. When you have that much money, what is it you're trying to buy by making even more? (...) What you really want now is adulation; you want the world to bow before your success."

Yep. Adulation is important. More so is pure power. Neither can be well quantified for use in the discipline of Economics. Money is not equivalent to either.

Econ, (especially the Austrian outlook) depends on money being equivalent to the expression of our needs and desires. More money should equal more fulfillment. But in reality what matters to people when it comes adulation and power is not the size of their wealth, but the size of the GAP in their wealth over everyone else.

The logic of econ depends on the assumption that people will alway seek to maximize their incomes...but it falls apart when money no longer equals utility, where more utility is gained by increasing inequity between the elite and the common people than increasing the wealth of the elite in non relative terms.

Simply put... When it comes to gaining power and adulation it is the Size of the piece of the pie you have, not the size of the pie. This reality sets up perverse incentives, incentives that Econ is incapable of describing in model terms. Econ hits a dead end.

Economist on the right ignore this. That is why they have been so wrong. Yet they continue to operate on this false assumption. They continue to think their broken tool is the only valid way to repair the economy.

Eric377 said...

For what seems to be the 40th time, the mechanism for bailing out homeowners is well proven and available in nearly all cases and is called default. Even where the borrower might not enjoy no recourse protection, the chances of being pursued for recourse are very low, except where the borrower has significant assets, and in that case, perhaps they should use those assets to make good their borrowings.

Antiderivative said...

It is simply baffling that a segment of our population truly believes that the filthy rich are persecuted and oppressed in this country.

However, this is the product of viewing the world through the polluted lenses of right wing ideology.

mrrunangun said...

Prof. Krugman is personally acquainted with many wall street operators if for no other reason than that he taught them. He is probably familiar with their contemporary adult society. All but the most philosophical believe that they have earned their wealth. For a few the goal is simply to accumulate a figure once known as " my f~(|< you money" which is to say a sufficient fortune to permit on to live luxuriously for life's remaining years. If you make your number at a early age, so much the better. For others the goal is the accumulation of dynastic wealth such that their distant heirs will be rich as are the well known Rockefeller heirs or less well known heirs whose wealth in land and banking dates back to the 18th century. For those who reach the higher levels of the ziggurat of the financial world, the money is just the way you keep score. The luxury and ostentation may be a kick and the notion that your heirs 200 years from now will still be rich on your dime may be a pleasant daydream, but the reason for keeping score is to determine whose is biggest.

They believe that they have earned their money because they all know colleagues and competitors who are paid more and regard themselves at least equally deserving. Their world is a small and a pretty closed world. They date one another, occasionally marry one another. Because they have often worked on a desk in earlier years with people they are trading against now, there is a little extra sport to the game. It is a world that needs an Auchincloss.

David Lots said in reply to mrrunangun...

Johnny Carson once said if you want to become a millionaire, start with $750,000. I paraphrase, but it's true today...them that's got, get...and they pretend they did it all without help from others or the system.

brad stark said...

Financial Services Industry as percentage of GDP has climbed from 4% in mid-1970s to over 8% today.

GDP = $15.685 trillion.

So what is the country receiving in return for the additional 4% of GDP?

What does society get in return for the additional $627.4 billion dollars (excluding bail outs, tax breaks) going to Wall St.?

Just asking?

gordon said...

"It's not Ayn Rand, it's Ancien Regime".

If it isn't John Galt, who then is the new model of the modern plutocrat - this time from the A.R.? I'll start the game by suggesting Squire Western (from Tom Jones). Any other suggestions?

anne said in reply to gordon...


The History of Tom Jones, a Foundling
By Henry Fielding

[Sep 28, 2013] 'Rage of the Privileged'

Economist's View

Greg vP said in reply to beezer...

It increaseth surpassing slowly.

I worried about the trajectory of unchecked capitalism at the fall of the Berlin Wall. Pretty soon I realized that it will likely end in a stagnant feudalism.

"What I can figure out, surely others can," I thought. "And they'll do something about it. After all, aren't people reading Schumpeter now? And he said 'everyone has elites. The important thing is to change them from time to time.' Surely, there's enough enlightened self-interest around..."


The capitalism-feudalism transformation has occurred before, but never before now globally. This time it could be permanent. In that respect, this time is different.

ThomasH said...

In my personal experience, the most extreme opposition to downward redistribution (or things that look like or are "marked" as downward distribution) come from lower middle class white folks.

Whether it's because they mistakenly think that the funds for redistribution are coming from them (and do not recognize redistribution toward them) or because redistribution reduces the difference between them and lower socioeconomic groups, or racism is hard to say.

No One said in reply to ThomasH...

So you are disagreeing with the article which is about the super rich, not lower class whites.

I would argue the reason lower middle class whites and Asians are against increased taxation is that we get to pay as we have nowhere to hide. The people who should be paying more IMHO have lots of options.

This is why certain groups really like the idea of a "flat tax" but when you listen to what they want it is really an "alternate minimum tax heavily indexed towards the top of the tax pyramid" but "flat tax" sounds better.

DrDick said in reply to No One...

There is also the fact that many of them pay higher tax rates than the 1%, since all of their income is wages and salaries, not capital gains.


The claim that the lower middle class generally opposes social-economic reform is repeatedly made by political analysts, but I have found no convincing studies showing this is so and there is reason to think that there is considerable worry about lower middle class voting patterns by the most influential of people who worry they tend to vote for reform minded candidates.

In any event, where are the careful studies showing the lower middle class tend to vote for candidates representing the wealthiest?

Darryl FKA Ron:

"lower middle class white folks."

[You left out a shade of important difference. And no, I do not believe there has been an academic study of my relatives voting habits, but I am well aware that they are racist.]

EMichael said in reply to anne...

The ten lowest per capita income states have voted overwhelmingly Republican since at least Reagan.

The Blorch said in reply to EMichael...

You see takers are pigs and when they see another pig getting something they are inclined to see the other pig as a rival in a struggle over scarce resources.

However, there is a duality to human beings. Sometimes humans empathize with other humans. In fact that's what racists do. They empathize with people in their own race and organize politically to deprive people outside their racist grouping. Intuitively to the racist, this deprivation takes stress off the resource and lessens any threat of depletion.

Greg vP said in reply to EMichael...

> The ten lowest per capita income states have voted overwhelmingly Republican since at least Reagan.

Yes. Behavioural economics experiments have confirmed that people will take considerable personal loss in order to punish others that they do not like.

Those states are full of bigots.

EMichael said in reply to Greg vP...

Wouldn't think Idaho and Utah would be on that list, would you?

Surprised me.

Darryl FKA Ron said in reply to ThomasH...

because redistribution reduces the difference between them and lower socioeconomic groups

[Well that is a big one and less obvious. I cannot say that it is the majority reason or even the major, but it is a factor less well comprehended than stupidity or racism because it is less obviously displayed.

Eveyone needs someone to look down on and you should not try to take that away from people :<) ]

jrossi said...

The ueberrrich are organized and of course they have the money. The middle class and the poor are unorganized. It's a vicious cycle in which money leads to propaganda which leads to confusion on the part of the majority which leads to no coordination among those whose lunch is being eaten.

Another factor is that most of the wealthy simply do not have these other folks in their lives. It's easy to ignore the suffering of people you don't see.

Example from my little world: Radiologists are actually a case in point. They don't see people; they see images of people and are some of the most conservative docs.

ilsm said...

When the pentagon starts terminating contracts because there is no cash, pigs will fly......

Cut the warfare state before the welfare state. US spends 19% of outlays and 5% of GDP for national security, a lot of it a force for good of the MNC's in the world.

In 2009 the US spent more on war than: the combined expenditures of: China, Russia, UK, France, Germany, Japan, Saudi Arabia, India, Italy, Brazil, South Korea, Australia, and Others (summed including Canada, Spain, Israel, Turkey, Kuwait…). Sequestration only cuts about 10%, hardly draconian since the national security "take" doubled from 2001 to 2009.

Why the GOteaparty is all for war: the 1% brand of social insurance is the warfare state. The 1% lend the money and get dividends from the warfare state.

The Blorch said...

I see a conflict among the takers. Essentially, takers compete politically with other takers for scarce resources. Takers want to cut off other, rival takers so that these rivals don't threaten to deplete the resources. Basically, takers are pigs.

Basically, Obama has organized some portion of the takers, effecting electoral victory. But so has the Tea Party. Not all the takers went for Obama. Remember the Tea Bagger that said "Keep your government hands off my Medicare"? This disgruntled taker would have the government cut off some other taker rather than cut off her entitlement.

Dan Kervick said...

In a a word, plutocracy. The rich own the government.

And they own the media too, so they get to define for white, middle class folks who it is that is robbing them (Hint: the approved answer is that it is mostly differently-colored deadbeat people who are stealing food stamps, pretending they can't find jobs and cheating the disability system.)

I was happy to read Krugman's recent reaction to Wren-Lewis's realization that the reactionaries don't play fair and that their official intellectual rationalizations aren't on the up-and-up. But gee whiz. These guys are just realizing that there is war on?

Looking forward to reading the new book by Sam Pizzigati:

Dryly 41 said...

"We are not politicians or public thinkers; we are the rich; we own America; we got it, God knows how, but we intend to keep it if we can...". Frederick Townsend Martin, 1911.

save_the_rustbelt said...

The day AIG paid bonuses we should have sent someone to the AIG headquarters to ask for $180 billion dollars.

A company of Military Police could have handled it. Truman style.

When AIG could not cough up the money we should have forced the corp into Chapter 11 and carved it up like a fat turkey.

Being nice gets us nowhere.

save_the_rustbelt said in reply to save_the_rustbelt...

Send AIG a friendly note.

Roger Gathman said...

This reminds me of the burning money experiment conducted by Professor Andrew Oswald of the University of Warwick and Dr. Daniel Zizzo of Oxford,in which participants who were arbitrarily given different amounts of money could use some of it to burn the money of other participants. As one might expect, many times the poor sacrificed to burn the rich - especially when they found the distribution of money unfair. But they also found that the rich would pay - to burn the poor. Such is the class bias of Oxford researchers that the poor burning the rich was taken to be an act of envy, whereas the rich burning the poor was pre-emptive reciprocity - the rich, knowing that they will be burned, burn the poor. But the rich also burned the other rich. Here's a summary of the 1999 experiment.
"In the twin experiment run in Oxford, Zizzo (1999) crossed advantage and deservingness in a factorial design, and found that deservingness mattered. More specifically, he found significantly more negative
interdependent preferences in sessions where the advantage was induced unfairly than when it was
induced according to a relatively fair procedure. Moreover, in one condition of that experiment,
stealing was possible. Zizzo then found that there was substantially more stealing by advantaged
subjects if they had got the advantage undeservedly. One possible interpretation of this interaction
effect was that undeservedly advantaged subjects expected themselves to be stolen or burnt
significantly more, and behaved using a reciprocity logic, in defending their own gains significantly

anne said in reply to Roger Gathman...

January 22, 2000

Are People Willing to Pay to Reduce Others' Incomes?
By Daniel John Zizzo and Andrew Oswald

In the twin experiment run in Oxford, Zizzo (1999) crossed advantage and deservingness in a factorial design, and found that deservingness mattered. More specifically, he found significantly more negative interdependent preferences in sessions where the advantage was induced unfairly than when it was induced according to a relatively fair procedure. Moreover, in one condition of that experiment, stealing was possible. Zizzo then found that there was substantially more stealing by advantaged subjects if they had got the advantage undeservedly. One possible interpretation of this interaction effect was that undeservedly advantaged subjects expected themselves to be stolen or burnt significantly more, and behaved using a reciprocity logic, in defending their own gains significantly more.

darrell said in reply to Roger Gathman...

Do unto others before others do onto you!

Is this not just an extension of the prisoners' dilemma?

Three people arrested on suspicion of burglary. The cops make each a deal for probation if they testify against the others. If all keep their mouths shut, all are likely to go free. If any one rats, he is sure to go free and the others go to jail. The cops put an urgency on the deal in that the first to rat goes free. Rat on them, before they rat on you, go free. They rat on you before you rat on them, you go to jail.

Logically, all should keep their mouths shut so all are likely (but not sure) to go free.

The jails are full of people who's partners ratted on them.

Roger Gathman said in reply to darrell...

Those are parallel but not synonymous situations. As the money comes from the experimenters, the advantaged and disadvantaged don't depend in any way on each other - except negatively. In the prisoners dilemma, it is essential that in the pre-scenario, the three cooperated to burgle.

Now, perhaps the prisoner's dilemma does apply to capitalism in its industrial phase - but as capitalism becomes dominated, in the developed countries, by speculative industries, the link between the workers and the masters of the universe becomes much weaker.

Lyle said...

If you go back to the times in England before Henry Viii, you find that a lot of what is now done by the government was done by the church (which was and still is in England a part of the church) The rich were expected to contribute to the church. Since we disestablished the church in the US the state has decided to pick up the burden the church as part of the state bore). As an example the poor law in England was actually a rate levied by the local parish on the parishioners, and being the established church you paid or went to hell (at a minimum also likley to debtors prison).

So one way to look at it is that since the state and the church were severed volunatry churches could not provide the services an established church did so the state stepped in. (Historically when it was the established church even after Henry VIII until the enlightenment you paid your church rates or else)

Bill Ellis said...

I like PK's observation... "It's not Ayn Rand, it's Ancien Régime."

But FDR said it much better still...

"These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power."

Economic Royalist --is a term that defiantly needs to be resurrected.

People on the left often lament that we can not match the the cons' ability for casting ideas in a way common Americans can understand. FDR could and did. His language is a treasure for expressing the lefts' views then and NOW.

His Speech before the 1936 Democratic National Convention of June 27, 1936.. "A Rendezvous With Destiny" is one of the greatest made by an American and it is Still valid and hard hitting today.

"Economic Royalist" I know it sounds old timey, but that would wear off fast.

Dryly 41 said in reply to Bill Ellis...

Your talking about when working men and women had a seat at the table and a voice in public policy. That is as opposed to now when they are referred to as "the labor market" not unlike the cattle market or the hog market.

Bill Ellis said...

Defeatism on the left is epidemic. It is on display on this thread.
The elite are just people like everyone else... almost.

Though they rarely escape some effects of being elevated and insulated from normal human trials-- and their population contains a much higher incidence of Sociopaths--their population still contains a full spectrum of human qualities, moralities, and political points of view like any other culture. (They are an international culture distinct from ours ) But we have allies among them. A lot of them.

Having said that...the elite will alway Rule. (excluding periods of transitional Chaos ) No utopian system, left or right will succeed in preventing an elite from ruling .

We have the political power, combined with the power of our elite allies ---to blunt or balance the power of the subculture of elites who would trample us into the ground.

This is ALL we have to work with. This is our ONLY game.

That is why one of the WORST things we can do to each other is to tell each other that our votes do not matter and that the elite is monolithically against us. If you convince people of this --you convince them to surrender the game to the elite with out a fight.

We can't get equality, we can only strive for it.

We can negotiate a New Deal...a better deal.

Matt Young

This chart I derived from the Business Insider favorite indicator. The chart has two lines, one initial claims inverted, and the SP500. Since initial claims is minused, it rises with the stock market in the graph, (fewer layoffs are up). We can see they closely track from 2000 until today.

I make two conclusions. 1) Corporations lay people off when the market crashes and keep them on the payroll during booms. and 2) This mechanism only works during the bubble periods from 1995 until today.

So why did this mechanism start to work during bubble period but not prior? The answer: When DC is debt constrained, the only employment mechanism the Fed has available is to pump the market. If you see income dispersion during the bubble period, then it is likely this mechanism, the Fed pumping the market because federal debt has restrained the other paths to employment.

Matt Young said in reply to Matt Young...

So, the Fed really is hyperinflating the stock market, otherwise a crash makes for a huge increase in unemployment.

And Treasury is in a bind, if growth takes off the interest cost would rise from 15% of budget to 30-35%, and Congress would need rates surpressed. Low rates mean low dividend rate from stocks, as they have comparable margins in equilibrium. Low dividend rate is high price earnings, the supressed rates make stock price inflation. The market index concaves upward, until it has to go backward in time.

That is why I think this is a black hole problem, somewhere near Sacramento California.

Matt Young said in reply to Matt Young...

That putsw me one up one Farmer, he implied stocks drove employment, not so, the government drives unemployment and unemployment and stocks cointegrate. Prior to 2000, the accumulated debt costs did not constrain government. Once government flexibility became constrained so did the real economy, in real terms of stuff. Yet again, margins are comparable across sectors at equilibrium. This is what Delong talked about as the Treasury fear in the 90s.

The inflexibility of government is the problem, but the size goes along -iLog(i), -Log(i) the transaction size. That inflexibility shows up suddenly as a shortage of the most illiquid import.

Why has government become inflexible over time? The plot thickens.

reason said in reply to Matt Young...

"Why has government become inflexible over time? The plot thickens."

Oh come one - almost anyone can answer that question with one name - Grover Norquist.

Lafayette said...


From MT's FT article: {Social insurance is a way of sharing the risks that our economic system imposes upon us.}

And the unspoken corollary to this fact is that Social Justice is the sharing of the plenty (that all-of-us contribute in creating) by means of much more progressive upper-income taxation than exists today.

We cannot divorce ourselves from A Common Destiny, which is the sine-qua-non of our existence, and defines the way we live, how we live and how well we live. We are not individualists who must strive for excellence (in remuneration) in order to show how very intelligent or very lucky we are.

We are all part of a larger economic whole without which, on our own, we would be nothing. As I am always fond of asking, "How many self-made millionaires do you know made their fortunes on a deserted island?"

Without the rest of us as Consumers creating Demand and workers who Supply labor-input, they are nothing. So why all the adulation of their individual success?

It's our success, not theirs, that really matters! So, where is the celebration of Our Success?

Nowhere to be seen, because no nation can celebrate high unemployment and foreclosures abounding. Our world has gone topsy-turvy, when far too many must hurt so the few can celebrate their success.

And thus Social Justice be damned ...

[Sep 06, 2013] Paul Krugman This Age of Bubbles

Economist's View

bakho said in reply to derangedlemur...

Good point. Inequality gives BigF more rope to hang itself. The same is true for 401Ks. Rather than the money controlled by professional investors, the money is control by the rubes who are easily suckered.

There are plenty of good investments that need to be made. Unfortunately, BigF is not in position to reap the return on investment. There are many investments that BigG could make and have no problem reaping the returns. BigG needs to take more money from BigF and make the important domestic investments.

This is another example of market failure.

Dan Kervick said...

Yes, financial deregulation seems to be a huge part of it. But along with that perhaps there has been a kind of moral deregulation? A change in the understanding and mores of millions of people with respect to financial investment?

What I mean is that everybody seems to have the idea these days that they are are entitled to some big financial score and that earning big yields from one's financial investments is the normal state of affairs. So it's not just the banksters. There is a whole bunch of dumb greedy money out there all the time, hunting the next big score. Look at all the online trading, the proliferation of personal finance magazines. I don't remember much of that kind of thing from when I was a kid.

Maybe insecurity is contributing as well (some coming from inequality). Perhaps people in an earlier generation had come to think that if you just did your job and were reasonably prudent, and saved extra money in some safe place, America would deliver a pretty decent life to you and a comfortable retirement.

Now America is a hustle, and so its hustle or be hustled.

Darryl FKA Ron said in reply to Dan Kervick...

"What I mean is that everybody seems to have the idea these days that they are are entitled to some big financial score and that earning big yields from one's financial investments is the normal state of affairs."

[OK, the only way that "everybody" could get even near a majority is if you count Lotto as one of those "financial investments." Otherwise, "everybody" in the financial markets search for yield amounts to less than 10% of everybody.

At any rate, what you are describing is the Pavlovian effect of present incentives which favor speculation over productive investment in financial markets. It is not just the greed, but the dopamine injection from speculating and occasionally winning. So, the difference between the securities and derivatives players and the Lotto players is mostly that the odds are better for many of the former to win as much or more than they lose.]

Lafayette said in reply to Dan Kervick...

Perhaps people in an earlier generation had come to think that if you just did your job and were reasonably prudent, and saved extra money in some safe place, America would deliver a pretty decent life to you and a comfortable retirement.}

One might add also that never has life been so replete with opportunity or alternatives -- both of which can be highly confusing.

Also, we are genuflecting at the altar of Mammon unlike we have, perhaps, ever in the history of the US. Being rich was always something "nice to be", but who (born before 1980) really believed it was indeed a real possibility.

Now, it is indeed possible. The TV is full of people who won enormous lottery fortunes. The magazines are full of "self-made millionaire" stories as well. Some people, with a college education and ten years experience in Silicon Valley, are indeed very, very rich.

Ditto Hollywood.

These super-rich have become "role models" for a great many young-adult Americans.

The country, in terms of the Americans who occupy it, has never been so rich for some and yet so poor for others. The disparity is alarmingly large.

And we can thank, I never tire of saying, Reckless Ronnie Reagan for it. His lowering of the higher-income tax-rates in the 1980s made it possible to get very rich, very quickly.

For some. The others are just gawking in awesome wonder ...

Can this highly disparate Income Inequality go on forever? (Yes, it can.) But should it?

We are nowhere near an answer, and far too many are hooked on "Making A Quick Megabuck". Or two, or three, or four, or a hundred ...

[Aug 22, 2013] Economic Mobility Explained With M&M's

Aug 22, 2013 | Yahoo

Dr. Doom himself, economist Nouriel Roubini, even stopped by Zuccotti Park and weighed in afterwards, telling Foreign Policy:

"It takes a lot of different manifestations, but we live in a world with a lot of economic insecurity, of worries about the future, of inequality, poverty, of concerns about jobs. And [Occupy Wall Street] is the manifestation in the U.S."

So two years later, this startling stat still stands out: The share of income received by the top 1% has more than doubled over the past 35 years, from 9% in 1976 to 20% in 2011, according to the World Top Incomes Database (check out this database for hours of data fun). What is still not clear to economists is how income inequality affects behavior.

Recently, The Atlantic business editor Derek Thompson wondered: Are the Rich Getting Too Much of the Economic Pie?

Thompson's video is well worth checking out. And it inspired a discussion between The Daily Ticker's Lauren Lyster and Yahoo! Finance columnist Rick Newman.

"I agree that income inequality is absolutely growing, there's a lot of evidence of that," says Newman. "What I think doesn't get enough attention is something else called economic mobility and this is your ability to move from one income group to the next."

Not surprisingly, it turns out it's harder than it used to be to get ahead, and especially to jump from one income group to a higher income group.

Watch the video above to see why Newman thinks this concept is so important, and how candy M&M's can shed light on the subject of productivity and incentive in a capitalist society.

(Spoiler alert: "No one's gonna give you M&Ms.")


In my humble opinion, the government is largely responsible for loss of economic opportunity. Why? Because the Supreme Court allows entities other than U.S. Citizens to make political contributions. Money talks and the corporations, unions and PAC's have almost exclusive access to representatives ears. The representatives spend a lot more time protecting vested interests than my interests or the interests of other actual citizen by means of rules, regulations, red tape and lawyers that only corporations can afford to figure out.

[Aug 22, 2013] Income Stats Suggest American Dream Is Dead

Yahoo! Finance

The Great Recession officially ended in June 2009, but the U.S. economy still has not fully recovered. While existing home sales have returned to their June 2009 level and the current unemployment rate of 7.4% is far below the June 2009 rate of 9.5%, less people are participating in the work force and incomes are decisively lower.

A new report out Thursday from Sentier Research found that the median annual household income of Americans was $52,100 in June, after adjusting for inflation. That's 4.4% below the level in December 2009.

... ... ...

What abut the private sector?

"Maybe we should say to our business leaders: 'You don't have to take home $70 million this year,'" says The Daily Ticker's Henry Blodget. "We need to move toward an ethos of business that is much more of a balancing tool where you don't hurt shareholders but share the wealth a little bit."

Neither the government nor the private sector is doing anything to solve the problem of declining incomes...


Detroit is coming to your neighborhood!


NAFTA, GATT, WTO, repeal of Glass-Steagall, Commodities Future Modernization Act.....


We are undergoing a second industrial revolution. Robotics and software are eliminating jobs and causing the remaining ones to have low pay. Also, jobs are being outsourced.

A Yahoo! User

Nobody has any disposable income any more except for the very rich/very well compensated. Those with any disposable income whatsoever are burying it like squirrels in a desperate attempt to save enough to stay out of the gaping maw of the underclass, although saving is a sucker's game because if you save too much you'll either lose it to medical bills(insured or not, you can still be wiped out) or if you're lucky on that front, soon you'll be means tested out of Medicare and Social Security when they get around to "reforming" it.

Until we figure out a way to get more income into the hands of those who will spend it and solve the problem of fear and uncertainty over medical expenses and retirement security, the economy will keep circling the drain.

[Aug 18, 2013] The Destruction Of America's Middle Class (In Under Seven Minutes)

Submitted by Tyler Durden on 08/17/2013 - 21:19

While hardly news to frequent visitors, especially those who recall the following list, anyone who needs a 7 minute refresher into why the US middle class is on collision course with extinction is urged to watch the following brief video which highlights all the salient facts such as:

Why seven minutes? Because everyone knows that just like you can't get "six minute abs", so it is impossible to recap the doom of America's middle class in only six minutes (or, gasp, less).

[Aug 18, 2013] 'Why We Might Care About Inequality' by Tim Harford:

August 16, 2013 | Economist's View

Tim Harford:

... I set out two reasons why we might care about inequality: an unfair process or a harmful outcome. But ... the two reasons are not actually distinct... The harmful outcome and the unfair process feed each other. The more unequal a society becomes, the greater the incentive for the rich to pull up the ladder behind them.

At the very top of the scale, plutocrats can shape the conversation by buying up newspapers and television channels or funding political campaigns. The merely prosperous scramble desperately to get their children into the right neighbourhood, nursery, school, university and internship – we know how big the gap has grown between winners and also-rans. ...

This is what sticks in the throat about the rise in inequality: the knowledge that the more unequal our societies become, the more we all become prisoners of that inequality. The well-off feel that they must strain to prevent their children from slipping down the income ladder. The poor see the best schools, colleges, even art clubs and ballet classes, disappearing behind a wall of fees or unaffordable housing.

The idea of a free, market-based society is that everyone can reach his or her potential. Somewhere, we lost our way.

Joe Smith:

"I can hire one-half of the working class to kill the other half." - Jay Gould

Plutocrats have not changed.


->Joe Smith...

That may be what war has historically amounted to, but I know this quote and there is no source. We have to be careful about attribution with Internet quotes.


Frankly, you cannot help but lose your way when you are following an illusion (The idea of a free, market-based society is that everyone can reach his or her potential). Capitalism is simply a more efficient rent extraction process and massive inequality is the inevitable outcome.



Frankly, you cannot help but lose your way when you are following an illusion (The idea of a free, market-based society is that everyone can reach his or her potential). Capitalism is simply a more efficient rent extraction process and massive inequality is the inevitable outcome.

[ Fine, then where is the escape if any is perceived? ]



There is the way of the (Mon)dragon.


I wonder who really does care about "inequality", and why they care. A bit of anecdotal evidence;

I've been working since I was 12. Over 40 years now. I've done low paid work, hard work, dangerous work. Never made anywhere close to median income until the last decade. But in all those years I never cared at all about the fact that there were rich people in the world. I knew they existed, its just that they weren't real. That is, "inequality" is just meaningless to me - not something to worry about.

What I did care about was a lack of power. It bothered me to be pushed, bullied, monitored, subordinated, taxed, bureaucratized, and generally harassed by those in power. All I wanted was to do my job, do it right, be recognized for doing it right, keep what I earned, and otherwise just generally be left alone to manage my own life. But that's not what happens. The powerful are all about status, specifically, making themselves feel more powerful by abusing whoever they can find who will take it.

Put five strangers in a room and I guarantee that the first thing they will do is establish a pecking order. And that's what I think all this discussion about "inequality" is. Abusive people abusing each other in order to work out a political pecking order in their own little room.

I think that if they want to tax the crap out of each other, that's fine by me. And if they want to give me stuff, that's great too - but stop saying they're giving me stuff and then making me pay for it. Its a game. Its their game. Leave me out of it.

Dan Kervick:


"That is, "inequality" is just meaningless to me - not something to worry about."

"What I did care about was a lack of power."

Then I think you were suffering from cognitive dissonance - or maybe just failing to put 2 and 2 together.

No system has every existed, or in any plausibility can exist, in which their are significant inequalities in wealth that do not translate to significant differences in power.

"What's it to me that their are rich people," you might ask? Rich people have greater power than you and I to buy things, including the services of others. And one of the services people have always been willing to sell for a high enough price is their services in making and changing and manipulating and administering the law.

Democracy is incompatible with significant inequality, and as our society has grown more unequal, our democracy has atrophied, decayed and turned into something that only looks like democracy on the outside.

Wealth consists in the things people desire directly, or that can be used to produce the things that people desire. If someone controls a great deal of wealth they control a great deal of the things people desire; and if they control what people desire they control people.

Wealth -----> Power.

If you want to equalize power, you should want to equalize wealth.


->Dan Kervick...

Most of the power crazed people I've had to deal with were not particularly wealthy, but rather, petty functionaries. Managers, administrators, teachers, police, regulators, bureaucrats, tax collectors, etc.. Some of these were in service to wealth and power, some in service to power alone, and some in service to power in pursuit of wealth. It seems to me that its the latter group that talks the most about "inequality".



The plutocrats will be pleased with you. They have gotten you to pay attention to how other powerless people play out their frustrations and to the inevitable restrictions on actions of individuals in a group. As you look in that direction and at those distractions, the plutocrats are free to play their games and rob you blind.



Not sure who all you include in the term "plutocrats". If you include managers, capitalists and politicians, and if by "robbing" you mean exploiting, then I agree. My point is that there is no point in looking at "the rich" in particular, when the entire political class is involved.



"Put five strangers in a room and I guarantee that the first thing they will do is establish a pecking order. And that's what I think all this discussion about "inequality" is."

up is down, black is white, green is purple, snails are sharks. MOVE THAT PRODUCT, BOY!


"an unfair process[es]"

"equal opportunity" has always been a CON to lull the masses. Look what equal opportunity under "unfair process[es]" has gotten minorities and the US middle class (which Santorum says is a Marxist term because the US has no class struggle due to the CONs.

Why not demand "equal outcomes"? That is measured and so far it is abysmal with a negative trend.


"The idea of a free, market-based society is that everyone can reach his or her potential. Somewhere, we lost our way."

There is no such thing. All markets are run by rules and regulations. The idea of a "Free" market has been sold to the public by Malefactors of Great Wealth.

They promote rules and regulations for their own personal aggrandizement under the guise of free market. The public has been sold. The public needs to wise up and recognize that all markets have rules and that the rules are not natural or "Free" but negotiated. A Free market is a market that is free from the masses demanding our fair share. A "Free" market is a market where the wealthy are Free to do to us as they please. Only when the people understand that we need a voice at the bargaining table for more egalitarian rules will the market work for the average person and not just the filthy rich.



Well put.

In my experience, most proponents of a "free market" cannot even articulate what it means - certainly not in any way that relates to the real world. The ones that even try usually seem to have conflated the concept with a competitive market but seem unaware of the assumptions of a competitive market and their implications. Ask them how they resolve asymmetric or incomplete information (which includes fraud), externalities, barriers to exit and entry or monopolies, monopsonies, oligoplies, etc. and you get ... crickets.

A market is simply a human system and no human system can function without rules, i.e., regulation.


The era between 1945 and 1973 may turn out to have been an unrecoverable golden age based on a carryover of wartime solidarity overcoming intergroup tensions, legal protections for workers produced by the New Deal, and the destruction of the industrial capacity of our prewar competitor. As those features of the postwar era subsided, the US leaders failed to prepare the country for the loss of the increase in international competition and what the combination of export of technology to low wage countries coming into the global trading system would mean for American wages.

The spectacle of academic economists trying to convince everyone that the laws of supply and demand can be nullified by increasing domestic wages without protecting domestic products from foreign competition has been amusing. The idea that restoring the domestic tax rates and wage rates to what they were in the golden age when the MNCs did not have the opportunity to engage in international wage and tax arbitrage ignores the changes in international economic competition over the past 40 years.

The Blorch:


"international wage and tax arbitrage"

Like what Joseph Stalin did to Trosky is the model here. It's outrageous that the American tax payer is stuck with the bill paying the Egyptian army to keep open the Suez Canal, essentially bankrolling globalism while the multinationals refuse to repatriate the proceeds of their ill-gotten gains. The executives and owner class should made an example of.

The Blorch:

It's so frustrating because we live in a democracy. When are the voters going to wake up and do what the rich do: vote for the guy that gives you the most money. No pie in the sky. No money now for the elite with a trickle down to follow.

No! Money NOW! For me! Trickle up later to the rich, maybe, no guarantee.

Alaska is the model. Every citizen gets a check from oil field proceeds. It could be tweaked with means testing to provide progressive marginal rates.

The Blorch:

->The Blorch...

As the average American finds himself without access to the private enclaves of well to do, they must look at the rich as a resource, much like a big game hunter looks at the denizens of a game reserve. Eat what you kill, tax what you will.


->The Blorch...



"The idea of a free, market-based society is that everyone can reach his or her potential. Somewhere, we lost our way."

mistaking consumption for participation; earning potential for fulfillment; utility for satisfaction; etc


"The idea of a free, market-based society is that everyone can reach his or her potential. Somewhere, we lost our way."

Remember, man was free and living in utopian bliss until the big bad government arrived, took away our freedoms, drove us into debt, taxed our labor, and created grave inequality.

And the only way to return mankind to his freedom is to follow libertarian principles of abolishing our safety nets, attacking global warming, cutting taxes for the rich, and abolishing the Civil Rights Act 1964.

Only then will mankind be free.



Fiat money is bad, and gold is good.



I can show you a hundred political organizations that have exploited labor. Can you show me even one that has ever produced equality?



I was being sarcastic. Sorry that my joke went over your head.



In fact, I wrote a decent exposition on how political/capitalist exploit labor, but this is not new. In fact, Prodhoun wrote about it ages ago.

When Proudhon wrote property is theft, he was referring to the fact that many laws allowed individuals to use property in a way that is exploitative and abusive.

During that time, the most significant source of property was land. A large part of the labor force worked in agriculture.

However, land ownership was not easily accessible to the common man. Land ownership was often passed down through family that was originally doled out by the government, King, or Church in the name of favoritism. Indeed, property was theft and outside the reach of the common. This created unfair and exploitative hierarchies.

They were not talking about owning a bicycle or an iPad.

Socialists do not have a problem with private property, but they have a problem when property can "legally" be used to exploit others and create coercive hierarchies. This is why many socialists prefer workers to own the means of production where decisions are decided is a democratic manner.



I cannot show YOU such an organization because you are so hellbendt on your narrative that no matter what square facts you are presented with you seem to jam them right down into that round narrative of yours. Ignoring all the good an organization have done you will immediately find and focus on some studpid little "bad" thing it also did, or if it went 90% of the way you will hammer it for the remaining 10% that it didn't do.

For others that are interested and have an open mind I would point to the Scandinavian countries with their labor movement and social democratic parties. They created societies that persistently have been in the top 10 of wealth/citizen and have very low levels of inequality. Furthermore, their minimum wage is more than twice of ours and workers much better working conditions and protections than we have. If those countries had not had those political organizations they would have been much more unequal.

The Blorch:


Where's your proof? You have no proof.

It's pretty obvious when you make things up off the top of your head. You assert this or that with out providing any links to authoritative sources of actual data.


->The Blorch...

For those who are truly interested in the history of Scandinavia, the wealth of its countries and their Gini coefficients here is a link that will be a great beginning for their studies.

For those who are truly interested, the data is just a google away. But it's not going to be of much use for those who are mostly interested in desperately holding on to stalled narratives and world views.



Clarification: The the top 10 status was back in the 60'ies when those countries were run by social democrats (which was basically the political arm of the labor movement). After conservatives began gaining more power and weakening labor, two of them slowly moved down but are currently in the top 25 (with oil rich Norway still in top 10).


I got the sarcasm. And I get that the socialist say they want to do all kinds of things. But you really haven't answered my question. Can you show me even one political organization that has ever produced equality? My point, of course, is that I don't think you can. In fact, I think that you may see what I see, that the real historical political organizations that have talked the loudest about inequality have been the greatest exploiters of labor in the history of the planet.

P.S. I don't agree with Proudhon, but I have a very restrictive view of what "property" is. I think that property is only what we create - the product of our labor. All the rest is entitlement - even fiat currency. I would say, for example, that one of the most effective methods by which the political class exploits labor is by effectively forcing them to trade their property (what they create) for entitlements (fiat currency), and taxing them during the transaction and again later by constantly inflating the currency.



Oops... Should have been a reply to Onomatopoeia.



" Can you show me even one political organization that has ever produced equality? "

Wrong question. It should be one organization moving toward equality. There are many examples.

The Emancipation Proclamation and the 19th amendment come to mind.




The question to Randy should be whether he can give an example of a society that ever even existed without "political organizations" as he defines them.

Economist's View Reich Why the Anger

Robert Reich:
Why the Anger?: Why is the nation more bitterly divided today than it's been in eighty years? Why is there more anger, vituperation, and political polarization now than even during Joe McCarthy's anti-communist witch hunts of the 1950s, the tempestuous struggle for civil rights in the 1960s, the divisive Vietnam war, or the Watergate scandal?

If anything, you'd think this would be an era of relative calm. ... And yet, by almost every measure, Americans are angrier today. They're more contemptuous of almost every major institution - government, business, the media. They're more convinced the nation is on the wrong track. And they are far more polarized. ...

Undoubedly, social media play a part... Meanwhile, cable news and yell radio compete for viewers and listeners by being ever more strident. ... Within this cacophony, we've lost trusted arbiters of truth - the Edward Murrows and Walter Cronkites...

We've also lost most living memory of an era in which we were all in it together - the Great Depression and World War II - when we ... understood how much we owed each other as members of the same society.

But I think the deeper explanation for what has happened has economic roots... - ... for the last three and a half decades, the middle class has been losing ground. The median wage of male workers is now lower than it was in 1980, adjusted for inflation. ...

Meanwhile, income, wealth, and power have become more concentrated at the top than they've been in ninety years.

As a result, many have come to believe that the deck is stacked against them. ...

When average people feel the game is rigged, they get angry. And that anger can easily find its way into deep resentments - of the poor, of blacks, of immigrants, of unions, of the well-educated, of government.

This shouldn't be surprising. Demagogues throughout history have used anger to target scapegoats - thereby dividing and conquering, and distracting people from the real sources of their frustrations.

Make no mistake: The savage inequality America is experiencing today is deeply dangerous.

darrell said...

Divide and conquer.

By in-laws pulled the old Republican mantra "More than half of the population is on the government dole", to which I responded "Including both of you" since they are both collecting SS and on MC.

The few have us arguing over relatively minor issues like abortion and immigration, while they rig the economic game in their favor.

anne said...

Why is the nation more bitterly divided today than it's been in eighty years? Why is there more anger, vituperation, and political polarization now than even during Joe McCarthy's anti-communist witch hunts of the 1950s, the tempestuous struggle for civil rights in the 1960s, the divisive Vietnam war, or the Watergate scandal? ...

[ Because Robert Reich says so, then it must be so. I have no idea how divided we are relative to other contentious times in the last 80 years. However, just saying we are more divided the during the McCarthy or Vietnam years is an assumption by Reich that is written as though it had to be true. A wildly broad set of assumptions from a social scientist, needs to be narrowed and fairly convincingly shown to be so. ]

Joe Smith said...

I remember the 1960s and people having serious debates over whether or not it was a good thing that the National Guard was murdering university students. I don't think we are that divided now.

anne said in reply to Joe Smith...

I do not think that was in the 1960s, but rather the early 1970s.

ilsm said in reply to Joe Smith...

Kent State massacre in spring 1970 took the US' mind off (for a few weeks) the fact the US had invaded Cambodia, as a new tactic for fighting a devastating war with 58000 killed, which strategy was to prop up puppets in Saigon by killing as many people in the countryside as it would take.

Thankfully the Church amendment was passed and made the US almost sane.

Where is our Senator Church today?

John Cummings said...

The dialectical materialist hardcore are driving a myth about "anger" and the so called "popular uprisings".......which don't exist. I cannot stand the hegelian dialect. A "materialistic" world view based on the Abrahamic religions.

The truth is, people are more passive than ever.

The Blorch said in reply to John Cummings...

I think you're on to something.

What we do in society is fight each other to establish a higher pecking order over our rivals. The best way to win more battles is to get more money than your rivals and then you can win a battle non-violently by simply buying a better more luxurious car than your rival can afford. You've probably heard of the term "status symbol" and now you know from whence it is derived.

But like Plato's cave dwellers, chained to the wall, all we see are shadows on the wall. What's really going on isn't the fancy cars that we see but something we can't see: testosterone.

The winners of the battles have increased levels of testosterone. These increased levels make the winners more ferocious than ever.

For the loser, there is decreased testosterone. So when members of the middle class are sent down to the lower class they might have a grievance but they lack the testosterone needed to animate that grievance into anything formidable enough to do anything about it.

So when John Cummings says "The truth is, people are more passive than ever." he's talking about former members of the middle class who have slipped in rank. They're passive because they've lost testosterone to the lucky winners who ascended from the middling ranks to the powerful elite.

B said...

"Make no mistake: The savage inequality America is experiencing today is deeply dangerous."

Look to Greece today and the rise of Golden Dawn for exactly how dangerous.

The polarization is economic in its roots. The economic divide has been created by tax cuts. The way back is massive tax increases on the top tier - massive.

Racism is the ugly stepchild of a bad economy. A bad economy hits the poor first and makes them desperate and uncaring of a society that doesn't care for them. The poor is now nearly half the country.

Racism has also been exploited by the malefactors of evil policy making. Racism is behind the maniacal hatred seething inside of the elder generation. I have spoken with more than a few in their houses. Racism is the code that Fox News uses to trash the capacity of the nation for intelligent dialogue on virtually any subject.

Racism's ugliness was roused from torpor by the election of a half-black president. That president has done his best to placate and bend over backwards to work with those who hate him - thereby earning their contempt in addition to their hatred. That president has alienated many of those who want to support him (such as myself) by kowtowing to hard-right positions nearly across the board, and weakling advocacy of what little he has negotiated.

And it all comes back to the economy. The pot-stirrers connive to use the slippery edges of division where they can grab hold. Those who use them do so because they want the world to kowtow to them. They do not heed the history of extreme inequality. It does not lead to good ends.

Carterj98 said...

I, too, doubt Reich's argument. I think we should be more actively divided than we are. The Occupy movement had a great many points to make, but couldn't make them very well. College costs way too much. We are the only nation that calls itself civilized that doesn't have free medical care for everybody. We are wasting vast numbers of lives and sums of money on wars we should never have gotten involved in. The Glass-Steagal Act should never have been repealed. Our teachers are underpaid. Our infrastructure is going to hell. Wall Street runs the government now.

I protested against the VietNam war, and we got out of there. Our citizenry is apathetic, when there should be riots in the streets.

darrell said...

I think the logical answer is, because it works.

People respond much more strongly to hype and demagoguery than to data and rational analysis.

darrell said...

When there were 3 channels on TV, the hour of nightly news had to present some semblance of "both sides of the story".

Now the network news is little more than headlines, sports, weather, and a feel good closer.

24 hour news channels dedicated to telling only one side of the story have changed the political landscape.

anne said in reply to Sandwichman...

August 11, 2013

Spanish families struggle amid unemployment crisis
By Anthony Faiola - Washington Post

CORDOBA, Spain - It was the start of the Spanish summer, and for a boy with ambitions to be the first in his family to go to college, here was the payoff for getting through chemistry and besting Mrs. Prieto's brutal English tests. The first day of the rest of his life.

Graduation Day.

But Alejandro Gea Vida almost didn't bother to come.

"The future?" the 19-year-old senior said, rounding the corner to Angel de Saavedra High School. In a neighborhood that looked as if it had the wind knocked out of it, Antonio's Photography Studio had just shut down, and even La Repera, the equivalent of a dollar store, had a "For Rent" sign on the window. "Not sure I know what we're celebrating," Alejandro said.

Reaching his cement block of a school, he shot up the stairs and hugged a pack of friends. "You good?" he said, slapping Álvaro Perea, a lanky graduate from last year, on the back. Perea, who should have been working as an X-ray technician by now, shrugged. He was looking for jobs in bars - and finding none - after cuts at public hospitals left him on the waiting list for an internship. No guarantees until 2018. "My brother got laid off at the power company. My father just took a pay cut," Perea later said. "Things aren't going too good in Cordoba right now."

Beyond the invisible wall of his social clique, Alejandro was getting stares. In front of the school auditorium, the Class of 2013 was working it as best they could in the teenage wastelands of central Andalucia, where construction froze four years ago. The girls giggled in flea-market party dresses. The boys threw play punches, filling out their one good suit. But here was Alejandro, 30 minutes from taking the stage to claim his diploma, in a loose black T-shirt and jeans.

It was less an act of rebellion than a self-imposed reality check.

"Working-class," he told himself earlier, when deciding to leave his suit at home. "That's what I am, that's what I'm going to be."

In crisis-hit Europe, a senior's dreams are smaller these days. Once, graduation would have been a celebration of upward mobility, a leap up toward a degree, maybe even a master's, from a blue-collar world. Instead, it had become a study of the uncertainty gripping a continent confronting record-breaking unemployment. In a family in which no member had a full-time job, Alejandro, his parents and his older brother could almost feel themselves slipping a bit more every day. Their story is a glimpse into the new normal of lives torn apart by an economic storm.

It just kept coming. Alejandro's application for college financial aid was rejected. His parents, Francisco and Josefa, fighting to keep the family home, were unable to pay his way. His brother, an avid fan of Che Guevara and Jesus Christ, had ditched school early to help out at home. Still jobless and scrounging odd day work in a city with nearly 60 percent youth unemployment, he wanted more for his brother....

bakho said...

Social Isolation.
One of the unintended effects of the suburbs is to isolate people into their own castle.
Children are prisoners in their own homes unless Helicopter Mom comes home.
The internets keep them connect.

And they connect to other lonely isolated people who are angry because they are not part of a human community.
Their community is virtual and anger is allowed. Internet anger does not have threat of escalation to violence to temper it.

Second Best said...

The anger is deep and diverse. The 9-11 equivalent of economic truthers are everywhere who appear normal until they open their mouth.

As Mark Twain said (paraphrase), there's no difference between one who won't read and one who can't read. The exception today is those who won't read are far more angry than those who can't read.

ilsm said...

The angered are mainly aging white men egged on by the billionaires' agitprop.

As well as the current batch of loonies in the 'young republicans for Galt's prosperity' (the 21st century version of dirty hippies who care for nothing outside their greedy, objectivist "communes") videotaped burning "Obamacare cards" as if they were draft cards, like good chickenhawks their only concern for national security is that entitlements for their racial inferiors might affect their clipping Lockheed (war profiteers') dividend coupons.

beezer said...

Reich, to me, is not off base. The devisiveness is genuine today, and deep. The only ingredient missing is some additional negative shock that would push unemployment into the 20 plus percentages and force a showdown between the Tea Party, the supporters of capital ownership, and everyone else. At 20 plus percentage even the most dim-witted know that they are part of the "everyone else." Speaking as a progressive, my anger is coming as much from understanding that the President is as much a captive as most in the GOP. He speaks Democrat, but when push comes to shove, caves into lobbyists. There's a reason anything we've accomplished happened when Nancy Pelosi ran Congress. Lord, we need more women in power.

Lafayette said in reply to beezer...


{... my anger is coming as much from understanding that the President is as much a captive as most in the GOP. He speaks Democrat, but when push comes to shove, caves into lobbyists.}

We have a tripartite system of governance: the Executive, the Legislative and the Judicial branches.

The PotUS cannot spend to stimulate the economy without legislation issuing from the HofR. Where such spending has been consistently stonewalled by the Replicants (employing the inanity of "fiscal austerity" as an excuse).

Who put Obama back into the Oval Office with both fiscal hands tied behind his back? We, the sheeple, did by maintaining Replicant control of the HofR.

There will be no reform of America until the grassroots understands that Progressive Politics is in their best interest. For the moment, they still side with the T-Partiers.

We have a large Conservative bent in this nation - let's not overlook that fact, and let's address it.

Progressives have a mighty task cut out for them ...

Glen said...

We need much more anger, and an accurate head count of the polarization.

I suspect the ration of "sides" once one strips away all the subterfuge is about 99% to 1%.

Jeffrey678 said...

There is a media blackout on the unemployment issue. They will report it when the number comes out but that is all. They talk about gay marriage , abortion , or a social distraction 24/7 .

The USA Bankers Magazine famous quote :

"If we can divide the electorate this way, we can have them expending their energies fighting amongst themselves, over issues that for us, have no meaning whatsoever"

That was from the USA Bankers Magazine, "August 25, 1924" ,Yes 1924

Lafayette said...


{Meanwhile, income, wealth, and power have become more concentrated at the top than they've been in ninety years.}

And when did the Fit start hitting the Shan?

When Johnson (in the early 1960s) and Reagan (in the 1980s) made a shambles of upper-income level taxation. The effective rate (net of deductions) is now at or below 30% for the 10Percenters down from above 70%.

And how do we, the sheeple, level the playing field? It's not Mission Impossible.

We just get off our collective duffs, stop the bitching, and adopt Progressive Politics by increasing their numbers in the Congressional Progressive Caucus - constituted almost exclusively of HofR members.

The nation needs a healthy dose of it, at least 8 years beyond 2016 to right the wrongs that began accumulating after the Roosevelt Era came to a close.


For starters, these elements: *Income Disparity, by throwing the Tax Code into the dustbin and rewriting it top to bottom with particular attention to progressive rates as they were before Johnson (of all people) started taking them down. *Gerrymandering that has encrusted the nation with a two-party system which, with political obsession, gridlocks LaLaLand on the Potomac to maintain the status-quo. Whereby nothing changes and everything festers. *A law that requires the Executive to seek and Congress to implement Zero-Deficit-Budgeting, which caps the National Debt. Which is developed hand-in-hand with, *Policy that embarks upon a period of higher tax-revenues that allow the Federal government to fund a Rooseveltian Period of renewal - to National Infrastructure, a National Health System (aka the Public Option) and No Child Left Behind postsecondary education (vocational, college, university) that is free, gratis and for nothing. *Implement an aggressive policy of National Market Deconcentration wherever oligopolistic market consolidation has instituted price non-competitiveness (aka "price stickiness").


Either we correct the error of the 2012 elections - where we put Obama back into the Oval Office but tied both his fiscal hands behind his back by keeping the Replicants in control of national spending in the HofR - or we continue as a nation down the slippery slope to perdition.

Enough is enough ...


I think discussion here is missing several important factors:

1. The dramatic increase of the repressive power of the state. It was initiated by Bush and continued under Obama with double speed. Police is now totally militarized. With the regime of "total surveillance" organized, militant dissent is probably impossible. All electronic communications are intercepted. I think that this is one of the reasons why Occupy movement was squashed so quickly.

2. Absence of viable left ideology. Collapse of the USSR, conversion of China into a neoliberal state and global domination of neoliberalism from, say 1990 till 2008 created the political situation of TINA ("There is no alternative"). In this atmosphere rich can plunder the country with immunity, as society immune mechanisms for such plunder are suppressed with the ideology. That's why Clinton so easily sold Dems to financial capital (and Tony Blair later repeated the trick). That's why unions were squashed without major fight (and corruption within the unions plays right into the hands of neoliberal model as it confirms the iron law of oligarchy ).

Now while neoliberalism with its failed prophets like Friedman is in zombie state, there is sill no viable alternative for "greed is good" brainwashing.

3. Complete evaporation of "free media". Media in the USA now resembles official media in the USSR so frightingly close, that even Pravda old coverage of international events looks like a paragon of objectivity in comparison with NYT and WashPost.

4. Looks like "national security state" which gradually developed everywhere after WWII is a stable social formation that without external threats allows oligarchy to rule indefinitely. And can withstand substantial shocks. That means that there is no chances for emerging a viable "progressive" party in the USA now. So shocks to the USA current social order can probably be only external shocks, such as shocks caused by collapse of global financial system, resource depletion (which might revise the geopolitical map) as well as new environmental threats (not necessary global warming).

[Jul 29, 2013] 'Inequality of Opportunity Begins at Birth'

The beginning of health inequality:

Inequality of Opportunity Begins at Birth, by Bill Gardner: Equality of opportunity means that we are not a caste society. Who we will become is not fixed by the circumstances of our births. Some children will do better than others, but this should result from a fair competition. ...
But we don't appreciate how deep inequality runs. The graph below is from a presentation by Angus Deaton which (I believe) reported data from the National Health Interview Survey. The horizontal axis is the logarithm of family income in 1982 dollars, running from about $3600 to over $80,000. The vertical axis is self-reported ill-health (higher numbers reflect worse health). The parallel lines represent different age groups of respondents.

Screen Shot 2013-07-25 at 8.59.04 PM

There are three important facts packed into this slide. First, the lines stack up in order of increasing age, meaning that older people reported worse health than younger people. Second, all the lines slope downward, meaning that the poorer you were, the more likely you had poor health. ...

Lastly, notice how the age lines are much more dispersed on the left (poorest) side of the graph than the right (richest) side of the graph. This means that health deteriorates more quickly with age among the poor than among the rich.

...there is substantial evidence that health inequality starts at birth, or even conception. As Janet Currie argues, there is

huge inequality in health at birth. For example, the incidence of low birth weight (birth weight less than 2500 grams) is more than three times higher among children of black high school dropout mothers than among children of white college educated mothers.

...the infants of the poor are also at risk because poor mothers have poorer health, are more stressed, and are more likely to be exposed to environmental toxins. Poverty gets underneath the skin, starting in the uterus.

Poor health deriving from inequality of economic well-being begins at birth and accumulates as children develop. We are farther from equality of opportunity than most of us acknowledge.


I spent six terms on a city school board (12 years) and when people asked me how best to raise ed test scores I always responded by telling them to 'raise family incomes.' That's it folks. Raise the minimum wage to $16 per hour, where it should be. Put in universal health care. And hire millions of people to rebuild America.

Problem(s) solved, including the one called the Tea Party, which would evaporate along with deficits.

DrDick said...
Economists discovering the obvious: poverty is bad for your health and kills children. Childhood poverty also has life long consequences. Milton Singer and others, who pioneered the political economy of health, have know this for decades.
Suggest a reading from Milton Singer and when possible add a little research summary.
Actually, it should be Merrill Singer (Milton was a South Asianist), here is a good starting point at the end of this article:

There is also this:


Nothing new here. And why studies are needed for this is beyond me.

I can stand on City Line Avenue in Philadelphia, twenty feet one way is a school district that spends $21,000 a year educating every child. Twenty feet the other way is a school district that spends $8000 a year educating every child.

You have to be an imbecile to think students in both districts have the same opportunity.

anne said in reply to EMichael

I can stand on City Line Avenue in Philadelphia, twenty feet one way is a school district that spends $21,000 a year educating every child. Twenty feet the other way is a school district that spends $8000 a year educating every child....

[ Has this been challenged in the state courts? If not, why not and if so, what was the result? ]

Mark A. Sadowski said in reply to anne

This report focuses on six states (Pennsylvania, Illinois, Texas, New York, Missouri, and North Carolina) due to the regressive nature of their public school funding:

The Stealth Inequities of School Funding
How State and Local School Finance Systems Perpetuate Inequitable Student Spending
Bruce D. Baker and Sean P. Corcoran
September 2012

Introduction and Summary:

"Education has been called the passport to the future. It has been defined as the great equalizer and lauded as being a key to unlocking the American Dream. Yet too many children-often low income and minority children-are denied access to high-quality education because they attend schools that are underfunded and under-resourced. The sad reality is that gross funding inequities continue to exist in this country, and too often the schools serving students with the greatest needs receive the fewest resources.

In the education world, the existence of funding inequities has long been a known fact, but the sources of these inequities have not always been obvious. Typically, we have blamed local property tax variation as the sole, or at least primary, cause of inequalities and called for greater state funding as the solution. In practice, however, we see that states providing a large share of state aid are not necessarily more equitable in their distribution of school funding.1

There must therefore be more to the story behind funding inequities. This report tries to provide a fuller picture of the problem so that we know more about what stands in the way of equity. The two chapters that follow explore stealth inequities in school finance, which are defined as often overlooked features of school funding systems that tend to exacerbate inequities in per-pupil spending rather than reduce them, and that do so in a way that favors communities with the least need.

This report begins by identifying those states where combined state and local revenues are systematically lower in higher-poverty districts that is, states with "regressive" school funding distributions. Based on this analysis, the authors focus on six states-Illinois, Texas, New York, Pennsylvania, Missouri, and North Carolina-where children attending school in higher-poverty districts still have substantially less access to state and local revenue than children attending school in lower-poverty districts. With these states in mind, the authors then go beyond recent reports on school funding inequities to uncover some nontraditional causes of these imbalances."

EMichael said in reply to Perspective
Funny. You think this is a left claim when it is simply a fact.

Lower Merion vs. Philadelphia School District

The Blorch said

You have to be an imbecile to think students in both districts have the same opportunity.

[You have to be an imbecile.

The policy objective is to give everyone an opportunity, but not an identical opportunity. Because of the uniqueness of both every individual and the households they grow up in, identical opportunities are an impossibility.]

EMichael said in reply to The Blorch

No one said anything about an identical opportunity, they said an equal opportunity. While no one would argue against " the uniqueness of both every individual and the households they grow up in, identical opportunities are an impossibility" that does not mean we should not try to give them as equal an opportunity as possible.

As in, spend $21,000 on every child.

anne said

July 31, 2013

Organisation for Economic Co-operation and Development Health Data

Life expectancy at birth, total population, 2011

United States ( 78.7)
OECD average ( 80.1)
Australia ( 82.0)
Austria ( 81.1)
Belgium ( 80.5)
Canada ( 81.0)
Chile ( 78.3)
Czech Republic ( 78.0)
Denmark ( 79.9)
Finland ( 80.6)
France ( 82.2)
Germany ( 80.8)
Greece ( 80.6)
Hungary ( 75.0)
Iceland ( 82.4)
Ireland ( 80.6)
Israel ( 81.8)
Italy ( 82.7)
Japan ( 82.7)
Korea ( 81.1)
Luxembourg ( 81.1)
Mexico ( 74.2)
Netherlands ( 81.3)
New Zealand ( 81.2)
Norway ( 81.4)
Poland ( 76.9)
Portugal ( 80.8)
Slovak Republic ( 76.1)
Spain ( 82.4)
Sweden ( 81.9)
Switzerland ( 82.8)
Turkey ( 74.6)
United Kingdom ( 81.1)

I would think a difference in longevity from birth in developed nations would be related to inequality of opportunity beginning at birth.

AllanW said in reply to anne

I'd have hoped that this debate would have moved-on from the issue of 'Is it true?' by now (it is) to the part where we actually do something about it.

Epidemiologists have had this data for decades, some put it together years ago to clearly demonstrate the reality of unequal societies:

Here are the slides and data links;

With any luck in the next decade we will move towards a rediscovery of the shared social contract whereby we reverse the primacy given to non-human institutions and inhuman economic systems and work-out a revised deal where those people who have far more find it in their best interests to help those who have least.

Helping them to never forget that, in studies like those in the op ed, the data points at the bottom of the economic scale are fellow human beings would be a valuable start in my opinion. Dehumanising others is the requisite first step most take towards treating them poorly.

jrossi said

Every pediatrician knows that health discrepancies begin before birth. It is not even a topic worth discussing.

As far as health status diverging over time, we see this, or at least we think we do. I have not read statistical analyses of this phenomenon (not interested enough) but would be astonished if it were not the case.

Some of you might be interested in Schroeder's 2007 Shattuck Lecture in the New Eng J Med, free on the web. A nice pie chart shows the relative contributions of various factors to premature. PD is a multi-variable function with no over-riding case. Health care is a quite insignificant factor. Interesting article, not technical.

matt young said has a great article on the Whodunnit:
Corporate investment: a mysterious divergence. Covers most of the theories discussed here. Cannot cutnpaste link as I have a crappy Android tablet.

Mark A. Sadowski said in reply to matt young

July 24, 2013

Corporate investment: A mysterious divergence
By Robin Harding

Experts are struggling to explain a great puzzle of the US economy

anne said in reply to Mark A. Sadowski
Can this article be summarized, when possible, since I cannot read the Financial Times on this computer?

Mark A. Sadowski said in reply to anne

The article opens with an anecdote and then gives the following narrative:

"...Mr Grant's experience reflects a broader mystery about the US economy, one that dates back to the late 1980s, but has become ever more pressing as a fifth year of sluggish recovery begins. Profits in the US are at an all-time high but, perversely, investment is stagnant.

According to GMO, the asset manager, profits and overall net investment in the US tracked each other closely until the late 1980s, with both about 9 per cent of gross domestic product. Then the relationship began to break down. After the recession, from 2009, it went haywire. Pre-tax corporate profits are now at record highs – more than 12 per cent of GDP – while net investment is barely 4 per cent of output. The pattern is similar, although less stark, when looking at corporate investment specifically.

This change is profoundly odd. Economic theory says investment is driven by profitable opportunities on one side and the cost of capital on the other. High profits suggest there are decent opportunities to make money; historic lows in interest rates and highs in the stock market mean that capital is dirt cheap. Yet investment does not follow.

"We have this strange thing that the return on capital really does seem to be high, the cost of equity capital is low, and yet we're getting a lot of share buybacks and not much investment," says Ben Inker, co-head of asset allocation at GMO. "It just feels a bit weird."

For workers, this weirdness is mirrored by a falling share of GDP for wages, so it contributes to rising inequality; for investors, if the extraordinary strength of profits turns out to be unsustainable, then the US stock market must fall; and for everyone, investment today is what leads to a better standard of living tomorrow.

Explaining the disconnect between profits and investment may help solve some of the US economy's biggest problems. Theories include everything from the financial crisis, to the hidden side effects of computer technology, and the perverse incentives of corporate executives..."

It then proceeds to examine each of these possibilities in greater detail (along with some others) and concludes by discussing the case of Apple.

anne said in reply to Mark A. Sadowski
I had supposed this was the mystery, now I will think about this carefully, but again I am especially grateful for the thorough kindness.
anne said in reply to Mark A. Sadowski
Pre-tax corporate profits are now at record highs – more than 12 per cent of GDP – while net investment is barely 4 per cent of output. The pattern is similar, although less stark, when looking at corporate investment specifically.

This change is profoundly odd. Economic theory says investment is driven by profitable opportunities on one side and the cost of capital on the other. High profits suggest there are decent opportunities to make money; historic lows in interest rates and highs in the stock market mean that capital is dirt cheap. Yet investment does not follow....

-- Robin Harding

The Blorch said in reply to anne
Actually, I think MS missed the point of the article. His summary was a voluminous recitation of all the impermanent details. He might as well have recited the entire article less the crucially salient items. Here's my summary:

Can this article be summarized

[Incentives written into executive contracts at the large, publicly traded corporations motivate moving retained earnings away from investment and towards stock buy backs and dividend increases as a way of showing improvement each quarter.

This lack of investment starves the broader economy of jobs, is thought to have other adverse consequences to the business cycle and, thus, creates a macroeconomic problem.

The solution to the problem is get rid of offending incentives written in to the pay packages or just get rid of the stock market. Companies that don't trade shares publicly are shown to invest more.

Mark A. Sadowski said in reply to The Blorch

In my opinion the article's conclusion is not at all as definitive as you characterize it. After examining each possibility in detail, but before briefly discussing the cases of Amazon and Apple, Robin Harding states:

"Each theory may hold part of the truth about profits and investment. But if corporate behaviour is to blame, there are policy levers to pull. It would be time to stop thinking about corporate governance and executive pay as matters of equity and to regard them instead as a macroeconomic problem of the first rank."

The Blorch said in reply to Mark A. Sadowski

"Each theory may hold part of the truth about profits and investment. But if corporate behaviour is to blame, there are policy levers to pull. It would be time to stop thinking about corporate governance and executive pay as matters of equity and to regard them instead as a macroeconomic problem of the first rank."

Now you got it: the paragraph at the crux of it.

The details of other possibilities and Apple are a mere detraction.

Main Street Muse said
Apparently equality of opportunity may not lie within American borders any more. According to this AP story, 4 in 5 Americans live in danger of falling into poverty; not isolated to any one demographic either.

"Trickle down" economics are clearly a massive failure

[Jul 18, 2013] Does It Matter That Americans Are 'Subsidizing' Astronomical CEO Pay

One tax loophole that political economist Robert Reich, Secretary of Labor in the Clinton Administration, identifies in a Huffington Post column is a tax deduction for executive compensation.

Reich writes that "almost everyone knows CEO pay is out of control." He cites CEO pay rising 16 percent (according to The New York Times) at big companies last year, with the typical CEO making $15.1 million.

Meanwhile, he argues, it's less well-known that taxpayers are "subsidizing" these sky-high payouts, because corporations can deduct them from their income taxes (in the case of executive pay in excess of $1 million, when tied to performance). He says it ought to be one of the first tax expenditures to go, if Congress takes up tax reform.

It seems like a fair point. But at the same time, you could easily argue those executives pay personal income tax on their compensation - so that money is being taxed.

And Jeff Macke, host of Yahoo! Finance's Breakout, bemoans the "absurdity of going after this loophole," given the revenues it would produce.

"I could hawk a loogie in the East River and expect the tide to rise – expect that to actually elevate the level of the East River - for all this would do to increase our tax rolls," he argues in the video above. "We have bigger fish to fry."

Macke says the focus should be on corporate repatriation of profits held overseas.

To put it in perspective, Bloomberg reports Apple (AAPL) avoided an almost $9.2 billion tax bill by using debt to finance part of its $55 billion share buyback. They issued bonds to pay for some of it, as opposed to bringing home some of the $100 billion in cash held overseas, which would be taxed at 35%.

That $9.2 billion from one company is almost as much as Macke says we'd recoup in a year from all companies if we closed the CEO pay loophole. (We used back of the envelope calculations, using the Economic Policy Institute estimates in the Reich piece, which get us to $10.6 billion in foregone tax revenue a year.)

Check out the video and let us know what you think.

[Jul 09, 2013] The Middle Class Is Broke Pew Study Reveals Real Problem With Economy

Since 2000, the Pew says, "the middle class has shrunk in size, fallen backward in income and wealth, and shed some - but by no means all - of its characteristic faith in the future."
Aug 23, 2012 | Yahoo

One of the most important stories in the U.S. economy these days is the rise of extreme inequality.

Over the past 30 years, a larger and larger portion of America's income growth has gone to those in the top 10% of incomes, and especially those in the top 1%. This is a major change from the prior 60 years, in which the top 10% and the bottom 90% shared in the income gains.

A stark and startling example of this trend is the fact that, adjusted for inflation, "average hourly earnings" in this country have not increased in 50 years.

A recent Pew study confirms that America's middle class has recently experienced a "lost decade."

Since 2000, the Pew says, "the middle class has shrunk in size, fallen backward in income and wealth, and shed some - but by no means all - of its characteristic faith in the future." Pew cites statistics showing that middle class earnings and net worth have plummeted since the mid-2000s and that about 85% of the middle class say it is harder to maintain their standard of living than it was 10 years ago.

The reason the decline of the middle class is important is not just about fairness. It's about the health of the economy as a whole.

Collectively, the middle class represents enormous buying and spending power, and in the past 60 years this spending power has helped the U.S. economy become the envy of the world.

But now, however, the middle class is increasingly strapped. And the resulting impact on spending is constraining the growth of companies that sell products and services to American consumers.

The causes of this middle-class decline are many, from globalization (jobs being shipped overseas), to the decline of private-sector unions, to the wholesale embrace of a "shareholder value" religion that values profit over everything else that companies produce. But the result of the trend can be seen vividly in two charts.

To truly "fix" the U.S. economy, corporations are going to have to be persuaded to invest more of their excess profits in their employees, both by hiring new employees and paying existing employees more. "Wages" to employees become spending money for those employees, and the spending produces revenue for other companies. If corporations can collectively be persuaded to reinvest more of their profits in their people, in other words, they will help restore their own revenue growth.

Henry Ford famously decided to pay his workers more than he had to to keep them. One result of this was that the workers made enough money to be able to buy Ford's cars, and this made Ford more successful. Another result, which is considered irrelevant in some business circles, is that Ford employees were able to live middle-class lives. This helped not only Ford, but the country.

Our current economic problem is not likely to be solved by the government, which possesses neither the power nor the competence to make it happen. The problem will have to be solved by the private sector. And one important part of that solution is for corporations to share more of their wealth with one very important (and often overlooked) corporate constituency: Their employees.

[Jun 30, 2013] Which Households Have Incomes Below $30,000

Zero Hedge

Looking at the demographics of households with less than $30,000 a year in income, it appears they are mostly headed by retired people. As Visualizing Economics notes, households with incomes below $30,000 are more likely to be located in rural and urban areas than the national average...

and looking at the the poverty rate by county, very low income households (under $23,000 for a family of four) are concentrated in places like Mississippi, Texas, and South Dakota.

[Jun 24, 2013] Where the Wealthy Folk Are

June 24, 2013 | The Big Picture

Source: The Economist

There are 12 million people on the planet that had investible assets of more than $1 million dollars.

Collectively, this group controls $46.2 trillion dollars (2012).

A quarter of them live in America (3.4m); followed by almost a sixth in Japan (1.9m) and a twelfth in Germany (over 1m). China and Great Britain round out the top 5.


at 2:49 am

This topic sparked to take a quick and dirty look at what a million might mean, relatively speaking, across the countries.

Just using consumer prices differential (including rent), this is what I found:

Japan is about 24% more expensive than the US. So, roughly you need about quarter of a million more to match minimum wealth lifestyles.
Germany is about on par with US, about 3% more – generally speaking – expensive.
China is about 29% cheaper (remember, we are talking about comparable lifestyles here).
The United Kingdom is, somewhat surprisingly (to me), about as expensive than Japan, 23% higher cost of living.
France is better than the UK at 18% higher; mostly due to lower rental costs on average.
14.5% higher expenses for those Canadian millionaires, but compared to your own countrymen, you're a bit more wealthy than your American counterparts.
Pity the Swiss millionaire, she had to have almost 84% more money to match the life of her US cousins.
Aussies have it almost as bad – their cost of living is around 56% higher. For both beauty and costs, think of Eastern Australia (where most people are) as similar to on/near the beach California…
Italy is pretty much like Canada, 16% more expensive, but being a millionaire in Italy gives you a great deal more economic cachet, so to speak.
Brazil has issues, the growing pains of a country transitioning. However, cost of living relatively makes Brazilians nearly as well off as the Chinese wealthy class – approximately 25% cheaper than the US.
South Korean well off have, like the Germans, a close to ours cost of living.

So, no surprise, being wealthy in emerging countries – China and Brazil – gives you more bang for your bucks. However, you have to factor in levels of taxation, financial security, general quality of life (that Gini index stuff), to get really a good idea of how well off is really well off in various countries.

[Jun 14, 2013] Paul Krugman Sympathy for the Luddites

From comments: There is no "equality of opportunity" when the likes of Romney "rise" to the top. "Randomness" is for quantum theory. "Merit" is for the faithful. The "game" is rigged.
Economist's View

If the share of income going to labor continues to decline, how should we respond?:

Sympathy for the Luddites, by Paul Krugman, Commentary, NY Times: In 1786, the cloth workers of Leeds, a wool-industry center in northern England, issued a protest against the growing use of "scribbling" machines, which were taking over a task formerly performed by skilled labor. "How are those men, thus thrown out of employ to provide for their families?" asked the petitioners. "And what are they to put their children apprentice to?"
Those weren't foolish questions. Mechanization eventually ... led to a broad rise in British living standards. But it's far from clear whether typical workers reaped any benefits during the early stages of the Industrial Revolution; many workers were clearly hurt. And often the workers hurt most were those who had, with effort, acquired valuable skills - only to find those skills suddenly devalued.
So are we living in another such era? ... The McKinsey Global Institute recently released a report on a dozen major new technologies that it considers likely to be "disruptive"... and ... some of the victims of disruption will be workers who are currently considered highly skilled...
So should workers simply be prepared to acquire new skills? The woolworkers of 18th-century Leeds addressed this issue back in 1786: "Who will maintain our families, whilst we undertake the arduous task" of learning a new trade? Also, they asked, what will happen if the new trade, in turn, gets devalued by further technological advance?
And the modern counterparts of those woolworkers might well ask further, what will happen to us if, like so many students, we go deep into debt to acquire the skills we're told we need, only to learn that the economy no longer wants those skills?
Education, then, is no longer the answer to rising inequality, if it ever was (which I doubt).
So what is the answer? If the picture I've drawn is at all right, the only way we could have anything resembling a middle-class society - a society in which ordinary citizens have a reasonable assurance of maintaining a decent life as long as they work hard and play by the rules - would be by having a strong social safety net, one that guarantees not just health care but a minimum income, too. And with an ever-rising share of income going to capital rather than labor, that safety net would have to be paid for to an important extent via taxes on profits and/or investment income.
I can already hear conservatives shouting about the evils of "redistribution." But what, exactly, would they propose instead?

Sandwichman :

Yes, as I was saying a little over two years ago, in my Open Letter to Paul Krugman...

"One of the favorite unintended-consequences stories in economics is the idea that 'technology creates more jobs than it destroys.' This was a standard rebuke to Luddites in the early 19th century, who were portrayed as fearing that machines would create chronic unemployment. It closely resembles the case argued against the mercantilism of the early 18th century by Henri Martyn in Considerations on the East India Trade. The lump-of-labor fallacy appears as the negative version of this story. In fact, the fallacy is sometimes called the Mercantalist or Luddite fallacy.

"There is a crucial difference between the two sides of the story, though. The technology creates jobs story is openly embraced by economists and triumphantly played as the trump card in debates over employment policy. The fixed-amount-of-work story, though, is only attributed by economists to Luddites, shorter work time advocates and other 'naive populists' they wish to discredit. In both cases it is the economist (not infrequently, The Economist) speaking, telling the uninitiated to sit down and shut up."

Second Best:

Market purists always support disruptive introduction of new technology in the name of more productivity. The disruptive part is justified on grounds that markets cannot be expected to adjust immediately with lower prices on the demand side that would compensate the losers for lost income on the supply side. The flawed corollary is that labor markets will remain tight and the newly unemployed will find replacement jobs, just at lower skill compensated pay.

Today's ruling class is in the business not just of disrupting markets with valued added productivity, but of systematically killing off major new sources of technology-based productivity that pulls net total growth down.

It's a form of economic cannibalism that not only enriches the rich further, it robs labor of the opportunity to be more productive when properly (competitively) matched up with new technology.

In the US the cannibalism abounds in bloated industries like health care, finance and the military industrial complex as it chokes the life out of the economy by suppressing the very technology that could have made these industries efficient rather than evolve into the sluggish too-big-to-fail failures they have become.

The problem layed out by Krugman is more about the fallacies of Ludditism through an intended, carefully designed path of market failure designed and embraced by the rich under the guise of market purism, rather than one of market success that requires massive redistribution to correct it.

Real markets that work through disruption or otherwise are avoided at all cost by the rich, and that includes the cost of massive job loss, reduced share of total output and decline in total output, all borne by the 99% forced to face 'real markets' manufactured out of whole cloth by the ruling class.

The Raven:

"I can already hear conservatives shouting about the evils of 'redistribution.' But what, exactly, would they propose instead?"


Dan Kervick:

What we need is a system of full employment that relies on more active public enterprise alongside private enterprise.

Krugman has too much faith in the private enterprise system. He implicitly assumes that if private enterprise is not coming up on its own with the jobs to employ everyone willing and able to work, that's because the world has run out of useful things for those people to do. So all we can due in that case is to transfer income to those who lack jobs.

That's madness. We have much more that needs to be done than there are people to do those things in our decaying and environmentally fraught country. If the work opportunities are not being created, that is because of our primitive over-reliance on the system of privately organized work with privately owned resources. We need to take active steps to build our future, and that means the public needs to employ people directly for the world-building tasks that private enterprise is incapable of handling on its own without strategic direction.

And get rid of the term "safety net". The term suggests that the unemployed have fallen off of something; that they have failed in some way by slipping where they shouldn't have. But systemic unemployment of valuable and skilled individuals is a normal operating condition of capitalism, which can never generate full employment on its own in a sustained way. Even when it does expand during booms, there is no guarantee that the world it is building us during that expansion is the world we want.

ken melvin:

Funny, this, how truism are used to explain but never really do; never did, not even close. Now the model's broken, has been a long time, exposing these truisms for what they were. I think almost all are capable of seeing what's going on, if they so wished. Some, e.g., Darrell and others here, are very good at telling it like is.

I'm repeating myself but: China alone could easily manufacture all the worlds goods. Supply and demand, markets, entrepreneurs, ... furgiddit.

We're in for a gut wrenching the likes of which not seen since the rise of the industrial age, maybe worse. Because we're going to try to hang on to the past.


"I can already hear conservatives shouting about the evils of 'redistribution.' But what, exactly, would they propose instead?"

Taxing land and other rents? Technically it doesn't "redistribute" in the sense that someone who owns a machine must pay a tax on its product.

The problem is that most capitalists are also rentiers. A share of McDonald's is in part a claim to the land the company owns. When the business cycle picks up, it's a windfall to the shareholders.

'No One Really Believes in Equality of Opportunity'

Ezra Klein on the equality of opportunity:

No one really believes in 'equality of opportunity', by Ezra Klein: ...Everyone in American life professes to believe in equality of opportunity. But nobody really believes in it. ... You can't have real equality of opportunity without equality of outcome. A rich parent can purchase test prep a poor parent can't. A rich parent can usher their children into social networks a poor parent can't. A rich parent can make donations to Harvard that a poor parent can't. ...
When people say they believe in "equality of opportunity," they really mean they believe in "sufficiency of opportunity." They don't believe all children should start from the same place. But they believe all children should start from a good enough place. They believe they should have decent nutrition and functioning schools and a safe community and loving parents. They believe they should have a chance.
The question is what they're willing to do about that belief. Democrats who believe in sufficiency of opportunity tend to want to spend more on health care and education for the poor. ...They believe that the less children or their parents need to worry about staying afloat, the more they'll be free to work to get ahead.
On the Republican side, Rep. Paul Ryan (Wis.) has taken the lead in arguing that conservatives should focus on opportunity. But his approach largely consists of cuts to the safety net. ... These are not policies required by the finances of government. ... Rather, they're required by Ryan's theory of opportunity, which is that a key problem for the poor is the transformation of "our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency." His budget reflects this theory.According to the Center on Budget and Policy Priorities, almost two-thirds of his cuts come from programs that serve the poor.

Helping the poor by cutting the programs they rely on is, to say the least, a risky theory of uplift. It's easier to see what Ryan's plan does to impede sufficiency of opportunity than to spread it. ...

I don't see how we can achieve equality of opportunity without some degree of income redistribution. Republicans, of course, generally oppose income redistribution.

I've obscured the point of Ezra Klein's post in the extract above, it's mostly about whether "conservative reformers" who profess to believe in equal opportunity are serious, or simply using the mantra of "equal opportunity" to defend the same old policies that favor key constituencies. There are certainly people in the Republican Party who truly believe that government intervention harms the poor, but for the most part this looks like an excuse to pursue "you're on your own" polices that lower taxes and favor those at the top.

[Note: I have been battling an allergic reaction for the last several days, nothing serious but it is a big annoyance and distraction (the itchiest hives you can imagine from head to toe along with scary tongue swelling, hands a bit swollen, etc., no idea what causes it but Benadryl in large doses provides relief). I'm hoping it will be over soon, in the past it has never lasted this long and I'm "itching" for it to end, but in the meantime it's been hard to focus on blogging (or anything else) -- hence the mostly "echo blogging" the last few days.]

Perspective said...

The Right wrongly thinks every child and his/her parents are solely responsible for their opportunities. The Left wrongly thinks no parents deserve any blame for the circumstances under which they choose to have children, and then the choices they make raising them.

I know a few elementary school teachers in LA. Year after year, the incoming first graders cannot recite their ABCs (in Spanish or English), cannot count to 10, and cannot identify colors. If parents can't provide a minimal effort in educating their children, it's very difficult to educate those children sufficiently.

Dave Evans said in reply to Perspective...

I have observed that parents love their children even though they don't restain themselves nor are they able to demonstrate it appropriately. I have also observed that no child is responsible for his or her parents. The parents' responsibility or irresponsibility will affect the child and when poor or worse it is a public duty to intervene in a positive way to provide some remey for the situation. Highly intelligent resourceful people with energy and opportunity can go a long ways. I entered first grade in a a 4 teacher rural school. I did not know how to count nor the alphabet much like my classmates. Our teacher (of first and second grade) did what a good teacher does and proceed from where we were to move us up. I was reading independently by the end of first grade. Teachers who complain that their students don't know what they think they should are obligated to teach them from where they are -- not from where they should theoretically be.

Cameron Hoppe said...

As I've pointed out on my blog ( ), even when there was little to no publicly-provided social safety net in the US, there was still a massive distribution system for non-financial capital....This was mostly done in the form of the many iterations of the Homestead Act. It was pretty important at a time when land was wealth, and when the money one had wasn't the only means to sustain oneself. Even during times of high financial inequality, ie The Gilded Age, folks with little in the way of money still had some access to strategic capital.

Obviously we need sufficient social safety nets for those in need. We all need a way to distribute capital to low- and moderate income people and areas. To be honest, I don't think we've seen any meaningful public policy proposals to that effect.

Dan Kervick said...

What in the world does "sufficiency of opportunity" mean? When is a starting place "good enough"? And who says life should be some kind of individualistic contest for achievement in which what is important is that the contest is "fair"?

Blissex said...

"Republicans, of course, generally oppose income redistribution."

That is a common myth, and it is completely false, like the myth that Republicans are against big government.

Republicans are highly moral politicians who seek to reallocate resources in the best way, redistributing them from the parasitic, low productivity poor, to the deserving, high productivity rich.

They do this both by ensuring that legal and market rules give more leverage to incumbency and power, and that tax and spending soaks the luxury-loving poor and boosts the wealth-creating rich.


That "equal opportunity" is vacuous has been well-known since the notion was first floated during the 1970s.

Was any other concept at once so vacuous, so pernicious, and so popular? Surely so, "free markets."

For if a distinguished professor, or entrepreneur or manager, wanted to abandon a friend or brother who struggled with school and occupation, and yet feel absolutely no guilt, all the prof had to do was embrace equal opportunity and free markets.

[May 27, 2013] Tech Titans Are the New Masters of the Universe, Be Afraid Kotkin Daily Ticker

New class of oligarchs are rising, which represent a new threat to US democracy
(if something left from it). They are not necessary more moral people then financial oligarchs.
Yahoo! Finance

When Steve Jobs died, Occupy Wall Street was in full effect. Yet those who were fighting for wealth equality and the end of the banking oligarchy held a moment of silence in honor of the Apple co-founder, who had a net worth of $7 billion.

Jobs "didn't believe in charity," writes Joel Kotkin in The Daily Beast. Apple (AAPL) was a company that "had more cash in hand than the U.S. Treasury while doing everything in its power to avoid paying taxes...Jobs was being celebrated by those who should have been fighting against him."

Kotkin believes that tech gurus are America's newest set of oligarchs. They hurt competition and hold great influence with government officials. They don't create many U.S. jobs, they don't pay much in taxes, and yet 72% of Americans express positive feelings for their industry.

Auto executives flying in private jets set the American public into a rage in 2008 and yet no one complains about Google's (GOOG) fleet of private jets in San Jose or the tech giant's proposal to build a private $85 million flight center, Kotkin argues. Tech oligarchs are also taking jobs away from Americans, he says.

"Perversely, the small number of jobs -- mostly clustered in Silicon Valley and created by tech companies -- has helped its moguls avoid public scrutiny," Kotkin points out in the accompanying clip.

Kotkin compares the domestic workforce of major Silicon Valley companies to other Fortune 500 U.S. corporations: 50,000 Google employees versus 200,000 U.S. workers at General Motors (GM). Facebook's (FB) 4,600 workers to Ford's (F) 164,000. Exxon's (XOM) 100,000+ staff to Twitter's 1,000.

Google, with a market cap of $215 billion, is about five times larger than GM yet has just one fourth as many workers.

"This is an equation that defines inequality: more and more wealth concentrated in fewer hands and benefiting fewer workers," Kotkin says. "If you look at the wealthiest people in the country, particularly the wealthiest people under the age of 40, they're heavily tilted towards the Silicon Valley."

The youngest billionaire in the U.S. is Mark Zuckerberg of Facebook whose net worth totals $12.4 billion. He's followed by Sergey Brin of Google, the 21st richest person in America, with $25.5 billion.

"Ten of the world's 29 billionaires under 40 come from the tech sector, with four from Facebook and two from Google. The rest of the list is mostly inheritors and Russian oligarchs," writes Kotkin.

Facebook paid no taxes last year, despite making a profit of more than $1 billion. Apple's Tim Cook testified in front of Congress this week about how his company manages to pay so little in taxes.

These companies are also trying to use their influence to sway politics. Facebook's lobbying budget grew from $351,000 in 2010 to $2.45 million in the first quarter of 2013. Google spent $18 million on lobbying in 2012.

So why do these companies get a free pass when it comes to public opinion?

"In our era we have grown up to love our toys," Kotkin tells The Daily Ticker. "I think it has a kind of halo effect. People don't realize that this is not as clean and carefree as we tend to think."

"These are industrialists, these are capitalists and we should celebrate their successes but we should be very careful," he adds.

Brad DeLong: Global Inequality

Another long travel day today, so for now a quick post via Brad DeLong:

Global Inequality: Saturday Twentieth Century Economic History Weblogging: Those economies relatively rich at the start of the twentieth century have by and large seen their material wealth and prosperity explode. Those nations and economies that were relatively poor have grown richer, but for the most part slowly. The relative gulf between rich and poor economies has grown steadily over the past century. Today it is larger than at any time in humanity's previous experience...
This glass can be viewed either as half empty or as half full. The glass is half empty: we live today in a world that is nearly the most unequal world ever. Only the world of the 1970s and 1980s-with standards of living in China greatly depressed by the legacy of Mao, his Great Leap Forward, and his Cultural Revolution and with standards of living in India depressed to a lesser extent by the License Raj of the Nehru Dynasty-was more unequal than ours is, even today. The glass is half full: most of the world has already made the transition to sustained economic growth; most people live in economies that (while far poorer than the leading-edge post-industrial nations of the world's economic core) have successfully climbed onto the escalator of economic growth and thus the escalator to modernity. The economic transformation of most of the world is less than a century behind the of the leading-edge economies...
On the other hand, one and a half billion people live in economies that have not made the transition to economic growth, and have not climbed onto the escalator to modernity. It is hard to argue that the median inhabitant of Africa has a higher real income than his or her counterpart of a generation ago.
From an economist's point of view, the existence, persistence, and increasing size of large gaps in productivity levels and living standards across nations seems bizarre. We can understand why pre-industrial civilizations had different levels of technology and prosperity: they had different exploitable nature resources, and the diffusion of new ideas from civilization to civilization could be very slow. Such explanations do not apply to the world today. The source of the material prosperity seen today in leading-edge economies is no secret: it is the storehouse of technological capabilities.. Most of it is accessible to anyone who can read. Almost all of the rest is accessible to anyone who can obtain an M.S. in Engineering. Because of modern telecommunications, ideas today spread at the speed of light. Governments, entrepreneurs, and individuals in poor economies should be straining every muscle ... to do what Japan began to do in the mid-nineteenth century: acquire and apply everything in humanity's storehouse of technological capabilities.
This "divergence" in living standards and productivity levels is another key aspect of twentieth century economic history: economies are, by almost every measure, less alike today than a century ago in spite of a century's worth of revolutions in transportation and communication. Moreover, there seems to be every reason to fear that this "divergence" in living standards and productivity levels will continue to grow in the future. ...
This is a potential source of great danger, because today's world is sufficiently interdependent-politically, militarily, ecologically-that the passage to a truly human world requires that we all get there at roughly the same time.

[Apr 18, 2013] Why are Republicans Suddenly So Worried about the Elderly and the Working Class?

There are two political parties in the USA: the party which wants to steal from workers 80% and the party which wants to steal 70%. That's the choice voters have...

When conservatives face a choice of cutting Social Security -- something they have long sought -- in return for an increase in taxes, they suddenly become friends of the elderly and the working class. But what is really behind their newfound fondness for the vulnerable?

This is from an article from Andrew Biggs, "resident scholar at the American Enterprise Institute and former principal deputy commissioner of the Social Security Administration," appearing at the NRO:

The Chained CPI: A Bad Deal All Around, by Andrew Biggs, NRO: The Chain-Weighted Consumer Price Index (or chained CPI, for short), which President Obama included as part of his formal budget proposal, seems like a no-brainer for any White House–GOP grand bargain on the budget deficit. After all, the chained CPI ... would reduce entitlement spending and increase tax revenues by a combined $340 billion over ten years, providing something for both sides to like and dislike. Yet ... the chained CPI is bad policy that both liberals and conservatives may come to regret. ...
In Social Security, the chained CPI would replace the CPI-W (intended for urban wage-earners and clerical workers) in calculating annual cost-of-living adjustments (COLAs). Once fully implemented, lower COLAs would reduce a retiree's average lifetime benefits by around 4 percent, cutting Social Security's long-term shortfall by around one quarter.
Yet while Social Security does need to be fixed, and lower benefits for middle and high earners should be a part of the equation, smaller COLAs weaken a feature of Social Security that actually works: The program's generous inflation adjustment counteracts the absence of inflation adjustment in private pensions. And unlike most reforms, which reduce benefits progressively ... COLA reductions fall hardest on the oldest beneficiaries, who are most at risk of poverty. An 85-year-old is 66 percent more likely to be in poverty than a 65-year-old, but the chained CPI will cut the 65-year-old's by only 1 percent and the 85-year-old's benefits by 8 percent... Moreover, the chained CPI, like CPI-W, doesn't account for the fact that older retirees spend disproportionately on health care, a sector in which inflation is particularly high.

[Note: The article and supporters of this policy say the chained CPI is a better measure of inflation, and that may be true for some groups, but the last sentence shows that it is not a better measure of inflation for the elderly.] I don't disagree with the arguments above about who would be hurt, and that we should protect the most vulnerable -- I think we should raise the payroll tax cap rather than cutting benefits -- it's just strange to see them made at the NRO (the Obama administration's proposal includes a call to protect older retirees from the changes noted above, and it's not surprising to see this omitted from the discussion -- it undercuts the GOP's attempt to position itself as defending older retirees against a Democratic proposal). Continuing:

A better policy would peg COLAs to wage growth, which is around 1 percentage point faster than inflation, coupled with a lower initial retirement-benefit level to keep lifetime receipts the same. The lower starting benefit would dissuade workers from retiring too early. Higher benefits later in life would focus resources where the danger of poverty is greatest, as well as compensating for the fact that most non–Social Security sources of retirement income aren't inflation-indexed at all. ...

Again, I'd raise the payroll tax cap first, but let's move on to the tax argument. As you read this, remember all the complaints from Republicans during the presidential election about middle and lower income households not paying their share of federal taxes, about how they take too much and give too little relative to the "burdens" on the wealthy:

If adopting the chained CPI for Social Security would be misguided, applying it to the income-tax code would be even worse. ...
Republicans would surely oppose such an increase if they understood it. Making matters worse, the largest rate increases will be on low- and middle-income households. The Congressional Joint Committee on Taxation projects that in 2021, 69 percent of the gains in revenue would come from taxpayers with incomes below $100,000, though they pay only 28 percent of total income taxes. Individuals in the highest income brackets would be left essentially untouched... Conservative reformers such as National Review's Ramesh Ponnuru are pushing for a tax code that's friendlier to families and middle-income earners. The chained CPI is hard to fit into that narrative. ...
It's hard to see how chained CPI can be a win for conservatives..., why should Republicans take the rap for a measure that weakens Social Security for the least well-off and institutes a large and regressive tax increase? ...

I don't find it hard at all to imagine Republicans supporting regressive tax changes (see their past policies) and weakening Social Security (ditto). The real goal for Republicans, of course, is to prevent tax increases of any type. If they give in anywhere, it might help with arguments that taxes on the wealthy must go up, and that cannot happen. The puzzle is why Obama would put forth a measure that allows Republicans to position themselves as defending the elderly and the working class as they pursue their real goal of keeping taxes from increasing. I guess he thought it wouldn't really happen, that Republicans would end up looking like unreasonable obstructionists on the tax issue, and that the press would all of a sudden turn on them as a result of their intransigence, but it wasn't hard to see this coming:

So what's this about? The answer, I fear, is that Obama is still trying to win over the Serious People, by showing that he's willing to do what they consider Serious - which just about always means sticking it to the poor and the middle class. The idea is that they will finally drop the false equivalence, and admit that he's reasonable while the GOP is mean-spirited and crazy.
But it won't happen. ... Oh, and wanna bet that Republicans soon start running ads saying that Obama wants to cut your Social Security?

Anyone else getting tired of relying upon Republican intransigence to defend Social Security and Medicare from Obama's Grand Bargains that are intended to appease the "Serious People" that cannot be appeased?

[Apr 18, 2013] A Tax System Stacked Against the 99 Percent

LEONA HELMSLEY, the hotel chain executive who was convicted of federal tax evasion in 1989, was notorious for, among other things, reportedly having said that "only the little people pay taxes."

As a statement of principle, the quotation may well have earned Mrs. Helmsley, who died in 2007, the title Queen of Mean. But as a prediction about the fairness of American tax policy, Mrs. Helmsley's remark might actually have been prescient.

Today, the deadline for filing individual income-tax returns, is a day when Americans would do well to pause and reflect on our tax system and the society it creates. No one enjoys paying taxes, and yet all but the extreme libertarians agree, as Oliver Wendell Holmes said, that taxes are the price we pay for civilized society. But in recent decades, the burden for paying that price has been distributed in increasingly unfair ways.

About 6 in 10 of us believe that the tax system is unfair - and they're right: put simply, the very rich don't pay their fair share. The richest 400 individual taxpayers, with an average income of more than $200 million, pay less than 20 percent of their income in taxes - far lower than mere millionaires, who pay about 25 percent of their income in taxes, and about the same as those earning a mere $200,000 to $500,000. And in 2009, 116 of the top 400 earners - almost a third - paid less than 15 percent of their income in taxes.

Conservatives like to point out that the richest Americans' tax payments make up a large portion of total receipts. This is true, as well it should be in any tax system that is progressive - that is, a system that taxes the affluent at higher rates than those of modest means. It's also true that as the wealthiest Americans' incomes have skyrocketed in recent years, their total tax payments have grown. This would be so even if we had a single flat income-tax rate across the board.

What should shock and outrage us is that as the top 1 percent has grown extremely rich, the effective tax rates they pay have markedly decreased. Our tax system is much less progressive than it was for much of the 20th century. The top marginal income tax rate peaked at 94 percent during World War II and remained at 70 percent through the 1960s and 1970s; it is now 39.6 percent. Tax fairness has gotten much worse in the 30 years since the Reagan "revolution" of the 1980s.

Citizens for Tax Justice, an organization that advocates for a more progressive tax system, has estimated that, when federal, state and local taxes are taken into account, the top 1 percent paid only slightly more than 20 percent of all American taxes in 2010 - about the same as the share of income they took home, an outcome that is not progressive at all.

With such low effective tax rates - and, importantly, the low tax rate of 20 percent on income from capital gains - it's not a huge surprise that the share of income going to the top 1 percent has doubled since 1979, and that the share going to the top 0.1 percent has almost tripled, according to the economists Thomas Piketty and Emmanuel Saez. Recall that the wealthiest 1 percent of Americans own about 40 percent of the nation's wealth, and the picture becomes even more disturbing.

If these numbers still don't impress you as being unfair, consider them in comparison with other wealthy countries.

The United States stands out among the countries of the Organization for Economic Cooperation and Development, the world's club of rich nations, for its low top marginal income tax rate. These low rates are not essential for growth - consider Germany, for instance, which has managed to maintain its status as a center of advanced manufacturing, even though its top income-tax rate exceeds America's by a considerable margin. And in general, our top tax rate kicks in at much higher incomes. Denmark, for example, has a top tax rate of more than 60 percent, but that applies to anyone making more than $54,900. The top rate in the United States, 39.6 percent, doesn't kick in until individual income reaches $400,000 (or $450,000 for a couple). Only three O.E.C.D. countries - South Korea, Canada and Spain - have higher thresholds.

Most of the Western world has experienced an increase in inequality in recent decades, though not as much as the United States has. But among most economists there is a general understanding that a country with excessive inequality can't function well; many countries have used their tax codes to help "correct" the market's distribution of wealth and income. The United States hasn't - or at least not very much. Indeed, the low rates at the top serve to exacerbate and perpetuate the inequality - so much so that among the advanced industrial countries, America now has the highest income inequality and the least equality of opportunity. This is a gross inversion of America's traditional meritocratic ideals - ideals that our leaders, across the spectrum, continue to profess.

Over the years, some of the wealthy have been enormously successful in getting special treatment, shifting an ever greater share of the burden of financing the country's expenditures - defense, education, social programs - onto others. Ironically, this is especially true of some of our multinational corporations, which call on the federal government to negotiate favorable trade treaties that allow them easy entry into foreign markets and to defend their commercial interests around the world, but then use these foreign bases to avoid paying taxes.

General Electric has become the symbol for multinational corporations that have their headquarters in the United States but pay almost no taxes - its effective corporate-tax rate averaged less than 2 percent from 2002 to 2012 - just as Mitt Romney, the Republican presidential nominee last year, became the symbol for the wealthy who don't pay their fair share when he admitted that he paid only 14 percent of his income in taxes in 2011, even as he notoriously complained that 47 percent of Americans were freeloaders. Neither G.E. nor Mr. Romney has, to my knowledge, broken any tax laws, but the sparse taxes they've paid violate most Americans' basic sense of fairness.

In looking at such statistics, one has to be careful: they typically reflect taxes as a percentage of reported income. And the tax laws don't require the reporting of all kinds of income. For the rich, hiding such assets has become an elite sport. Many avail themselves of the Cayman Islands or other offshore tax shelters to avoid taxes (and not, you can safely assume, because of the sunny weather). They don't have to report income until it is brought back ("repatriated") to the United States. So, too, capital gains have to be reported as income only when they are realized.

And if the assets are passed on to one's children or grandchildren at death, no taxes are ever paid, in a peculiar loophole called the "step-up in cost basis at death." Yes, the tax privileges of being rich in America extend into the afterlife.

As Americans look at some of the special provisions in the tax code - for vacation homes, racetracks, beer breweries, oil refineries, hedge funds and movie studios, among many other favored assets or industries - it is no wonder that they feel disillusioned with a tax system that is so riddled with special rewards. Most of these tax-code loopholes and giveaways did not materialize from thin air, of course - usually, they were enacted in pursuit of, or at least in response to, campaign contributions from influential donors. It is estimated that these kinds of special tax provisions amount to some $123 billion a year, and that the price tag for offshore tax loopholes is not far behind. Eliminating these provisions alone would go a long way toward meeting deficit-reduction targets called for by fiscal conservatives who worry about the size of the public debt.

Yet another source of unfairness is the tax treatment on so-called carried interest. Some Wall Street financiers are able to pay taxes at lower capital gains tax rates on income that comes from managing assets for private equity funds or hedge funds. But why should managing financial assets be treated any differently from managing people, or making discoveries? Of course, those in finance say they are essential. But so are doctors, lawyers, teachers and everyone else who contributes to making our complex society work. They say they are necessary for job creation. But in fact, many of the private equity firms that have excelled in exploiting the carried interest loophole are actually job destroyers; they excel in restructuring firms to "save" on labor costs, often by moving jobs abroad.

Economists often eschew the word "fair" - fairness, like beauty, is in the eye of the beholder. But the unfairness of the American tax system has gotten so great that it's dishonest to apply any other label to it.

Traditionally, economists have focused less on issues of equality than on the more mundane issues of growth and efficiency. But here again, our tax system comes in with low marks. Our growth was higher in the era of high top marginal tax rates than it has been since 1980. Economists - even at traditional, conservative international institutions like the International Monetary Fund - have come to realize that excessive inequality is bad for growth and stability. The tax system can play an important role in moderating the degree of inequality. Ours, however, does remarkably little about it.

One of the reasons for our poor economic performance is the large distortion in our economy caused by the tax system. The one thing economists agree on is that incentives matter - if you lower taxes on speculation, say, you will get more speculation. We've drawn our most talented young people into financial shenanigans, rather than into creating real businesses, making real discoveries, providing real services to others. More efforts go into "rent-seeking" - getting a larger slice of the country's economic pie - than into enlarging the size of the pie.

Research in recent years has linked the tax rates, sluggish growth and rising inequality. Remember, the low tax rates at the top were supposed to spur savings and hard work, and thus economic growth. They didn't. Indeed, the household savings rate fell to a record level of near zero after President George W. Bush's two rounds of cuts, in 2001 and 2003, on taxes on dividends and capital gains. What low tax rates at the top did do was increase the return on rent-seeking. It flourished, which meant that growth slowed and inequality grew. This is a pattern that has now been observed across countries. Contrary to the warnings of those who want to preserve their privileges, countries that have increased their top tax bracket have not grown more slowly. Another piece of evidence is here at home: if the efforts at the top were resulting in our entire economic engine's doing better, we would expect everyone to benefit. If they were engaged in rent-seeking, as their incomes increased, we'd expect that of others to decrease. And that's exactly what's been happening. Incomes in the middle, and even the bottom, have been stagnating or falling.

Aside from the evidence, there is a strong intuitive case to be made for the idea that tax rates have encouraged rent-seeking at the expense of wealth creation. There is an intrinsic satisfaction in creating a new business, in expanding the horizons of our knowledge, and in helping others. By contrast, it is unpleasant to spend one's days fine-tuning dishonest and deceptive practices that siphon money off the poor, as was common in the financial sector before the 2007-8 financial crisis. I believe that a vast majority of Americans would, all things being equal, choose the former over the latter. But our tax system tilts the field. It increases the net returns from engaging in some of these intrinsically distasteful activities, and it has helped us become a rent-seeking society.

It doesn't have to be this way. We could have a much simpler tax system without all the distortions - a society where those who clip coupons for a living pay the same taxes as someone with the same income who works in a factory; where someone who earns his income from saving companies pays the same tax as a doctor who makes the income by saving lives; where someone who earns his income from financial innovations pays the same taxes as a someone who does research to create real innovations that transform our economy and society. We could have a tax system that encourages good things like hard work and thrift and discourages bad things, like rent-seeking, gambling, financial speculation and pollution. Such a tax system could raise far more money than the current one - we wouldn't have to go through all the wrangling we've been going through with sequestration, fiscal cliffs and threats to end Medicare and Social Security as we know it. We would be in sound fiscal position, for at least the next quarter-century.

The consequences of our broken tax system are not just economic. Our tax system relies heavily on voluntary compliance. But if citizens believe that the tax system is unfair, this voluntary compliance will not be forthcoming. More broadly, government plays an important role not just in social protection, but in making investments in infrastructure, technology, education and health. Without such investments, our economy will be weaker, and our economic growth slower.

Society can't function well without a minimal sense of national solidarity and cohesion, and that sense of shared purpose also rests on a fair tax system. If Americans believe that government is unfair - that ours is a government of the 1 percent, for the 1 percent, and by the 1 percent - then faith in our democracy will surely perish.

[Apr 18, 2013] Thatcher and Entrenched Interests

The National Interest

Consider the huge transfer of wealth to Wall Street bankers and financiers fostered by the Federal Reserve's lingering policy of near-zero interest rates. That practically guarantees huge big-bank profits as they borrow from the Fed's discount window for next to nothing in order to buy much higher-yielding government paper (with no need to add to their reserves, as they would have to do with big private-sector loans). Meanwhile, ordinary Americans see their money-market funds and other fixed-income investments plummet. As financial consultant David Smick has suggested, this may represent "the greatest transfer of middle-class and elderly wealth to elite financial interests in the history of mankind."

Of course, Wall Street and the big banks also were abundantly complicit in fostering the real-estate bubble that gave us the financial crisis of 2008–2009. Then, when it emerged, they applied political muscle to coax the federal government and the Fed into doling out bailouts, stimulus packages and other financial props-all in the name of helping beleaguered mortgage holders when in fact the real beneficiaries were the big banks. Instead of using federal resources to remove toxic assets from the banks' balance sheets, which would have meant restructuring the banks and perhaps tattering a few lofty careers, the government used its resources to buoy bank stock prices. This clearly contributed to the country's slow and anemic recovery.

Nor is there any reason to believe that the much-touted Dodd-Frank regulatory legislation will alter this situation to any significant degree. Although it created a vast regulatory bureaucracy to meddle in the financial sector, as if Washington bureaucrats know any more about how to avoid financial pitfalls than the financiers themselves, it leaves intact Wall Street's power base, which is its vast ability to influence those in the top echelons of officialdom.

The only way to solve this problem is to bust up the big banks and curtail their ability to commingle commercial and investment banking enterprises. That indeed was federal policy from 1933, when Congress passed the famous Glass-Steagall banking law, to 1999, when that law was repealed. During the Glass-Steagall era, banks couldn't underwrite private securities with insured deposits and then sell those securities to their own customers. That kind of activity, it was understood, would foster inevitable bubbles of the kind that brought us the 2008–2009 financial crisis.

Now consider the growth in wealth and power represented by the increasing size and scope of government. Since 1946, the number of state and local government employees has increased from 3.3 million to 19.8 million-a 492 percent increase in a nation whose population grew by 115 percent during that time. In 1947, 78 percent of national income went to the private sector, 16 percent to the federal government sector, and 6 percent to state and local governments. Now the percentages are 54 percent private, 28 percent federal, and 18 percent state and local. With growing governments and more public employees, a major shift in the nation's distribution of political power was inevitable.

How Did Once-Respectable Conservative Economists Get Swept Up in Moocher Class Mania

Economist's View

Brad DeLong: reviews Nicholas Eberstadt's "A Nation of Takers":

... If there was a single moment when Mitt Romney lost the 2012 presidential election, it was in May when he stood in front of the $50,000-a-plate audience at Sun Capital honcho Marc Leder's home in Boca Raton and spoke his soon-to-be-infamous words:

There are 47 percent of the people who will vote for the President no matter what…. There are 47 percent who are with him, who are dependent upon government…who believe that government has a responsibility to care for them, who believe that they're entitled to health care, to food, to housing, you name it…. These are people who pay no income tax…. My job is not to worry about those people-I'll never convince them that they should take personal responsibility and care for their lives…

This is what Mark Schmitt of the Roosevelt Institute calls "the theory of the moocher class." And Romney is all in with it. ...

Those of us who know the numbers, or who simply live in America and look around, know that the 47 percent who aren't paying federal income taxes this year are by and large not "moochers." About a fifth are elderly retired. About two-thirds are in households with incomes of less than $20,000 a year-definitely not living high. And nearly one-third owe no income taxes because of the earned-income and child tax credits, which both became law with bipartisan support.

As a group, the 47 percent who pay no income taxes do not lack work ethic. They do take personal responsibility for their lives. They may not pay federal income taxes this year, but they pay plenty of sales, property, and payroll taxes. For the most part, they do not constitute the Democratic base. More than half of the 47 percent are the elderly white and Southern white voters who voted for Romney by substantial margins.

So how does someone like Romney, along with his peers and all their staffs and everyone else in that Boca Raton room, become convinced that 47 percent of Americans are the moochers, the takers, dependent on "free gifts" from the government, lacking work ethic, lacking personal responsibility?

Enter Nicholas Eberstadt of the American Enterprise Institute (AEI), with his contribution to the think tank's "New Threats to Freedom" series. We need venture no further into A Nation of Takers than the bottom of the second page…

As I noted yesterday, conservatives are still blaming their loss in the presidential election on the idea that Democrats are "giving away free stuff" to their constituents. I think this passage highlights the mistake they are making:

The truth is that the American government spends much of its money transferring resources from some members of the broad middle class to others in the same class: unemployment insurance, Social Security, Medicare, and increasingly Medicaid (which every day shifts more from a program focused on the nonelderly poor to one spending a greater share on the disabled and on the elderly who can no longer make their Medicare co-payments). The recipients of these social-insurance benefits do not think of themselves as moochers. They paid into these systems. They believe that they earned those benefits-and in large part they did.
Eberstadt sees things differently...

The good thing -- for Democrats -- is that the more that conservatives are criticized over this, the more they seem to dig in their heels.

[Mar 18, 2013] The Economics Of Plutonomy

March 18, 2013 | Economist's View

My post this morning on the growing class divergence between first class travelers and coach travelers reminded me of an old piece of market analysis done in 2005 for Citigroup that's become a bit of a cult classic among economics writers. The document in question is Ajay Kapur's "Plutonomy: Buying Luxury, Explaining Imbalances" (PDF). The analysis itself is a mixed bag, but the bullet point summary is a brilliant instance of summarization so I'll just quote it:

So there you have the key bullet points. Thanks to growing inequality, the consumer economy is increasingly driven by a relatively small number of very rich people who represent a very large share of the overall consumption. But now note that the key conclusion of the second bullet point have been proved to be totally wrong. He thought that because plutonomy implies global imbalances, the imbalances themselves are non-threatening. They turn out to be very threatening. But the consequences of the global financial crisis make bullet point three all the more crucial. The ability to borrow money against rising home prices allowed middle class consumers to keep increasing their consumption even in the face of stagnating wages and incomes. The crisis has brought that to an end and created a situation in which labor market polarization directly implies polarization of the consumer side of the economy. Airlines increasing investment in improved first class amenities while doing nothing to improve the median passenger experience is just one window into that dynamic. "At Wal-Mart, shoppers cut back on staples like milk and meat that had price increases of a few cents," Stephanie Clifford reported for the New York Times last week, while "At Saks Fifth Avenue, they paid full price for shoes and designer fashions at a rate higher than before the recession."

That's the business environment of late plutonomy. An increasingly price-sensitive mass market whose sheer numbers mean they still spend a lot, and a price insensitive plutocrat class whose price-insensitivity makes them the target of choice for sales and profit growth.

[Mar 02, 2013] Republicans Must Bridge the Income Gap -

LAST month Emmanuel Saez, a celebrated economist at the University of California, Berkeley, issued another depressing report on income inequality. Among other things, Mr. Saez examined how real family incomes changed in the United States from 2009 to 2011, the first two years of the recovery. The richest 1 percent of Americans, he found, saw their incomes grow, on average, by more than 11 percent. As for the other 99 percent? You guessed it: incomes shrank by nearly half a percent.

The phenomenon is hardly new. The yawning gap between rich and poor has been growing since the 1970s and reached a 90-year peak in 2007, just before the financial crisis. The Great Recession narrowed the gap a bit, but now, once again, the richest Americans are vacuuming up what wealth is out there, a trend that Mr. Saez expects to continue.

I am a capitalist and a lifelong Republican. I believe that, in a meritocracy, some level of income inequality is both inevitable and desirable, as encouragement to those who contribute most to our economic prosperity. But I fear that government actions, not merit, have fueled these extremes in income distribution through taxpayer bailouts, central-bank-engineered financial asset bubbles and unjustified tax breaks that favor the rich.

This is not a situation that any freethinking Republican should accept. Skewing income toward the upper, upper class hurts our economy because the rich tend to sit on their money - unlike lower- and middle-income people, who spend a large share of their paychecks, and hence stimulate economic activity.

But more fundamentally, it cuts against everything our country and my party stand for. Government's role should not be to rig the game in favor of "the haves" but to make sure "the have-nots" are given a fair shot.

President Obama, who has rightly made income inequality a signature issue, cannot be pleased that the über-rich have gained under the policies pursued by his administration, while the bottom 99 percent have not. Unfortunately, his economic team, populated by acolytes of the former Treasury secretary Robert E. Rubin, has relied on the same "growth" policies that got us into trouble precrisis: generous treatment of the financial sector and easy money from the Federal Reserve. These strategies have done little to encourage sustainable economic growth, but they have worked wonders to increase Wall Street profits and inflate the value of stocks and bonds - which are disproportionately owned by the rich.

Why haven't Republicans made an issue out of this? No doubt some fear that discussing it openly would catalyze support for redistributionist policies, which are anathema to a party that prides itself on increasing the pie, not redividing it. But there are other policy options to demonstrate Republicans' commitment to the average Joe and Jane that are very much in the party's tradition.

For instance, as part of renewed fiscal discussions over sequestration, Republicans should put fundamental tax reform on the table and make it our priority to end preferential treatment of investment income, which lets managers of hedge funds pay half the tax rate of managers of shoe stores.

Defenders of this giveaway make the unsubstantiated claim that it encourages job-creating investments. But what we have now is merely an immense pool of investment funds that has created far too few jobs. A report last year by Bain and Co. projected that by 2020 there will be $900 trillion in financial assets around the globe, chasing investments in a real economy worth only $90 trillion in gross domestic product. Why in heaven's name do we need to keep a tax preference to encourage more?

If we eliminate this and other unjustified tax breaks, we can produce enough new revenues to lower marginal rates and reduce the deficit, according to both the Simpson-Bowles and Domenici-Rivlin debt-reduction plans.

Republicans should also put rebuilding the nation's transportation and energy infrastructure high on our political agenda. From Lincoln's transcontinental railroad to Eisenhower's highway system, Republicans have understood that investing in critical infrastructure projects creates jobs and expands commerce.

And given that the Federal Reserve insists on giving us cheap money, let's use it for the benefit of the country by issuing long-term debt to finance such projects and repay it over decades through dedicated taxes and user fees.

Some may say I am tilting at the windmills of Tea Party orthodoxy in making these suggestions, but I believe that most Republican politicians would be sympathetic to them, if only they could overcome their fear of primary challenges and the loss of Wall Street money. Having worked for Senate Republicans in the 1980s, I remember a time when Republicans stood up to special interests and purged the tax code of preferences for investment income and other special breaks.

They managed to survive re-election by showing leadership, taking principled positions and defending them vigorously. It's time for the Grand Old Party to return to those roots.

Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation from 2006 to 2011, is the author of "Bull by the Horns: Fighting to Save Main Street From Wall Street and Wall Street From Itself."

Summary for Week ending February 22nd

HomeGnome wrote on Sat, 2/23/2013 - 8:05 am (in reply to...)

Committing RE Appraisal Fraud since 1998 wrote:

An immobile workforce is a compliant workforce.

ResistanceIsFeudal wrote on Sat, 2/23/2013 - 8:20 am (in reply to...)

Rob Dawg wrote:

An immobile workforce is a compliant workforce.

And an overly-mobile one makes itself an obvious target for outsourcing or threats of same... what to do, what to do? Of course the superstars will always be fine, but not everyone is a superstar.


ResistanceIsFeudal wrote:

And an overly-mobile one makes itself an obvious target for outsourcing or threats of same... what to do, what to do? Of course the superstars will always be fine, but not everyone is a superstar.

YouTube - Shooting Star - Bad Company

[Feb 23, 2013] DOT Vehicle Miles Driven declined 2.9% in December

Calculated Risk

Bad Dawg Bobby wrote on Sat, 2/23/2013 - 5:40 pm (in reply to...)

Rob Dawg wrote:

If we could get Chinese construction prices I'd say go for it.

"Chinese Construction prices" But quality of product, especially high speed rail, I would want union. American Union.

Ever notice that when it can to Republicans TAKING Taxpayer dollars ( What 4-6Trillion) to save TBTF Bankster or Corporations.

NO PROBLEM. Ben and Timmy just help themselves (With the permision of our Congress) to Tax money from the US Treasury

BUT 1.4 Trillion to Feed people with food stamps, or medical care or Disabilities they screem like stuck PIGS GEEEEEEK, GEEEEEEK (!)"I want that money"

They have really made no bones about being the party that represents the top 20%. It is sad being a former Republican and stand here and watch it self destruct, Time to bring back the WIG party Smile I say Tax the Corporations, Banks,People 90% that making over 1 Million a year. I'm Kidding but I really have had enough of this greed, instead of leaders our top 20% have become wealth spunges.

[Feb 18, 2013] 'Equal Opportunity, Our National Myth'

Economist's View


It has always been a myth, a carefully crafted and nourished myth. It is just much more evident today than it was in my youth.


Stiglitz is right and the data is in. While children born into the middle class enjoy a good degree of economic mobility, children born into lower socio-economics classes tend to stay there while children born into rich resource families tend to stay rich, regardless of aptitude.

We need to end the failed War on Drugs first and foremost, along with enacting better educational policies for those who most need them.


That is true but everyone has an equal chance in some ways. What you posted is true in most cases but there has to be a 'Start', just like all of these companies owned by families had a start.


Where in history has equal opportunity existed? You will always better parenting, access to horizon broadening experiences. Tell us something we don't know. The solution isn't to tear down the successful. Reduce the out of wedlock birth rate to that of the 1950s, and I suspect that will solve a major part of the chasm between the 'haves' and 'have nots'!


In a narrow view equal opportunity means equal access to education.

I would not deny that there are a lot of things that are bad in the USA education. But at the same time there are things that the US education system does right.

Community colleges is one such thing. They provide pretty good education at minimum cost and if you are "degree-oriented" but "knowledge-oriented" person they are of tremendous value.

Another good thing is that you can get degree by taking some number of obligatory courses and facultative courses in almost any order. And you can take a break and your credit will be preserved.

Also number of credit you need to take to count as full time student is low (afaik 12 is enough).

All that provide some "equality of opportunity" for those who can take advantages on those features of the system.

I think for BS and MS the best value in the US university system lies outside Ivy League universities. PhD is another story.

Dan Riker:

We are living through another "Gilded Age." The minimum wage today, in real terms, is about the same wage paid to the meat packing workers when Upton Sinclair wrote "The Jungle." Thousands of men lined up outside the factories, willing to take any job, at any pay. There are millions today in about the same circumstances.

The average hourly wage in the U.S. is less than $23.00. Maybe half the population are struggling to make ends meet. We have a rapidly growing number of people of retirement age facing living on fixed incomes when costs are going up, and efforts are underway to reduce retirement and medical benefits. How is that going to work out?

In reference to Stiglitz's point, it once was possible for children of low middle class incomes to get their music lessons for free in school, to go to summer camps very inexpensively because they were run by YMCAs, churches, or the Scouts. Driver's ed was a free course in school. State college and university tuitions were minimal. And during this time, the late 40s into the 1970s, we had low disparity of income, a rising middle class, and the wealthy continued to get richer.

The conditions that caused this no longer exist, but many of the problems we face today are our own fault. There are solutions if we have the political will to implement them. We need a new progressive movement to take control of the state and national governments.

dale coberly:

Watermelon punch, Second best, Dan Riker

I think you are on to something. Stigliz is right about many things, but he overlooks the fact that a Harvard Degree is not something we all should aspire to, or even an equal opportunity to. We need to find a way to see that garbage collectors can have a decent life.

This would include "equal opportunity" but it must also include somewhat more equal outcome for those who don't grow up to be college professors or sellers of financial instruments. By equal outcome I most definite do not mean welfare. I can't see any reason why the cleaning lady who makes it possible for the lawyer to spend an extra hour making a hundred dollars, hasn't provided him sufficient "value" to deserve at least a decent share of that hundred bucks... as an honest wage.

"Equal opportunity" is all too likely to become "well,you had your chance.. now you are a failure."

Paine says, not very clearly, "value added is not uniquely determined." He means, I hope, that the wages we pay "the least of these" are determined by "economic" forces, that are mostly determined by power and a shameful way of treating those who have less of it.

cm said in reply to dale coberly...

The Y2K/dotcom time tech industry, and subsequent bust, has provided a case study for my "keeping the troops happy" point. Due to a lot of startup funding and the Y2K deadline crunch, there was a large local/sectoral demand for warm bodies, particularly the younger crowd trained (or claiming to be) in the latest hot technologies, compelling companies to provide perks, entertainment, and other retention efforts or recruiting incentives that were in cases bordering on the ridiculous. In some hotspots housing was becoming hard to find, leading to generous relocation and housing assistance deals. With the bust all of that was quickly gone, and things reverted to "what you don't like it here, why don't you take a look outside the window".

cm said in reply to dale coberly...

The following decade saw a boom in offshoring and little investment in local labor (large supply overhang), and later companies waking up to the reality that backfilling attrition and compensating for the loss of experience from still-youngish industry labor pools (covering local time zone!) was again difficult (who could have known). Some of that could be replaced by bringing in trained-up talent from offshore offices, but in some affected sectors companies again have to make a bit more effort to hang on to their existing staff. But the overall picture is mixed - there are still pools of experienced, if a bit older, folks who don't run away and who can be reactivated, usually on a project/contract basis.

Dan Riker:.

I've used a number of the available inflation calculators for a book I am writing and they all show that in real terms, wages paid at the lowest end, at the meatpacking plants, at the Carnegie steel plants, even on the railroads, were about what the minimum wage is today.

And, on those wages, there was actual starvation in the U.S.

If it were not for foodstamps, the employment tax credit, etc. there would be little difference today for millions of people.

dale coberly said...


maybe not much. "adjusting for inflation but not standard of living" is what they want to do with Social Security. it's a criminal way to see that old people and other lesser folk can live at a cave man standard of living while the rest of us enjoy the fruits of their contribution to rising standards of living.

and, at the risk of stepping on my own point, if minimum wages today are about what they were in 1906 "without foodstamps etc" we need to recognize that in fact we do provide foodstamps etc. so the "poor" worker today is almost certainly better off than the poor worker a hundred years ago.

but this is a point the bad right likes to make to justify the level of poverty today. i would suggest, as perhaps Riker is saying, that living on any kind of "welfare" is still "poor." we would be a far better country to live in, even for the rich, if everyone made a decent wage, and that wage was within striking range of "average" and average was within striking range of "successful."

i am not too worried about the super rich, except where they got that way by stealing.. like the general run of bankers and ceo's.

Dan Riker:

A book I have relied on considerably for information about the robber barons, their business dealings, what they paid their workers and how much money they made, is Gustavus Myers. HISTORY OF THE GREAT AMERICAN FORTUNES. I haven't found another book with as much detail. It was first published in 1907-09 in three volumes, but the edition I use is the one volume Modern Library edition of 1936. Myers rewrote his original work and updated it.

Alan MacDonald :

I posted this on-topic and non-profane comment on Stiglitz's article about the "Equality Myth" to the NYT early this morning.

But somehow the Times did not include it among reader comments. And yet there is a belief that mentioning Empire is not a taboo subject in America, eh?

"There is always great and vast inequality within all Empires,
particularly this disguised Global Empire hiding behind the facade of a modernized and TWO-Party 'Vichy' sham, and employing a bigger "National Myth of Equality" --- the myth of democracy.

Best luck and love to the fast expanding 'Occupy Empire' educational and revolutionary movement against this deceitful, guileful, disguised EMPIRE, which can't so easily be identified as wearing RedCoats, Red Stars, nor funny looking Nazi helmets ---- quite yet!

Liberty, democracy, justice, and equality
Violent/'Vichy' Rel 2.0

Alan MacDonald
Sanford, Maine

We don't merely have a gun/fear problem, or a 'Fiscal Cliff' problem, or an expanding wars problem, or a 'drone assassinations' problem, or a vast income & wealth inequality problem, or a Wall Street 'looting' problem, or a Global Warming and environmental death-spiral problem, or a domestic tyranny NDAA FISA spying problem, or, or, or, or .... ad nauseum --- we have a hidden EMPIRE cancerous tumor which is the prime CAUSE of all these 'symptom problems'."

[Feb 16, 2013] Equal Opportunity, Our National Myth by Joseph E. Stiglitz

Feb 16, 2013 |

President Obama's second Inaugural Address used soaring language to reaffirm America's commitment to the dream of equality of opportunity: "We are true to our creed when a little girl born into the bleakest poverty knows that she has the same chance to succeed as anybody else, because she is an American; she is free, and she is equal, not just in the eyes of God but also in our own."

The gap between aspiration and reality could hardly be wider. Today, the United States has less equality of opportunity than almost any other advanced industrial country. Study after study has exposed the myth that America is a land of opportunity. This is especially tragic: While Americans may differ on the desirability of equality of outcomes, there is near-universal consensus that inequality of opportunity is indefensible. The Pew Research Center has found that some 90 percent of Americans believe that the government should do everything it can to ensure equality of opportunity.

Perhaps a hundred years ago, America might have rightly claimed to have been the land of opportunity, or at least a land where there was more opportunity than elsewhere. But not for at least a quarter of a century. Horatio Alger-style rags-to-riches stories were not a deliberate hoax, but given how they've lulled us into a sense of complacency, they might as well have been.

It's not that social mobility is impossible, but that the upwardly mobile American is becoming a statistical oddity. According to research from the Brookings Institution, only 58 percent of Americans born into the bottom fifth of income earners move out of that category, and just 6 percent born into the bottom fifth move into the top. Economic mobility in the United States is lower than in most of Europe and lower than in all of Scandinavia.

Another way of looking at equality of opportunity is to ask to what extent the life chances of a child are dependent on the education and income of his parents. Is it just as likely that a child of poor or poorly educated parents gets a good education and rises to the middle class as someone born to middle-class parents with college degrees? Even in a more egalitarian society, the answer would be no. But the life prospects of an American are more dependent on the income and education of his parents than in almost any other advanced country for which there is data.

How do we explain this? Some of it has to do with persistent discrimination. Latinos and African-Americans still get paid less than whites, and women still get paid less than men, even though they recently surpassed men in the number of advanced degrees they obtain. Though gender disparities in the workplace are less than they once were, there is still a glass ceiling: women are sorely underrepresented in top corporate positions and constitute a minuscule fraction of C.E.O.'s.

Discrimination, however, is only a small part of the picture. Probably the most important reason for lack of equality of opportunity is education: both its quantity and quality. After World War II, Europe made a major effort to democratize its education systems. We did, too, with the G.I. Bill, which extended higher education to Americans across the economic spectrum.

But then we changed, in several ways. While racial segregation decreased, economic segregation increased. After 1980, the poor grew poorer, the middle stagnated, and the top did better and better. Disparities widened between those living in poor localities and those living in rich suburbs - or rich enough to send their kids to private schools. A result was a widening gap in educational performance - the achievement gap between rich and poor kids born in 2001 was 30 to 40 percent larger than it was for those born 25 years earlier, the Stanford sociologist Sean F. Reardon found.

Of course, there are other forces at play, some of which start even before birth. Children in affluent families get more exposure to reading and less exposure to environmental hazards. Their families can afford enriching experiences like music lessons and summer camp. They get better nutrition and health care, which enhance their learning, directly and indirectly.

Americans are coming to realize that their cherished narrative of social and economic mobility is a myth.

Unless current trends in education are reversed, the situation is likely to get even worse. In some cases it seems as if policy has actually been designed to reduce opportunity: government support for many state schools has been steadily gutted over the last few decades - and especially in the last few years. Meanwhile, students are crushed by giant student loan debts that are almost impossible to discharge, even in bankruptcy. This is happening at the same time that a college education is more important than ever for getting a good job.

Young people from families of modest means face a Catch-22: without a college education, they are condemned to a life of poor prospects; with a college education, they may be condemned to a lifetime of living at the brink. And increasingly even a college degree isn't enough; one needs either a graduate degree or a series of (often unpaid) internships. Those at the top have the connections and social capital to get those opportunities. Those in the middle and bottom don't. The point is that no one makes it on his or her own. And those at the top get more help from their families than do those lower down on the ladder. Government should help to level the playing field.

Americans are coming to realize that their cherished narrative of social and economic mobility is a myth. Grand deceptions of this magnitude are hard to maintain for long - and the country has already been through a couple of decades of self-deception.

Without substantial policy changes, our self-image, and the image we project to the world, will diminish - and so will our economic standing and stability. Inequality of outcomes and inequality of opportunity reinforce each other - and contribute to economic weakness, as Alan B. Krueger, a Princeton economist and the chairman of the White House Council of Economic Advisers, has emphasized. We have an economic, and not only moral, interest in saving the American dream.

Policies that promote equality of opportunity must target the youngest Americans. First, we have to make sure that mothers are not exposed to environmental hazards and get adequate prenatal health care. Then, we have to reverse the damaging cutbacks to preschool education, a theme Mr. Obama emphasized on Tuesday. We have to make sure that all children have adequate nutrition and health care - not only do we have to provide the resources, but if necessary, we have to incentivize parents, by coaching or training them or even rewarding them for being good caregivers. The right says that money isn't the solution. They've chased reforms like charter schools and private-school vouchers, but most of these efforts have shown ambiguous results at best. Giving more money to poor schools would help. So would summer and extracurricular programs that enrich low-income students' skills.

Finally, it is unconscionable that a rich country like the United States has made access to higher education so difficult for those at the bottom and middle. There are many alternative ways of providing universal access to higher education, from Australia's income-contingent loan program to the near-free system of universities in Europe. A more educated population yields greater innovation, a robust economy and higher incomes - which mean a higher tax base. Those benefits are, of course, why we've long been committed to free public education through 12th grade. But while a 12th-grade education might have sufficed a century ago, it doesn't today. Yet we haven't adjusted our system to contemporary realities.

The steps I've outlined are not just affordable but imperative. Even more important, though, is that we cannot afford to let our country drift farther from ideals that the vast majority of Americans share. We will never fully succeed in achieving Mr. Obama's vision of a poor girl's having exactly the same opportunities as a wealthy girl. But we could do much, much better, and must not rest until we do.

Joseph E. Stiglitz, a Nobel laureate in economics, a professor at Columbia and a former chairman of the Council of Economic Advisers and chief economist for the World Bank, is the author of "The Price of Inequality."

JaaaaayCeeeee Palo Alto, Ca

Joe Stiglitz reports clearly how we can improve our economy, economic standing, rate of innovation, size of our tax base, and our economic stability, policies analogous to those that created the American Dream, in the first place.

Since the American Dream is a hopeless fantasy for most now, due to specific policy choices, I wish his facts were news everyone hears. Joe Stiglitz is right that this country can't afford to deceive itself that it is the land of opportunity, nor afford to ignore the policies that would make us such a country again.

Kevin Brock Waynesville, NC

From the article: "After 1980, the poor grew poorer, the middle stagnated, and the top did better and better."

What watershed event happened in 1980? The election of Ronald Reagan, shortly followed by "supply-side" tax and regulatory policies, a heightened attack on public education at all levels, and general acceptability of the notion that "big government "(including public schools and universities) was the enemy of the public. That pretty much explains everything.

Larry Figdill Charlottesville

Universities may be partially guilty of the increased cost of education, but a MAJOR driver at public universities has been the shifting of costs by the states to the individual. There have been huge cutbacks in state support of public universities and in turn the universities charge higher tuition to make up the difference. Yes there have been other problems, such as burgeoning administrations and associated costs

Jim Waddell Columbus, OH

I put the blame for the high cost of higher education directly on the universities themselves. They have taken the increased availability of student loans over the past few decades and used it to raise tuition at rates well in excess of inflation. No wonder college is increasingly unaffordable. I don't have a magic solution, but I'd like to see strict limits on how much students could borrow based on academic progress. Maybe loans should only be available to pay for completed courses and progression towards a degree, with colleges funding the tuition up front.

[Feb 13, 2013] Low Mobility Is Not a Social Tragedy?

February 13, 2013 | Economist's View

How would you respond to Greg Clark?:

...Many commentators automatically assume that low intergenerational mobility rates represent a social tragedy. I do not understand this reflexive wailing and beating of breasts in response to the finding of slow mobility rates. The fact that the social competence of children is highly predictable once we know the status of their parents, grandparents and great-grandparents is not a threat to the American Way of Life and the ideals of the open society.
The children of earlier elites will not succeed because they are born with a silver spoon in their mouth, and an automatic ticket to the Ivy League. They will succeed because they have inherited the talent, energy, drive, and resilience to overcome the many obstacles they will face in life. Life is still a struggle for all who hope to have economic and social success. It is just that we can predict who will be likely to possess the necessary characteristics from their ancestry.

Quickly: I don't buy that individuals in all of these groups have an equal chance to reach their potential, whatever that might be. I do buy that the barriers that prevent an equal chance to realize potential have been present for a long, long time.

Jason Dick :

It sounds like he's assuming that genetics almost completely determine a person's capabilities, or at least that the children of rich parents really do deserve to be rich more than the children of poor parents do.

Either way he's either completely incorrect or just plain evil.

Back in the real world, we can be quite sure that nearly all of a person's capabilities are set by environment, not genetics. This means, basically, that anything less than complete and utter intergenerational mobility is a failure to establish equality of opportunity.

Dan Thorn

The first thing I would say is that I can't believe he put this in writing.

Perhaps Greg Clark is forgetting about reversion to the mean. It sounds like he is suggesting that success is the result of natural selection, that children are endowed not with the wealth of their successful parents but with their characteristics.

This is unlikely to be the course of nature. Just as children of tall parents tend to be nearer to average in height than their parents so too you would expect children of exceptional talent of any kind (in this case the talent for success) to on average be nearer to average than their parents.

He also confuses nature and nurture. He is correct that in general children of the elite tend to be better prepared to be elite. But this is a curiously circular argument. In fact isn't he just describing the problem? one of the reasons you don't have social mobility is because people tend to remain in social circles they have been raised in.

In any case, he makes the issue sound benign because he only examines those who come from a lineage of success. Those who are successful are not the worry, the worry is that if you can predict social failure for an individual based on their family's circumstance or history that IS a social tradegy. I doubt Clark would argue that society should be indifferent to producing failure predictably with out making some effort at improving outcomes.

Dan Kervick said in reply to Dan Thorn...

I'm glad he put it in writing, because it's obviously the way a huge number of people feel. For every blunt, Bell Curve-toting ahole like Murray and Clark, there are 10 hypocritical and well-educated liberals who believe the same things and pretend not to. In the new age of innatism, Pinker, etc., all the cool kids believe that their success springs from having the right genes. That's why there is no significant egalitarian movement or agenda in modern liberal culture.

Instead we just have meritocratic "equal opportunity liberalism". The only tragedy someone like Barack Obama sees in modern American life is that not every little black girl in Chicago has the same opportunity as a little white boy in Newton, Massachusetts to compete fairly to become a captain of industry where she too can take down tens of millions or more in annual financial rewards, rob and abuse her employees, and hire politicians to protect her from prosecution when she defrauds investors.

But once you have a "level playing field", where everyone gets the same kind of starting gate in the great capitalist game of exploitation, domination and subordination, then its all good.

I don't understand this obsession with "social mobility." If we are measuring things by economic class, then if people are moving from lower deciles to higher deciles, other people have to be moving from higher deciles to lower deciles. If you are a social Darwinist, then I guess that kind of flux floats your boat. But aren't there any people left who think the problem is all those classes in the first place, and the dramatic economic differences between them?

Steve Bannister :

Clark is arguing this at least partly because he is invested in his "genetic" explanation for the Industrial Revolution "A Farewell to Alms." Didn't buy it then, don't buy it now.

Jake :

Sounds remarkably similar to the pre-Progressive era late 19th/early 20th century moral superiority of the rich stuff, a la Andrew Carnegie and J Pierpont Morgan, etc. It does seem we've come full circle. I think the best way to respond would be to focus on the difference between economic and social mobility - two related yet distinctly separate phenomena, which Clark appears to conflate in his post.

hapa :


"The children of earlier elites will not succeed because they are born with a silver spoon in their mouth, and an automatic ticket to the Ivy League. They will succeed because they have inherited the talent, energy, drive, and resilience to overcome the many obstacles they will face in life. Life is still a struggle for all who hope to have economic and social success. It is just that we can predict who will be likely to possess the necessary characteristics from their ancestry.


"social mobility isn't important because when it doesn't exist, it makes rich people look AWESOME."

Addisababy :

That's some Social Darwanism, don't you think? Holy moly.

All you have to do is change "elites" to "whites" or "Aryans" and it reads of a different age. Some of you may find me a little alarmist, but this "genetically more capable" argument has been tried before.

ken melvin :

Tell you what: Let's pit the likes of GWB, Mitt, ... against those of Clinton, Obama, second gen Vietnamese, ... and test this guy's theory.

DrDick :

Obviously this is from a child of privilege. Why do we care about a lack of mobility? To begin with to give everyone some stake in the system. If there is no realistic chance of advancement (or the perception of such), then there is no incentive to strive or care. It is also the case that we waste valuable social talent without it.

My mother's family were Ozark hillbillies. My grandfather dropped out of the 6th grade and was farming sixty acres of flint rock and post oak with a horse team in the late 1960s (when he was in his seventies). My mother and her siblings all went to college and both uncles went on to graduate school. One was a chemist with a masters who developed a new method for transferring pigments to plastic, which became the industry standard in the late 60s and 70s. The other got a Ph.D. in electrical engineering from Cal-Tech, led the team that designed the instrumentation for the Surveyor lunar soft lander and retired many years ago as senior vice-president for satellite telecommunications at Hughes Aircraft.

Eric377 said in reply to DrDick...

This seems a nice story. But what does it mean? Why would the success of children of some group of parents inhibit the incentives to strive or care in children of other parents? I do not think it can in any serious way.

Dan Thorn :

Ok, you can't make this up, here's a snippet from his own faculty page:

"I grew up in Scotland, ... My grandparents came from Ireland to work in the coal mines and steel mills of the Clyde Valley, as part of the great diaspora of the Irish triggered by Ireland's failure to industrialize in the nineteenth century."

I suppose suggesting he work on a little synthesis of his various ideas may be another thing to mention to him.

Edward Lambert :

Inheriting talent? ... or does he mean inheriting financial resources?

Does he have any idea of cultural incentive structures & the advantages of having money?

Steve Bannister said in reply to Edward Lambert...

um, um, this is almost embarrassing given the esteem which I normally hold for economic historians. Inherited capitalistic genes.

John :

So Greg Clark is in favor of 100% inheritance tax since those kids skills will put them back on top?

Nicholas Pisano :

Here is how I reply: read a book; in this case Stephen Jay Gould's "Mismeasure of Man." Clark might learn something. In particular, that his post is all the proof that we need that the scions of elites, in most cases, are idiots.

Steve Bannister :

Let me back off just a tad on Clark...I cut academic work quite a bit of slack (meaning I am like Mikey, I'll read anything put in front of me), especially from a well-known author. I know how hard it is to do right.

But when I read "A Farewell..." I just could not believe what I was reading concerning the genetic thing. Not the least because I have what I think is a much more convincing story.

But, Clark always has data, and I think much of it is good and useful. So that is my slack for him.

Eric377 :

There are some real tragedies in this world, but American social mobility isn't a serious one. Clark is pretty much dead on with his analysis here. We do not want an aristocracy in America, but I find nothing surprising or objectionable that the children of highly successful Americans in turn are routinely among the most successful of their cohort. You might as easily worry about countries where this is not the case.

D. C. Sessions said in reply to Eric377...

"You might as easily worry about countries where this is not the case."

If the USA's lack of social mobility is due to our having already sorted out the proper caste for each of us based on our genes, what do you suppose accounts for much older and more settled countries (e.g. Denmark or the Netherlands) which also have greater intergenerational social mobility?

Steve Bannister :

But you needn't listen to me. For those of you who enjoy an academic shearing exercise, I commend Robert Allen's 2008 Journal of Economic Literature review of Clark's book. Actually, more of a disemboweling. An evisceration. Allen is masterful in his history, and merciless in his scorn.

Reply Wednesday, February 13, 2013 at 01:49 PM

DrDick :

"We do not want an aristocracy in America, but I find nothing surprising or objectionable that the children of highly successful Americans in turn are routinely among the most successful of their cohort."

Your first clause is contradicted by your second. What the children of the privileged inherit is less ability (see Bush, George) than aristocratic privilege.

Apinak :

Two Words- Paris Hilton.

Ed Koch :

[i]The children of earlier elites will not succeed because they are born with a silver spoon in their mouth...

Life is still a struggle for all who hope to have economic and social success.[/i]

What part of "being born with a silver spoon in your mouth" is not encompassed by "economic success?"

Steve Bannister :

Oh, and new research shows a healthy correlation between diminished social mobility and increased income inequality. Why should we not be surprised?

gordon :

Ah, I've been waiting for eugenics to make a comeback, and apparently here it is.

I wonder if it's possible to have eugenics without racism - the last time around, you'll remember, there was a lot of racism in it. I tend to think it's possible, but we'll see.

And Dan Thorn (upthread) is right about circularity: "We're on top because we're superior. We must be superior, you see, because we're on top".


I recently bought a copy of the Economist to read on a half hour train ride-having stopped buying it years ago as it had become so predictable (and their Kindle price was crazy). So I got as far as the "leader" on meritocracy before I junked it. Same stuff as this. Only the solution was to get rid of the mortgage interest tax deduction (maybe they could find an economist who knows what happens when housing prices fall in America?).


Money, income or wealth, at least has a degree of objectivity to it. If you start using other criteria, you had better make sure they are objective or you risk making the argument circular.

kievite said...

I would like to defend Greg Clack.

I think that Greg Clack point is that the number of gifted children is limited and that exceptionally gifted children have some chance for upper move in almost all, even the most hierarchical societies (story of Alexander Hamilton was really fascinating for me, the story of Mikhail Lomonosov was another one -- he went from the very bottom to the top of Russian aristocracy just on the strength of his abilities as a scientist). In no way the ability to "hold its own" (typical for rich families kids) against which many here expressed some resentment represents social mobility. But the number of kids who went down is low -- that's actually proves Greg Clack point:

(1) Studies of social mobility using surnames suggest two things. Social mobility rates are much lower than conventionally estimated. And social mobility rates estimated in this way vary little across societies and time periods. Sweden is no more mobile than contemporary England and the USA, or even than medieval England. Social mobility rates seem to be independent of social institutions (see the other studies on China, India, Japan and the USA now linked here).

Francisco Ferreira rejects this interpretation, and restates the idea that there is a strong link between social mobility rates and inequality in his interesting post.

What is wrong with the data Ferreira cites? Conventional estimates of social mobility, which look at just single aspects of social status such as income, are contaminated by noise. If we measure mobility on one aspect of status such as income, it will seem rapid.

But this is because income is a very noisy measure of the underlying status of families. The status of families is a combination of their education, occupation, income, wealth, health, and residence. They will often trade off income for some other aspect of status such as occupation. A child can be as socially successful as a low paid philosophy professor as a high paid car salesman. Thus if we measure just one aspect of status such as income we are going to confuse the random fluctuations of income across generations, influenced by such things as career choices between business and philosophy, with true generalised social mobility.

If these estimates of social mobility were anywhere near correct as indicating true underlying rates of social mobility, then we would not find that the aristocrats of 1700 in Sweden are still overrepresented in all elite occupations of Sweden. Further, the more equal is income in a society, the less signal will income give of the true social status of families. In a society such as Sweden, where the difference in income between bus drivers and philosophy professors is modest, income tells us little about the social status of families. It is contaminated much more by random noise. Thus it will appear if we measure social status just by income that mobility is much greater in Sweden than in the USA, because in the USA income is a much better indicator of the true overall status of families.

The last two paragraphs of Greg Clark article cited by Mark Thoma are badly written and actually are somewhat disconnected with his line of thinking as I understand it as well as with the general line of argumentation of the paper.

Again, I would like to stress that a low intergenerational mobility includes the ability of kids with silver spoon in their mouth to keep a status close to their parent. The fact that they a have different starting point then kids from lower strata of society does not change that.

I think that the key argument that needs testing is that the number of challengers from lower strata of the society are always pretty low and is to a large extent accommodated by the societies we know (of course some societies are better then others).

Actually it would be interesting to look at the social mobility data of the USSR from this point of view.

But in no way, say, Mark Thoma was a regular kid, although circumstances for vertical mobility at this time were definitely better then now. He did possessed some qualities which made possible his upward move although his choice of economics was probably a mistake ;-).

Whether those qualities were enough in more restrictive environments we simply don't know, but circumstances for him were difficult enough as they were.

EC said in reply to kievite...

"the number of gifted children is limited"

I stopped reading after that. I teach at a high school in a town with a real mix of highly elite families, working class families, and poor families, and I can tell you that the children of affluent parents are not obviously more gifted than the children of poor families. They do, however, have a lot more social capital, and they have vastly more success. But the limitations on being "gifted" are irrelevant.

According to an extensive study (Turkheimer et al., 2003) of 50,000 pregnant women and the children they went on to have (including enough sets of twins to be able to study the role of innate genetic differences), variation in IQ among the affluent seems to be largely genetic. Among the poor, however, IQ has very little to do with genes--probably because the genetic differences are swamped and suppressed by the environmental differences, as few poor kids are able to develop as fully as they would in less constrained circumstances.

kievite said in reply to EC...

All you said is true. I completely agree that "...few poor kids are able to develop as fully as they would in less constrained circumstances." So there are losses here and we should openly talk about them.

Also it goes without saying that social capital is extremely important for a child. That's why downward mobility of children from upper classes is suppressed, despite the fact that some of them are plain vanilla stupid.

But how this disproves the point made that "exceptionally gifted children have some chance for upper move in almost all, even the most hierarchical societies"? I think you just jumped the gun...


The early boomers benefitted from the happy confluence of the postwar boom, LBJ's Great Society efforts toward financial assistance for those seeking to advance their educations, and the 1964 Civil Rights Act which opened opportunities for marginalized social groups in institutions largely closed to them under the prewar social customs in the US. The US Supreme Court is made up of only Jews and Catholics as of this writing, a circumstance inconceivable in the prewar America. Catholics were largely relegated to separate and unequal institutions. Jews' opportunities were limited by quotas and had a separate set of institutions of their own where their numbers could support such. Where their numbers were not sufficient, they were often relegated to second rate institutions.

Jewish doctors frequently became the leading men in the Catholic hospitals in Midwestern industrial towns where they were unwelcome in the towns' main hospitals. Schools, clubs, hospitals, professional and commercial organizations often had quota or exclusionary policies. Meritocracy has its drawbacks, but we've seen worse in living memory.

Min said...

Ah! Social Darwinism 2.3.

(Not that its adherents actually believe in Darwinism. ;))

hapa said in reply to Min...

and sort of a social satisficing thing... "there's really enough people at the top, aren't there? and they're pretty amazing people, come to think of it. maybe if there were demand for more people at the top, we'd need to do something about it." not a situation where supply creates demand.

Jesse said...

As if the echoes of the 1920s and 1930s were not already strong enough, here is another dash at eugenics, and the principles of the ubermenschen.

david said...

The appropriate response to Greg Clark is to point and laugh. Farewell to Alms is awful (see review cited above). This article is awful. This is Newt Gingrich-level contemplation of evolutionary psychology. That Clark's taken seriously is a reproach to the academy.

greg said...

Actually, I believe hereditary elites evolve to become stupider and less competent, because there are fewer selective pressures on them to maintain their intelligence and competence. Those qualities they do compete on are those qualities valuable for competition within the bubble of their fellow elitists, and become increasingly detached from the proper reality of governance.

Indeed, the ability of that elite itself to govern becomes compromised, as the same individuals are able to, indeed forced to, take roles in different conflicting institutions whose vital tension is necessary to sustain the balances of power within that society. An example of this is the revolving door between the SEC and the banks the SEC is supposed to regulate.

Further, hereditary elites tend to become incestuous and inbred, and thus, far from being genetically superior, tend towards genetic inferiority compared to the classes they rule. And the lower classes, because of the greater pressures imposed on them by the elites, are subject to even greater selection than in a more mobile society.

I believe there is no surer sign of a society's eventual decline and fall, from forces both within and without, than the isolation and insulation of their elites. And sooner rather than later.

Vigorous and competitive societies have all had a great deal of social mobility. Its loss is bad for all, even the elites.

Xylix said in reply to greg...

An amusing hypothesis, but a flawed one. Evolution in long lived life forms (humans) is too slow, especially when a crude force like natural selection is in play. These things take hundreds, if not thousands, of years. This fatal flaw is made worse by the fact that over such broad periods of time the genetic cauldron tends to be too well mixed. The only plausible time this could come into play is in cases of extreme inbreeding.

However if you rebuilt this hypothesis on cultural/meme based evolution instead of genetic evolution, something interesting might pop out.

greg said in reply to Xylix...

OK Xylix, though I think you'd be surprised by what even a few generations can do, perhaps especially when matters of 'breeding' come into play.

And although I was admittedly unclear, I was attempting to describe cultural evolution in the first paragraph, as contrasted to genetic, in the third. Stupidity is only part nature.

cm said in reply to greg...

But isn't this the case for all elites? The hereditary (in the sense of passing posts/elite status down to biological children) part is not necessary. What you are describing is the bubble of (deliberate) insulation from social feedback.

kievite said in reply to greg...

Greg said:

"Actually, I believe hereditary elites evolve to become stupider and less competent, because there are fewer selective pressures on them to maintain their intelligence and competence"

Usually any elite allows some level of rotation and provides some opportunities of selected few from lower classes to join it. But I would agree that the maintenance of a rotation of elite is very important factor in long-term survival of particular society. Look at the aristocracy of Great Britain as a example.

But non-hereditary elite can degrade as well. Look at the level of degradation of the USSR elite as a good example of this process. Ideological constrains might well serve as a strong adverse selection factor. The top layer of the USA Republican Party is probably another good example on strong negative influence of "adverse selection" on elite due to ideology constrains.

Jesse said...

What I find disturbing is that Greg Clark is only saying out loud what is implicit in quite a bit of thinking amongst the one percent, vis a vis the 47 percent. Not to mention the Republican party's policies.

Julio said...

The quoted passage is both offensive and imbecilic. Of course, it's probably just his inherited traits..

Julio said in reply to Julio...

In the context of the whole article, where he points out that success may have non-monetary dimensions, the passages are not quite as bad. Still, his dismissal of inherited advantages is (I'm being kinder this time) extremely superficial.

reason said...

EVEN if the society were completely meritocratic - which it isn't - low social mobility would still be a tragedy, because it would mean a lack of connections between people of means and competances and people lacking both. Ghettos ARE the very definition of a social tragedy.

reason said in reply to reason...

Note how this ties in to what cm said.

And note how it relates to another untouched theme. That a hypercompetitive society selects against introverts - so that introverts remain a relatively wasted resource. Today we live an extrovert society - if you like a society of form over substance. I'm not sure it will end well. Maybe we need a new subject - economic sociology.

EC said in reply to reason...

Check out Turkeimer et al. (2003) on how IQ among the affluent is inherited, while IQ among the poor is mainly a function of poverty, presumably because the natural variation is suppressed at the high end.

hix said...

Genetic determination has replaced divin right as an inequality justification myth a long time ago. Nothing surprising there. Its not true of course for various reasons.

The most obvious one being that even people who excell at any aptitude tests and have poor/low educated parents have no chance while those with rich parents who perform medicore till bad usually get quite far. This goes on and on. Those who do manage to translate aptitude into school performance despite discriminatory gradeing policy still have no chance to get any further. More subtile aspects are things like bad early childhood expirience caused by poverty even when its just relative one, which does lower apitutde and is not genetic at all.

reason said in reply to hix...

Nutrition affects IQ.

EC said in reply to hix...

Turkheimer et al., 2003: IQ among the poor is largely determined by poverty, while among the rich it's genetic.

Noni Mausa said...

I find it interesting that this is the opposite of the usual Horatio Alger argument that a poor but industrious boy can someday rise to ownership of the steel mill, or whatever, and that if the poor do not do this, it's their own fault for not being industrious enough.

Which is it? Are they poor
a) because of inborn traits (therefore it can't be changed and they are blameless but contemptible) or
b) because of insufficient effort and grit (therefore they are to blame, and still contemptible)

Using both arguments without noticing they conflict tells us something about those who use those arguments. In a mathematical model, the inborn flaw and the effort flaw would cancel each other out, leaving us with the true argument, viz: "The poor are contemptible."

Ryan said...

The problem with the logic is the complete denial of all of the unacknowledged, often intangible advantages that elites are able to lock in for their kids. For example, not being hungry the last week of the month when you go to school (IMHO a very low, shameful bar), or it not even occurring to you on the way to school that a melee will break out or you will be the subject of intimidation backed by violence.

You can't tell me that growing up without these challenges makes you strive more, nor can you tell me that this strife translates into greater success in life. At least, I'd like to see data on this.

ScentOfViolets said...

The problem with Greg Clark's opinion is that it is just that - an opinion. In no way does it rise to the level of a testable scientific hypothesis.

Ironically, the notion that these beliefs could be tested just like any other hypothesis was done in recent memory - the movie "Trading Places", where it was given a comedic treatment. Actually test the fitness of a so-called elite? Why, it's just not done! Not in modern times at any rate.

Lafayette said...

{Low Mobility Is Not a Social Tragedy?}

Depends upon how you view it.

A Martian visiting our planet knowing its history might think the US had regressed to the Agricultural Age of the 12th century where Monarchs, Aristocrats and the Landed-gentry called the shots. Income Disparity was rampant - lives were worth nothing. Serfs could be bought and sold.

Of course, that is not the US today - or is it? Serfs cannot be bought and sold, but some people indeed can be. What's your price? Financiers have proved that amply enough during the Toxic Waste scandal.

Generous inheritance taxation will assure that all the money that has "trickled upward" will stay there for some time to come. Even if the US were to enact severe progressive taxation on the upper-crust plutocrats tomorrow.

Which aint gonna happin.

Tom in MN said...

Funny to mention the Ivy League, a bunch of schools that do legacy admissions: this is an automatic ticket, as a degree from one of these schools opens doors to jobs that state U kids don't get. If you want to complain about what is keeping your (white) child out of an Ivy League school, it's not some minor amount of affirmative action, it's legacy admissions that perpetuate inequality.

Lafayette said in reply to Tom in MN...

For the summary of a study of mid-career salaries of graduates from different 4-year universities, see here:

Was the difference in ROI (tuition 'n board) really worth it?

For the fuller study (1000 schools), see here: - where you will find far more discrepancy in salary levels (highest 137K to lowest 42K)- for the graduates in this data set, the typical (median) mid-career employee is 42 years old and has 15 years of experience.

One can do some interesting sorts on the data ...

Lafayette said...

Education and Tax Credits:

Lafayette said...

Earnings Over Time by Education Level and Gender, figure 1.6, here:

Lafayette said...

How many of these people went to an Ivy League school?:

From, "Today's ranking of the world's richest people"

hix said in reply to Lafayette...

I am rather pleasantly surprised there are that many billionaires with a middle class background. Buffet and Gates are upper 0,01% kids. The Kochs barely rise above putting all the money they inherited into an index fund, despite their claims to the contrary.

Kamprad Ortega and the Albrechts were genuinly middle if not working class. Either way, i could not care less if those billionaires are "equal opportunity billionaires". No one should be allowed to accumulate that much money. If a person can acumulate that much wealth it is always a sign of market failure and it threatens the functioning of democracy.

Lafayette said in reply to hix...

{No one should be allowed to accumulate that much money. If a person can acumulate that much wealth it is always a sign of market failure and it threatens the functioning of democracy.}

Yes, indeedy.

The Tax Code is warped and incentivising in the wrong manner. The accumulation of wealth is an Old World habit, one the New World has easily adopted and the Old World has tamed equitably.

Adelson and the Koch Bros. (et al) have accumulated far too much money to be of an economic benefit to the nation. But, as I never tire of saying: Until Americans learn that they live in a collective society, then the rampant "individualism" as personified by an excessive/aberrant competitive desire to "win" (meaning amass a fortune), then nothing can change.

Of course, one should have the right to earn a megabuck. But hundreds of megabucks? Uh, uh.

That wealth does not recirculate in the economy - it is handed down from generation to generation; some of which prolong the cycle, many however that dissipate the fortune and themselves.

How many Rolls-Royces can you buy? How many beach-front mansions in St. Tropez or the Caribbean? How many chalets in Davos or Kitzbuhl? How many penthouses in NYC. How many cocktail parties can you give?

All of that wondrous display of wealth is for what? The insensate benefit of a comparative handful of families who disregard the fact that 15% of American families are forced to live below the poverty threshold.

That notion is both antiquated and retarded. What matters is the well-being of most fellow citizens and not the phantasmagoric lifestyle of a few.

Lafayette said...


There are all sorts of inbred (in us, in society, in business) discrimination. Of note, sexual, racial or religious.

There is another one, however, that I feel is crucial. It is payscale. And, no, I don't mean that all blue/white-collars should make the same salary. That's stoopid.

But, it is unacceptable that the Compensation Committee of the Board of Directors of a public company should share out the Net Profit by deciding who in TopManagement gets what stock-dividends (from preferred stock), what bonuses and what stock-options. And, to an extent, what perquisites of position (an apartment here, a golf-course there).

They do so, because it is customary, that is, they've always done so. Why?

Because there is no regulatory law that prevents discrimination based upon hierarchical position.

If one meets their objectives of a Job Plan, they are contributing to the success of the company. Why should they not share in its profits?

Not equally, for sure. Been there, done that, doesn't work.

But equitably. Never been there, never done that and we don't know how well it will work.

We keep our eyes fixated on the Minimum Wage and every decade or two throw the minions a small rise. But we know, today, that 15% of American families are living below the poverty line - and many of them earn a minimum wage.

Some companies in Europe (Germany of note) passed a law that created two positions on Board to represent Labor Interests. That's fine but it does not go nearly far enough.

We need, as a nation, a BigHunk of law that describes and circumscribes the relation between Labor and Management - including the right to unionize and the right to not join a union. That puts two elected members of the staff on the Board. That will interfere when a dispute starts budding and not wait till it explodes in a strike.

Most importantly, it will define the objectives of the company, which will "trickle-down" through all salaried levels and show up in a Job Plan. If an individual meets those requirement in their work, then they should have the right to share in the profits by means of stock-options or bonuses - again, equitably but not equally.

In a word, we've got to get our act together as regards total remuneration equitability.

Mobility is not only about from where we come, but to where we are trying to get.

Lafayette said...


No, I'm not writing about sleighbells in the snow.

Rather, I'm citing a study by the LSE on social mobility: {Researchers from the Centre for Economic Performance at the London School of Economics and Political Science (LSE) have compared the life chances of British children with those in other advanced countries for a study sponsored by the Sutton Trust, and the results are disturbing.

Jo Blanden, Paul Gregg and Steve Machin found that social mobility in Britain - the way in which someone's adult outcomes are related to their circumstances as a child - is lower than in Canada, Germany, Sweden, Norway, Denmark and Finland. And while the gap in opportunities between the rich and poor is similar in Britain and the US, in the US it is at least static, while in Britain it is getting wider.

A careful comparison reveals that the USA and Britain are at the bottom with the lowest social mobility. Norway has the greatest social mobility, followed by Denmark, Sweden and Finland. Germany is around the middle of the two extremes, and Canada was found to be much more mobile than the UK.

Comparing surveys of children born in the 1950s and the 1970s, the researchers went on to examine the reason for Britain's low, and declining, mobility. They found that it is in part due to the strong and increasing relationship between family income and educational attainment.

For these children, additional opportunities to stay in education at age 16 and age 18 disproportionately benefited those from better off backgrounds. For a more recent cohort born in the early 1980s the gap between those staying on in education at age 16 narrowed, but inequality of access to higher education has widened further: while the proportion of people from the poorest fifth of families obtaining a degree has increased from 6 per cent to 9 per cent, the graduation rates for the richest fifth have risen from 20 per cent to 47 per cent.

The researchers concluded: 'The strength of the relationship between educational attainment and family income, especially for access to higher education, is at the heart of Britain's low mobility culture and what sets us apart from other European and North American countries.}

Food for thought?

greg byshenk said...

Some comments have noted that Clark's argument is ambiguous between a "nature" and a "nurture" interpretation of 'inherited'. I suggest that it -depends- -upon- that ambiguity.

If the argument is based upon 'inheritance' as some form of genetic determinism, then it works as an argument. If success (by whatever measure) is the result of innate ability, and if that ability is solely the result of "ancestry", then society really does contain natural elites and it would be a mistake to try to change that. Better to let "alphas" appreciate being alphas and "deltas" learn to appreciate being deltas, for the social sorting is as it should be, and cannot actually be changed.

The problem for this version of the argument is that, as other comments have noted, it is not well-supported by the evidence. Abilities are not purely innate, and are not strictly determined by one's ancestry.

On the other hand, if the argument is based on 'inheritance' as encompassing learning, social capital, and all the other factors that might fall under the heading of "nurture", then it does seem to have evidence in its favour. Unfortunately, in this version of the argument, the conclusion does not follow from the premises. That is, if ability is not strictly genetic, then surely it -is- a "tragedy" that society throws away the ability of its non-elite members.

In short, the ambiguity serves to hide the fact that the argument is self-refuting. It is valid only if its premises are false.

[Feb 12, 2013] How The Glorious Socialist Revolution Generated A 681% Return For Goldman Sachs by Tyler Durden


Back in 2011, BlackRock's Larry Fink revealed one of the great unspoken truths of capital markets, namely that "markets like totalitarian governments." They also like authoritarian socialism, sprinkled in with a healthy dose of nationalization, because as Bloomberg reports, one of the biggest beneficiaries of over ten years of the "glorious socialist revolution" in Venezuela, coupled with over 1000 nationalizations by the bed-ridden and roughly 15 times deceased Hugo Chavez (if one believes all the rumors), is none other than Goldman Sachs, which generated some 681% in returns due to "aligning its interests" with those of the unshakable Venezuelan ruler.

[Feb 12, 2013] Guest Post: America's Four Socioeconomic Classes

Submitted by Tyler Durden on 01/30/2013 - 12:06

A titanic political battle is brewing between the parasitic aristocracy, the dependent class and the two classes creating value with their labor. In the conventional view, America's socioeconomic classes are divided by income and wealth into various layers of Wealthy, Middle Class and Poor. Extending recent analysis, we get an entirely different framework that breaks naturally into four classes: 1. Parasitic financial Aristocracy (creates no value, skims national surplus); 2. High value creation (employed, heavily taxed); 3. Low value creation (employed/informal economy, lightly taxed); and 4. No value creation (unemployed, dependent). In this context, America is filling the gap between the value we create and what we spend by borrowing $1 trillion+ a year on the Federal level and hundreds of billions more on the local-government and private-sector levels. All this debt isn't being "invested" in new value-creation; it is funding consumption and cartel skimming on a monumental scale.

[Feb 03, 2013] The Five-Step Process to Cheat the Middle Class Worker

January 19, 2013| Alternet

As we struggle to support ourselves, the super-rich remain on the take, driving us ever closer to the status of most wealth-unequal country in the world.

It's so artfully done, and so diabolical, that one can picture secret seminars in subterranean Wall Street meeting rooms, guiding young business recruits in the proven process of taking an extra share of wealth from the middle class. Their presentation might unfold as follows:

1. Boost productivity while keeping worker wages flat.

The trend is unmistakable, and startling: productivity has continued unabated while wages have simply stopped growing. Improved technologies have reduced the need for workers while globalization has introduced the corporate world to cheap labor. In effect, the workers who built a productive America over a half-century stopped getting paid for their efforts.

Paul Krugman suggests that a "sharp increase in monopoly power" is another reason for the disparity. As John D. Rockefeller said, "Competition is a sin." That certainly is the rule of thumb in banking and agriculture and health insurance and cell phones.

Yet despite the fact that low-wage jobs are increasingly defining the American labor market, apologists for our meager minimum wage claim an increase will worsen unemployment. So it remains at $7.25. A minimum wage linked to productivity would be $21.00 per hour.

2. Build up a financial industry that has no maximum wage.

This is where the money is. In 2007, before the financial crisis, a Harvard survey revealed that almost half of the school's seniors aspired to careers in finance. The industry's share of corporate profits grew from 16% in 1980 to an astonishing 45% in 2002.

And there's no limit to the earning potential. Hedge fund manager John Paulson conspired with Goldman Sachs in 2007 to bundle sure-to-fail subprime mortgages in attractive packages, with just enough time for Paulson to collect other people's money to bet against his personally designed financial instruments. He made $3.7 billion, enough to pay the salaries of 100,000 new teachers.

3. Keep accumulating wealth created by the financial industry.

Experienced schemers have undoubtedly observed that over the past 100 years the stock market has grown three times faster than the GDP. The richest quintile of Americans owns 93% of such non-home wealth.

In the last 25 years, only the richest 5% of Americans have increased their share of non-home wealth, by the impressive rate of almost 20 percent.

In just one year, the richest 20 Americans earned more from their investments than the entire U.S. education budget.

4. Tax yourself as little as possible.

The easiest and least productive way to make money - holding on to investments - is also taxed at the lowest rate. In addition to the capital gains benefit, tax ploys like carried interest, performance-related pay, stock options, and deferred compensation allow hedge fund managers and CEOs to pay less than low-income Americans, and possibly even nothing at all.

The richest 400 taxpayers doubled their income in just seven years while cutting their tax rates nearly in half. U.S. corporations can match that, doubling their profits and cutting their taxes by more than half in under ten years. The 1.3 million individuals in the richest 1% cut their federal tax burden from 34% to 23% in just 25 years.

5. Lend out your excess money to people who can no longer afford a middle-class lifestyle.

As stated by Thom Hartmann, "The 'Takers' own vast wealth, and loan it out at interest to everybody from students to governments.." Overall, Americans are burdened with over $11 trillion in consumer debt, including mortgages, student loans, and credit card liabilities.

Wealth has largely disappeared for the middle- and lower-income classes. More than $7 trillion has been lost in the decline of home prices since 2006. Young college graduates have an average of $27,200 in student loans, and the 21-35 age group has lost 68% of its median net worth since 1984, leaving each of them about $4,000. Median net worth for single black and Hispanic women is a little over $100.



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