Category Archives: Demographics/Income Distribution

Student Debt + Stagnant Real Wages = Colleges Need to Focus On Student Success

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Today’s post is an excerpt of something I wrote for another site.  This year, in addition to my teaching duties at the college, I’m leading a project to update our college strategic plan.  As part of that project I’m writing and editing a series of “briefing papers” (long blog posts, actually) about issues of strategic importance to the college’s future.  When those papers cover a topic that I think might be of interest to econproph readers I’ll cross-post them. Last week I wrote the following about the student debt explosion in the U.S., the stagnation in hourly wages for those for with less than college degrees/credentials, and the implications for those of us who work in higher education.  The full original post is here.

America has a student debt problem.

And it’s growing. According to the statistics assembled by the New York Federal Reserve Bank, theU.S. Dept. of Education, and other sources, total student loan debt outstanding is nearing $1 trillion, easily exceeding the $791 billion in total credit card debt.  As disturbing as the total might seem, the growth rate of student debt is even more distressing.  This graph, first published by The Atlantic last summer from NY Federal Reserve Bank statistics shows the relative growth  (not amounts) of outstanding student debt since 1999 compared to total household debt including mortgages. FromThe Atlantic:

The red line shows the cumulative growth in student loans since 1999. The blue line shows the growth of all other household debt except for student loans over the same period.

crazy student loans 2011-q2.png

This chart looks like a mistake, but it’s correct. Student loan debt has grown by 511% over this period. In the first quarter of 1999, just $90 billion in student loans were outstanding. As of the second quarter of 2011, that balance had ballooned to $550 billion.

The chart  is striking for another reason. See that blue line for all other debt but student loans? This wasn’t just any average period in history for household debt. This period included the inflation of a housing bubble so gigantic that it caused the financial sector to collapse and led to the worst recession since the Great Depression. But that other debt growth? It’s dwarfed by student loan growth.

Roots of the Problem

The student loan debt problem has many roots, most of which [colleges] cannot change or directly affect.  Causes of the explosion in student debt include:

  • A long-term shift in U.S. political opinion away from thinking of higher education as a public good with direct funding support from government toward thinking that students should pay for their own educations with loans guaranteed by the government.
  • Tuition and fee increases in higher education (particularly at 4 year schools and especially at private schools) have outpaced inflation for at least 3 decades, driven by cost increases, stagnant productivity, and reduced government direct funding.
  • Middle class real incomes have been largely stagnant or only modestly increasing for those same 3 decades, limiting the ability of families to pay dependent students’ tuitions.
  • The collapse of the housing price and mortgage bubble in 2006-07 which limited the ability of many middle- and working-class families to finance college education through home equity loans.
  • High unemployment rates since 2008 have limited the ability of students to work while in college and have also sent increased numbers of unemployed back to college.

… most community colleges can be a partial solution to the nation’s growing student loan burden.  After all, [community colleges are] one of the most cost-effective providers of the first 2 years of a college education.  Indeed, students can graduate with a bachelors’ degree with less total indebtedness if they take their first two years at community college and then transfer.

But the growing student loan problem when combined with another trend has even more significant implications the community college mission.

The Long Term Trend on Real Incomes – A Closing Middle Class

Long term trends in incomes in the U.S. including increasing income inequality have become a news headline topic in recent months.  …  Cumulative Growth in Hourly Wages, 1979-2009, by Level of EducationAs this graph from  the Congressional Budget Office (via Paul Krugman) shows, over the past 30 years the clear trend in hourly wages for workers with less than high school or only high school education has been negative. A high school graduate now earns 10% less per hour in inflation-adjusted dollars than they did 30 years ago.  Even workers who only have some college but haven’t completed a formal degree or credential are either negative or at best, even with 30 years ago.  The data in the graph is from 2009 and labor market conditions have not improved since then.  Indeed, most labor market economists, myself included, expect little to no improvement in wages or employment rates for many years to come.

So what does this mean?  It’s clear that for young and middle-aged people, the route to a rising income and participation in the middle class requires either a college credential or advanced degree.  Yes, anecdotal exceptions are always possible such as the stellar young person who becomes a big success in sports or entertainment. But the numbers are clear – for virtually all, membership in the middle class in the future requires succeeding at college not just attempting college.

Implications for LCC and It’s Mission

The mission of LCC and community colleges in general since they were created has been to provide access.  The great post-World War II expansion of community colleges in the U.S., of which LCC was a part, was based on the idea that broad, democratic access to higher education was important.  Community colleges provided access to college for millions who otherwise couldn’t attend, either because of costs, lack of family support, family/work obligations, location, lack of preparation, grades, or other circumstances.  Over time community colleges have expanded programs to help  increase access to even more individuals.  Indeed, this open-door, democratic access mission is a large part of the motivation for many who work at LCC.  Providing access is something we could feel good about.

But let’s consider how access has traditionally worked.  LCC, like most community colleges, has focused on providing the same basic instruction and learning that was available at 4 year institutions.  The difference was we had an open-door. We provided access.  We provided a chance at college and greater income and success in life. But it was always considered up to the student to succeed. The historical model is the college provides the student a chance at success. If they didn’t succeed that was their problem.  We measured our success by our enrolments as an indicator of the number of people to whom we had provided access.  Thirty years ago, if a student attempted college and didn’t succeed it didn’t carry the consequences it does today.  Thirty and forty years ago, a student who failed at college or simply didn’t complete could always get a job in a factory or a trade. They could still make a middle-class life despite not succeeding at college.

Now the trends tell a different outcome.  If a student doesn’t attempt college at all, they are likely not going to stay in the middle class at all and will likely experience declining real incomes.  The big change is if the student does attempt college but simply doesn’t succeed or complete, today their prospects for staying in the middle class are slim.  Successful completion of a college degree or credential has become a requirement now for a middle class future. It’s necessary for young people in particular to attempt and succeed at college now.

But now let’s add the student loan issue.  Suppose a person attempts college today but doesn’t succeed. Not only are they faced with the prospect of flat to declining real income, they have a significant burden – their student debt. Under current law there are really only two ways to discharge student debt – either pay it or die. Student loans cannot be discharged in bankruptcy. There’s no asset to sell or foreclose. So today’s student is facing a higher risk environment than their predecessors did in previous generations.  Instead of access to college being a chance at a better life, it’s now a high-risk necessity.  So it’s not just access; it’s success that matters.

…The governments, both state and federal, are paying increasing attention to success rates.  As mentioned in the first briefing paper, state governments, including Michigan, are increasingly looking at funding for higher education in terms of how many successful credentials or degrees does it produce, not just how many seats in classes were offered.

Beyond what the government is requiring, the success issues pose a challenge to our understanding of our core mission and how we measure our institutional success. In today’s environment, providing access to large numbers of students without regard for their success is playing a cruel joke on them.  It’s teasing them with dreams of a future many of them won’t achieve and then punishing them with a burden of debt.  For those of us in the institution, that’s not the motivator that the original access mission was. We need to adjust our sense of the mission.  Yes, access is important, but it needs to be successful access.  Successful access as a mission changes many things.

It changes our most basic metric of institutional success. Instead of simply enrollment growth showing institutional success at providing access, we now need to consider whether that access was successful. …But measuring success and access are one thing. Improving them is another. The shift to successful access calls for many changes in the organization, it’s processes, systems, the curriculum, teaching methods, support services, and attitudes. It is not easy or simple. It is very challenging.


The Top 0.1% Vs. Rest of Us Throughout the 20th Century

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Following up on yesterday’s post about the Global Top Incomes Database, I thought I’d give an example.  Here’s what I created:

So what are we looking at?  The blue line shows almost a century of the average income of the bottom 90% of American earners (in constant, real 2008 dollars – scale on right side).  This represents the typical American worker and the fate of the working/middle classes.  Basically it shows nine different trends or periods.

  • From 1917 until 1929, there was no improvement at all (actually a dip in the 1920-21 depression).  Despite all the talk about “roaring twenties”, it wasn’t for the average American worker.
  • 1929-1933, incomes really drop precipitously as the nation falls into the Great Depression.
  • 1933-1937, incomes begin to recover based on the government spending programs of the New Deal and correction of the banking/financial crises of 1932-33.  But the progress stumbles in 1938 as Roosevelt and Congress switch course and try to balance the budget before we’re back to full employment (are you listening Obama?).
  • 1938-1943 incomes really grow dramatically as the nation regains full employment and unions gain power.  The driver of the recovery is the near unlimited willingness to spend to arm for World War II and the demand for food and other items by warring allies.
  • 1944-1949, incomes stagnate again, partly as a result of demobilization of the war effort.
  • 1949-1973 brings the Golden Age. Real economic growth in the U.S. is the strongest it’s ever been and thanks to Keynesian government policies, a productivity-sharing social contract between managements and unions, and strong world demand, the workers get their share of it.  This is the period of fastest U.S. growth.
  • 1973-1993 brings twenty years of declining real incomes for most workers.  Part of it is driven by slower growth brought on by two oil price supply shocks.  Part is inflation (although only until the mid-80′s). Part is driven by a major political shift towards conservative free market policies (“Reaganomics”).  And part is driven by a weakening of unions and union membership.  The economy, while it grows, doesn’t grow near as fast as it did in the Golden Age.
  • 1994-2000 shows a slight recovery in incomes during the Clinton administration.
  • 2001 starts another decline and it’s been pretty much downhill ever since.  Note that the graph ends in 2008 (last available data), but other more recent data indicates the time series has continued to decline significantly.

So what can we conclude from the typical worker incomes, the blue line of average incomes for the bottom 90%,?  Well, yes, as some conservatives and libertarians have been pointing out, today’s incomes are historically high – around $32,000 per worker.  And consumption by household is even higher.  But consumption has risen despite incomes stagnating recently. It’s because many, many more households now depend on two workers for incomes.  Yes today’s incomes are dramatically higher compared to 76 years ago – roughly 6 times higher. But all of the increase happened in the first 38 years after 1932.  Today’s incomes per worker are actually lower than they were in 1973 – 38 years ago.

Now let’s consider the red line.  This shows the percentage share of the national income earned received by the top 0.1%, the top one tenth of one percent.  These are the really, really rich.  There are really only three periods here.  The period before the Great Depression.  Observe that it really was a roaring twenties for the really rich.  In the decade of 1920-1929 their share of national income rose from around 3.5% to over 6.5% – all while the average American worker stagnated. The game was rigged.  As the U.S. economy grew in total GDP terms in the 20′s and as productivity soared, the benefits of that improved productivity went to the rich, not to workers.  The rich lost ground in the Great Depression because the stock market crashed and the banking system imploded.

From 1936 until 1979, the share of income taken by the top 0.1% declines rather steadily and significantly.  Why?  A dominant factor is that income tax rates were rather progressive with high rates on the very high top end.  Now this simply means that the share declined – they took a slightly smaller slice of the pie each year.  But the pie was growing very, very fast, so in dollar terms their incomes were still rising too.  Do not take away the idea that the rich suffered income declines during this period.  On contrary, they did well in absolute terms.  They just didn’t do well at the expense of others.

But in 1979 the rich strike back.  Their share of income starts rising steadily until it reaches the same very high levels today that are reminiscent of the late 1920′s.  What happened?  Well the same forces that hurt the working/middle classes during the last 30+ years worked to the rich’s advantage.  But another important shift was changes in income tax policies.  Initially Carter, but then Reagan and Bush all cut tax rates for the top end.  Reagan did even more.  He eliminated several top end brackets.  This resulted in people in the top 0.1% (multi-millionaires) now paying the same rates as people making $250,000 per year.  That didn’t happen in the Golden Age.  Back then there were special brackets for the very, very rich top end.

So what can we conclude overall?  Well, for one thing, we should definitely bury any idea of “trickle-down” tax cuts helping average workers.  When the economy grew the fastest and typical workers did best was when tax rates on the rich were high.  When tax rates on the rich are lower, the economy grows more slowly and average worker incomes stagnate.  We might also conclude that the OccupyWallStreet movement (#OWS) has a point.  The system isn’t fair and it isn’t working for average workers.  This isn’t a call for socialism, it’s a call for the vibrant capitalism we had in the mid-20th century. That Golden Age of the middle of the 20th century is the only time when we really didn’t have “class warfare”.  We had a social contract that called for sharing the gains from improved productivity. But a little over 30 years ago the really rich declared war on the rest.  It’s class warfare and the middle class has been losing. 

Awesome Resource – The World Top Incomes Database

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Any student, researcher, or #OWS protestor interested in income distribution and income growth should definitely be aware of this resource:  The World’s Top Incomes Database.  (hat tip to Krugman, from whom I learned about it).  It’s a very powerful database combined with a very easy to use interface that allows you to extract exactly the data you want as a spreadsheet (see the Database tab) or to customize your own graphs.

You can pick from a growing list countries -over 25 already and more under development.  It’s particularly interesting because it’s not just the usual developed nation suspects.  There’s also data on developing countries and some less-developed nations.  Then you can pick your time series and variables.  It’s a tremendous variety:  share of national income by the top  x% (without or with capital gains).  In some case, data series are available on actual average real incomes by percentile groups.  What’s also nice is that they don’t just leave it at a split between the top 1% and the bottom 90%.  You can specify the top 1%, 5%, 10%, 0.1% or even the 0.01%.  Amazing.  You pick the time frame from early in the 20th century up to 2008.  Then you regenerate your graph or data table.  The best part is that by right clicking on the graph, you can download and save the graph.  Students: are you listening?  Understand the implications for research papers?  

Quickie – Some Graphs

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I’ll be talking tomorrow to a bunch of students about income distribution, student loans, and other things of interest to the #OWS crowd.  These are some graphs I’ve collected from other sources that I’ll use.  No time to write much analysis today. It’s mostly just the graphs.

From Paul Krugman:

The true age of spectacular growth in the United States and other advanced economies was the generation after World War II, with post-Reagan growth nowhere near comparable. So why do these people imagine otherwise?

And the answer, once you think about it, is obvious: growth for whom? There’s only one way in which the post-deregulation boom was exceptional, and that’s in terms of the growth in incomes at the top of the scale.

Here’s a comparison of the postwar boom with the deregulation alleged boom, using real average family income from the Census and real average income for the top 1 percent from Piketty and Saez:

If you’re looking at the average, the last generation is a poor shadow of the postwar boom. But if you’re talking about the 1 percent, wonderful things have happened.

From CBO via Krugman again:

Inequality Trends In One Picture

Just an addendum on the role of the top 1 percent versus the college-noncollege differential. Here, from the CBO report, are the changes, in percentage points, of the shares of income going to three groups. The top quintile excluding the top 1 percent – which is basically the abode of the well-educated who aren’t among the very lucky few – has only kept pace with the overall growth in incomes. Just about all of the redistribution has taken place from the bottom 80 to the top 1 (and we know that most of that has actually gone to the top 0.1).

It’s a tiny minority, not a broad class of well-educated Americans, who have been winning here.

Again from CBO via Krugman:

A Mind Is A Terrible Thing To Lose

OK, I see that some people are doubling down on the claim that rising inequality is all about education — when what the CBO report drives home is that this is all wrong, the big increase has come from gains at the very top. I have to admit that I have a sneaking suspicion that this is in part driven by KDS (DS for derangement syndrome): some people will rush to take a position precisely because I have debunked it. But anyway, it’s really, really wrong.

Here’s the CBO result:

Notice that the 81-99 percentiles have seen only modest gains; it’s really the top 1 percent that drives the story.

For comparison, here’s some data on wages of men by education from EPI:

Again from CBO via Krugman:

Graduates Versus Oligarchs

Dean Baker raises an important point here: it’s really awfully late in the game to be saying that the important inequality issue is college graduates versus non-graduates. It’s not clear that this was ever true, and it certainly hasn’t been true for a while.

I wrote about this years ago, using Ben Bernanke’s maiden testimony as Fed chair as an entry point. As I said then, Bernanke — like many others — had made

a fundamental misreading of what’s happening to American society. What we’re seeing isn’t the rise of a fairly broad class of knowledge workers. Instead, we’re seeing the rise of a narrow oligarchy: income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite.

I think of Mr. Bernanke’s position, which one hears all the time, as the 80-20 fallacy. It’s the notion that the winners in our increasingly unequal society are a fairly large group — that the 20 percent or so of American workers who have the skills to take advantage of new technology and globalization are pulling away from the 80 percent who don’t have these skills.

…

Why would someone as smart and well informed as Mr. Bernanke get the nature of growing inequality wrong? Because the fallacy he fell into tends to dominate polite discussion about income trends, not because it’s true, but because it’s comforting. The notion that it’s all about returns to education suggests that nobody is to blame for rising inequality, that it’s just a case of supply and demand at work. And it also suggests that the way to mitigate inequality is to improve our educational system — and better education is a value to which just about every politician in America pays at least lip service.

The idea that we have a rising oligarchy is much more disturbing. It suggests that the growth of inequality may have as much to do with power relations as it does with market forces. Unfortunately, that’s the real story.

Let me illustrate this point with some CBO data. First, from the new report, here are the income shares of the top 1 percent and the rest of the top quintile:

There has been no rise in the share of the 81-99 group! It’s all about the top 1 percent.

Second, even within the top 1 percent the gains are going mainly to a small minority. An earlier CBO report, using slightly different methods, looked inside the top 1 percent up through 2005. Here’s some of that data:

The big gains have gone to the top 0.1 percent.

From Menzie Chinn:

CBO on Income Inequality, and Interpreting OWS

by Menzie Chinn

Tabulating Inequality Trends

The CBO released a report on income inequality earlier this week. This means that the “inequality deniers” are having a more difficult time arguing that widening spreads an wages, compensation, or overall income are merely statistical artifacts dreamt up by liberals (see e.g. here). What is of most interest is (i) real after-tax income of the top 1 percentile has risen about 275%, and (ii) the pre-transfers/pre-tax income share of the top 1% has increased most profoundly.

SummaryFigure1.png
Summary Figure 1, Growth in Real After-Tax Income from 1979 to 2007, from “Trends in Income Distribution,” CBO Director’s Blog, 25 October 2011. SummaryFigure2.png
Summary Figure 2, Shares of Market Income, 1979 and 2007, from “Trends in Income Distribution,” CBO Director’s Blog, 25 October 2011.The CBO Director’s Blog observes:

The rapid growth in average real household market income for the 1 percent of the population with the highest income was a major factor contributing to the growing dispersion of income. Average real household market income for the highest income group tripled over the period, whereas such income increased by about 19 percent for a household at the midpoint of the income distribution. As a result, the share of total market income received by the top 1 percent of the population more than doubled between 1979 and 2007, growing from about 10 percent to more than 20 percent.

The foregoing is completely consistent with the views laid out in Lost Decades (by me and Jeffry Frieden), Add-Figure 6-1 highlighted in this post, as well as this post.

Interpreting the OWS Protests

Against this backdrop, powerful forces have been deployed against raising tax rates at all on the top one percentile (and instead want to raise taxes on the lower quintiles).[1] [2]. The OWS protests can be interpreted in ths context. From TPM:

…Harvard Government Professor Jeffry Frieden said…

“Every debt crisis leads to major political conflicts over who will pay the price of dealing with the debt burden,” Frieden wrote. “One way or another, the accumulated debts will have to be addressed — either by writing some of them off, or by paying them off. Will the burden be borne by taxpayers? Government employees? Financial institutions? … I think that, in the context of our financial difficulties, OWS may reflect the fact that many Americans feel that too much sacrifice has been demanded of working people and the middle class, and too little of the financial community and the wealthy.”

Diane Lim Rogers, Chief Economist at the fiscally hawkish Concord Coalition, made similar points about the more reckless economic policies of the past decade: Much of the distaste with both Washington and Wall Street comes back to fact that DC is simply unwilling to change course.

“The difference is that during the Clinton years the rising tide was lifting all boats,” Lim Rogers said in an interview with TPM. “Low-income households were still doing better. Even then, the rich did really well, despite their taxes being raised.”

But what’s different now is that income inequality isn’t a political tenet of the left: it’s truly hurting people. Lim Rogers said the poverty rate is actually of more concern than the rich doing better given the circumstances.

“The outrage is not that the rich are richer,” she said. “It’s that the poor have gotten poorer — the inequality has become bipolar.”

Interestingly, Lost Decades, which makes many of these points, has been cited approvingly in at least one OWS document.

This is of course in contrast to views such as that of Econbrowser reader Brian who commented:

I honestly fail to see why some on the left are so concerned about how much money those at the top of the income distribution earn. Why not focus instead on why poor people are poor? And please, blaming that on the rich is a non-starter. People make bad choices in life. They get pregnant before they finish school and have a career started. They use drugs. They get tattoos and body piercings all over themselves and then wonder why no one will hire them for an entry-level job. They do not take school seriously. They have parents who never should have bred in the first place. I really, honestly and truly feel for the poor people and hope they can lift themselves out of poverty. But throwing more money at the problem, and taking it from the “rich”, is not the solution.

This worldview is apparently not rare; see this quote:

I don’t have facts to back this up, but I happen to believe that these demonstrations (Occupy Together) are planned and orchestrated to distract from the failed policies of the Obama administration. Don’t blame Wall Street. Don’t blame the big banks. If you don’t have a job and you’re not rich, blame yourself! …

I think the defenders of the interests of the top income percentile will continue to harp on these arguments: The unemployed are deservedly unemployed; the poor are deservedly poor. This will help distract the electorate from the issue of whom will bear the burden of adjustment to the aftermath of the financial crisis(including stabilizing the debt-to-GDP ratio), and the response to secular trends in income inequality.See more on tax policyhere.

 

 

Income Inequality Does Matter And It Makes Us Worse Off

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There is viewpoint that asserts that income inequality and wealth inequality are necessary, that they are the differences that motivate people to work and get ahead.  This viewpoint often implies that without wide income disparities that our economy’s growth would slow.  Supporters of such a viewpoint seem to suggest that the only choices we have are either:  a society of dramatic differences in income distribution or a society where everybody is equal but also poor.  This viewpoint is wrong. Absolutely wrong.  A simple review of U.S. history in the 20th century demonstrates the wrongness.  US GDP real growth in the 3 decades of 1950′s, 1960′s and 1970′s was much stronger than the 3 decades since 1980.  In the high-growth decades, income distribution was more equal and more fair.  Income distribution since 1980 has gotten worse.  But there’s more data to disprove the idea of “income inequality is good”.

Richard Wilkinson is a British researcher who has spent his life studying income inequality and the consequences for societies.  I strongly urge you to view in it’s entirety his TED talk on this subject.

Here are some excerpts from the transcript:

You all know the truth of what I’m going to say. I think the intuition that inequality is divisive and socially corrosive has been around since before the French Revolution. What’s changed is we now can look at the evidence, we can compare societies, more and less equal societies, and see what inequality does. I’m going to take you through that data and then explain why the links I’m going to be showing you exist.

…I want to start though with a paradox. This shows you life expectancy against gross national income –how rich countries are on average. And you see the countries on the right, like Norway and the USA, are twice as rich as Israel, Greece, Portugal on the left.And it makes no difference to their life expectancy at all. There’s no suggestion of a relationship there.But if we look within our societies, there are extraordinary social gradients in health running right across society. This, again, is life expectancy.

…Now I’m going to show you what that does to our societies. We collected data on problems with social gradients, the kind of problems that are more common at the bottom of the social ladder.Internationally comparable data on life expectancy,on kids’ maths and literacy scores, on infant mortality rates, homicide rates, proportion of the population in prison, teenage birthrates, levels of trust, obesity, mental illness – which in standard diagnostic classification includes drug and alcohol addiction – and social mobility. We put them all in one index. They’re all weighted equally. Where a country is is a sort of average score on these things.And there, you see it in relation to the measure of inequality I’ve just shown you, which I shall use over and over again in the data. The more unequal countries are doing worse on all these kinds of social problems. It’s an extraordinarily close correlation. But if you look at that same index of health and social problems in relation to GNP per capita, gross national income, there’s nothing there,no correlation anymore.

…What all the data I’ve shown you so far says is the same thing. The average well-being of our societiesis not dependent any longer on national income and economic growth. That’s very important in poorer countries, but not in the rich developed world. But the differences between us and where we are in relation to each other now matter very much.

…This is mental illness.

…This is violence.

…This is social mobility. .

The other really important point I want to make on this graph is that, if you look at the bottom, Sweden and Japan, they’re very different countries in all sorts of ways. The position of women, how closely they keep to the nuclear family, are on opposite ends of the poles in terms of the rich developed world. But another really important difference is how they get their greater equality. Sweden has huge differences in earnings, and it narrows the gap through taxation, general welfare state, generous benefits and so on. Japan is rather different though.It starts off with much smaller differences in earnings before tax. It has lower taxes. It has a smaller welfare state. And in our analysis of the American states, we find rather the same contrast.There are some states that do well through redistribution, some states that do well because they have smaller income differences before tax. So we conclude that it doesn’t much matter how you get your greater equality, as long as you get there somehow.

I am not talking about perfect equality, I’m talking about what exists in rich developed market democracies. Another really surprising part of this picture is that it’s not just the poor who are affected by inequality. There seems to be some truth in John Donne’s ”No man is an island.”

…

I should say that to deal with this, we’ve got to deal with the post-tax things and the pre-tax things.We’ve got to constrain income, the bonus culture incomes at the top. I think we must make our bosses accountable to their employees in any way we can.I think the take-home message though is that we can improve the real quality of human life by reducing the differences in incomes between us.Suddenly we have a handle on the psychosocial well-being of whole societies, and that’s exciting.

 

The Economy Has Caused Riots Before – In the Great Depression

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Washington’s Blog reminds us that things got ugly during the last prolonged depression in the United States.  This interesting historical footage from the Great Depression shows what happens when large numbers of people are unemployed for years at a time, get desperate, and perceive that the game is rigged to the benefit of Wall Street.

This depression isn’t as deep or severe as the Great Depression – the bank bailouts and the 2009 Obama stimulus spending/tax cut bill (ARRA) made sure of that.  But as this week’s GDP numbers show, we simply aren’t growing enough to fully recover.  For workers, the nightmare is real.  With the #OccupyWallStreet movement (#OWS) growing stronger, spreading, and continuing now for well over 6 weeks, perhaps the Wall Street banks are having nightmares of their own about such scenarios as what happened in the video.  Could that be why JP Morgan Chase bank is making such large payoffs donations to the New York City Police department?  Yves Smith at Naked Capitalism fills us in:

Is JP Morgan Getting a Good Return on $4.6 Million “Gift” to NYC Police? (Like Special Protection from OccupyWallStreet?)

No matter how you look at this development, it does not smell right. From JP Morgan’s website, hat tip Lisa Epstein:

JPMorgan Chase recently donated an unprecedented $4.6 million to the New York City Police Foundation. The gift was the largest in the history of the foundation and will enable the New York City Police Department to strengthen security in the Big Apple. The money will pay for 1,000 new patrol car laptops, as well as security monitoring software in the NYPD’s main data center.

New York City Police Commissioner Raymond Kelly sent CEO and Chairman Jamie Dimon a note expressing “profound gratitude” for the company’s donation.

“These officers put their lives on the line every day to keep us safe,” Dimon said. “We’re incredibly proud to help them build this program and let them know how much we value their hard work.”

…

But what, pray tell, is this about? The JPM money is going directly from the foundation to the NYPD proper, not to, say, cops injured in the course of duty or police widows and orphans…

And look at the magnitude of the JP Morgan “gift”. The Foundation has been in existence for 40 years. If you assume that the $100 million it has received over that time is likely to mean “not much over $100 million” this contribution could easily be 3-4% of the total the Foundation have ever received.

Now readers can point out that this gift is bupkis relative to the budget of the police department, which is close to $4 billion. But looking at it on a mathematical basis likely misses the incentives at work. Dimon is one of the most powerful and connected corporate leaders in Gotham City. If he thinks the police donation was worthwhile, he might encourage other bank and big company CEOs to make large donations.

And what sort of benefits might JPM get? It is unlikely that there would be anything as crass as an explicit quid pro quo. But it certainly is useful to be confident that the police are on your side, say if an executive or worse an entire desk is caught in a sex or drugs scandal. Recall that Charles Ferguson in Inside Job alleged that the use of hookers is pervasive on Wall Street (duh) and is invoiced to the banks.

Or the police might be extra protective of your interests. Today, [Oct 5] OccupyWallStreet decided to march across the Brooklyn Bridge (a proud New York tradition) to Chase Manhattan Plaza in Brooklyn. Reports in the media indicate that the police at first seemed to be encouraging the protestors not only to cross the bridge, but were walking in front of the crowd, seemingly escorting them across…

The wee problem is that the police are in the street, and part of the crowd is also on the street (others are on a pedestrian walkway that is above street level). That puts them in violation of NYC rules that against interfering with traffic. Note the protest were aware fo the rules; they were careful to stay on the sidewalk on the way to the bridge.

…some (many?) the protestors who used the walkway and got across the bridge were also corralled and not permitted to proceed to the Chase plaza. Greg Basta, deputy director of the New York Communities for Change, told me by phone, based on multiple reports from people who participated in the march, that as soon as protestors got to the Brooklyn side of the bridge, they were kettled. Greg was under the impression that there were construction barricades at the foot of the bridge which made it impossible for the marchers not to walk on the street. Because the focus has been on the what happened on the bridge, the coverage of what happened to the rest of crowd is sparse.

Some confirmation in passing comes from MsExPat at Corrente (apparently some of the very first off the bridge were permitted to proceed):

My friends and I made it to the Brooklyn side okay–we ended up with about 350 other marchers in Cadman Plaza, a lovely 19th century park. What I didn’t find out until later is that several hundred people behind me also got kettled and barred from going all the way to Brooklyn. So I was among the lucky marchers in the middle.

But notice even then that the procession to Chase Manhattan Plaza [correction, Cadman Plaza} was effectively barred. [Note JPM may have operations nearby, Bear Stearns had much of its back office there, and if the leases were cheap, JPM may have kept the space].

We simply don’t know whether the police would have behaved one iota differently in the absence of the JP Morgan donation. But it raises the troubling perspective that they might have. …

So far, the JP Morgan donation is an isolated example. But the high odds of continuing deep budget cuts at the state and local level open up the opportunity for corporate funding of preferred services, and with it, much greater private sector influence on the apparatus of government. This is a worrisome enough possibility to warrant a high degree of vigilance by all of us.

Some Other Interesting Perspectives on OccupyWallStreet

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I’ve already mentioned my initial thoughts on the Occupy Wall Street movement (#OWS).  Here’s some snippets from a couple of others with some interesting insights.  First, historian William Hogeland writes at his blog Hysteriography.  He notes how the #OWS movement is a deeply American movement.  It has roots in the American revolutionary period as much as any Tea Party. He also reminds us that the Revolution wasn’t simply Americans vs. the tyrannical English. It was just as much about pure economic equality and fairness.   It was also about elitist rich Americans vs. populist American farmers and workers oppressed by taxes, foreclosures, and debts.

… I write about the deep, founding roots of rowdy, American populist protest and insurrection, often visionary and even utopian, yet informed and practical too, specifically over money, credit, and the purpose and nature of public and private finance. …most people still don’t connect the American founding period with a rugged drive on the part of ordinary people for equal access to the tools of economic development and against the hegemony of the high-finance, inside-government elites who signed the Declaration and framed the Constitution and made us a nation.

Sometimes people even ascribe democratic ideas to the famous upscale American Revolutionaries, who to a man actually hated democracy and popular finance. Paine, the exception, was ultimately rebuked and scorned by all of the others. [UPDATE: Anyway, Paine wasn't one of them; I threw him in defensively because consensus-history types like to "include him in" on the basis of "Common Sense," while including his social/economic radicalism out.]

The difficulty in dealing with our founding battle for democratic economics arises in part because the movement was not against England but against the very American banking and trading elites who dominated the resistance to England. That complicates our founding myth, possibly unpleasantly. Also, it was a generally losing battle. With ratification of the Constitution, Hamiltonian finance triumphed, and people looking to Jefferson and Madison for finance and economic alternatives to Hamilton are barking up the wrong tree, since what those men knew, or even really cared, about finance could be written on a dime. (Anyway, in pushing for creating a  nation, Madison supported Hamiltonian finance down the line. Their differences came later.) When Occupy Wall Street protesters say “It’s We the People!”  they’re actually referring to a preamble, intending no hint of economic democracy, to a document that was framed specifically to push down democratic finance and concentrate American wealth for national purposes. Not very edifying, but there it is.

…Amid horrible depressions and foreclosure crises, from the 1750′s through the 1790′s, ordinary people closed debt courts, rescued debt prisoners, waylaid process servers, boycotted foreclosure actions, etc. (More on that here and here.) They were legally barred from voting and holding office, since they didn’t have enough property, so they used their power of intimidation to pressure their legislatures for debt relief and popular monetary policies. Their few leaders in legit politics included the visionary preacher Herman Husband, the weaver William Findley, and the farmer Robert Whitehill.

They had high hopes for American independence. In the 1770′s, their “out-of-doors” collaboration with the famous elites was critical to enabling the Declaration of Independence — even though none of their names appears there (well, Benjamin Rush’s does, but by then he’d become unradicalized). Their democratic, egalitarian hopes dashed, in the 1780′s, in western Massachusetts, they marched on the state’s armory in Springfield to reverse regressive finance policies that had again plunged ordinary people into debt peonage and foreclosure while bailing out rich creditors (elites called that populist action, reductively, Shays’s Rebellion). In the 1790′s, with the Constitution in force, and Hamilton’s economics the law of a powerful new nation (partly in direct reaction to the Shays action), populists took over the militia and debt-court system throughout western Pennsylvania and western counties of neighboring states, flew their own flag, and tried to secede from the United States and form an economically egalitarian country. Hamilton dubbed that action, again in a successful effort to reduce it, the Whiskey Rebellion, and he and President Washington responded, naturally enough, by occupying western Pennsylvania with federal troops.

It is my possibly vain hope that reading up on such historical matters might inspire efforts like Occupy Wall Street to greater cogency and a deeper, more solid foundation in longstanding (if embattled and problematic) American values than they now seem to possess. You don’t have to look as late as the 19th-century Populists and the 1930′s labor movement, for example, to find an American left deeply immersed in both economic issues and an ambitious vision of a better country. Those things were present at the creation.

Hogeland also recommends an “Occupy Wall Street” Reading List.

Next up is John Quiggin at Crooked Timber.  He first observes that much of the eventual outcome of the #OWS movement depends on the “19%” – the folks that are in the top quintile, the top 20%, but aren’t part of the top 1%.  As we know powerfully from a graph I posted a few days ago:

First, economix at the New York Times reported on the basic income distribution data recently:

The graph below shows how much income is earned by a household at any given percentile in the income distribution, based on these new numbers for 2011:

DESCRIPTIONTax Policy Center

Incomes grow much, much faster at the top end of the income distribution than in the middle or at the bottom end. That is, the disparity in income between one percentile and a consecutive percentile is bigger among the very rich.

The top quintile, the top 20% may be rich compared to the rest, but not very much.  It’s really the top 1% and the top 0.1% where the income scale is truly distorted and outrageous.  Quiggin makes the point that the 19% is politically influential and powerful.  Perhaps not as powerful as the 1%, but clearly politically influential.  To keep the redistribution of income to the top game going, the top 1% has to keep the 19% on their side.  Without them, there’s clearly no legitimacy.  [bold emphases mine]

The top quintile as a whole commands the great majority of US income, and virtually all financial wealth – few households outside this group own much beyond their homes and perhaps some money in a pension fund….

The 19 per cent also have a disproportionate political weight, since they are much more likely than Americans in general to register, vote and engage in political activity. So, it makes a big difference whether, as as implied by ‘We are the 99 per cent’ their interests are aligned with the mass of the population or with the top 1 per cent…

The top quintile as a whole has done very well over the past few decades, and (despite some silly claims to the contrary), high-income earners have mostly voted Republican, in line with their economic interests. Certainly there are plenty who don’t vote their interests, but that is also true of many people in the top 1 per cent, not to mention bona fide billionaires like Buffett and Soros. [but]… a closer look at income growth figures suggests that, while the 19 per cent have enjoyed rising incomes, they’ve only barely maintained their share of national income. The redistribution of the past three decades has gone from the bottom 80 per cent to the top 1 per cent.

That suggests the possibility of a policy response in which the main redistributive thrust would be to reverse this process.  This would almost certainly involve higher tax payments, but this would be offset by the restoration of public services, which are in economic terms a ‘superior good’, valued more as income rises. The top 1 per cent can buy their own services, and are largely unaffected by public sector cutbacks, but that’s not true of the 19 per cent.

Another important factor is the growth of economic insecurity. The myth of the US as a land of opportunity for upward mobility has been replaced by Barbara Ehrenreich’s Fear of Falling (another good source on this is High Wire by Peter Gosselin). Even if people in the top 19 per cent are doing well, they are less secure than at any time since the 1930s, and their children face even more uncertain prospects.

Finally, there is the alliance of the 1 per cent with the forces of rightwing cultural tribalism. The 1 per cent can only rule by persuading lots of people to vote against their interests, and that requires a reactionary and anti-intellectual agenda on social, cultural and scientific issues. As a result, educated voters have increasingly turned against the Republican Party.

I don’t want to make too much of this last point. As Allan Grayson said during his memorable takedown of PJ O’Rourke recently, the 1 per cent own the Republican Party outright, but they also own much of the Democratic Party, and can rule satisfactorily through either. Also, having a college degree isn’t the same as being educated – Tea Party supporters are more likely than the average American to have a degree, and college-graduate Republicans are even more prone to various delusional beliefs on issues such as climate change.

Nevertheless, taking account of all the factors listed above, even the most comfortably affluent members of the professional class, looking at the alliance of plutocrats and theocrats arrayed to defend Wall Street could reasonably conclude that it was in their own interests to support the 99 per cent and not the 1 per cent.

We are therefore (surprisingly to me) suddenly back in a situation where a progressive movement can reasonably claim to act in the interests of a group that is:..
(a) the overwhelming majority of the population
(b) responsible for nearly all the productive activity (as against the 1 per cent’s incomes drawn from a parasitic financial sector)
(c) economically desperate or at risk of becoming so.

Can all of this be sustained? I don’t know, any more than anyone else. But #OWS has already achieved things that most people would have regarded as impossible a month ago, and for the moment at least, the momentum is still growing.

The #OWS movement appears to be spreading and  growing in a way the Tea Party never did.  It’s clearly, as Hogeland points out, deep in the tradition of American politics.  And as Quiggin points out, the 19%, the top quintile folks  have had income gains in recent years but they’ve also had a dramatic increase in economic insecurity, diminished prospects for their children, and a reduction in the public services they value such as top-notch public universities and infrastructure.  It’s interesting times, especially since no presidential candidate from either party appears to align with the interests of the #OWS movement.

Herman Cain’s 9-9-9 Plan and the 99%

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In the constantly churning pool of Republican Presidential candidates, a seemingly political newcomer has risen to the top (for now): Herman Cain.  Mr. Cain, the former CEO of Godfather’s Pizza where he engineered a leveraged buy-out from Pillsbury, isn’t really a political newcomer or outsider, though.  He only appears to be because he personally has never won an election despite several attempts.  (see Wikipedia biography). In fact, he’s been a campaign insider and advisor for many Republican candidates going back to at least Bob Dole in 1996. He also played a key role in defeating President Clinton’s attempts to reform healthcare in the 1990′s.

Herman Cain has risen to the top (some recent polls show him essentially tied with Mitt Romney) largely because of his “9-9-9″ tax plan.  So what’s it all about and what are the likely consequences? Let’s explore what the plan is first.

I will summarize here.  A more in-depth analysis (pdf) is available from the Tax Policy Center.  The Cain campaign’s page on the plan is here. Cain is proposing to eliminate the existing corporate income tax and payroll taxes. I assume that this includes eliminating the Social Security tax and Medicare taxes, although the Cain campaign avoids saying that clearly by referring only to “payroll taxes”.  He then proposes to radically reform the existing individual income tax system and adding two new taxes.  The result is that the existing triad of corporate income tax, payroll tax, and individual taxes is replaced by a triad of three taxes which each have a 9% tax rate, hence the name for the plan.

  • Change existing Individual income tax system – charge a flat 9% on gross income with the only deduction allowed being for charitable contributions.  Home mortgage interest deduction is gone.  Personal exemptions are gone.  This means a single person with no dependents and $50,000 income pays $4,500 (9%), the same exact amount as a family of four with two small children and a $50,000 income.  It is unclear whether deductions for the expense of earning income are allowed or not such as sales representative deducting business expenses.  I presume they are not.  Only earned income from employment is taxed, not dividend income. It is unclear whether Cain would tax pension income or Social Security benefits.  He doesn’t clarify those.  My guess is they would be taxed.
  • A new national sales tax of 9% on everything.  Although most states currently exempt food and other essentials from sales tax, Cain does not.  Plan to add 9% to whatever you buy. The consumer pays the sales tax directly at the time of purchase.
  • A new national business tax of 9%. This is a modified form of value-added tax (VAT) commonly called a business transfer tax.  It essentially means that all businesses pay a 9% tax on everything they sell minus a deduction for whatever purchases they have made, not counting purchases of labor. I find the enthusiasm among Republicans for this part for the tax kind of strange.  The state of Michigan had a similar business transfer tax called the Michigan Business Tax (MBT) in recent years and it was the #1 target of Republicans to repeal when they came into office.  The MBT was absolutely hated.  That makes me skeptical that Cain either could actually get a a national business tax or that it would survive for longer than a year or so.  I expect that in implementation, the national business tax would soon be eliminated in favor of a higher individual income tax and/or higher sales tax and/or larger deficit. A business transfer tax like Cain’s proposed national business tax requires significant accounting and record-keeping.  Businesses would no doubt attack such a tax as a “heavy regulatory and reporting burden”.

Overall, estimates of the immediate effect of the 9-9-9 plan on tax revenues to the government show it would be largely neutral.  That is, the plan, when applied to today’s economy this year, should produce approximately the same revenue as today’s tax system produces.  In that sense, the plan represents neither a tax cut nor a tax increase in the overall macro sense.  At the individual  level, though, it’s a different story.  The 9-9-9 plan is either a really heavy tax increase or a really huge tax cut depending upon how high your income is.

For people who are in the lower 80% of the income distribution, meaning the poor, the working class, and the middle class, Cain’s plan represents a very, very serious tax increase.  Even households in the lowest 20% of the income distribution would pay an average of $1,854 more in taxes than they do currently each year.  The typical or normal household, the folks that are in the middle, the 60% of us that are neither in the top 20% or the bottom 20% (which most likely means you!), would pay more than $4,000 more each year in taxes.  That’s a serious tax increase.  How? Why? Currently people in these brackets, the majority of us, pay around 23-30% of our income in the form of all taxes to the all levels of government. Of those 23-30% points, approximately 10% points are taxes for state and local government.  Those taxes remain under Cain.  So currently the middle income ranks pay between 13-20% of their incomes to the federal government.  That initially sounds like it’s higher than Cain’s 9%.  But remember, Cain’s plan is a 9-9-9 plan.  You will pay a 9% income tax.  You’ll also pay 9% sales tax on everything you buy.  Let’s say you’re fortunate and prudent and only spend 90% of your income, that sales tax still equates to being 8% on your income.  But the sales tax is being applied to goods that have already been marked up in price by 9% by the retailer to pay for the business tax.  In effect, you’ll pay an 18% sales tax. That means that your real tax burden for the federal government will be closer to 9+9+9.  I expect the effective federal taxes paid by individuals in the middle income ranges under the Cain plan to be 24-27% depending on how much you save vs. spend.  Add in the 10% for state and local and you’ve got an individual tax burden in the 34-37% range – much, much higher than today.  The Tax Policy Center graphs out the actual expected change in your taxes in dollars by income quintile here:

Now what about the top 20%?  They come out ahead.  The average household in the top 20% gets a $14,442 tax cut.  If you’re not one of these fortunate rich people to get this large tax cut from the 9-9-9 plan, remember Herman Cain says it’s your fault you’re not rich.

In summary, the Cain 9-9-9 is a massive redistribution of the tax burden away from rich households onto the backs of poor and middle-income households.  As Jared Bernstein notes:

Conclusions:

–to implement the 9-9-9 plan would truly be the most dramatic and regressive shifting of the tax burden in the history of our nation;

–based on this policy, Herman Cain’s campaign is deeply out of touch with the challenges facing the American middle class;

But we haven’t really looked at the impact on the top 1% or the top 0.1%, the really, really rich folks, the Wall Street CEO’s and big hedge fund managers, the ones who have gotten large bonuses in recent years paid for by government bank bailouts.  The top 1% (which includes Herman Cain himself) will save on average $238,422 in taxes.  The top 0.1%, the 150 thousand or so households that are really, really rich and powerful, will get even more.  They will see an average cut of $1,356,078 in their taxes.  I also have a properly scaled graph to show this too, but it’s only after the jump for formatting reasons.  So click and take a look to see what Herman Cain calls making the tax system more fair.  It should add fuel to the Occupy Wall Street fires.

Continue reading →

What’s the 99%, the 1%, and the 53% All About?

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The OccupyWallStreet movement has helped push the meme of the “99%”.  But to what are they referring? And what’s the remaining 1%?  The 99% reference refers to income distribution in the U.S.  Income distribution is when we line up all the households in order according to their income from lowest to highest.  Obviously with somewhere around 150-200 million households in the U.S. we can’t deal with each individually.  Instead we group them into percentiles.

The 99% refers to the 99% of all households that have the lowest incomes.  Obviously this means nearly everybody – 99% of us to be exact.  What is not in the 99% is the 1% with the highest household incomes – the really rich.  What has the OccupyWallStreet movement so energized and angry though isn’t just the idea that the 99% make less money than the 1%.  It’s the idea that the rich, the 1% are getting richer faster than the 99%.  In fact, the 99% aren’t really getting richer at all.  Instead they (we) have been losing both relative to the rich (the gap is growing) and in absolute terms.  Let’s check out a few graphs to illustrate.

First, economix at the New York Times reported on the basic income distribution data recently:

The graph below shows how much income is earned by a household at any given percentile in the income distribution, based on these new numbers for 2011:

DESCRIPTIONTax Policy Center

Incomes grow much, much faster at the top end of the income distribution than in the middle or at the bottom end. That is, the disparity in income between one percentile and a consecutive percentile is bigger among the very rich.

For example, the difference in income between a household at the 50th percentile and a household at the 51st percentile is $1,237 ($42,327 versus $43,564). But the difference in incomes between a household at the 98th percentile and the 99th percentile is $146,118 ($360,435 jumps up to $506,553).

The gaps become even wider at the extreme top of the income ladder: A family at the 99.5th percentile makes $815,868; its neighbor at the 99.9th percentile makes more than double that, at $2,075,574 a year.

In fact much of the rise in inequality over the last few decades has been because of the increasing inequality isolated among the very top members of the income distribution, as America’s wealthiest have pulled further and further away from their slightly less wealthy peers.

This leads us to another similar graphic (graphic from occupydesign.org, but the data is from standard U.S. economic reports). This one reports not income, but wealth (income is what you $ you receive this year, wealth is how much you own).

 

The disturbing part of the income distribution is that it is getting much worse.  Since the recession/depression started in 2007, the median income for Americans, a number that fairly represents what’s happening to the typical member of the 99% show that incomes have decreased.  CalculatedRisk blog reports:

Recession Officially Over, U.S. Incomes Kept Falling. A few excerpts:

Between June 2009, when the recession officially ended, and June 2011, inflation-adjusted median household income fell 6.7 percent, to $49,909, according to a study by two former Census Bureau officials. During the recession — from December 2007 to June 2009 — household income fell 3.2 percent.

So the inflation-adjusted median household income has continued to decline even after the recession ended.

And for people who lost their jobs - and were lucky enough to find a new job:

In a separate study, Henry S. Farber, an economics professor at Princeton, found that people who lost jobs in the recession and later found work again made an average of 17.5 percent less than they had in their old jobs.

And on education:

Median annual income declined most for households headed by someone with an associate’s degree, dropping 14 percent, to $53,195, in the four-year period that ended in June 2011, the report said.

For households headed by people who had not completed high school, median income declined by 7.9 percent, to $25,157. For those with a bachelor’s degree or more, income declined by 6.8 percent, to $82,846.

Grim numbers. This is no surprise given the high level of unemployment and underemployment.

If we look at hourly wage rates by income groups over the last couple decades we the same story: the rich are getting richer and the vast majority of Americans aren’t improving at all.  From the Congressional Budget Office via EconomistsView’s Mark Thoma:

Essentially, since around 1980 whatever increases in national income (GDP) have occurred have all gone to the top 1% or so of Americans.  The rest, the 99% have not enjoyed the growth but they are the ones who worked and produced it. See my post on that here.  The inequality in the income distribution in the U.S. is at a highest (most unequal) that it has ever been since the 1920′s and the era of Robber Barons and the Gilded Age.  That period didn’t end well resulting in the Great Depression.

 

Finally, when the OccupyWallStreet movement began, some right-wing opponents tried to counter the whole 99% meme.  They attempted to create an identification with the moniker “the 53%”.  What they were referring to is the fact that of all U.S. households, only 53% pay any U.S. federal income tax after accounting for deductions and tax credits.  The implication or suggestion was that the “53%” are the ones who are paying to carry some freeloading 47% of households who supposedly aren’t working and definitely aren’t paying income tax.  The problem with this idea is two-fold.  First, it’s absolutely not true that 47% of households don’t pay any taxes.  They most certainly do pay taxes – a lot of taxes and at nearly the same rates as other households.  The 47% just don’t pay federal income tax.  They do pay Social Security and Medicare payroll taxes, sales taxes, property taxes, state taxes, and other taxes. Second, a lot of those households don’t pay federal income tax because they are retirees who are living on either tax-exempt pension income or Social Security benefits. Others are simply too low-income despite working to incur federal income tax.  A few are very-high income earners in the top 1% who avoid income taxes through deductions and special tax breaks.

 

 

 

On the Occupy Wall Street (and Everywhere Else) Movement

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I’ve been asked what I think of the Occupy Wall Street Movements.  I say it’s about d*** time.  The anger and discontentment that the movement has tapped into is real and has been building for a long time.  The mass numbers of people – like say the 99%  - have good reasons to be angry. The  U.S. economy is very sick and it’s not really recovering.  For at least three decades now the rules in the economy have gradually been changed.  The overwhelming net effect of all these institutional and structural changes has been to transfer income and wealth from the bottom 80% of the income scale (odds are that means you!) to the upper 1%.  What about the other 19%, the ones in the top 20% but not the top 1%?  They haven’t really lost in number terms but they’ve struggled to hold on.  Their security is greatly reduced.  And now, the politicians that have been bought by the top 1% are coming for everybody’s Social Security and Medicare.

The American poor, working, and middle classes have been like the proverbial frog put into tepid water and then heated to boiling (note, yes, I know there’s evidence that frogs don’t behave that way in real life – it’s a metaphor, folks).  Gradually the rules were changed.  The banking and finance industries were deregulated – not all at once, but in a series of steps.  Despite massive (for that time) bailouts and bank rescues in the 1980′s savings and loan crash, we continued.  Union power was reduced.  Antitrust enforcement languished under a philosophy of “markets will self-enforce”.  The tax codes were changed to favor hedge fund managers and bankers.  Median household incomes began to stagnate while incomes at the top continued to grow and even accelerate.  A loud chorus of anti-”liberal” media, politicians, and think tanks constantly pounded an anti-government theme.  Meanwhile economic growth gradually slowed.  We lowered our expectations. Instead of demanding the growth rates of the 1950′s, 1960′s, and even much of the 1970′s, we began to settle for less but pretended it was more.  We shifted more and more of the cost of a  college education away from government and to students in the form of student loans.  For a long time, the working and middle classes were distracted from what was really happening.  The leaders blamed the people themselves.  It was getting harder and harder to keep up, let alone get ahead economically. We were distracted for a while by dreams of riches in an Internet dot-com bubble (“just pick the right start up and get rich”) or later in a housing bubble (“your house will make you rich ‘cuz home prices never drop”) or by endless wars and obsessions with terrrorism.

Then the crunch came in 2008.  The economy collapsed. But it wasn’t workers that crashed the economy – it was largely the banking and finance sector.  But the fall out hit just about everybody.  For 5-6 months we were on a trajectory to repeat the Great Crash and Great Depression of the 1930′s.  The same depression that conservative ideologue economists like Robert Lucas had claimed in 2003 was permanently “solved for all practical purposes” .  President Obama promised change and entered office in the midst of the collapse.  He wasn’t really prepared for this situation. The change Obama had originally envisioned was a more conservative, polite cutting back of social programs like Social Security.  The change we needed wasn’t the change that originally motivated him to run.

In response to the crisis and collapsing economy, the government responded – both the Bush and Obama administrations.  And they both pursued rather similar policies:   bailout the banks without even requiring sacrifice by the bank managers or the bank share and bond holders, and meanwhile offering some mild (relative to the problem) stimulus with much of the stimulus being in the form of tax cuts.  It hasn’t worked.  Well, I should be more precise.  It worked for the top 1% – the really, really wealthy and for Wall Street and the banks.  For the rest of us, it’s grim.  The economy stopped it’s free fall.  That was good. But it has never substantially begun a real recovery.  Unemployment is stuck at over 9%. The reality is worse than that number, though since large numbers have dropped out of the labor force and simply abandoned the hope of finding a job for now.  It’s been over 3 years since the crunch on Wall Street and there’s no recovery. Instead, politicians, both Democrat and Republican, have been spent the past year trying to cut spending, cut social programs, and make things worse for the 99% while cutting taxes further for the 1%.  It makes for anger and confusion. We are now in a workers depression.

The Tea Party movement of the last couple years had initially tapped into some of that populist anger.  But the Tea Party wasn’t/isn’t really a broad-based populist grass-roots movement.  It’s more of an Astroturf, faux populist movement with a lot of funding from very, very rich sources like the Koch brothers.  What’s more, it has become clear in the last year in Congress that the Tea Party doesn’t really have any solutions.  Last summer it was clear that some Tea Party people in Congress would rather have the U.S. default reach any kind of do-able compromises.  The vast majority of the 99% do not think a default by the U.S. government is a good thing.  The anger and frustration remains.

To make things worse, recent years have seen an increase in the power of large corporations.  The Supreme Court has ruled that corporations are “people” and that we the people cannot put any limit on political speech or spending by corporations.  Campaigns have become extraordinarily expensive.  The result is that politicians, even more so than ever, basically listen to and do the bidding of people on Wall Street and large corporations.  The average American has been frozen out of their own political processes.

I observed last winter during the uprisings in Tunisia and Eqypt that two ingredients of revolution are an educated population that learns or knows that a better condition is possible, and a political economy where there is no prospect for improved living standards.  Hopelessness turns to frustration which turns to anger.  That produces protest and demands for change.  As John F. Kennedy famously said, “Those who make peaceful revolution impossible will make violent revolution inevitable.”  I also observed last  winter that the inequality in income is worse in the U.S. than it was in Tunisia, Eqypt, or the other Arab spring nations.  I also noted that for now demography was keeping the U.S. from breaking out in mass protest.  Basically the U.S. population is older and revolutionary protest is usually a young people’s phenomenon.  But there are limits.  The U.S. also has a very extensive history of protest-driven social and political change.  It’s really the last few decades of quiet between the civil rights & Vietnam protests of the 1960′s-70′s until recently that have been the unusual phenomenon.  The longer the U.S. persists in pursuing austerity policies that keep the economy from growing and transfer more wealth and power to the top 1%, the more the nation is playing with fire.

As it stands now, I stand with the Occupy Wall Street movement.  The lack of clear “leaders” and “demands” is a good thing.  I will contribute my help in the coming weeks by trying to further illuminate the issues involved.