Tag: income inequality

I have 3 articles for your perusal this Monday morning.

First up, a great piece about what will happen if we stay on our current trajectory:

The Pitchforks Are Coming… For Us Plutocrats

And so I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.

If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when.

Many of us think we’re special because “this is America.” We think we’re immune to the same forces that started the Arab Spring-or the French and Russian revolutions, for that matter. I know you fellow .01%ers tend to dismiss this kind of argument; I’ve had many of you tell me to my face I’m completely bonkers. And yes, I know there are many of you who are convinced that because you saw a poor kid with an iPhone that one time, inequality is a fiction.

Jump!

In an article for Huffington Post, economist Dean Baker explains the basic point of Thomas Piketty’s best selling book, “Capital for the 21st Century,” which has the economic world buzzing.

Piketty’s basic point on this issue is almost too simple for economists to understand: If the rate of return on wealth (r) is greater than the rate of growth (g), then wealth is likely to become ever more concentrated.

To stem the growth of the wealth gap, Piketty suggests a “Global Wealth Tax” which in today’s global political climate isn’t likely to happen. So what can be done? Baker offers some solutions:

A new I.M.F. analysis found the value of the implicit government insurance provided to too big to fail banks was $50 billion a year in the United States and $300 billion a year in the euro zone. The euro zone figure is more than 20 percent of after-tax corporate profits in the area. Much of this subsidy ends up as corporate profits or income to top banking executives.

In addition to this subsidy we also have the fact that finance is hugely under-taxed, a view shared by the I.M.F. It recommends a modest value-added tax of 0.2 percent of GDP (at $35 billion a year). We could also do a more robust financial transactions tax like Japan had in place in its boom years which raised more than 1.0 percent of GDP ($170 billion a year).

In this vein, serious progressives should be trying to stop plans to privatize Fannie and Freddie and replace them with a government subsidized private system. Undoubtedly we will see many Washington types praising Piketty as they watch Congress pass this giant new handout to the one percent.

The pharmaceutical industry also benefits from enormous rents through government granted patent monopolies. We spend more than $380 billion (2.2 percent of GDP) a year on drugs. We would spend 10 to 20 percent of this amount in a free market. We would not only have cheaper drugs, but likely better medicine if we funded research upfront instead of through patent monopolies since it would eliminate incentives to lie about research findings and conceal them from other researchers.

There are also substantial rents resulting from monopoly power in major sectors like telecommunications and air travel. We also give away public resources in areas like broadcast frequencies and airport landing slots. And we don’t charge the fossil fuel industry for destroying the environment. A carbon tax that roughly compensated for the damages could raise between $80 to $170 billion a year (0.5 to 1.0 percent of GDP). [..]

In addition to the rent reducing measures listed above, there are redistributionist measures that we should support, such as higher minimum wages, mandated sick days and family leave, and more balanced labor laws that again allow workers the right to organize. Such measures should help to raise wages at the expense of a lower rate of return to wealth.

In an interview with Bill Moyers, Nobel Prize-winning economist and New York Times columnist Paul Krugman, talks about Piketty’s “magnificent” new book and what the 1% don’t want us to know.

When partisans start in with the "most important election of our lifetime" nonsense, it shows how little they really care about your lifeline. The 2000 election qualifies, but it was stolen, and not by Ralph Nader. It was stolen by the Kangaroo SCOTUS, Katherine Harris, and the entire Bush family. What does that tell you? 

The alleged recovery from the recession that began in 2008 has done wonders for the wealthiest of the world.

The Rich Get Richer Through the Recovery

By Annie Lowry, The New York Times

The top 10 percent of earners took more than half of the country’s total income in 2012, the highest level recorded since the government began collecting the relevant data a century ago, according to an updated study by the prominent economists Emmanuel Saez and Thomas Piketty.

The top 1 percent took more than one-fifth of the income earned by Americans, one of the highest levels on record since 1913, when the government instituted an income tax.

The figures underscore that even after the recession the country remains in a new Gilded Age, with income as concentrated as it was in the years that preceded the Depression of the 1930s, if not more so.

High stock prices, rising home values and surging corporate profits have buoyed the recovery-era incomes of the most affluent Americans, with the incomes of the rest still weighed down by high unemployment and stagnant wages for many blue- and white-collar workers. [..]

More generally, richer households have disproportionately benefited from the boom in the stock market during the recovery, with the Dow Jones industrial average more than doubling in value since it bottomed out early in 2009. About half of households hold stock, directly or through vehicles like pension accounts. But the richest 10 percent of households own about 90 percent of the stock, expanding both their net worth and their incomes when they cash out or receive dividends.

The economy remains depressed for most wage-earning families. With sustained, relatively high rates of unemployment, businesses are under no pressure to raise their employees’ incomes because both workers and employers know that many people without jobs would be willing to work for less. The share of Americans working or looking for work is at its lowest in 35 years.

Three years ago during the height of the Occupy Wall Street movement, the Congressional Budget Office issued a report based on information from the IRS and US Census Bureau that over the last forty years the top 1% has nearly quadrupled:

– The top 1 percent made $165,000 or more in 1979; that jumped to $347,000 or more in 2007, the study said.  [..]

– The top 20 percent of the population earned 53 percent of after-tax income in 2007, as opposed to 43 percent in 1979.

– The top 1 percent reaped a 17 percent share of all income, up from 8 percent in 1979.

– The bottom 20 percent reaped just 5 percent of after-tax income, versus 7 percent in 1979.

This is exacerbated by the fact that hourly wages have stagnated while the biggest banks are even bigger than they were before the collapse thanks to policies of the government and the Federal Reserve.

The wealth gap is not an isolated problem, according to a report by the NGO, Oxfam, it’s global with just 85 people possessing owning half the world’s wealth

Almost half of the world’s wealth is now owned by just one percent of the population, and seven out of ten people live in countries where economic inequality has increased in the last 30 years. The World Economic Forum has identified economic inequality as a major risk to human progress, impacting social stability within countries and threatening security on a global scale.

This massive concentration of economic resources in the hands of fewer people presents a real threat to inclusive political and economic systems, and compounds other inequalities – such as those between women and men. Left unchecked, political institutions are undermined and governments overwhelmingly serve the interests of economic elites – to the detriment of ordinary people.

Eighty of the those billionaires are meeting this week in Davos, Switzerland for the World Economic Forum, where the wealth disparity has finally become a concern:

As billionaires bet on accelerating growth and rising asset prices, income inequality is emerging as a key theme for this week’s annual meeting. A study released last week by the forum identified the income gap as the most probable menace to the global economy during the next decade. Wealth disparity — driven by globalization and the recent financial crisis — threatens to breed poverty and social disorder, it said.

Next Tuesday, President Barack Obama will give his State of the Union Address where he will outline the ideas he has for closing this gap that has gotten bigger since he was elected. Perhaps, as Huffungton Post’s Howard Fineman suggests, that the president find governing role models other than Ronald Reagan whose policies have brought the US economy into its New Gilded Age.

One would think that the person we speak to behind the bullet proof plexiglass at the bank was paid enough to own his/her own home, put food on the table, have a good pension plan and health care insurance. Apparently, that is a myth. In NYC, one in three bank tellers need some form of public assistance and the average pay is only $11.59 per hour, three dollars below what is considered a living wage in big cities where the cost of living is highest. The recent focus has been on Walmart and fast food workers, now we can add bank tellers to the list of the underpaid

Thirty-nine percent of NYC-based bank tellers and their families rely on at least one government assistance program, like Medicaid, the Earned Income Tax Credit or food stamps, which costs the city a total of $112 million per year (pdf), according to the study from the New Day New York Coalition, a group of progressive organizations. Researchers arrived at their findings through government data, as well as interviews with 5,000 bank workers in the New York area, who answered questions about stress, working conditions, pay practices and how the industry has changed since 2008.  [..]

The study’s findings mirror trends nationwide and are yet another sign that the pool of so-called middle-class jobs is shrinking. Nearly one-third of the almost half-million bank tellers in the country rely on public assistance, according to an analysis by the University of California, Berkeley’s Labor Center. The Labor Center’s Ken Jacobs estimates that these employees’ reliance on such programs costs taxpayers nationwide roughly $900 million per year. [..]

Activists have been quick to point out that if companies like Walmart, McDonald’s and now big banks paid their workers more, fewer of them would have to lean on public assistance, saving taxpayers money. More than half of frontline fast food workers rely on government assistance, costing the nation $7 billion, according to an October report. A single Walmart store’s low wages could cost taxpayers $900,000 per year, according to a May report from Senate Democrats.

During her confirmation hearing before the Senate Banking Committee to replace Ben Bernanke as chair of the Federal Reserve, Janet Yellen took congress to task its roll in the growth income inequality and the threat it is to the economy.

Yellen reminded lawmakers of their sheer terribleness during a Senate Banking Committee hearing on Thursday about her nomination to replace Bernanke as chair of the Federal Reserve when his term ends in January. Republican senators moaned and groaned, as usual, about the Fed’s extreme easy-money policies. Yellen reminded everybody that Congress has forced the Fed to act by constantly imposing harsh austerity measures on an economy still recovering from a financial crisis and deep recession. [..]

This belt-tightening has probably cost the economy nearly 2.5 million jobs, according to a recent study by the Center For American Progress, a liberal think tank — one huge reason this has been the slowest job-market recovery since World War II. Economists on the right and left agree austerity has hurt economic growth, employment and consumer spending, with executives from Walmart and Cisco among the most recent capitalists to complain about it.

The sluggish recovery is also making income inequality worse, Yellen pointed out, depriving poor and middle-class Americans of more and better job opportunities.

This is a very serious problem, it’s not a new problem, it’s a problem that really goes back to the 1980s, in which we have seen a huge rise in income inequality… For many, many years the middle and those below the middle [have been] actually losing absolutely. And frankly a disproportionate share of the gains, it’s not that we haven’t had pretty strong productivity growth for much of this time in the country, but a disproportionate share of those gains have gone to the top ten percent and even the top one percent. So this is an extremely difficult and to my mind very worrisome problem. [..]

Fiscal policy has been working at cross purposes to monetary policy. I certainly recognize the importance of the objective of putting the US debt, deficit and debt, on a sustainable path… But some of the near-term reductions in spending that we have seen have certainly detracted from the momentum of the economy and from demand, making it harder for the fed to get the economy moving, making our task more difficult.

In many states, the recovery is making the income gap worse

By Niraj Chokshi, The Washington Post

For years, the wealthiest 1 percent have amassed income more quickly than the rest. From 1979 through 2007, for example, the top 1 percent of households saw income grow by 275 percent, according to a nonpartisan Congressional Budget Office study. Compare that to the bottom fifth of households, which saw income gains of only 18 percent over that time. Recent Nobel Prize winner for economics Robert Shiller, who is known for creating a closely tracked home-price index, last month called income inequality “the most important problem that we are facing now today.” And just last week, President Obama’s nominee to lead the Federal Reserve, Janet Yellen, called income inequality “an extremely difficult and to my mind very worrisome problem.”

Though rare, the recovery was strong and reduced inequality in some states, such as North Dakota, where an oil boom has provided a sustained economic boost. There, the number of households in the lowest half of income brackets shrank, while more joined the highest income brackets, a trend that suggests broad upward mobility. But in most states-and nationally-the data show the income gap worsening. In Michigan, for example, more than 65,000 households fell out of the middle-income brackets. That loss was counterbalanced by the addition of some 38,000 households, but only at the lowest and highest income levels.

That was true in many states: The number of middle-income households shrank while the number of low- and upper-income households grew. In many states, more upper-income households were added than lower-income ones-a positive economic sign not entirely unexpected during a recovery from such a severe downturn-but the middle class still shrank.

One of the “fixes” to close the income gap, create more and better jobs, and solve the Social Security fund problem is to raise the minimum wage to a livable wage. As Robert Reich explained in his recent column, if Walmart, the largest employer in America, were to “boost its wages, other employers of low-wage workers would have to follow suit in order to attract the employees they need”. He used Ford magnate, Henry Ford as an example of how that worked and made Ford a fortune.

Walmart is so huge that a wage boost at Walmart would ripple through the entire economy, putting more money in the pockets of low-wage workers. This would help boost the entire economy – including Walmart’s own sales. (This is also an argument for a substantial hike in the minimum wage.)

Now, states like New York and New Jersey and cities like Sea Tac, Washington are recognizing the need for a higher minimum wage to attract workers and business as it helps to improve the economy. There is overwhelming broad public support, with 58% of self identifying Republicans in favor. It’s time for Congress to wake up, end the sequester and austerity measures and raise the minimum wage.

The income gap between the 99% is has grown to the point that it now as great as it was a the start of the Great Depression. In New York City, Democratic candidate Bill de Blasio built his campaign for mayor around the increased poverty of New Yorkers that he says is creating two cities. According to the US Census Bureau the poverty rate continues to climb in NYC threatening the viability of the city:

The poverty rate rose to 21.2 percent in 2012, from 20.9 percent the year before, meaning that 1.7 million New Yorkers fell below the official federal poverty threshold. That increase was not statistically significant, but the rise from the 2010 rate of 20.1 percent was.

Former Labor Secretary for President Bill Clinton, Robert Reich has released a documentary, Inequality for All, on the fifth anniversary of the fall of Lehman Bothers and the second anniversary of Occupy Wall Street which brought attention to the income gap and change the nation’s conversation about the “American Dream.” Sec. Reich joined Bill Moyers on his show Moyers & Company to discuss his film and the increasing income inequality for all of us.

“The core principle is that we want an economy that works for everyone, not just for a small elite. We want equal opportunity, not equality of outcome. We want to make sure that there’s upward mobility again, in our society and in our economy.”

By the Numbers: The Incredibly Shrinking American Middle Class

by Karen Kamp, Moyers & Company

A typical American household made about $51,017 in 2012, according to new figures out from the Census Bureau this week. That number may sound familiar to anyone who remembers George H. W. Bush’s first year as president or Michael Jackson in his prime. That’s because household income in 2012 is similar to what it was in 1989 (but back then it was actually higher: you had an extra $600 or so to spend compared to today).

That sobering statistic gives an indication of where the American middle class appears to be headed. Take a look below at a snapshot of where the middle class is now, the problems they face and what our Facebook audience has to say about squeaking out a living these days.

President Barack Obama briefly addressed the country on the fifth anniversary of the collapse of Lehman Brothers and the start of the financial crisis that would see the middle class loose most of its wealth. The president rightfully chastised the obstruction on congress, blasting the Republican threats to shut down the government unless the he agrees to de-fund the Affordable Care Act and he patted himself on the back for how far the economy has come in the last five years.

In his speech the president paints a glowing picture of the economy and his accomplishments:

And so those are the stories that guided everything we’ve done. It’s what those earliest days of the crisis caused us to act so quickly through the Recovery Act to arrest the downward spiral and put a floor under the fall. We put people to work, repairing roads and bridges, to keep teachers in our classrooms, our first responders on the streets. We helped responsible homeowners modify their mortgages so that more of them could keep their homes. We helped jump-start the flow of credit to help more small businesses keep their doors open. We saved the American auto industry.

And as we worked to stabilize the economy and get it growing and creating jobs again, we also started pushing back against the trends that have been battering the middle class for decades, so we took on a broken health care system, we invested in new American technologies to end our addiction to foreign oil, we put in place tough new rules on big banks, rules that we need to finalize before the end of the year, by the way, to make sure that the job is done, and we put in new protections that crack down on the worst practices of mortgage lenders and credit card companies.

We also changed a tax code that was too skewed in favor of the wealthiest Americans. We locked in tax cuts for 98 percent of Americans. We asked those at the top to pay a little bit more.

So if you add it all up, over the last three-and-a-half years, our businesses have added 7.5 million new jobs. The unemployment rate has come down. Our housing market is healing. Our financial system is safer. We sell more goods made in America to the rest of the world than ever before.

However, his rosy view of the current state of the economy isn’t shared by the 99% who are still struggling with low wage jobs, unemployment, and a housing crisis that is still looming.

The president’s speech makes one wonder who is advising this man and what economy was Obama talking about? Then one remembers that it was his best buddy Larry Summers and the Chicago School of Rubinite cohorts, as The Guardian‘s economics editor Heidi Moore notes in her column. Ms. Moore writes that is time to “end the delusion that this White House has done even a fraction of what it should to help the economy” and concludes that the president has had some poor economic advice:

The president’s economic initiatives – food stamps, manufacturing, infrastructure, raising the debt ceiling, appointing a new chairman of the Federal Reserve – have mostly ended in either neglect or shambles. After five years, the Obama Administration’s stated intentions to improve the fortunes of the middle class, boost manufacturing, reduce income inequality, and promote the recovery of the economy have come up severely short. [..]

Here’s the litany of failure: the president has not pushed through any major stimulus bill since 2009, and most of that was pork-barrel junk. Manufacturing is weak and weakening; the employment gap between the rich and the poor is the widest on record; the economic recovery is actually more like an extended stagnation with 12 million people unemployed; the housing “recovery” will be stalled as long as incomes are low and house prices are high; and quantitative easing as a stimulus, while a heroic independent effort by the Federal Reserve, is past its due date and is no longer improving the country’s fortunes beyond the stock market.

Shall we continue? We don’t have a food stamp bill even though 49 million Americans lack regular access to food. Goldman Sachs analysts have said the sequester is taking a toll on stubbornly growing unemployment: “since sequestration took effect in March, federal job losses have been somewhat more pronounced,” they wrote last week; and another debt ceiling controversy – the third of Obama’s presidency – looms in only a few weeks with the potential to hurt what meager economic growth we can still cling to.

The economy for the vast majority of people and small businesses is not going well and won’t improve in the neat future. One of the people that Pres, Obama has ignored is Pres. Bill Clinton’s former Labor Secretary and economics professor that the University of California, Robert Reich. Prof. Reich sat down with Democracy Now!‘s Amy Goodman to discuss the current state of the economy since the fall of Lehman Brothers.

Meanwhile, the president is living in a bubble. Let’s hope his bubble bursts before ours does and he starts to really do something about it.