Even though there has been a big uptick in news stories on rising economic inequality, and more chatter among economists about the idea that high levels of inequality are associated with lower growth, much of the messaging has come from the Democrats desperate to use the one dog whistle that might rally their badly abused base. Even though inequality has risen under Obama, thanks to policies that favored rescuing banks and enriching the medical-industrial complex over helping ordinary citizens, the Democrats are all too willing to rely on their perceived lesser-evilism relative to the Republicans. After all, it was only Romney’s billionaire warts that kept Obama from what would otherwise have been a well-deserved 2012 defeat.
But while the Administration has been pushing inequality as a useful campaign theme (the signal was inviting Thomas Piketty to meet with Treasury Secretary Jack Lew), in parallel, it also appears that some of the expressions of concern about inequality among the policy classes are genuine. Not that they care about the lot of the lower orders per se, but at least some wonks are on board with the idea that high levels of income and wealth inequality are bad for growth. The tell that the interest is real is that economists are starting to identify mechanisms by which greater income disparity is a drag on commercial activity.
The lead story in the neoliberal-leaning Financial Times is an example: “Record income gap fuels US housing weakness.” It goes without saying that the state of residential real estate is of particular concern, since every post-World-War-II recovery has been led by housing. The article dutifully notes that prices don’t tell the whole story, since purchases by rental investors have distorted the averages. From the Financial Times:
The income gap between America’s richest and poorest metropolitan regions has reached its widest on record, shaping an uneven housing recovery that threatens to hold back the broader revival of the world’s largest economy.
The gap has narrowed and widened in past cycles, but the rebound from the most recent financial crisis has seen the ratio hit its most unequal since data collection began 45 years ago, fuelling policy makers’ concerns…
A patchy labour market recovery has meant significant variations in job and income growth between regions across the US, which in turn has intensified the divergences across the country’s housing markets…
While some areas are experiencing bubble-like conditions, others are flailing. In Austin, Texas, a surge in technology jobs has driven demand. But in Akron, Ohio, which is struggling to boost employment through a new manufacturing base, house purchases have been more muted. In the government town of Sacramento, California, anxious homebuyers are waiting on the sidelines after being priced out by investors…
Stanley Fischer, Janet Yellen’s deputy chairman at the Federal Reserve, highlighted the central bank’s concern about housing in a speech this week. “The housing sector was at the epicentre of the US financial crisis and recession and it continues to weigh on the recovery,” he said.
In contrast to previous recoveries, he noted “residential construction [has been] held back by a large inventory of foreclosed and distressed properties and by tight credit conditions for construction loans and mortgages”…
But job and income growth are playing an outsized role, [Fannie Mae economist] Mr [Mark] Palim added, particularly as mortgage interest rate rises and home price increases affect affordability.
The number of Americans in work has surpassed the pre-recession peak. But there has been little lower and middle wage growth, constraining demand for houses across much of the country.
The rebound in construction, led by apartments, has been concentrated in pockets of the country where incomes are among the greatest.
Yves here. I know this may seem like weak beer, but this is actually progress of sorts. The Fed is finally beginning to understand after years of trying, its program to revive the economy through the confidence fairy and the wealth effect has failed. Admittedly, the overview in the article falls well short of recognizing the full dimensions of the problem: short job tenures and a high proportion of employment growth in part-time jobs; persistent high unemployment levels among the young; a large proportion of college graduates wearing the yoke of student debt. Not only has the Fed been a key architect of a lousy labor market by since Volcker relying on creating ample labor market slack so as to keep inflation low, but it also appears to recognize that it has painted itself in a corner. A rate increase will make housing even less “affordable” measured in consumer of borrowing capacity. Of course, Dean Baker has pointed out that this notion is absurd, since lower housing prices also make housing more “affordable.” But the central bank doesn’t want to push asset prices much if at all in the wrong direction due to the impact that will have on homeowner psychology, as well as on investors who recently invested in mortgage products.
The issue remains, to invoke a Venezuelan saying, that while policymakers have changed their minds, they have not changed their hearts. Central bankers and economists may finally be coming to grips with the depth and extent of our economic wounds. But they are still unlikely to be able to accept that all the evidence shows that we are at the end of an economic paradigm, and even worse, one designed by orthodoxy economists that has proved to be an abject failure. Thirty years of relying on deregulation to spur “innnovation,” giving more of the benefits of productivity growth to capitalists rather then labor, masking stagnant wage growth with higher borrowing levels, and the resulting financialization of the economy, has produced underinvestment, more frequent and severe financial crises, declining educational attainment.
But it’s inconceivable that the incumbents will face up to the full dimensions of their misrule. First, it is well nigh impossible for people to admit mistakes of this magnitude. Second, and at least as important, no new paradigm has emerged to replace the failed orthodoxy. Recognition that the old precepts have failed and understanding some of the critical elements of that failure still falls well short of being able to map a new, effective course of action.
Thus what one can anticipate is greater incoherence and inconsistency: more and more official admissions of the nature of festering economic and increasingly social ailments, coupled with either pathetically small course changes or doubling down on failed policies.
The upcoming few years will make for fascinating theater. Too bad we have to live with the outcomes.
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I was at Netroots Nation. There was absolutely no discussion of wealth inequality, and only one or two discussions of income inequality to my knowledge. One was Elizabeth Warren, who in a long speech full of progressive ideas did not mention wealth inequality. I pointed this out to a couple of the speakers and got blown off. The only issue they want to talk about is raising the minimum wage as a way of dealing with income inequality. I take this to be the position of the Democratic party.
Every single fight over progressive issues boils down to a massive confrontation with grotesque amounts of money by the standards of politics, but amounts which are pocket change to billionaires and centi-millionaires. Democrats won’t fight anyone with that kind of money. Piketty is right. The filthy rich have been getting a free ride because no one taxes them adequately, and no one attacks them either for their wealth of the scummy use they make of it. That needs to end.
You have a strong constitution to go to NN, since it has come to represent the Democratic political hackocracy, aka fauxgressives. Daily Kos has been messaging about inequality on his site, as has Krugman in a big way, so it’s interesting to hear that it was effectively suppressed at NN. It may be after the Piketty salvo the Democratic party messaging apparatus decided to pull back because the “conversation” didn’t go where they wanted, or they don’t want the issue to peak too early, and they’ll revive it closer to midterms.
But the FT sighting (and the fact that it did a little study of its own, something I did not mention), didn’t come out of the fauxgressives. Fischer is not much of a liberal and the Fannie economist isn’t either. Pretty mainstream economists are having to confront inequality as a problem in and of itself. It’s going to be intriguing to watch the many displays of cognitive dissonance, since they are not prepared to deal with the implications.
It’s fascinating, as I had a few discussions with various (sometime quite important) economists/politicians about this. I invited them to consider a simple model (which was based on simple accounting identities, not some ideological stff), where majority of the (real) growth of the economy goes to a small minority, and where you also have to suffer some shocks now and then (important). They all agreed that this model can reasonably well approximate what we saw in the West for the last 20 odd years, and that the results that the model gave over longer term was in effect slavery for 99.9% of the population (or revolution with wide wealth destruction and redistribution).
Yet none of them would agree that the current policies only perpetuated it and none of them would suggest how to get out of it. Hell, that’s even after agreeing that an extra $1 for Bill Gates has considerably different value than an extra $1 for a single working parent.
Curious you see FT as neo-liberal, as I can see a number of vastly different views there (well, in op pieces and FTA which is about the only stuff I read these days from FT). One day you can have Mr. Dimon eulogizing JPM there and the other John Kay saying that “if you took the bonus, you’d take the jail too” (paraphrased).
Much more so than say WSJ, or, for the matter, Krugmann’s pseudo-progressive.
Hi
could you send me this model? i too am in the business of building such math. models. i will of course acknowledge this.
i have been looking at elite universities in India. they propogate inequality like hell!
see the working paper on my webpage.
yves: indian academicians, living on borrowed rigour, have yet to come to appreciate inequality and its causes, esp. as it unfolds in india. only when harvard-mit types acknowlege this will our mainstream academicians start their analysis.
regs, milind.
It was really a slightly modified Yard Sale model, which I don’t have ready anymore. I’ve also did it for Theft&Fraud model, which in its toy state leads to stable wealth distribution, but assumes that the poorest can con the richest with the same probability as vice versa – but if you change that (IMO unrealitic assumption), it doesn’t.
A paper on something similar is http://arxiv.org/pdf/1407.7153v1.pdf (even though I have a few problems with the paper..)
Doesn’t Netroots Nation attract a lot of careerists? Charles P. Pierce said it “felt like a trade show.”
Consequently, I don’t know if discussion on inequality would need to be suppressed, Upwardly mobile social liberals, who have or seek work in liberal NGO’s and partisan groups, are typically interested in developing programs that raise and spend money and help their own careers. Their interest in wealth inequality would be limited to their ability to raise money off of the topic.
All political conventions attract careerists!!! Do you actually think people care about what is said?
No, they go to schmooze.
One person talking a lot about wealth inequality is Ronnie Moas. Here’s his website: philanthropyandphilosophy.com/.
Also, Left Forum 2014 was great. You can follow them on Twitter, where their handle is @leftforum.
Reducing inequality can be done in two ways:
1. Taxes to redistribute
2. Increase the share of the income/profit that goes to the less fortunate.
Using taxes to redistribute is too easy to attack as populist and might also be politically very difficult.
Increasing the share is done by increasing the wages. Imposing legal limits on hours worked per year would make workers scarce and therefore strengthen their bargaining position when it comes to negotiating wages. Who’d oppose longer paid vacations and no unpaid overtime? Also, how much better would some companies have been if the psychopaths at the top didn’t work so much?
A third way is a Financial Markets Crash- the Rich suffer disproportionately.
As Mr. Prechter points out, increasing attention to Wealth Inequality occurs near Market Peaks (yes, as does the inequality itself).
“the Rich suffer disproportionately”
Really? How about if they own the government and it bails them out using programs that have the effect of concentrating wealth… as just happened in real life.
You are preaching to the choir. I am just pointing out a socionomic observation, and an accounting identity. Watch what happens in the next Crash.
I doubt that next time the government will get away with bailing them out again. People have been sensitized to such a degree that any furthering of the ‘moral hazard’ system should result in a serious political back lash. Public awareness changes usually very slowly at first but may find at some point in the future a catalyst that accelerates the change.
I disagree. The capitalists have done a great job ensuring Joe Average is invested in the stock market like them. There would be hemming and hawing that we need to save the olds and prop up the market.
Put together the fact that the RE market really did break in 2008, and simultaneously, as Yves writes, ‘a large proportion of college graduates (will be) wearing the yoke of student debt’ into the indefinite near-future, and clearly this whole model of the housing market as the U.S. economy’s central engine is as dead as dead could be.
Absolute correct that, nevertheless, TPTB will continue attempts to resuscitate it, with ‘fascinating theater’ and ‘greater incoherence and inconsistency’ in forthcoming years
All obvious as could be, sure. Ugly to contemplate, though.
I’m old enough to remember the early 1970s, when even Nixon claimed that ‘we are all Keynsians now,” which was followed by the subsequent, final collapse of the post-Bretton Woods system instituted in 1945. Very roughly, these regimes seem to endure about a third of a century, then conclude with an interregnum during which the old structure is propped up either till it can’t be or till alternative ideas and power centers have emerged.
In 2008, the old regime failed. TPTB propped it up, but really we’re already into the interregnum. We all know this. What’s hard to contemplate is that, firstly, during this interregnum the old elites and ideas will continue to hold on as long as they can — becoming ever more evidently corrupt failures — and, secondly, there’s no guarantee that what finally comes afterwards won’t be worse.
May you live in interesting times, I guess.
There is a term in history no longer popular among the experts called “bastard feudalism”, the period when the old feudal ideals and balances fell apart but the new absolutist state hadn’t reorganized society (roughly the period in the English context between the overthrow of Richard II and the consolidation of the Tudor State once Henry VII had cleared away his rivals and secured the Spanish Alliance). W seem to be in a period of bastard democratic capitalism. The forms are there for appearance’s sake, but the substance of both representative democracy and a functioning open, competitive marketplace are shams. Will a new power center gain full open control and create an ideology analogous to Divine Right to cement its dominance, or will ecological and resource factors simply set us back to a pre-modern condition? You are right about interesting times.
Richard II to Henry VII? That was a long time. 1399 to 1485.
Things go faster now (faster communications). But we’ve been in bastard capitalist democracy nearly all my life (since the Reagan administration at least), so it’s been a good 34 years already (at least). It’s likely to collapse sooner rather than later at this point.
interesting observation. I certainly agree our “free market” and “democracy” are shams….
Were there any receptions? Was there any “free” food? If so, was it good?
(That was in response to the comment about attending NetRoots. My comment nested randomly).
I remember a while back reading a few essays on how depopulation via the plague led to a “revitalization” of Europe in the middle 14th century. An up-and-coming collection of people that we could call, analogously, the middle class took advantage of the population crisis to claim their own chunks of territory to exploit and grow once more, as is the fashion of our civilized species. These blooming flowers of prosperity soon became the financiers and fresh nobility of Renaissance Europe, and their global exploits, purposeful or otherwise, have led to the fastest increase in the consumption of natural resources in our entire history as a species. So it seems we are on track again, to create yet another crisis, this one by our own hands, so we can, again, grow unsustainably until we reach a new crisis. The elites are trouble to be certain, though belief in endless, unreasoned growth is trouble more. I don’t think we will get out of this loop until we acknowledge our growth fetish problem, and its many facilitators (power, exploitation, and their reinforcing ideologies).
Is it possible the economic “benefits” of post-plague Europe were mostly a simple effect of the releveraging of labor vs. the ownership/ruling classes? I’ve heard the idea put forward before.
Labor has never, historically, had it better than after the Plague. The ruling class were so desperate for laborers that wages were at a historical high. My source is the great feminist critique of primitive accumulation and witch-hunts, Caliban & The Witch, read it for further details.
Except in England. The response of Edward III’s gov’t to the new economic power of the lower classes was price controls and oppression of labor, including travel restrictions and a form of de facto wage slavery where someone could require a worker to work for him for one year.
As the privileged classes accumulate more of society’s wealth they breed the discontent that will be their undoing. In the Study of History Will and Ariel Durant stated the concentration of wealth and it’s redistribution is a common occurrence throughout history. They eloquently make the case that there would either be legislation that redistributes wealth or there would be a violent revolution that distributes poverty.
From 1930s to the 1950s the United States peacefully re-distributed wealth while the rich whined and cursed labor, communism, and their ill fortune. After the McCarthyite war against labor commenced the accumulation of wealth by the rich began anew. During the French Revolution the Jacobites violently redistributed wealth but they did nothing about the concentration of wealth. They simply transferred property from the hereditary aristocracy to the bourgeois. If anybody thinks a revolution will solve our problems keep this example in mind.
I sincerely doubt there are many students of history in our present Establishment. But I didn’t think the subject of oligarchy would ever enter mainstream discourse either.
I believe there are no few students of history among the Establishment and a few useful chuckleheads. I believe that the chuckleheads may be sufficiently competent at wielding certain arts and sciences to convince the students among the old power that, together, they all might have a chance to pull off the biggest coup the world has or ever will see.
Can one really argue from historical performance if the decline, as profound as communication technology makes it appear, is only just getting started?
They probably think it’s different this time. Which translates to “We haven’t learned a thing from history because we’re so exceptional” in American lingo. The question I’d like to know the answer to is do we have enough people who are wise enough to guide us safely through the decline?
“There is nothing more conducive to the destruction of a nation, whether it be a republic or monarchy, than the lack of men of wisdom or intellect. When a republic has many citizens, or a monarchy many ministers, of high quality it quickly recovers from losses that are brought about by misfortune. When such men are lacking, it falls into the very depths of disgrace. That is why I deplore the present state of the Empire which, having produced so many excellent men in the past, has now been reduced to such a level of sterility that today’s governors possess nothing to elevate them above whom they govern.” -John Cantacuzenus
Uhh, maybe?
@AndrewWatts,
What a wonderful quote from John Cantacuzenus, which can be applied to numerous Parliament’s and legislative bodies the world over.
As a boring old fart now who became interested in politics before he was 10, its illustrative in the UK to compare and contrast the calibre and intellect of our Parliamentarians in the mid-1970’s with the lacklustre omnishambles now that inhabit both the frontbenchers and backbenchers, like them or loath then we had Tony Benn, Enoch Powell, Peter Shore, Michael Foot, Dennis Healey and numerous other “Big Beasts” who would eat the present lot as a snack, never mind dinner. Now we can’t even name a handful of Parliamentarians, never mind recognise a photo of them in our new 24/7 news reporting paradigm, the same applies in the USA, be it Governor’s, Senators or Congressmen, never mind the imbeciles the President surrounds himself with.
God I lament the banality of it all, the greed, the crassness and pure stupidity of those who allegedly govern. The Dodd Franks legislation and ACA just about sums it all up, heres legislation purposely written to be deemed impressive and at great length, Dodd Franks being just shy of 1700 pages, and yet legislation that had a far greater impact written/sponsored by Glass Steagal comes in under 50 pages of concise and succinct wording – essentially it seems they believe in quantity over quality, not too mention growing fat on the public purse, a purse they withhold from those actually in need.
The former Byzantine Emperor Cantacuzenus is also blaming the people whom the political and social leadership arise from. Just like the late great George Carlin and to a certain extent Reinhold Niebuhr. Back in early 2001 or so, I saw the results of a poll that asked if wealth inequality was a growing concern. Fewer than 1 out of every 5 Americans the pollsters asked thought it was a problem.
I don’t even want to tell anybody the results of another poll that replaced wealth inequality with the phrase ‘distribution of wealth’. Even though it explains why we find ourselves in the predicament we’re currently in now.
One can certainly argue from history. The current upper classes are on the path which leads straight to the guillotine. A few upper class people have recognized this, but they have not gained power.
Lord Grey in the 1830s was only able to rebalance power because he could point to the French Revolution as what would happen if the other Lords didn’t go along with his reform plans. Even so, it was touch-and-go.
Of course, while revolutions reliably destroy the existing upper class, what they replace it with is a crapshoot: Napoleon, Lenin, Mao, or worst of all, the endless series of coup-after-coup which Mexico had.
Andrew Sir,
The UK’s Chancellor of the Exchequer, Mr. Osborne, actually holds a history degree from Oxford, God knows what they taught him or what he actually studied and took away from the table, but this guy is a austerian zealot who’s main priority is the pauperisation of the 95% for the benefit of the 5%. Perhaps had he read economic history his views and places could have been different, that he has not is epitomised by the fact that his government has not only greatly reduced the UK’s military capability, but he’s also contributed to the decimation of the UK’s police forces, essentially making an enemy of the Police, which itself is a very conservative force. At least Mrs Thatcher when she obliterated UK manufacturing and the Trades Union movement had the common sense to enhance spending on the police to act as a phalanx or Pretorian guard – the same cannot be said of Thatcher and the military, indeed its well know that the UK monetarist cuts inflicted on our military in 1979-1981 directly contributed to the Falkland’s War – so much for the Iron Lady myth!
Just having a chat with someone and Foucault came up, Mr. Osborne would certainly fit in the History of Madness observation.
Mr. Osborne sounds just as foolish as our power elite on this side of the Atlantic. Just imagine the Praetorian Guard threatening the Emperor(s) and Senate of Rome. It shouldn’t be too hard as it only happened at least a dozen times during the empire’s decline.
I wonder if the US government is figuring out how stupid hiring mercenaries (“errr, contractors”) is to fulfill it’s basic military functions. Especially after the fiasco with Blackwater threatening the State Department during the Iraqi misadventure. Somebody wasn’t reading their Machiavelli.
The rise of mercenaries in the United States is consistent with a shift from what Jeffrey Winters calls a Civil Oligarchy to either a Sultanistic Oligarchy or a Ruling Oligarchy.
In a Civil Oligarchy, most of the oligarchs do not hold government positions. So long as the Power Elite protect the properly of the oligarchs, there’s no need for the oligarchs to be members of the government. If the oligarchs start to feel that their property is threatened, they start to take a more active role in government. In a Sultanistic Oligarchy, one oligarch becomes dominant over the others. This resembles an autocracy, but if the leading oligarch fails to protect the property interests of the others, he risks being overthrown. In a Ruling Oligarchy, multiple oligarchs take positions in the government, and some of these oligarchs may have control over private armies. The Roman Republic, especially in its later years, was a prime example of this form of oligarchy.
See Oligarchy, by Jeffrey Winters.
Since I haven’t read Winters I’m unable to criticize his definitions of oligarchy. Personally I simplify it down to economic oligarchs and political oligarchs. Both aspects of oligarchy represent an increasing threat to democratic governance and our system of checks and balances if their power is not challenged.
Can one simplify those words down to politigarchs and econogarchs? Or is that too clunky?
‘garchs.
Or to be more trendy, garx?
Right now we have stupid oligarchs. This is my prime distinction: between the moronic oligarchs and the ones who have a freaking clue how to run things.
Crassus seems to be the model for our oligarchs right now. Eventually these idiots are going to be replaced; it’s inevitable. If not replaced by anyone else, they will be replaced by those like Augustus.
Christopher, I think it is doubtful that he would be any better had he done the other common option for potential politicos going to Oxford, PPE, as the economics he’d have been taught would probably have been neoclassically oriented containing little economic history. Whether that might have made him a little more flexible, well, your guess is as good as mine, I think. Assuming they win the next election in some form or other, and end up, say, with something like the coalition they have now, the next position he has indicated he wants is that of Foreign Secretary.
“During the French Revolution the Jacobites violently redistributed wealth but they did nothing about the concentration of wealth. They simply transferred property from the hereditary aristocracy to the bourgeois. If anybody thinks a revolution will solve our problems keep this example in mind.”
This is nitpicking, but I can’t let this statement fly past.
First, you mean Jacobins. The Jacobites were the supporters of the Stuart dynasty in the British Isles (or legitimists) in the 18th century. They lost and got consigned to the dustbin of history. The Jacobins were a political faction or club during the French Revolution, who have the reputation of being radical, though there were more radical factions.
The idea that the main accomplishment of the French Revolution was to replace the aristocracy with the bourgeois (a French word) is Marx’s interpretation. Its not entirely wrong but a gross oversimpliclication. The various revolutionary governments accomplished what we would now call land reform, abolished slavery, and instituted universal suffrage for awhile, for the first time in history. And they displaced the First Estate more than the Second.
Well, okay. Just as long as you know you’re nitpicking. I was actually thinking of the French word jacqueries (“peasants”) and it was lost in translation. Which is even more of an embarrassing mistake imo.
Whoaaa, I never said that the main accomplishment of the French Revolution was to replace the aristocracy with the bourgeois. The only point I was trying to make was that the urban bourgeois was the economic beneficiary of these events and there wasn’t a redistribution of wealth to the lower order. Very little of the land that was confiscated from the church and aristocracy ended up in peasant hands. The urban bourgeois acquired almost all of it. That’s your so-called land “reform”. Nor do I think this is simplifying events as this outcome was one of the primary causes of the Vendee rebellion.
The UK historian Eric Hobsbawm wrote a book about interpretations and reinterpretations of the French Revolution entitled “Echoes of the Marseillaise” in 1990. I’m still trying to find a copy, but the Wikipedia article on it indicates a significant academic war in progress about who benefited and the value of the “bourgeois revolution” theory.
http://en.wikipedia.org/wiki/Echoes_of_the_Marseillaise
The Revolution of 1917 was quite successful in forcing income redistribution, though more for the people outside of the USSR than in it. The redistributive policies of the labor era and of social democracy, which continue to this day (though are now under attack), were largely achieved politically by the threat of Communism that was so greatly bolstered by the existence of a massive Communist state (state capitalist though it was).
I contest the notion that communism was responsible for our era of social democracy. The communists didn’t sign on to the New Deal coalition until ’35/’36 through their popular front tactics. In Europe the communists were stronger but they still took a backseat to the social democrat, labour, and socialist parties.
Unfortunately a lot of the communists who worked for the New Deal administration turned out to be Soviet spies as the Venona files proved. Any other claim to the contrary is a disgusting bit of historical revisionism.
I think the theory is that the threat of real, existing communist states as an alternative system to be countered had the effect of moderating American capitalism during this period. It has nothing to do with the presence of communists in the US government.
If you favor the opinion that the communist states were an existential threat to American capitalism then the presence of Soviet spies within the US government is relevant. I’ve heard too many excuses for the failure of modern day political activism to take this view seriously in any case. Labor had a well established history of agitation and political success before the rise of the Soviet Union.
Don’t know what country you reference with “our social democracy” but the simple fact is the US power elite tolerated New Deal reforms because they feared a more radical outcome – from European-style socialism to Soviet-style ‘communism’ to just plain ‘revolution’ and anarchy. The same dynamic was crystal clear in the embrace of (a dead) Martin Luther King and modest reforms that never did grapple with the scope or depth of the injury done to American blacks vs the widely perceived ‘threat’ of a volcano of ‘revolutionary’ black violence if some reform was not forthcoming – not unlike the scenario with Mandela in South Africa, which saw whites yield on certain political rights to Mandela rather than risk a full-scale race war, while maintaining an iron grip on economic power.
It’s not as if there was no fabulously wealthy and powerful elite running the show in the US from FDR through to Nixon – there most certainly was. That the-then level of wealth/power was deemed insufficient speaks volumes to the devolving character of the US elite, but it is also vitally important to bear in mind just how wealthy the US as a nation was in the post-War period – the rich could have anything they dreamed of and the people (other than the permanent underclass of poor, blacks, Native American, etc.) could have whatever their genes and lineage and income-class and colour and education and connections and so on might bring them. The combination of the relative decline in the US’s global economic position and its elites having gone wealth and power mad has pretty much destroyed that America.
There was always a fear among American elites, described quite explicitly in many letters, that the masses of the world would recognize Communism as *BETTER*. In fact, nuts like Dulles openly claimed that Communism was better (while opposing it for insane reasons like paranoia about “individuality”). So great efforts were made to make America *look good*.
This was replaced by idiotic triumphalism after the fall of the USSR, with no effort at all made to make America look good.
Until money is taken out of politics there is not much hope for improvement.
Showering the global banking system with greenbacks during and after the financial crises, and then ensuring the gains go only to the banks, will probably rank as the worst policy mistakes in recent memory. To add further insults, there were no serious prosecutions of law breaking bankers. Team Obama definitely owns the exploding inequality.
Money (or resources if you will) will never be taken from politics. Politics is all about redistributing power, which in a large part is about money/resources.
True.
But there needed to be prosecution of at least some elite looters. Without that, the system just looks corrupt from top to bottom. Which it is.
I wish more U.S. residents would contact their legislators in Congress, and complain about the failure of Obama and Attorney General Holder to prosecute the criminals who caused the financial collapse of 2008. Here’s the contact information:
http://www.house.gov/representatives/
http://www.senate.gov/general/contact_information/senators_cfm.cfm
It’s easy to do and only takes a few minutes. We’re less than 3 months from an election that affects all Representatives, and a third of the Senators. This it the time when some of them actually pay attention to their constituents. But large numbers of people need to contact them; otherwise, there’s no chance that anything will change.
And if you don’t get satisfactory action from them, please be sure to vote for third party candidates in November:
Green Party http://www.gp.org/index.php
Justice Party http://www.justicepartyusa.org/
Libertarian Party http://www.lp.org/
We may be seeing no less then a total breakdown of connection between large urban areas (nation state and financial capitals) who while burning less median resources in the management of the hinterland require vast resources to direct these flows to their place of residence or retreat.
Meanwhile a dramatic breakdown of economic and social relations between provincial capitals , market towns and villages (the real economy) can be seen as the banking state appropriates resources from these basic interactions so as to feed its long distance parasitism (the previous relationship between the smaller urban and the rural was symbiotic to a certain extent)
All of this is best seen in rural Spain as it was late to the game of the American century ….1959 ?
I am most familiar with the Aragon and its deserted villages – a walk (must be on foot) is vital to understand this now failed dynamic.
http://en.wikipedia.org/wiki/Canfranc
Yves,
Whilst the elites may make noises about income inequality and actual inequality, that’s all they are, noises and at best, window dressing. Yesterday in the links section I posted a link to Paul Craig Roberts latest piece on the de-industrialisation of the USA, whereby after years of real pay cuts and outsourcing of tens of millions of US jobs, the country now resembles a Third World tyranny, rather than a first world democracy. Just look at the facts, in the USA the elites still desire to dismantle what remains of your welfare state, whilst privatising and finansialising Pensions, at the same time, they have drastically reduced the food stamps programme. A similar process has occurred in the UK, with the exception being we have seen a massive increase in food banks, which can only be accessed with great difficulty – no food stamps here I’m afraid. And, unlike the USA, which is increasing spending on the Security State, the UK is actually reducing expenditure, with the exception of GCHQ.
You yourself have detailed the process of the off-shoring of jobs, the crass stupidity of this process and how its driven by Wall Street – this is illustrative of ideology and greed trumping common sense and the actuality of it all. Further, you and many others have detailed how the Fed has an actual mandate to maintain employment levels, and yet fails to do so, preferring instead to rely on fantasy figures and embrace the economic orthodoxy that a level of unemployment above 6% is necessary to curtail wage inflation, this in a period of stagflation, where housing costs are usually removed from the inflation figures themselves, thus rendering macroeconomic policies useless and counterproductive, this epitomised by the asset bubbles that apparent globally.
It will be interesting to see what happens at the Kansas City Fed’s annual jamboree at the months end, the next G20 and IMF jamborees, Davos early next year, and then compare and contrast this with the policies that actually emanate out of the Bilderberg meeting, of which we are not privy too. Obviously, that’s if we get that far, as the elites may see a way out of this impasse they have created, namely a nice conflict in Eastern Europe, which obviously would end both the inequality and employment issue, as most of us will be dead, which would provide socioeconomic conditions similar to those found in plague driven Europe in the Middle Ages – essentially a resetting of the clock shall we say. And, finally, we ignore global warming, which would and should be the greatest Keynesian opportunity to actually spend ourselves out of this condition via the means of an investment programme on the scale of the Manhatten Project or Marshall Aid.
Christopher, you have no need to wait. All you need to do is read Beatrice Edwards’ The Rise of the American Corporate Security State, which sets out step by step how the Bill of Rights is being eviscerated. Now, shred that document, which it could be argued is more important than the Constitution itself, and the void created would allow for a totalitarian tyranny. Whether the elites or their lackeys would balk at the brink, I leave to you. Although the book is only 88 pages long with 120 end notes (but they are, conveniently, sequentially numbered), it cuts deep.
The security forces are not loyal to the elites (who have gone completely mad).
The attempt to institute a totalitarian tyrrany would instead result in civil war, revolution, and anarchy.
Why is the local French masonary of Aquitaine pushing to rebuild a old rural rail line which will carry just a dozen passengers a trip at most under current monetary conditions. ?
Perhaps linking Zaragoza eventually
People just can’t figure it out.
The Spanish certainly don’t know what is going on.
I would suggest that masonary knows something we don’t.
http://www.sudouest.fr/2014/02/25/-1472635-4583.php
The Fed is finally beginning to understand after years of trying, its program to revive the economy through the confidence fairy and the wealth effect has failed.
The wealth effect. I think trickle down is an accurate discription of the Fed’s action, but the wealth effect implies that lower income people feel rich for whatever reason. The last time it happened was before the financial meltdown. How many lower income people feel wealthy now, and are ready to borrow money that can’t be paid back, to buy crap they don’t need?
The Fed is making sure the rich are stuffed, and assumes that the crumbs that fall off the table feed the rest of us.
But the central bank doesn’t want to push asset prices much if at all in the wrong direction due to the impact that will have on homeowner psychology, as well as on investors who recently invested in mortgage products.
Yes, the blessed rich. We can’t have them lose money, ever. The Fed has your back. For the rest of us, it’s crumbs.
I think the Fed’s definition of failure is very narrow: losing autonomy via the Federal Government rewriting or suspending its charter, and failing to maintain the dollar as the world reserve currency. What they may be dimly perceiving is that if the brick and mortar economy of jobs and material assets blows up again, one of those two “nightmare scenarios” may come to pass. Yellen may have some abstract sense that it would be good if work participation rates went up and those who work were making better salaries, but she has little ability, and less will, to do anything concrete about that (her interest rate and security purchasing tools are broken–they now only serve the top 7%). Congress has the lion’s share of power to tax, spend, and regulate, and they are completely in the pay of the Financial Sector and the 1%. What she can and will do is defend the Fed’s prerogatives and independence from “political meddling”.
It is plausible and likely that the Fed’s definition of failure would be, getting shut down after a series of failures.
Like not just ignoring a financial crime wave, but making sure the wool was pulled tight over their own eyes.
They are, as the cliche says, in a box. Everyone that wants to know, knows it. Raising interest rates blows up the stock market, housing market, just about any market you can think of. It was the continual lowering of interest rates over the last three decades that has led to this condition because the amount of dollars borrowed at these constantly lowering rates can’t be paid back at a higher interest rate.
If I Were The President Obama, I’d Give A Monthly Social Security Pension To All Married Women In USA.
Put A Cap On Market Capitalization Of NYSE/NASDAQ Listed Companies.
Economy Will Create Millions Of New/Local and non-H1B Jobs.
Globalization Is A Pyramid Scheme.
If your mortgage is underwater, you can’t sell your home. If you can’t sell your home, you can’t move to a better job or closer to a good school. If you can’t sell your home, first time homebuyers have nothing to buy. Homeownership means entry to the middle class. Without job security, first time home buyers are not creditworthy. Employers don’t like job security, because they want to hire and fire at will. Employers hold down wages, because their bankers enforce that. First time home buyers are loaded with student debt. They can really afford neither a house nor a family. They can’t enter the middle class on their own. Upward mobility is stalled. Nothing is being done legislatively to solve any of this. Nothing can be done legislatively, because Congress kills all legislation. No one believes the situation will change if the do-nothing Congress is voted out. No one believes the do-nothing Congress can be voted out. No one takes seriously the idea of voting the bastards out. But if that’s the only way to break the log jam, then will have to happen, I think.
Your solution to vote existing politicians out of office is miss-guided. Without term limits and campaign finance reform those voted out will merely be replaced by others similarly funded by corporate interests (banking, big oil, etc.).
Term limits and campaign finance reform are very important, but if people avoid both the Democrats and the Republicans when they vote, there will be a greater chance of getting office holders who aren’t so indebted to big corporations and the ultra-rich. Vote for third party candidates whenever they are on the ballot!
Did that last time, as did many. The vote is fixed, and not in a good way – percentages stayed fixed way below what rationality would inspire one to accept. So, been there, done that; and what’s that they say about those who keep on doing the same thing and expecting a different outcome?
If the rich aren’t being taxed enough, and the poor don’t make enough to even pay taxes, where’s the Fed going to get funds to bail out the BG’s (big guys) next time around?
There has to be a tipping point, end of the road, finis, when all those tranches and branches and ranches simply dissolve and we can all go out and make compost out of the leavings.
But what do I know: not much.
You say that many voted third party. How many of your friends and relatives voted for third party candidates? Most of mine voted for the Demolicans or Republicrats. If only a small number of us vote third party, of course there won’t be any noticeable effect. We need to convince those close to us of the need for real change.
To Yellowrose: I would reject the argument that voting out existing politicians is not a solution because of absence of term limits and campaign finance reform. The premises do not support the conclusion, because the present politicians will never pass term limits and campaign finance reform. So, it is unnecessary to even discuss the merits of those familiar proposals, so long as the existing majorities hold sway.
WITH term limits officeseekers would be reduced to using their limited terms-in-office to auditioning for vast private payouts after leaving office in return for servicing hoped-for future paymasters whiile in office. So term limits will bring no improvement.
I commented on the French Revolution earlier, but the point is germane because I think what we are seeing is not just a collection of policy errors, but a fin de regime mentality among the elites, which has recurred again and again in history. As the eighteenth century progressed, the French elites lost their capacity to govern. All they could do is loot, and to block attempt’s by the King’s ministers (of which there were several) to institute reforms. However, the process lasted decades.
What ultimately ended it was a combination of the French government’s finances deteriorating to the point where they couldn’t issue even short term debt, and the inability of the government to deal with a famine after a bad winter, since they had privatized the granaries that normally would have provided relief. The financial problems took away the King’s ability to use the army to disperse the assemblies, defeat the sections, and institute his own reform program, though the progress of the revolution was spurred by constant rumors that he would do exactly this. There was no money for anything like that until the Church properties were confiscated by the Assembly.
It should be stressed that that the deterioration phase can and often does last several lifetimes, and the end comes unexpectedly. What is different this time is the concurrent environmental crisis.
Interesting is it not, that it was a volcanic eruption in Iceland that caused widespread famine in Europe, which was compounded by a similar event in the same timeline in Japan, the resultant famine resulted in two significant events, the French Revolution for preseasons you have detailed, and, the dilution of the power of the East India Company in India, which oversaw mass famine on its watch and did little to ameliorate the suffering – which essentially led to the birth of the British Empire in its formal sense, when Parliament took over the administration of India, or those Indian regions under the direct control of the East India Company.
Its also interesting to note that literacy level in France, particularly in the larger cities were above those in many other parts of Europe, hence the written word assisted greatly in fanning the flames – as far as the UK was concerned, which itself had witnessed large crop failures, we still had public relief under Parish control and mandated by Parliament, so this kept a lid on matters, unlike in France.
France’s monarchy was considerably less absolutist than it seemed. Beneath the glittering Versailles facade there was a centuries-old patchwork of rights and privileges which served as the effective legal basis for the kingdom. These rights and privileges represented all of the compromises and deals France’s kings had to make over the centuries in order to consolidate their rule. The nobility was not being simply a selfish entrenched interest by blocking reforms proposed by royal ministers. From their viewpoint it was a matter of defending everyone’s rights against “despotism”, the term popularized by Montesquieu to describe arbitrary and lawless government. And the nobility had a point. Virtually everyone in the kingdom enjoyed privileges in some way, shape, or form, whether it was a peasant’s right to pasture their animals on the local village green or a townsman’s right to certain tax exemptions. Allow the monarchy to destroy privileges and where does it end–the proverbial slippery slope to tyranny, etc..
The takeaway from all this is: never underestimate the staying power of reactionaries when backed by even a semblance of constitutional principle.
To me, the elites (and their educated technocratic enablers) have always known excessive concentration of wealth and power is inconsistent with economic growth. It’s not exactly rocket science. It’s more like 5th grade social studies.
The Fed is not concerned with stopping the looting. Their job is to assist in hiding it, in obfuscating and distracting from what is actually happening. The notion that the price of stuff in our society isn’t a problem for the bottom 80% of workers is something that can only be said by people in the top 20% of workers. To dismiss inflation – whatever academic debates people want to have about its definition – has no real world meaning. Productivity has gone up, so prices should go down. The fact that prices have gone up instead is the very mechanism of the looting, the direct theft of the labor of the majority by the elites.
What I wonder is when people will stop worrying about growth – about aggregates – at all. What matters is distribution. We have all the wealth we need in modern America. Indeed, we have an abundance of wealth. We are overflowing in wealth. It’s just that the top 20% or so of households control virtually all of it.
Well said and I agree.
The focus on ‘groaf’ is a red herring, a distraction technique meant to keep the little people’s grubby fingers off of the glittering plutocrat hoards.
Washunate,
Could not agree more vis a vis growth being a chimera to cover the bald fact that the US has, and every year creates, vast wealth, but that its distribution is wretched.
No, no. Only the smart members of the elite understand that inequality hurts economic growth.
Since getting to be in an elite position is mostly a crapshoot, there are a lot of deeply, deeply stupid and crazy members of the elite.
I’m being pedantic, but Mitt Romney is not a billionaire. Maybe half a one. Even he would just be a water carrier for the big money.
http://www.forbes.com/sites/edwindurgy/2012/05/16/what-mitt-romney-is-really-worth/
http://www.motherjones.com/politics/2012/09/mitt-romney-tax-returns-net-worth
unfortunately, this fits here better than links:
A world built for the rich
” We are right to be worried about these new realities. Gated communities and hostile architecture are brushed aside as temporary issues at best, to be fixed when “times are better”. But what we should be worried about is not solely if we are building a world to be enjoyed only by the rich in the short term, but also what that world might look like in the long term.
To us, such city furniture may look simply as a temporary manifestation of bad character, brought on by a prolonged economic crisis. But to ***those that will inherit them, they may look like no more than war zones; financial battlefields, from which humanity is totally absent***.”
http://www.aljazeera.com/indepth/opinion/2014/08/world-built-rich-201489141437354777.html
“All good people agree,
And all good people say,
All nice people, like Us, are We
And every one else is They:
But if you cross over the sea,
Instead of over the way,
You may end by (think of it!) looking on We
As only a sort of They!”
Kipling, Debits and Credits
Hmm. Kipling. Had occasion to look up “flanneled fools” and found The Islanders. It’s explicitly about military leadership, but the issue of failure of leadership (industrial leadership, for example) is apropos for us. The Great Moderation is sitting there to be seen in the first dozen lines. Never realized Kipling was so angry.
“giving more of the benefits of productivity growth to capitalists rather then labor”
Again with a False Marxist Dichotomy.
Capital needs to be shared.
Doing pointless work (and burning capital) in the process of producing goods that cannot be consumed effectively is why we are in this mess.
“We emphasize that the bulk
of external adjustment has taken the form of “expenditure reduction”, with “expenditure
switching” only playing a limited role”
http://www.imf.org/external/pubs/ft/wp/2014/wp14151.pdf
Interesting paper albeit liberal paper which still assumes manic external trade is a goal by itself (using the mechansism of scarce local money)
“we illustrate how global current account imbalances have
narrowed since the crisis, but how stock imbalances have instead continued to increase”
Dork : the euro years primary characteristic was /is a massive real inflation of internal goods and a huge deflation of external and capital intensive goods (capital dumping)
This of course caused a total implosion of all euro based internal economies.
The goal was obviously political control rather then economic.
France (Mason insiders) remains in deficit – much of this to fund a massive rail programme.
I continue to assume they are planning for a inflation of outside inputs (via war ?) rather then (God Forbid for them) a capital redistribution.
People desire something for nothing, so they come up with unlimited methods to achieve this end. This is the story of human [group] activity.
One must admit that the current version is pretty darn effective.
As is well known, to understand a problem one must first define the problem correctly and only then can a solution possibly be found. The main problem I have with this “inequality” issue is the defining of it as “income” inequality. This seems almost a deliberate framing of the problem in such a way as to bias the general population against a solution. What is income equality? Taken at face value, it must mean that everyone should earn an equal income….Who could legitimately make that argument? No one who should be taken seriously.
A more appropriate framing of the issue would be WEALTH/INCOME PROPER PROPORTIONALITY. “Proper” being subjective, but a ratio of around 20ish-to-1 for CEO’s to average workers, which was perfectly acceptable (even desirable) by elites here in the US in the past, as well as around the world in most advanced countries. But to frame it like that might be something that many people will understand and agree with, and that just won’t do.
The equality that we need is equality before the law, assuming that the law is unbiased in the 1st place. But then, that is a big assumption, and not even a safe one since we have seen how our Western institutions are easily co-opted. Nonetheless, it comes down to everyone in a society receiving a fair shake. If that is not the case, the resulting problems manifest both in front of your eyes as well as deep in the subconscious of EVERYONE involved. Here in the US, there has never been a time where everyone received a fair shake, but there have been better times than we have now. Those were times where innumerable criminals and vultures were not leaders in our business/political world, were not immune from prosecution, and honest people were not being defrauded and crushed regularly, or as Master Hicks said – “getting fu*ked every day of your life”.
In the face of all of this, a push for “income equality” is bound to fail as the solution to our problems.
Agree on the problem solving process – understanding the problem is by far the most important step (which is why so much obfuscation happens around that).
But to play devil’s advocate a bit, I would say that the value of income inequality is precisely that it cannot be justified away. It is an unyielding quantitative measure, not a subjective one. The challenge with ratios and proportionality is that that is the system we have now. In particular, it does two things:
1) It creates a ‘race to the top’ whereby the really high income individuals all get paid as if they’re above average relative to the other really high income individuals, driving up the overall average over time.
2) It creates a class-based system of technocratic enablers underneath this upper strata whose outsized privileges depend upon keeping the masses in check so that the really high income individuals can continue running the show.
Income inequality is not natural – it is created by public policy. If you look at wages of the top 10% of wage earners in the country, they are generally the most desired jobs, not the least desired jobs. I would love to see a CEO or police chief or doctor or professor or lawyer or banker take a job as a home healthcare aide or school cook or preschool teacher or custodian or housekeeper because they thought those jobs were way easier.
“Income inequality is not natural – it is created by public policy”
I agree, although I would remove “public”. And because it was created, it can be addressed & remedied, but only if initially framed correctly.
“The challenge with ratios and proportionality is that that is the system we have now.”
I disagree with this. The huge ratio’s are not a system in and of itself, but the result of insatiability and an unwillingness to stay within boundaries set by our US system to keep the nation balanced and as stable as humanly possible. Those relatively few insatiable ones in power have managed to override all of those checks & balances, and the many who have benefited from this imbalance now gate themselves in and wring their hands in anger and fear as we all begin to reap what has been sown.
P.S., the BLS tracks what they call annualized mean wages (so, not median of actual pay earned, which the SSA reports) in the National Occupational Employment and Wage Estimates. The ratio in our current system of CEOs to the average worker is about 4 to 1(!). Even if you only look at management of companies and enterprises (excluding things like local government, school districts, etc.), the ratio only rises to about 5 to 1. 20 to 1 would actually be even more unequal, not less :)
http://www.bls.gov/oes/current/oes111011.htm
I must have been looking at charts showing ratios of companies on the stock market, because 20:1 was close to median around various countries, with the US blowing the average with a ratio of over 300-1.
Usually those are based on just looking at the really high income roles (like looking at the CEOs of the Fortune 500 companies, or the CEOs of the companies in the S&P 500).
Those studies are extremely important. But sometimes, I would argue, they are used to imply that inequality only matters at the very top, as if the layers of inequality underneath them are somehow acceptable.
Great, great article.
“A rate increase will make housing even less “affordable” measured in consumer of borrowing capacity. Of course, Dean Baker has pointed out that this notion is absurd, since lower housing prices also make housing more “affordable.” But the central bank doesn’t want to push asset prices much if at all in the wrong direction due to the impact that will have on homeowner psychology, as well as on investors who recently invested in mortgage products.”
This is the crux of my problem with the FED – it just demonstrates that they are incapable of looking at a problem from the perspective of the consumer or wage earner. House prices have to go up!!!!!!!!! Stock prices have to go up! Bonds holders can never lose principal!!!!!!!!! Wage earners………chirp, chirp, chirp….
But wait, did you not read the New Yorker’s interview with Janet Yellen? She feels your pain, Mr and Ms Average American! Not for her does Wall Street come before Main Street! Happy Days are indeed Here Again!
Yellen even talked to poor people. Some of them had criminals records. It shows just how much she cares!
Can you imagine former Fed chairman, Mr Magoo ever doing that. Why he was stunned to learn that a crime wave was happening right under his nose, and that he was clueless about it.
Leadership. Hailed by Time as a savior of mankind.
Looking back, I find it comical that a huge amount of mental energy was spent trying to decode Magoo’s blather.
A (clumsy ) analogy for this sudden awareness by the rich of the dangers of great wealth inequality:
The big fish have eaten all the smaller fish. Now they look around wondering what else is on the menu and see it is only themselves on the menu. They become the targets of each other. Not very comforting.
funny, how labor can suddenly disappear, leaving the machine running on automatic…and suddenly reappear, when there is some real work to do…critters start a war they cannot stop every time…
The Summer in London…..
Somebody somewhere must tell these people that they are reading from Goldsteins book.
If this is not a highly structured form of dissent then I don’t know what is.
https://www.youtube.com/watch?v=VNlqdeGSMT8&list=UUldfvyaPuBSpw8iDmUgZwnA
Denmark is the happiest nation in the world with one of the highest tax rates and greatest income equality!
The US has been cutting taxes on the Ultra Wealthy for over 50 years! We now have the most CentaMillionaire$ and Billionaire$ because of TAX cuts for the Ultra Wealthy, and tremendous inequality with the top 1% controlling 39% of ALL wealth!
The TAX CODE has abused the consumer and wrecked the economy and the collective future of the 99%!
The Rich could care less as they control the Tax Code and all levels of government!
Nothing will change until we change the Tax Code, and until we do, the HUBRIS and ARROGANCE of the Ultra Wealthy will continue, and government will continue to allow them to abuse the consumer.
high taxation, at least in the US, has a tendency to end up in the pockets of govt employees and other cronies.
the northeast is a good example. and in spite of the heavy taxation the whole place is falling apart because the unions are ever hungry. to do anything they have to get private contractors anyway.