Posts Tagged ‘Income inequality’

Eight people own as much as 3.6 billion do

March 14, 2017
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This is old news, I guess, but worth keeping in mind.  In the years right before the French Revolution, did eight aristocrats own as much as the poorest 50 percent of the French peasants?

LINKS

Visualizing a Disturbing Truth: 8 Billionaires Own As Much as 3.6 Billion People for howmuch.   Explains who the eight billionaires are.

Income share for the bottom 50 percent of Americans is collapsing, new Piketty research finds by Steve Goldstein for MarketWatch.

How much inequality is too much?

January 7, 2017
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This chart from Vox shows how each $100 in Americans’ income was divided among the five main income groups in 2014, and how their shares have changed since 1989

It’s a bad thing when the rich get richer and the poor get poorer.

But suppose the rich got richer, but the poor didn’t get poorer. What would be wrong with that?

Is the problem with economic inequality in and of itself?   Or would extreme differences between rich and poor be bad even if they poor did have enough—whatever your definition of “enough” happens to be.

New Dealers in the 1930s thought that increased incomes for the poor would be good for everybody, including the rich.  If poor people had more money to spend, that would increase demand for goods and services, and get the economic going.

The “supply-siders” in the 1980s thought that increased incomes for the rich would be good for everybody because that would make more capital available for investment.  That turned out not to be true, for reasons I came to understand later, but suppose it had.  Would that be bad?

I think it would be.  I didn’t always think so, but I think so now.

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Wealth and income inequality in the USA

September 2, 2016

wealth-share

These two charts, courtesy of Prof. David F. Ruccio, show the changing distribution of wealth and income in the USA.  Please keep in mind that while the chart below refers to the top 1 percent of income earners, the chart above refers to the top 1/100th of 1 percent of wealth holders.

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A graph showing what went wrong with the U.S.

April 30, 2015
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This chart shows the average annual income, year by year, of the bottom 90 percent of income earners (top to bottom scale) and upper 1 percent of income earners (left to right scale).

Unless you have a good reason for believing that American working people became less productive after 1973 or so, and the economic elite suddenly became more valuable, there is something very wrong with the U.S. economy.

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Reflections on Piketty’s inequality argument

June 14, 2014

The novels of Jane Austen, Honore de Balzac or Henry James, in which civilized life was confined to a small percentage of the population and the only way most people could acquire significant wealth was to inherit it or marry it.

According to Thomas Piketty’s Capital in the Twenty-First Century, there is nothing to stop that kind of world from coming back.

1_percent_decomposed_2.png.CROP.promovar-mediumlargePiketty’s basic argument goes as follows:
•    If the rate of return on investment is a higher percentage than the rate of economic growth, which he expresses as r > g,  the owners of investment property will get an ever-larger share of national income.
•    R > g is the normal state of affairs.
•    Ownership of wealth is distributed even more unequally than income.   The higher the share of income that comes from wealth, the more unequal it will be.
•    The larger the amount of wealth you own, the faster it is likely to compound.   So not only do the rich become richer at a faster rate than ordinary people, the super-rich become richer at a faster rate than the ordinary rich.
•    At some point the process levels off, but the leveling-off point may not come until inequality reaches a point that we associate with 18th century Europe or the Third World

The economic prosperity and relative equality during 1945-1975 were made possible by the destruction of capital during the Great Depression and the two World Wars, according to Piketty.   Of course war and depression left everybody worse off, not just rich people, but when economic growth resumed, a lesser share went to the economic elite.

Piketty’s conclusions are backed up by archival research that traces income and wealth distribution in France, Britain and the USA for two centuries and many other countries for shorter periods of time.  That research shows that r > g is the typical state of affairs in most countries and most periods of history for which information is available.

One striking finding is that there is just as much inequality among the elite as there is among the public at large.  In the USA, the top 10 percent have about half the wealth, the top 1 percent have about half the wealth of the top 10 percent, and the top 0.1 percent have about half the wealth of the top 1 percent.

Another finding, based on comparisons of American university endowment funds, is that the larger the amount of wealth you have to invest, the higher your rate of return is likely to be.   This is probably because the richer you are, the better financial managers you can hire, the better able you are to diversify your investments and the better cushion you have when you make high-risk, high-return investments.

chart_2.png.CROP.promovar-mediumlargePiketty proposes to deal with inequality by means of a graduated tax on wealth to go along with graduated taxes on inheritance and income.  But there are other ways.

You could figure out ways to increase the rate of economic growth, for example.  Or you could figure out ways to achieve a wider distribution of wealth, such as through employee stock-ownership plans or worker-owned enterprises.   Or you could strengthen labor unions, increase minimum wage or take other measures to increase the incomes of the middle class, working people and the poor.

It’s important to keep in mind that Piketty only deals with one specific issue, the concentration of income and wealth in a small elite—an important issue, but not the only one.   Piketty does not tell us how to raise people out of dire poverty, nor how to achieve better productivity, or economic growth, or better education, or a cleaner environment, or any other goal.

And taking money away from the economic elite will not in and of itself make anyone any better off.   A lot of financial wealth was destroyed during the Great Depression and and a lot of tangible wealth was destroyed during World War Two, but this did help anybody at the bottom of the economic scale.  Piketty thinks that destruction of wealth cleared the way for the prosperity of the 1950s and 1960s, but I don’t think anybody who lived through the 1930s and 1940s would have said it was worth it.

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Piketty’s inequality argument in six charts

June 14, 2014

Thomas Piketty’s book, Capital in the Twenty-First Century, has stirred up a lot of controversy.  As well it should.  If he is right, there is nothing to stop a tiny elite from growing richer and richer at the expense of the rest of us.

The important thing to remember of Piketty’s argument is that it is not based on economic theory.   It is based on years of research on sources of wealth and income through history in different countries.   And, as quantitative information, it lends itself to charts.

I think Piketty’s research is important to understand for the future of our country and the world.   I’m reproducing six charts based on Piketty’s data from an article by John Cassidy in The New Yorker, which sum up Piketty’s findings well.

The first chart shows the share of American income taken by the best-paid 10 percent.

chart-01The chart shows that half of the income earned by all Americans went to the top 10 percent just prior to the stock market crash of 1929, that their income share fell to between 30 and 35 percent between 1945 and 1975 and now it is going back up again to 1920s levels.

Piketty explained this with his equation, r > g.   When the rate of return on investment is a higher percentage than the rate of economic growth, the holders of capital will get an ever-increasing share of income.   For the purposes of his book, Piketty has a special definition of capital, which is different from economists’ standard definition.  He defines capital as anything you can own that will give you an income, including agricultural land, government bonds, houses (which you can rent), common stocks or anything else.   In the Old South, prior to the Civil War, slaves were a form of capital.

Income distribution in the 20th century USA became more equal for a time partly because the Great Depression destroyed the value of so many financial assets, but mostly because of the high rate of economic growth following the Second World War.

Of late the pay of financiers and corporate executives has gone up much faster than the pay of middle-class and poor people, but, as the following chart shows, inequality in ownership of financial assets is a bigger factor in the income share of the top 1 percent than inequality in wages and salaries.

top1%sharechart-02

The next chart shows that same trend exists among the top 1 percent in all the major English-speaking countries.

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The next Cassidy chart shows the income shares of the top 1 percent in some of the developing countries.

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Protecting wealth vs. promoting growth

April 30, 2014

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There’s no single principle that explains everything, but there is great explanatory power inn the French economist Thomas Piketty’s idea that inequality always increases whenever the rate of return on investment exceeds the rate of growth of the economy, that is, when r > g.

piketty-saez-top10aThis is not something that results from impersonal economic forces.  During the past 30 years, the policy of the U.S. government, and of governments that follow the U.S. lead, has been to prioritize return on investment over economic growth.

The U.S. Congress and many state governments are in the process of cutting back scientific research, education, maintenance of public works and other things that are needed for our nation’s economic future, in order to keep tax rates low for corporations and upper bracket taxpayers.

These are the same “austerity” policies being enforced by the World Trade Organization, International Monetary Fund and European Central Government on vulnerable governments, which are forced to sacrifice the well-being of their citizens in order to satisfy powerful financial institutions.   In both cases, there is a tradeoff to sacrifice economic growth in order to maintain returns on investment.

top1%sharechart-02One part of austerity is to sell off government property at bargain rates and delegate public services to corporations.  Most of the time this amounts to a transfer of wealth from taxpayers to well-connected business owners, who have no financial incentive to maximize service.

Some other ways that government policy fosters investor income at the expense of economic growth are (1) bailing out banks that have failed due to reckless financial speculation, (2) refusal to prosecute financial fraud by the “too big to fail” banks or claw back profits due to fraud, (3) expansion of patent and copyright monopolies, (4) failure to regulate cable and telecommunications laws, (5) failure to enforce antitrust laws, (6) the ban on student loan refinancing or bankruptcy …. The list goes on.

Increasingly corporate management seeks profit not by increasing the size of the economic pie, but by giving investors and executives a larger part of the pie — through financial manipulation and excess fees in the case of banks, through driving down wages and increasing executive compensation in the case of corporations in general.  I don’t say all corporate managers behave in this way.  I say that this has become common and acceptable.

the-top-01-of-americans-get-a-near-record-amount-of-income-at-around-10The result has been a concentration of wealth and income in a tiny minority of the population, and economic stagnation for everybody else.   So the first step in reducing inequality is to stop promoting it.

Piketty’s preferred solution to undue concentration of wealth is a progressive tax on capital, sufficient to prevent the wealth of the economic elite from expanding at a faster rate than the economy as a whole, along with progressive taxes on income and inheritance.  I don’t object to any of these, but higher taxes on the rich do not, in and of themselves, benefit the middle class, wage-earners or the poor.   I think it is more important to  strengthen labor unions, raise the minimum wage, maintain essential public services and invest in the future.

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Why gross inequality is harmful in itself

December 26, 2013

I am not bothered by the fact that there are people in the world who have a lot more riches than I do.  I’m amused, not resentful, that John McCain couldn’t remember how many houses he owns or that Mitt Romney had an elevator for his car.   So long as I have a house that satisfies me, what difference does it make if someone else owns a mansion, or many mansions?

What does bother me is the means by which the upper 1 percent have gotten rich.  We have a financial elite that, with some exceptions, have gotten rich not by creating value, but by milking the system and by transferring wealth upward—CEOs who get huge compensation packages while laying off workers and managing decline, Wall Street financiers who profit from manipulation of the system and outright financial fraud.

But in the TED talk shown in the video, Richard Wilkinson presents facts and figures that gross inequality is an evil in itself, regardless of the cause.  The facts and figures in his slides the more unequal a society is, the worse off the people tend to be in many measurable ways.  Once a society reaches a certain level, once it is possible for everybody to have a minimum amount of food, clothing, shelter, medical care, education and leisure, then alleviating inequality becomes the most important factor in promoting human well-being.

I’m not sure exactly why that should be, but this seems to be the fact.

Of course growth and equality are not always contradictory, and certainly it would be easier to lessen inequality in a growing economy than otherwise.   And I know of no society that strives for complete equality of income and wealth.  What’s in question is the degree of inequality and the processes that create it.

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American middle class: still treading water

October 8, 2013
standing-still1

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Hat tip to occasional links and commentary.

Income inequality and reckless lending

September 13, 2013

inequality.financialdisaster

Correlation does not prove causation, but David A. Moss of Harvard Business School sees a connection between reckless lending and income inequality.

The logic is this:  The top 10 percent of income earners are unable to spend all of their increasing share of U.S. wealth.  They have to invest it, and, in the era of financial deregulation, they can get a high return by investing in banks that engage in reckless lending and financial speculation.  The mass of the public gets to maintain its spending power, by means of easy credit, and the economic elite gets to increase its share of the national income.

This works out for everyone, until the bubble bursts.  Then it becomes a question of who gets bailed out and who isn’t.  It’s a neat theory, and, for me, a plausible one.

Click on Inequality and its Perils for a discussion of this issue by Jonathan Rauch for the National Journal.

Click on Class Is Seen Dividing Harvard Business School for a report on the privileged and underprivileged at Harvard Business School itself.

A strong economic recovery for 1% of us

September 12, 2013

piketty_saezWith each economic recovery, the top 1 percent of American income earners take a larger share of the national income.  It’s true that they lose more, percentage-wise, in recessions [1], but they make up for it on the upswing.

Unless you have a good argument that the top 1 percent are contributing more to the U.S. economy than ever before, I think you have to admit the system is out of balance.

Some economists say that increased economic inequality is a result of automation and computerization.   To me, that’s a different way of saying that the income gains are going to people who own machines and computers (who are not the same individuals as the inventors of the new automation and computer technology).

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Inequality and well-being: country comparisons

August 9, 2013
us-inequality

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The United States is a leader, and not in a good way.

Source: New York Times.

Hat tip to The Big Picture.

As inequality rises, opportunity declines

June 13, 2013

o-GREAT-GATSBY-CURVE-570

Some Americans like to say that while we are less equal in income and wealth than some of the western European countries, we have greater opportunity to rise on the economic scale.   If everybody has a reasonably fair chance to acquire wealth, based on talent and hard work, then we should not complain about inequality of wealth, or so the argument goes.

The chart above shows the problem with that argument.   Among 10 industrial nations, the United States had the greatest concentration of income at the top, measured by the Gini coefficient, and the second least equality of opportunity, based on correlation of your income with your parents’ income.

This stands to reason.   The steeper and higher the slope, the hardest it would be to climb up.

The chart is based on figures for 1985, which was nearly 30 years ago.   Income inequality has grown since then, and there is a dot on the chart extrapolating the decline in economic mobility for 2010 based on the Gini coefficient of wealth concentration for that year.

Click on The Great Gatsby Curve for an animated GIF of the chart, which makes it easier to understand.

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CEO pay vs. minimum wage pay

February 20, 2013

minimumwageIt’s a funny thing.  I never hear anybody argue that increasing CEO pay will lead to fewer jobs for CEOs, or that increases in CEO pay will cut unacceptably into profits, or that the cost of CEO pay will be passed on to consumers.

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Income still redistributed to the top 1 percent

February 15, 2013

income-growth

A later version of this chart, which I’m unable to reproduce but you can find in the links below, shows the top 1 percent received 121 percent of the income gains in 2009-2011, the first two years of the recovery.  This is mathematically possible because the other 99 percent collectively lost income during the supposed recovery.

IncomeInEquality

The great management consultant Peter Drucker said that if three managers in a row fail in the same job, the problem is probably with the job rather than with the individual managers.  The increase in income inequality has accelerated under Presidents Clinton, Bush and Obama.  What are the common factors that explain this?

I can think of some.  I’m sure there are more.

  • Corporations above the law.  The United States has strict rules on governance of labor unions, but nothing similar for corporations and other institutions.  Jimmy Hoffa, one of the most powerful U.S. labor executives went to prison for colluding with racketeers, and his Teamsters Union was put under government trusteeship.  In contrast, when executives of the HSBC banking corporation were caught money laundering for the drug cartel, they were allowed to resign and HSBC escaped with a nominal fine.
  • The agency problem.  Even when corporate executives operate within the law, there are many legal ways in which they can milk their institutions for their own benefit at the expense of the institution and the public.  One is the leveraged buyout, in which a group of speculators buy a company with borrowed money, then repay the debt out of the company’s cash flow, meanwhile rewarding themselves with big salaries and fees.  They can do well even when the company fails.
  • Financialization.  Instead of serving the real economy by providing credit to businesses and consumers, the largest Wall Street banks have turned the real economy into poker chips for high-stakes gambling—a form of gambling in which, under the “too big to fail” doctrine, they get to keep the winnings and taxpayers absorb the losses.
  • Globalization.   Exchanges of goods and services between people of different nations is a good thing, not a bad thing.  But the current “free trade” treaties, including President Obama’s proposed Trans-Pacific Partnership, create forms of undemocratic global governance which supersede the authority of elected national leaders to set labor, health, safety and environmental standards.
  • Political Failure.  The doors of government are open to corporate executives and Wall Street bankers, but not to labor leaders or representatives of grass-roots organizations.  The result is that government policy makes the former ever-stronger and the latter ever-weaker.
  • Intellectual Failure.  Many politicians and journalists, partly as a result of having been taught economics in a simplistic form in college, see no alternative to the present system.   Even self-identified liberals think that the economic system will collapse if the dominant banks are allowed to fail, or that unemployment will skyrocket if the minimum wage is raised.

Click on Striking It Richer: The Evolution of Top Incomes in the United States PDF for an academic study by economist Emmmuel Saez (updated January 2013)

Click on Growth of Income Inequality Is Worse Under Obama Than Bush for analysis by Matt Stoller for Naked Capitalism from last year.

Click on Yes, Virginia, the Rich Continue to Get Richer for current analysis from Naked Capitalism, which references and links to the updated Emmanuel Saez study, but is more readable.

Click on The Top 1% Captured 121 Percent Of the Income Gains During the Recovery for more facts and figures from the Decisions Based on Evidence web log, which references and links to the updated Saez study, but is more readable.

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Why the economy is stagnant

February 1, 2013

corporations-hoarding-cashThe U.S. economy is stagnant because American corporations are hoarding cash instead of using it to put people to work to create useful products and services.   I am not sure why that is.  “Corporate greed” is not an answer.  Why wouldn’t greedy capitalists put their capital to work and become even more wealthy?

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An economist named Tyler Cowen gave one possible answer in a book entitled The Great StagnationI haven’t read it, but I have read Cowen’s Marginal Revolution web log.  He claims that during the past few decades, for some reason, investment in new technology has not produced the payoff that it did in earlier eras.  If he is right, then corporations have fewer investment opportunities than in earlier eras.

Another  possible answer is that the growing concentration of wealth in the upper 1 percent of income earners, and the stagnation of wages, has undermined the mass consumer market that drove American investment in the past.  Americans offset wage stagnation in the past by going into debt, but this bubble has burst.  If this explains economic stagnation, then it is possible to do something about it.  If Cowen is right, then we’re stuck.

Click on Tyler Cowen | The Great Stagnation for more about Cowen’s ideas.

Click on Widening Income Inequality Bad for Economic Growth for results of a recent International Monetary Fund report.

Click on An obituary for the age of mass affluence for a post of mine about the decline of the mass American consumer market.

Hat tip to Kevin Drum for the chart, which he got from Ezra Klein.

Inside the minds of the global financial elite

October 22, 2012

During the first year of the U.S. economic recovery, 93 percent of the gains from growth went to the top 1 percent of income earners, and 37 percent went to the top 1/100th of 1 percent.

Bill Moyers did a good show a few nights ago about the mentality of this elite of wealth—how they regard themselves as Ayn Rand characters who are carrying the rest of the world on their shoulders, their limitless sense of entitlement to their special privileges, and their isolation from ordinary people and their conerns.

Moyers interviewed Chrystria Freeland, editor of Thomson Reuters Digital and author of a new book, Plutocrats: The Rise of the New Global Superrich and the Fall of Everyone Else, and Matt Taibbi, who reports on high finance and politics for Rolling Stone.

As Freeland and Taibbi noted, the wealthy elite do not think of themselves as plutocrats.  They sincerely think that they are absolutely entitled to their wealth and privileges.  As a group, they are smart and hard working, and have risen largely through their own efforts.  As a result, they think they owe nothing to anyone else.  They think that they created the world’s wealth by themselves solely through their own efforts, and that they are carrying the rest of the population, especially the American middle class, are parasites.

Both Freeland and Taibbi got their start in journalism reporting on Russia in the 1990s.  They saw the rise of an oligarchy of wealth, which got control of resources based on their connections in government, and who lived lives of luxury behind guarded walls, cut off from the struggling majority of the population.  Now they see the same thing happening on a global basis.

Income inequality is rising everywhere, not just in the United States, but in France, Canada and other countries.  The elite of each country feel they have little in common with ordinary people in their own countries, but much with the rest of the global elite.

Freeland talked about “cognitive capture”—how politicians and intellectuals have come to accept that the plutocracy deserve their privileges, and how even poor people in the United States (not necessarily in other countries) believe they deserve to be poor.

On the other hand, Taibbi and Freeland said, there is class conflict within the upper 1 percent of income earners.   Millionaires resent the way government gives preferential treatment to billionaires.  Silicon Valley entrepreneurs resent Wall Street bankers.

My response to all this:

  • The fact that someone is highly intelligent and works very hard does not mean that person deserves to be rich.  I know smart, hard-working people who are barely making it.  You deserve to be richly rewarded if you make a contribution to society of great value.  Some members of the global elite do make a positive contribution.  Others do not.   Some are no better than thieves.
  • Many members of the global elite have determined that a prosperous middle class and a well-paid working class are not needed.  They can get along very well without  us.   But that is not the issue.  The issue is whether working people and middle-class people need the global elite.
  • The global elite think of themselves as “job creators.”  Another way of putting it is that they are gatekeepers who determine access to gainful employment.  There is a lot of work that needs to be done—in the United States, repair of aging water and sewerage systems, for example—that does not necessarily enrich the elite.   They shouldn’t have a veto over whether it is done.
  • It is a misnomer to label the plutocracy as “libertarian.”  They are libertarians or statists depending on what is to their interest at the time.  What is constant is their sense of entitlement.
  • I think the complaints of the millionaires against the billionaires, and the Silicon Valley elite against the Wall Street elite, probably have some merit.  There are many bankers who have operated on sound banking principles, and been overshadowed by bankers who’ve grown by gambling recklessly and then being bailed out by the government from their losses.

Click on The Rise of the New Global Elite for an article by Chrystia Freeland in The Atlantic.

Click on Plutocracy Rising Transcript for a written transcript of the show.

Click on Chrystia Freeland | Analysis & Opinion | Reuters for her blog.

Click on Matt Taibbi | Taibblog | Rolling Stone for his blog.

Click on Moyers & Company for Bill Moyers’ home page.

My problem with the ultra-rich

December 7, 2011

I don’t have any problem with ultra-rich people who buy yachts, art masterpieces or mansions on vast estates.

I have a problem with ultra-rich people who buy political candidates, legislatures and immunity from criminal justice.

“Of the 1%, by the 1%, for the 1%”

November 23, 2011

What difference does it make that 1 percent of the U.S. population gets nearly 25 percent of the income and owns about 40 percent of the national wealth?  Quite a bit, according to Joseph Stiglitz, a Nobel Prize economist, when the 1 percent are steadily gaining and the vast majority are falling behind.

An economy in which most citizens are doing worse year after year—an economy like America’s—is not likely to do well over the long haul. There are several reasons for this.

  • First, growing inequality is the flip side of something else: shrinking opportunity. Whenever we diminish equality of opportunity, it means that we are not using some of our most valuable assets—our people—in the most productive way possible.
  • Second, many of the distortions that lead to inequality—such as those associated with monopoly power and preferential tax treatment for special interests—undermine the efficiency of the economy. This new inequality goes on to create new distortions, undermining efficiency even further. To give just one example, far too many of our most talented young people, seeing the astronomical rewards, have gone into finance rather than into fields that would lead to a more productive and healthy economy.
  • Third, and perhaps most important, a modern economy requires “collective action”—it needs government to invest in infrastructure, education, and technology. The United States and the world have benefited greatly from government-sponsored research that led to the Internet, to advances in public health, and so on. But America has long suffered from an under-investment in infrastructure (look at the condition of our highways and bridges, our railroads and airports), in basic research, and in education at all levels. Further cutbacks in these areas lie ahead.

None of this should come as a surprise—it is simply what happens when a society’s wealth distribution becomes lopsided.  The more divided a society becomes in terms of wealth, the more reluctant the wealthy become to spend money on common needs.  The rich don’t need to rely on government for parks or education or medical care or personal security—they can buy all these things for themselves.  In the process, they become more distant from ordinary people, losing whatever empathy they may once have had.  They also worry about strong government—one that could use its powers to adjust the balance, take some of their wealth, and invest it for the common good.

The top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes.

Source: Vanity Fair.

That’s why books like Thomas L. Friedman’s and Michael Mandelbaum’s That Used to Be Us are inadequate.  Friedman and Mandelbaum want a rising economic tide, but they don’t give any thought to whether it will lift all boats.

Who’s getting the cookies?

March 29, 2011

A commenter questioned whether the joke about The CEO, the Tea Partier and the union guy accurately described who’s getting the cookies.

Well, there are plenty of cookies being baked, but the majority of working people aren’t getting them, and this includes government workers.

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From Broadland to Richistan

March 6, 2011

I’ve written other posts about Winner-Take-All Politics: How Washington Made the Rich Richer And Turned Its Back on the Middle Class by Jacob S. Hacker and Paul Pierson.  But their book is so significant that I believe it is worth revisiting.

      The big story of the past 30 to 35 years, according to the two political scientists, is not just how income has been redistributed upward to the top 10 percent of income earners.  It is even more the story of the top 1 percent, the top 1/10th of 1 percent and the top 1/100th of 1 percent.

During the 30 or so years following World War Two, they say, the United States was what they call Broadland.  There was income inquality, but income rose for all groups, rich and poor, at roughly the same rate.  During the past 30 or so years, they say, the U.S. has been Richistan.  The top income groups have progressed, but the majority have stood still or, by some measures, fallen back.

Why?  They claim it is a result of government policy – not just reductions in tax rates for the top income earners, but policies which allowed corporate executives and financiers – managers of other people’s money – to milk the system for their own benefit, while holding down the wages and salaries of the middle class.

They say this has happened under Democratic and Republican administrations, and is going on today under the Obama administration.  The reason is that the leaders of the upper class have been able to organize in their own interests more effectively than the leaders of the working class and middle class. Corporate and Wall Street interests have become increasingly assertive and sophisticated in asserting their interests, moving the Republican Party to the right while neutralizing the Democrats.

Winner-Take-All Politics has brief sketches of the hard-charging Senator Gramm, the Texas Democrat-turned Republican, who pushed aggressively and successfully for deregulation of the financial markets, and of Senator Chuck Schumer, the New York Democrat, who raises millions of dollars for his party from Wall Street, and has quietly derailed reforms, such as ending special tax breaks for hedge fund managers.

Labor unions, the only organized force that represents the economic interests of working people as a whole, have declined in power, partly as the result of laws such as the Taft-Hartley Act, the Landrum-Griffin Bill and state right-to-work laws.

Other organizations broadly representative of the middle class such as the American Legion (which was responsible for the G.I. Bill of Rights) and fraternal and civic organizations such as the Elks, Masons and Eagles.
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How income has been redistributed upward

March 6, 2011

Jacob S. Hacker and Paul Pierson, in Winner-Take-All Politics: How Washington Made the Rich Richer and Turned Its Back on the Middle Class, point out how almost all the income gains in the United States have flowed to the top income earners.

Income gains are concentrated at the top

This divergence was much less outside the United States.

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When the top 10 percent gets 50 percent

December 31, 2010

The last time that the top 10 percent of the population got half the national income was right before the onset of the Great Depression.  It is interesting, too, that, during the previous century, the period the top 10 percent had the least share of the national income was the period of greatest prosperity.

Yes, I know, correlation is not causation.  No, I can’t prove cause-and-effect.  What the chart shows is, at minimum, that redistributing income upwards does not guarantee national prosperty.

The ultra-rich, the rich and the rest of us

September 21, 2010

What ought to be the biggest issue in American politics is how to stop redistribution of income – redistribution upward, which has been going on for more than 30 years.

The average working man earns less today (adjusted for inflation) than a working man of 30 years ago. But from 1979 to 2007, the share of national income going to the rich – the highest 1 percent of income earners – has more than doubled, and the share going to the ultra-rich – the highest 1/10 of 1 percent – has quadrupled.  An estimated 80 percent of gains in income by Americans from 1980 to 2005 went into the pockets of the rich.  The rich are doing more than moving ahead faster than the rest of us.  They are moving ahead at our expense.

This process goes on through Democratic and Republican administrations, and it is still going on.  There is no limit on how concentrated wealth will become if things go on as they are.

Economists have done many studies of this.  Their figures are all slightly different because they draw data from different sources and use different starting and ending points, but the broad story is the same.  The most recent is a series of articles that Timothy Noah wrote in Slate magazine.

He polled economists as to the reasons.  They told him computerization has no measurable effect on inequality.  Neither do racial inequality or the gender gap.  There is a gap between what black Americans get and white Americans get, but it isn’t growing and therefore is not a factor in the growth of inequality.  There also is a gap between what American women get and American men get, but it is narrowing.

Globalization of trade, immigration and tax policy are minor factors.

The main reasons for growing inequality, he concluded, are Wall Street and corporate boards catering to the ultra-rich, various failures in our educational system, and the decline of organized labor.

I would blame the lack of a full employment economy, which we now call a “tight labor market.”

All of these things, as Noah notes, are affected by government policy.  Immigration is regulated, at least in theory, by the federal government. Tax policy is determined by the federal government. The decline of labor is in large part the doing of the federal government.  Federal law tightly regulates activities of labor unions, while corporate executives are given free rein.  Trade levels are regulated by the federal government. Government rules concerning finance and executive compensation help determine the quantity of cash that the ultra-rich take home. Education is affected by government at the local, state, and (increasingly) federal levels.  And the federal government and the Federal Reserve System have decided reducing unemployment is less important than controlling inflation.

Why, then, is this not a political issue?  Why are we instead debating whether a Muslim community center should be opened in lower Manhattan, or what a Republican senatorial candidate once said about masturbation?  I doubt if 1 in 100 Americans, certainly not 1 in 10, knows the facts presented in the graph above.  How could they?  Who is telling them?

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