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THE POLITICS AND ECONOMICS OF INEQUALITY: A LECTURE TO THE TOP ONE-TENTH OF 1 PERCENT
Here’s the Aspen Lecture I gave recently at this year’s Aspen Ideas Festival. The irony of talking about inequality with an audience composed almost entirely of the richest one-tenth of 1 percent of Americans was not lost on me. When I suggested that we return to the 70 percent income-tax rate on top incomes that prevailed before 1981, many looked as if I had punched them in the gut.
But I stressed it’s not a zero-sum game, and they’d do better with a smaller share of a rapidly-growing economy — growing because the vast middle class and the poor had the purchasing power to get the economy back on track — than they’re doing with a large share of an economy that’s barely growing at all.
It’s crucial that America’s most powerful and privileged understand what’s happening, and why they must support fundamental reform.
Some inequality of income and wealth is inevitable, if not necessary. If an economy is to function well, people need incentives to work hard and innovate.
The pertinent question is not whether income and wealth inequality is good or bad. It is at what point do these inequalities become so great as to pose a serious threat to our economy, our ideal of equal opportunity and our democracy.
We are near or have already reached that tipping point. As French economist Thomas Piketty shows beyond doubt in his “Capital in the Twenty-First Century,” we are heading back to levels of inequality not seen since the Gilded Age of the late 19th century. The dysfunctions of our economy and politics are not self-correcting when it comes to inequality.
But a return to the Gilded Age is not inevitable. It is incumbent on us to dedicate ourselves to reversing this diabolical trend. But in order to reform the system, we need a political movement for shared prosperity.
Herewith a short summary of what has happened, how it threatens the foundations of our society, why it has happened, and what we must do to reverse it.
What has Happened
The data on widening inequality are remarkably and disturbingly clear. The Congressional Budget Office has found that between 1979 and 2007, the onset of the Great Recession, the gap in income—after federal taxes and transfer payments—more than tripled between the top 1 percent of the population and everyone else. The after-tax, after-transfer income of the top 1 percent increased by 275 percent, while it increased less than 40 percent for the middle three quintiles of the population and only 18 percent for the bottom quintile.
The gap has continued to widen in the recovery. According to the Census Bureau, median family and median household incomes have been falling, adjusted for inflation; while according to the data gathered by my colleague Emmanuel Saez, the income of the wealthiest 1 percent has soared by 31 percent. In fact, Saez has calculated that 95 percent of all economic gains since the recovery began have gone to the top 1 percent.
Wealth has become even more concentrated than income. An April 2013 Pew Research Center report found that from 2009 to 2011, “the mean net worth of households in the upper 7 percent of wealth distribution rose by an estimated 28 percent, while the mean net worth of households in the lower 93 percent dropped by 4 percent.”
Why It Threatens Our Society
This trend is now threatening the three foundation stones of our society: our economy, our ideal of equal opportunity and our democracy.
The economy. In the United States, consumer spending accounts for approximately 70 percent of economic activity. If consumers don’t have adequate purchasing power, businesses have no incentive to expand or hire additional workers. Because the rich spend a smaller proportion of their incomes than the middle class and the poor, it stands to reason that as a larger and larger share of the nation’s total income goes to the top, consumer demand is dampened. If the middle class is forced to borrow in order to maintain its standard of living, that dampening may come suddenly—when debt bubbles burst.
Consider that the two peak years of inequality over the past century—when the top 1 percent garnered more than 23 percent of total income—were 1928 and 2007. Each of these periods was preceded by substantial increases in borrowing, which ended notoriously in the Great Crash of 1929 and the near-meltdown of 2008.
The anemic recovery we are now experiencing is directly related to the decline in median household incomes after 2009, coupled with the inability or unwillingness of consumers to take on additional debt and of banks to finance that debt—wisely, given the damage wrought by the bursting debt bubble. We cannot have a growing economy without a growing and buoyant middle class. We cannot have a growing middle class if almost all of the economic gains go to the top 1 percent.
Equal opportunity. Widening inequality also challenges the nation’s core ideal of equal opportunity, because it hampers upward mobility. High inequality correlates with low upward mobility. Studies are not conclusive because the speed of upward mobility is difficult to measure.
But even under the unrealistic assumption that its velocity is no different today than it was thirty years ago—that someone born into a poor or lower-middle-class family today can move upward at the same rate as three decades ago—widening inequality still hampers upward mobility. That’s simply because the ladder is far longer now. The distance between its bottom and top rungs, and between every rung along the way, is far greater. Anyone ascending it at the same speed as before will necessarily make less progress upward.
In addition, when the middle class is in decline and median household incomes are dropping, there are fewer possibilities for upward mobility. A stressed middle class is also less willing to share the ladder of opportunity with those below it. For this reason, the issue of widening inequality cannot be separated from the problems of poverty and diminishing opportunities for those near the bottom. They are one and the same.
Democracy. The connection between widening inequality and the undermining of democracy has long been understood. As former Supreme Court Justice Louis Brandeis is famously alleged to have said in the early years of the last century, an era when robber barons dumped sacks of money on legislators’ desks, “We may have a democracy, or we may have great wealth concentrated in the hands of a few, but we cannot have both.”
As income and wealth flow upward, political power follows. Money flowing to political campaigns, lobbyists, think tanks, “expert” witnesses and media campaigns buys disproportionate influence. With all that money, no legislative bulwark can be high enough or strong enough to protect the democratic process.
The threat to our democracy also comes from the polarization that accompanies high levels of inequality. Partisanship—measured by some political scientists as the distance between median Republican and Democratic roll-call votes on key economic issues—almost directly tracks with the level of inequality. It reached high levels in the first decades of the twentieth century when inequality soared, and has reached similar levels in recent years.
When large numbers of Americans are working harder than ever but getting nowhere, and see most of the economic gains going to a small group at the top, they suspect the game is rigged. Some of these people can be persuaded that the culprit is big government; others, that the blame falls on the wealthy and big corporations. The result is fierce partisanship, fueled by anti-establishment populism on both the right and the left of the political spectrum.
Why It Has Happened
Between the end of World War II and the early 1970s, the median wage grew in tandem with productivity. Both roughly doubled in those years, adjusted for inflation. But after the 1970s, productivity continued to rise at roughly the same pace as before, while wages began to flatten. In part, this was due to the twin forces of globalization and labor-replacing technologies that began to hit the American workforce like strong winds—accelerating into massive storms in the 1980s and ’90s, and hurricanes since then.
Containers, satellite communication technologies, and cargo ships and planes radically reduced the cost of producing goods anywhere around the globe, thereby eliminating many manufacturing jobs or putting downward pressure on other wages. Automation, followed by computers, software, robotics, computer-controlled machine tools and widespread digitization, further eroded jobs and wages. These forces simultaneously undermined organized labor. Unionized companies faced increasing competitive pressures to outsource, automate or move to nonunion states.
These forces didn’t erode all incomes, however. In fact, they added to the value of complex work done by those who were well educated, well connected and fortunate enough to have chosen the right professions. Those lucky few who were perceived to be the most valuable saw their pay skyrocket.
But that’s only part of the story. Instead of responding to these gale-force winds with policies designed to upgrade the skills of Americans, modernize our infrastructure, strengthen our safety net and adapt the workforce—and pay for much of this with higher taxes on the wealthy—we did the reverse. We began disinvesting in education, job training and infrastructure. We began shredding our safety net. We made it harder for many Americans to join unions. (The decline in unionization directly correlates with the decline of the portion of income going to the middle class.) And we reduced taxes on the wealthy.
We also deregulated. Financial deregulation in particular made finance the most lucrative industry in America, as it had been in the 1920s. Here again, the parallels between the 1920s and recent years are striking, reflecting the same pattern of inequality.
Other advanced economies have faced the same gale-force winds but have not suffered the same inequalities as we have because they have helped their workforces adapt to the new economic realities—leaving the United States the most unequal of all advanced nations by far.
What We Must Do
There is no single solution for reversing widening inequality. Thomas Piketty’s monumental book “Capital in the Twenty-First Century” paints a troubling picture of societies dominated by a comparative few, whose cumulative wealth and unearned income overshadow the majority who rely on jobs and earned income. But our future is not set in stone, and Piketty’s description of past and current trends need not determine our path in the future. Here are ten initiatives that could reverse the trends described above:
1) Make work pay. The fastest-growing categories of work are retail, restaurant (including fast food), hospital (especially orderlies and staff), hotel, childcare and eldercare. But these jobs tend to pay very little. A first step toward making work pay is to raise the federal minimum wage to $15 an hour, pegging it to inflation; abolish the tipped minimum wage; and expand the Earned Income Tax Credit. No American who works full time should be in poverty.
2) Unionize low-wage workers. The rise and fall of the American middle class correlates almost exactly with the rise and fall of private-sector unions, because unions gave the middle class the bargaining power it needed to secure a fair share of the gains from economic growth. We need to reinvigorate unions, beginning with low-wage service occupations that are sheltered from global competition and from labor-replacing technologies. Lower-wage Americans deserve more bargaining power.
3) Invest in education. This investment should extend from early childhood through world-class primary and secondary schools, affordable public higher education, good technical education and lifelong learning. Education should not be thought of as a private investment; it is a public good that helps both individuals and the economy. Yet for too many Americans, high-quality education is unaffordable and unattainable. Every American should have an equal opportunity to make the most of herself or himself. High-quality education should be freely available to all, starting at the age of 3 and extending through four years of university or technical education.
4) Invest in infrastructure. Many working Americans—especially those on the lower rungs of the income ladder—are hobbled by an obsolete infrastructure that generates long commutes to work, excessively high home and rental prices, inadequate Internet access, insufficient power and water sources, and unnecessary environmental degradation. Every American should have access to an infrastructure suitable to the richest nation in the world.
5) Pay for these investments with higher taxes on the wealthy. Between the end of World War II and 1981 (when the wealthiest were getting paid a far lower share of total national income), the highest marginal federal income tax rate never fell below 70 percent, and the effective rate (including tax deductions and credits) hovered around 50 percent. But with Ronald Reagan’s tax cut of 1981, followed by George W. Bush’s tax cuts of 2001 and 2003, the taxes on top incomes were slashed, and tax loopholes favoring the wealthy were widened. The implicit promise—sometimes made explicit—was that the benefits from such cuts would trickle down to the broad middle class and even to the poor. As I’ve shown, however, nothing trickled down. At a time in American history when the after-tax incomes of the wealthy continue to soar, while median household incomes are falling, and when we must invest far more in education and infrastructure, it seems appropriate to raise the top marginal tax rate and close tax loopholes that disproportionately favor the wealthy.
6) Make the payroll tax progressive. Payroll taxes account for 40 percent of government revenues, yet they are not nearly as progressive as income taxes. One way to make the payroll tax more progressive would be to exempt the first $15,000 of wages and make up the difference by removing the cap on the portion of income subject to Social Security payroll taxes.
7) Raise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death. As Piketty warns, the United States, like other rich nations, could be moving toward an oligarchy of inherited wealth and away from a meritocracy based on labor income. The most direct way to reduce the dominance of inherited wealth is to raise the estate tax by triggering it at $1 million of wealth per person rather than its current $5.34 million (and thereafter peg those levels to inflation). We should also eliminate the “stepped-up basis” rule that lets heirs avoid capital gains taxes on the appreciation of assets that occurred before the death of their benefactors.
8) Constrain Wall Street. The financial sector has added to the burdens of the middle class and the poor through excesses that were the proximate cause of an economic crisis in 2008, similar to the crisis of 1929. Even though capital requirements have been tightened and oversight strengthened, the biggest banks are still too big to fail, jail or curtail—and therefore capable of generating another crisis. The Glass-Steagall Act, which separated commercial- and investment-banking functions, should be resurrected in full, and the size of the nation’s biggest banks should be capped.
9) Give all Americans a share in future economic gains. The richest 10 percent of Americans own roughly 80 percent of the value of the nation’s capital stock; the richest 1 percent own about 35 percent. As the returns to capital continue to outpace the returns to labor, this allocation of ownership further aggravates inequality. Ownership should be broadened through a plan that would give every newborn American an “opportunity share” worth, say, $5,000 in a diversified index of stocks and bonds—which, compounded over time, would be worth considerably more. The share could be cashed in gradually starting at the age of 18.
10) Get big money out of politics. Last, but certainly not least, we must limit the political influence of the great accumulations of wealth that are threatening our democracy and drowning out the voices of average Americans. The Supreme Court’s 2010 Citizens United decision must be reversed—either by the Court itself, or by constitutional amendment. In the meantime, we must move toward the public financing of elections—for example, with the federal government giving presidential candidates, as well as House and Senate candidates in general elections, $2 for every $1 raised from small donors.
Building a Movement
It’s doubtful that these and other measures designed to reverse widening inequality will be enacted anytime soon. Having served in Washington, I know how difficult it is to get anything done unless the broad public understands what’s at stake and actively pushes for reform.
That’s why we need a movement for shared prosperity—a movement on a scale similar to the Progressive movement at the turn of the last century, which fueled the first progressive income tax and antitrust laws; the suffrage movement, which won women the vote; the labor movement, which helped animate the New Deal and fueled the great prosperity of the first three decades after World War II; the civil rights movement, which achieved the landmark Civil Rights and Voting Rights acts; and the environmental movement, which spawned the National Environmental Policy Act and other critical legislation.
Time and again, when the situation demands it, America has saved capitalism from its own excesses. We put ideology aside and do what’s necessary. No other nation is as fundamentally pragmatic. We will reverse the trend toward widening inequality eventually. We have no choice. But we must organize and mobilize in order that it be done.
[This essay appears in the current edition of “The Nation.”]
Even though French economist Thomas Piketty has made an air-tight case that we’re heading toward levels of inequality not seen since the days of the nineteenth-century robber barons, right-wing conservatives haven’t stopped lying about what’s happening and what to do about it.
Herewith, the four biggest right-wing lies about inequality, followed by the truth.
Lie number one: The rich and CEOs are America’s job creators. So we dare not tax them.
The truth is the middle class and poor are the job-creators through their purchases of goods and services. If they don’t have enough purchasing power because they’re not paid enough, companies won’t create more jobs and economy won’t grow.
We’ve endured the most anemic recovery on record because most Americans don’t have enough money to get the economy out of first gear. The economy is barely growing and real wages continue to drop.
We keep having false dawns. An average of 200,000 jobs were created in the United States over the last three months, but huge numbers of Americans continue to drop out of the labor force.
Lie number two: People are paid what they’re worth in the market. So we shouldn’t tamper with pay.
The facts contradict this. CEOs who got 30 times the pay of typical workers forty years ago now get 300 times their pay not because they’ve done such a great job but because they control their compensation committees and their stock options have ballooned.
Meanwhile, most American workers earn less today than they did forty years ago, adjusted for inflation, not because they’re working less hard now but because they don’t have strong unions bargaining for them.
More than a third of all workers in the private sector were unionized forty years ago; now, fewer than 7 percent belong to a union.
Lie number three: Anyone can make it in America with enough guts, gumption, and intelligence. So we don’t need to do anything for poor and lower-middle class kids.
The truth is we do less than nothing for poor and lower-middle class kids. Their schools don’t have enough teachers or staff, their textbooks are outdated, they lack science labs, their school buildings are falling apart.
We’re the only rich nation to spend less educating poor kids than we do educating kids from wealthy families.
All told, 42 percent of children born to poor families will still be in poverty as adults – a higher percent than in any other advanced nation.
Lie number four: Increasing the minimum wage will result in fewer jobs. So we shouldn’t raise it.
In fact, studies show that increases in the minimum wage put more money in the pockets of people who will spend it – resulting in more jobs, and counteracting any negative employment effects of an increase in the minimum.
Three of my colleagues here at the University of California at Berkeley — Arindrajit Dube, T. William Lester, and Michael Reich – have compared adjacent counties and communities across the United States, some with higher minimum wages than others but similar in every other way.
They found no loss of jobs in those with the higher minimums.
The truth is, America’s lurch toward widening inequality can be reversed. But doing so will require bold political steps.
At the least, the rich must pay higher taxes in order to pay for better-quality education for kids from poor and middle-class families. Labor unions must be strengthened, especially in lower-wage occupations, in order to give workers the bargaining power they need to get better pay. And the minimum wage must be raised.
Don’t listen to the right-wing lies about inequality. Know the truth, and act on it.
On Monday, the following message was posted on the Pope's official Twitter account: "Inequality is the root of social evil." This follows on the heels of several other extremely harsh statements that he has made about capitalism over the past year. The Pope appears to believe that inequality is one of the greatest evils that [...]
If you ever wonder what’s fueling America’s staggering inequality, ponder Facebook’s acquisition of the mobile messaging company WhatsApp .
According to news reports today, Facebook has agreed to buy WhatsApp for $19 billion.
That’s the highest price paid for a startup in history. It’s $3 billion more than Facebook raised when it was first listed, and more than twice what Microsoft paid for Skype.
(To be precise, $12 billion of the $19 billion will be in the form of shares in Facebook, $4 billion will be in cash, and $3 billion in restricted stock to WhatsApp staff, which will vest in four years.)
Given that gargantuan amount, you might think Whatsapp is a big company. You’d be wrong. It has 55 employees, including its two young founders, Jan Koum and Brian Acton.
Whatsapp’s value doesn’t come from making anything. It doesn’t need a large organization to distribute its services or implement its strategy.
It value comes instead from two other things that require only a handful of people. First is its technology — a simple but powerful app that allows users to send and receive text, image, audio and video messages through the Internet.
The second is its network effect: The more people use it, the more other people want and need to use it in order to be connected. To that extent, it’s like Facebook — driven by connectivity.
Whatsapp’s worldwide usage has more than doubled in the past nine months, to 450 million people — and it’s growing by around a million users every day. On December 31, 2013, it handled 54 billion messages (making its service more popular than Twitter, now valued at about $30 billion.)
How does it make money? The first year of usage is free. After that, customers pay a small fee. At the scale it’s already achieved, even a small fee generates big bucks. And if it gets into advertising it could reach more eyeballs than any other medium in history. It already has a database that could be mined in ways that reveal huge amounts of information about a significant percentage of the world’s population.
The winners here are truly big winners. WhatsApp’s fifty-five employees are now enormously rich. Its two founders are now billionaires. And the partners of the venture capital firm that financed it have also reaped a fortune.
And the rest of us? We’re winners in the sense that we have an even more efficient way to connect with each other.
But we’re not getting more jobs.
In the emerging economy, there’s no longer any correlation between the size of a customer base and the number of employees necessary to serve them. In fact, the combination of digital technologies with huge network effects is pushing the ratio of employees to customers to new lows (WhatsApp’s 55 employees are all its 450 million customers need).
Meanwhile, the ranks of postal workers, call-center operators, telephone installers, the people who lay and service miles of cable, and the millions of other communication workers, are dwindling — just as retail workers are succumbing to Amazon, office clerks and secretaries to Microsoft, and librarians and encyclopedia editors to Google.
Productivity keeps growing, as do corporate profits. But jobs and wages are not growing. Unless we figure out how to bring all of them back into line – or spread the gains more widely – our economy cannot generate enough demand to sustain itself, and our society cannot maintain enough cohesion to keep us together.
Is it to be inequality or equal opportunity?
Under a headline “Obama Moves to the Right in a Partisan War of Words,” The New York Times’ Jackie Calmes notes Democratic operatives have been hitting back hard against the President or any other Democratic politician talking about income inequality, preferring that the Democrats talk about equality of opportunity instead.
"However salient reducing inequality may be," writes Democratic pollster Mark Mellman, “it is demonstrably less important to voters than any other number of priorities, incudlng reducing poverty.”
The President may be listening. Wags noticed that in his State of the Union, Obama spoke ten times of increasing “opportunity” and only twice of income inequality, while in a December speech he spoke of income inequality two dozen times.
But the President and other Democrats — and even Republicans, for that matter — should focus on the facts, not the polls, and not try to dress up what’s been happening with more soothing words and phrases.
In fact, America’s savage inequality is the main reason equal opportunity is fading and poverty is growing. Since the “recovery” began, 95% of the gains have gone to the top 1 percent, and median incomes have dropped. This is a continuation of the trend we’ve seen for decades. As a result:
(1) The sinking middle class no longer has enough purchasing power to keep the economy growing and creating sufficient jobs. The share of working-age Americans still in the labor force is the lowest in more than thirty years.
(2) The shrinking middle isn’t generating enough tax revenue for adequate education, training, safety nets, and family services. And when they’re barely holding on, they can’t afford to — and don’t want to — pay more.
(3) Meanwhile, America’s rich are accumulating not just more of the country’s total income and wealth, but also the political power that accompanies money. And they’re using that power to reduce their own taxes, and get corporate welfare (subsidies, bailouts, tax cuts) for their businesses.
All this means less equality of opportunity in America.
Obama was correct in December when he called widening inequality “the defining challenge of our time.” He mustn’t back down now even if Democratic pollsters tell him to. If we’re ever to reverse this noxious trend, Americans have to hear the truth.
First, when almost all the gains from growth go to the top, as they have for the last thirty years, the middle class doesn’t have the purchasing power necessary for buoyant growth.
Once the middle class has exhausted all its coping mechanisms – wives and mothers surging into paid work (as they did in the 1970s and 1980s), longer working hours (which characterized the 1990s), and deep indebtedness (2002 to 2008) – the inevitable result is fewer jobs and slow growth, as we continue to experience.
Few jobs and slow growth hit the poor especially hard because they’re the first to be fired, last to be hired, and most likely to bear the brunt of declining wages and benefits.
Second, when the middle class is stressed, it has a harder time being generous to those in need. The “interrelated social problems” of the poor presumably will require some money, but the fiscal cupboard is bare. And because the middle class is so financially insecure, it doesn’t want to, nor does it feel it can afford to, pay more in taxes.
Third, America’s shrinking middle class also hobbles upward mobility. Not only is there less money for good schools, job training, and social services, but the poor face a more difficult challenge moving upward because the income ladder is far longer than it used to be, and its middle rungs have disappeared.
Brooks also argues that we should not be talking about unequal political power, because such utterances cause divisiveness and make it harder to reach political consensus over what to do for the poor.
Hogwash. The concentration of power at the top — which flows largely from the concentration of income and wealth there — has prevented Washington from dealing with the problems of the poor and the middle class.
To the contrary, as wealth has accumulated at the top, Washington has reduced taxes on the wealthy, expanded tax loopholes that disproportionately benefit the rich, deregulated Wall Street, and provided ever larger subsidies, bailouts, and tax breaks for large corporations. The only things that have trickled down to the middle and poor besides fewer jobs and smaller paychecks are public services that are increasingly inadequate because they’re starved for money.
Unequal political power is the endgame of widening inequality — its most noxious and nefarious consequence, and the most fundamental threat to our democracy. Big money has now all but engulfed Washington and many state capitals — drowning out the voices of average Americans, filling the campaign chests of candidates who will do their bidding, financing attacks on organized labor, and bankrolling a vast empire of right-wing think-tanks and publicists that fill the airwaves with half-truths and distortions.
That David Brooks, among the most thoughtful of all conservative pundits, doesn’t see or acknowledge any of this is a sign of how far the right has moved away from the reality most Americans live in every day.
The U.S. economy created a measly 74,000 new jobs in December, and a smaller percentage of working-age Americans is now employed than at any time in the last three decades (before women surged into the workforce).
What does this have to do with the fact that median household incomes continue to drop (adjusted for inflation) and that 95 percent of all the economic gains since the recovery started have gone to the top 1 percent?
Plenty. Businesses won’t create new jobs without enough customers. But most Americans no longer have enough purchasing power to fuel that job growth.
That’s why it’s so important to (1) raise the minimum wage at least to its inflation-adjusted value 40 years ago — which would be well over $10 an hour, (2) extend unemployment benefits to the jobless, (3) launch a major jobs program to rebuild the nation’s crumbling infrastructure, (4) expand Medicaid to the near-poor, (5) enable low-wage workers to unionize, (6) rehire all the teachers, social workers, police, and other public service employees who were laid off in the recession, (7) exempt the first $20,000 of income from Social Security payroll taxes and make up the difference by removing the cap on income subject to the tax.
And because the rich spend a far smaller proportion of their earnings than the middle class and poor, pay for much of this by (8) closing tax loopholes that benefit the rich such as the “carried interest” tax benefit for hedge-fund and private-equity managers, (9) raise the highest marginal tax rate, and (10) impose a small tax on all financial transactions.
One of the major political parties adamantly refuses to do any of this, and the other doesn’t have the strength or backbone to make them.
Make a ruckus.
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How will the 2016 election be framed? What will be America’s choice?
If the coverage of last week’s two big winners offers a guide, the choice will be between “pragmatism” and “ideology.”
The Washington Post called Chris Christie’s huge gubernatorial victory a “clear signal in favor of pragmatic, as opposed to ideological, governance.”
But the mainstream media used a different adjective to describe Bill de Blasio, last week’s other landslide victor. The New York Times, for example, wrote of “the rise of the left-leaning Mr. de Blasio.”
Again and again, Christie is described as the pragmatist; De Blasio, the lefty.
But these appellations ignore what’s happening to an America in which almost all the economic gains are going to the richest 1 percent, median household incomes continues to drop, and the number of Americans in poverty continues to rise.
Given America’s surging inequality, the pragmatist is De Blasio, who proposes to raise taxes on the wealthy in order to fund pre-school and after-school programs for the children of the poor and hard-pressed middle class.
The cost of child care is taking a huge bite out of the paychecks of many working parents, some of whom have been forced to leave their kids alone at home or rely on overburdened neighbors and relatives. A small surcharge on the incomes of the super-rich to pay for well-supervised child care is a practical and long-overdue response.
Meanwhile, the real ideologue is Christie, who vetoed an increase in the minimum wage in New Jersey. The current minimum of $7.25 is far lower than it was three decades ago in terms of purchasing power, and the typical minimum-wage worker is no longer a teenager but a major breadwinner for his or her family.
Apparently Christie isn’t aware that many employers – including Walmart, the largest employer in America – don’t pay their employees enough to lift themselves and their families out of poverty. Which means the rest of us end up subsidizing these employers indirectly by devoting our tax dollars to Medicaid, food stamps, housing, and other assistance needed to make up for the lousy wages.
In fact, New Jersey voters found a way to circumvent Christie’s ideological opposition to a raise in the minimum wage. They approved an amendment to the state constitution that raises the minimum to $8.25 (still too low) and subsequently indexes it to inflation.
The so-called “pragmatic” Christie also frowns on gay marriage and abortion rights, which puts him in the company of many Tea Partiers. But because Christie himself isn’t a Tea Partier, and had the temerity to be seen in the friendly company of President Obama in the aftermath of Hurricane Sandy’s devastation, he appears pragmatic in comparison to them.
The media is casting Christie as the pragmatist and De Blasio as the ideologue because of what’s happened to their respective parties.
The civil war that’s engulfed the Republican Party – pitting the Tea Party against the establishment GOP – is an admitted headache for Republicans focused on the 2016 presidential contest. For them, the size of Christie’s win is a huge relief.
The Democratic Party, by contrast, has been the very model of civility. Establishment Democrats, mostly funded by big business and Wall Street, have dominated ever since Bill Clinton “triangulated” and moved the Party rightward.
Progressive Democrats and organized labor – those who the late Paul Wellstone described as the “Democratic wing of the Democratic Party” — have been remarkably tractable. Although they forced Obama to pull the nomination of Larry Summers, they’ve been all but ignored on the big stuff having to do with widening inequality.
When progressives wanted Wall Street banks to reduce the mortgages of underwater homeowners as a condition for getting bailed out, the White House and most congressional Democrats turned a deaf ear.
Progressives also pushed to go over the fiscal cliff and end the Bush tax cuts, sought a “public option” for health insurance, wanted an Employee Free Choice Act that would make it easier to form unions, tried to resurrect the Glass-Steagall Act as part of financial regulation, objected to the President’s proposed “chain-weighted CPI” for Social Security and cuts in Social Security.
On all these they got nowhere. Yet progressives in the Democratic Party took their lumps without declaring civil war.
Had the President and congressional Democrats reflected the Party’s historic roots and risen to the challenge of widening inequality, De Blasio’s proposal to raise taxes on the wealthy to finance better schools wouldn’t appear conspicuous or even ideological. It would be another pragmatic attempt to deal with the nation’s challenge of reversing the scourge of inequality.
In other words, Christie appears pragmatic and De Blasio ideological only in comparison with their own parties.
But in terms of where America is and what it needs, now and in the foreseeable future, these two labels should be reversed.
Mass Anti-Neoliberal Protests in Turkey Brutally Repressed: Uprisings Sparked by Soaring Poverty, Inequality,...
Analysis of two decades of income tax trends also find the rich consume more.
Photo Credit: Shutterstock.com
March 22, 2013 |
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A new study by a team of economists in academia and the government has concluded that economic inequality is a permanent—not temporary—feature in the United States, based on an analysis of 350,000 federal income tax returns between 1987 and 2009.
“For household income, both before and after taxes, the increase in inequality over this period was predominantly, although not entirely, permanent,” the highly technical report concluded. “We also find evidence that the U.S. federal tax system helped reduce the increase in household income inequality; but this attenuating effect was insufficient to significantly alter the broad trend toward rising inequality.”
The study by economists at two state universities, the Federal Reserve and U.S. Treasury Department, also found, not surprisingly, that the wealthiest Americans consume more than less well-off people, and that disparity causes poorer Americans to suffer as a result.
“Our findings, along with economic theory, suggest that the increase in income inequality observed in roughly the last two decades should translate into increases in consumption inequality, and is therefore likely to be welfare-reducing, at least according to most social welfare functions,” the report said. “Although measurement problems with household consumption data in the U.S. have made it difficult to convincingly measure the degree of the increase in consumption inequality, some recent studies… suggest that the increase in consumption inequality was indeed substantial.”
Simply put, the study confirms what Vermont's U.S. Sen. Bernard Sanders has been saying for years, “The rich are getting richer and the poor are getting poorer.”
“The takeaway here is rough,” the Washington Post’s Ezra Klein wrote in his Wonkblog column. “The reason the permanent/transitory distinction matters is that lifetime earnings are much more important than a single year’s earnings. It’s lifetime earnings that decide how you live in general, what sort of house you can afford, whether you can send a kid to college, whether you can retire comfortably.”
Better-off Americans often opine that those below them on the economic ladder should just work a little harder. But this study suggests that there are irreconcilable gaps in income, lifetime wealth, consumption and the resulting health between the haves and have-nots in America. It also suggests progressive taxation can buffer those inequalities a bit, but not make up for the gaps.
It will be curious to see if this study will be cited in Washington’s ongoing debate about 'reforming' entitlement programs—namely Medicare and Social Security. It suggests, if anything, that growing slices of American society are heading to less financially secure futures, especially in old age. That means federal safety nets are more needed than ever—despite the GOP’s ideological crusade to cut spending on them.
Steven Rosenfeld covers democracy issues for AlterNet and is the author of "Count My Vote: A Citizen's Guide to Voting" (AlterNet Books, 2008).
Inequality hurts us all.
Imagine if you could go back 45 years to 1968. That year, after three decades of creative policy from President Franklin D. Roosevelt’s New Deal through President Lyndon B. Johnson’s Great Society, the United States was one of the world’s most equal nations.Picturing Economic Growth (OtherWords cartoon by Khalil Bendib)
Now imagine that instead of falling into the extreme inequality of today, the United States had stayed at the levels of greater equality of that era. What would be the benefits?
There would be a lot of them. This is the finding of a new study, “Closing the Inequality Divide,” that my organization, the Institute for Policy Studies, recently released with the Center for Sustainable Economy.
Our report looks at the world from the vantage point of the poorest fifth of people in my relatively affluent state of Maryland. Today, on average, the poorest fifth of the state earns about $15,000 a year. Maryland ranks among the country’s top-five states in terms of per-capita income. Yet many Marylanders work hard to earn the minimum wage, which remains painfully low at $7.25/hour, barely enough for them and their families to scrape by.
Consider this: If the levels of greater income equality of 1968 still prevailed today, that same poorest fifth of Marylanders would be earning twice what they take home now. Imagine the differences. They’d be able to purchase more goods and services, which would generate more jobs and income throughout the state.
We’d also be a lot healthier. We’d suffer less crime. Fewer of us would be injured and killed in car crashes. We’d suffer fewer divorces. We’d get the benefits of more education. Since a higher percentage of African-Americans and Latinos are poorer than whites, greater income equality would also reduce race inequality.
How do my colleagues and I who wrote this report know all of this? Well, thanks to a bold move by Maryland Gov. Martin O’Malley in 2009, that state now collects information on 26 measures of social, environmental, and economic well-being known as the Genuine Progress Indicator (GPI). In addition to measuring inequality, each year employees of the Maryland government are charting critical things such as the costs of pollution and crime, as well as the value of volunteer work and higher education.
In other words, measure what you treasure.
The idea is that these broader measures of well-being offer a better sense of how a state and its people are doing than the traditional economic measure of gross domestic product (GDP). That traditional measure only counts the increase in production of goods and services and doesn’t distinguish between the growth of “bad” things — like cancer or polluting industries — versus “good” things — like wind energy and sustainable farming.
Are there steps we can take to move in the direction of the greater equality we enjoyed a couple of generations ago?
Yes. Our research points to the good work of a wide range of Maryland organizations that have practical ideas on how to reduce inequality. A broad coalition has come together to raise Maryland’s minimum wage to $10.00 an hour by 2015, with an increase for restaurant workers and others who make tips as well. This state-level momentum is strengthening the efforts to pass a national bill introduced by Senator Tom Harkin and Representative George Miller to increase the minimum wage to $10.10 across the country.
President Barack Obama backed an increase in his February State of the Union address, and polls show strong public support. In early March, a Gallup poll showed 71 percent of Americans supporting an increase in the minimum wage to $9 an hour, the level Obama recommended.
We know how to make both Maryland and this country more equal, in part because we’ve done it before, from the 1930s to the 1960s. And we would all benefit from this shift.
This work is licensed under a Creative Commons License
John Cavanagh is the director of the Institute for Policy Studies, a progressive think tank celebrating its 50th year.
The gap between the very rich and the less fortunate in Britain has risen sharply since the 1990s, a study has found.
Analysis by the Resolution Foundation think tank shows that the top earners in Britain now take home 10 percent of every pound earned in the country that is a three percent growth in 15 years while the bottom half of earners’ have seen their share fall from 19 percent to 18 percent over the period.
"The growing gap in incomes is pronounced when you look at the top 10th of households, and overwhelming when you consider the position of the top 1%. The rest of society hasn't kept up. It's the squeezed majority, not just the squeezed middle,” Mathew Whittaker, a senior economist at the thinktank, said.
This comes as dealing with the gap between the rich and poor has turned into a deteriorating political issue.
Opposition Labour leader Ed Miliband has called for a policy of "pre-distribution" to try to narrow the gap between the best and worst paid, while others from across the political spectrum, including the mayor of London, Boris Johnson, have praised the idea of employers promising to pay the Living Wage, which is currently £8.55 an hour in London, and £7.45 elsewhere.
The Resolution Foundation’s report, dubbed Squeezed Britain 2013, also highlights the misery of middle-earners as many of them have seen their incomes decline, due to high inflation and weak bargaining power in the workplace.
AFP Photo / Bertrand Guay
The UK’s super-rich, the top 1% of earners, now pocket 10 pence in every pound, while the bottom half have seen their share of the nation’s wealth drop in the last 15 years. Middle earners have also seen their earning power stagnate.
Inequality in the UK has increased sharply in the last decade and a half, according to a study by the think tank, the Resolution Foundation, ‘Squeezed Britain 2013’, which is to be published next week.
According to Resolution’s analysis the top 1% on earners have seen their share of the nation’s wealth jump from 7% in the mid-1990s to 10% today, meaning that the top 1% of earners now pocket 10p in every pound of income paid in Britain. The bottom 50% have seen their share of the pie drop from 19% to 18%, it was reported in the Observer.
Although there was a slight reduction in top earning between 2009 and 2011, the research concludes this is most likely because the highest paid employees have brought their earnings forward to benefit from reduced income tax rates, which come into force this April. The Chancellor, George Osborne, is lowering the top tax rate for all earnings over £150,000 from 50p to 45p.
Resolution’s analysis shows the polarization of the UK labor market, between the top earners vast salaries and stagnant wages for many at the bottom and in the middle of the pile. However, the study did not take into account the impacts of benefits, like housing benefit, or tax credits, which top up incomes of the very poor.
The Organization for Economic Co-operation and Development (OECD) issued a statement last Wednesday warning of the dangers of increasing inequality in its annual health check of the UK economy.
“Labor market conditions are widening the income gap between fulltime employees and an increasing share of the workforce on part-time, insecure and low-wage jobs. This comes in a context where income inequality was already high and rising before the recession,” the statement said.
The gap between rich and poor is becoming a major political issue in Britain. Labour leader, Ed Miliband, wants to introduce a policy of ‘pre-distribution’ to try and narrow the gap between the best and worst paid.
The London Mayor, Boris Johnson, as well as various politicians from across the political spectrum, have praised the idea of the Living Wage, £8.55 an hour in London and £7.45 elsewhere. The Living Wage is not legally enforceable unlike the National Minimum Wage, which is significantly less, at £6.19 an hour. Ed Miliband has said he is in favor of making the Living Wage a legal requirement in his party’s manifesto for the next election.
While, Nick Clegg, the deputy Prime Minister and leader of the Liberal Democrats, is pushing for a ‘mansion tax’ on all homes worth over £2 million.
‘Squeezed Britain’ focuses on the fortunes of the UK’s hard pressed middle earners, many of whom have seen their incomes stagnate over the past decade as a result of inflation and their reduced bargaining power in the work place, due partly to the shrinking in power of trade unions.
“The growing gap in incomes is pronounced when you look at the top 10th of households, and overwhelming when you consider the position of the top 1%. The rest of society hasn’t kept up. It’s the squeezed majority not just the squeezed middle,” Matthew Whittaker, senior economist at Resolution, told the Observer.
The official unemployment rate in the US may be slowly ticking down, but the rank of those who classify as 'the working poor' has continued to skyrocket, according to a new report.
A server waits on customers. Hit hardest by the trend of stagnant wages are those in service industries, like retail jobs, food preparation, clerical work and customer assistance. (Jeff Adkins/For the Chicago Tribune) Along with overall income inequality growth in the US, a new report by Working Poor Families Project says that over 200,000 families fell into poverty in 2011 even with both parents working.
National job growth saw a recovery from the worst days following the 2008 housing crash and subsequent financial crisis, but even as the recession ebbed in some areas or for some groups, many middle class or lower-middle class workers who returned to employment did so with much reduced wages.
As lead author of the report, Brandon Roberts, points out in an op-ed at Reuters on Tuesday:
These are not just the unemployed. Rather they are families that, despite having a working adult in the home, earn less than twice the federal poverty income threshold – a widely recognized measure of family self-sufficiency. They are working, but making too little to build economically secure lives. And their number has grown steadily over the past five years.
They are cashiers and clerks, nursing assistants and lab technicians, truck drivers and waiters. Either they are unable to find good, full-time jobs, or their incomes are inadequate and their prospects for advancement are poor.
The report, which analyzed figures from the US Census in 2011, determined that nearly 10.4 million such families - or 47.5 million Americans - now live near poverty, defined as earning less than $45,622 for a family of four.
Data showed that the top 20 percent of Americans received 48 percent of all income while those in the bottom 20 percent got less than 5 percent.
Statistics also showed that roughly 23.5 million, or 37 percent, of U.S. children lived in working poor families compared with about 21 million, or 33 percent, in 2007, the report said.
"Although many people are returning to work, they are often taking jobs with lower wages and less job security, compared with the middle-class jobs they held before the economic downturn," the report said. "This means that nearly a third of all working families ... may not have enough money to meet basic needs."
“We’re not on a good trajectory,” Brandon Roberts, who manages the privately-funded Working Poor Families Project, told The Washington Post. “The overall number of low-income working families is increasing despite the recovery.”
And Reuters reports:
The group's analysis adds to the body of data focused on the slipping U.S. middle class even as there are signs of the nation's economy slowly coming back to life with improvements in the housing sector and lower unemployment rate.
For some Americans, the comeback has yet to begin.
Data showed that the top 20 percent of Americans received 48 percent of all income while those in the bottom 20 percent got less than 5 percent, the report said.
The analysis also found regional differences.
States in the South, such as Georgia and South Carolina, and those in the West, such as Arizona and Nevada, had the greatest increase in the number of working poor. The increase was slower in the Mid-Atlantic and Northeast.
"It's important to draw attention to the fact that there are real families behind those statistics," said Alan Essig, who heads the Georgia Budget and Policy Institute, adding that his state is still struggling with housing and unemployment.
And the Washington Post adds:
The growth in the ranks of the working poor coincides with continued growth in income inequality. Many of the occupations experiencing the fastest job growth during the recovery also pay poorly. Among them are retail jobs, food preparation, clerical work and customer assistance.
Most of the 50 Yemeni women accused of murder in 2012 were arrested for killing their husbands, the country’s ministry of interior has announced. The killings are deemed by many a desperate reaction to rampant gender inequality in the country.
The women were between the ages of 25-50 and had mostly carried out the crime with the aid of male relatives, a report released by the Yemeni Interior Ministry’s Information Security Center revealed.
Domestic violence, marriage inequality, jealousy, a sense of inferiority and economic pressures were cited as the primary motives. Most of the men were shot, poisoned, or beaten to death.
The most infamous crime of this nature occurred in August in a village in the province of Marib, where a 40-year-old woman killed her husband and two sons following a domestic dispute, Dr. Mujib Abdul Bari, a specialist in psychiatric and neurological disorders, told AlArabiya.net.
Bari said statistics relating to such crimes should be published to help facilitate public service campaigns which would help empower women in the country.
“In case women have taken a wrong decision in marriage, they should resort to legal solutions, such as divorce or going back to their families [who can] help them on a psychological level,” he continued.
Despite the recent spike in violence committed by wives in 2012, nearly two times as many women were victims of attempted murder during the same period.
Following the 1994 Yemeni Civil War, gender inequality has drastically increased in the country.
In 1999, the minimum marriage age of 15 was scrapped. Subsequent attempts a decade later to introduce legislation requiring women to be 17-years or older, were halted by conservative parliamentarians, Rebecca Murray from IPS news agency reports.
United Nations figures compiled in 2004 show 17.2% of girls aged 15-19 were either married, divorced or widowed.
While sexual intercourse with girls who have not reached puberty is illegal under article 15 of the country’s Personal Status Law, Human Rights Watch has documented cases where pre-pubescent girls have been subjected to marital rape.
In Yemen, there are currently no laws on the books against marital rape. For those women trapped in abusive marriages, divorce laws reflect the extent of gender inequality in the country. While a husband can divorce his wife by simply repudiating her three times, a woman can only ask for a divorce under certain conditions- for example, if her husband fails to provide for the family financially even if he is capable of doing so. If a woman hopes to divorce for other reasons, she must file for a no-fault divorce which requires that she pay back her dowry.
Custody of children is highly biased towards husbands, as men are considered the natural guardians of children, while women are viewed as physical custodians but have no legal rights.
Rebecca Murray says domestic violence, health complications, a lack of education and career opportunities are often directly connected to early or forced marriages.
She also cites Yemen’s penal code as being heavily biased in favor of men who commit “honor killings,” with husbands who murder allegedly adulterous wives receiving a one-year maximum prison sentence, or even a fine.
The World Economic Forum’s Global Gender Gap Index in 2012, ranked Yemen’s gender disparities last in economic, political, education and health criteria.