Tag Archives: #OWS

Occupy Wall Street Meets Fahrenheit 451 – Whose Property Rights?

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I’m not the most regular blogger.  I really do strive to post daily, it often doesn’t work out. Sometimes my schedule pinched.  Other times, health issues get in the way (ever try to write with a toothache?).  But then there are times when the news makes me so angry I can’t find civil words that might illuminate instead of inflame.  This past week my tooth hurt, but it was really the latter.

As most know by now, the New York City Police organized and conducted a raid to evict the Occupy Wall Street protesters last week.  They did it under cover of night using paramilitary tactics.  There was excessive and unnecessary violence.  I won’t go into that here. You can try one of the literally thousands of YouTube videos about the police brutality.  It was an apparent coordinated national effort since 18 other cities conducted similar raids with similar tactics on the same day.

Yale University lecturer John Stoehr has written how the order for the police to clear the Occupy Wall Street crowd from Zucotti Park came from Brookfield Properties, a private company, despite a court order allowing the protesters. For Mayor Bloomberg private property rights trump any kind of public rights, even when the public’s right is backed by a court.  Stoehr also observes how Brookfield Properties is also subsidized by the public coffers to the tune of $174.5 million.  Apparently those private property rights include the right to the public’s money.  It’s no wonder that JP Morgan Chase has felt the need to bribe donate to the Police Department.

The mayor and his police force’s concern with property rights doesn’t extend to everybody.  Only the rich, the 1%, are entitled to property rights protection.  Ordinary citizens are not.  Consider the police department’s treatment of the property of a private library.  Many have told the story of the police’s destruction of the Occupy Wall Street movement’s public library, but I’ll let the American Library Association tell it here:

The People’s Library, a library constructed by the New York Occupy Wall Street movement, was seized in the early morning hours of Nov. 15, by the New York Police Department during a planned raid to evict Occupy Wall Street protesters from Zuccotti Park. The library held a collection of more than 5,000 items and provided free access to books, magazines, newspapers and other materials.  According to ALA members who visited the site, the library reflected many of ALA’s core intellectual freedom values and best practices—a balanced, cataloged collection, representing diverse points of view, that included children’s books and reference service often provided by professional librarians.

City officials assured library staff that library materials would be safely transported to a sanitation depot, but the majority of the collection is still missing and returned items were damaged, including laptops and other equipment.  The likelihood of recovering all library materials is bleak, as witnesses reported that library materials were thrown into dumpsters by police and city sanitation workers.

Longstanding ALA policy states:

“The American Library Association deplores the destruction of libraries, library collections and property, and the disruption of the educational purpose by that act, whether it be done by individuals or groups of individuals and whether it be in the name of honest dissent, the desire to control or limit thought or ideas, or for any other purpose.”

American Library Association (ALA) President Molly Raphael released the following statement regarding the destruction of the People’s Library:

“The dissolution of a library is unacceptable. Libraries serve as the cornerstone of our democracy and must be safeguarded. An informed public constitutes the very foundation of a democracy, and libraries ensure that everyone has free access to information.

“The very existence of the People’s Library demonstrates that libraries are an organic part of all communities. Libraries serve the needs of community members and preserve the record of community history.  In the case of the People’s Library, this included irreplaceable records and material related to the occupation movement and the temporary community that it represented.

“We support the librarians and volunteers of the Library Working Group as they re-establish the People’s Library.”

The American Library Association is the oldest and largest library association in the world, with more than 60,000 members. Its mission is to promote the highest quality library and information services and public access to information.

The police and Mayor Bloomberg had no right to destroy these books, magazines, and computers. They had no court orders to do it.  They simply did it because they could. Because they can’t tolerate people learning and thinking for themselves.  In doing so, Mayor Bloomberg and the entire police force have revealed that none of this is about property rights as conservatives and libertarians like to claim. It’s not about the “rule of law” – they ignored the courts. It’s not about protecting some “liberty” or “Western cultural tradition”.  It makes no difference whether the police seize steal private books and destroy them in hiding, or they burn them in public. There’s a long history of  governments and police forces that destroy books. None of it is democratic or supportive of freedom.  It’s about enforcing special privilege for an elite and for destroying democracy.  It is in service to oligarchy, not democracy or liberty.

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?  

Rhetoric Is A Powerful Tool To Advance Moneyed Interests

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Money is essential to a successful economy.  But it’s money in circulation that’s useful.  Money that’s locked up in storage in vaults and savings doesn’t help.  The early economists understood this well and often used the analogy of money-is-to-economy as blood-is-to-human-body.  Circulating money, money that is used to buy things is as important to the economy as the blood in your arteries and veins.  The analogy works.  It leads us to realize that money, and more of it, can and usually is a good thing.

The analogy, however, doesn’t work for those economists and policy-makers who want are more interested in enabling the top 1% or so to profit at no risk by earning income on holding money.  Theoretically, the rich, the top 1%, could earn income from their large stores of wealth by investing it in production.  But the profit-by-investment-in-production method requires risk. It’s hard. It requires work to find and exploit good investment opportunities. From the perspective of the really wealthy, it can be more desirable to make money by simply owning money.  To do that, it’s necessary to that there be no inflation. They actually prefer deflation because then their cash wealth gets more valuable without being risked or used productively at all. The other approach to making money without risk by simply owning money is to lend it. Instead of starting, owning, and building a business, investing in equity, you make loans. Ideally you use your wealth and influence to get politicians to guarantee your loans – heads you win and tails somebody else loses. These approaches to making money by simply owning money require that money be scarce and hard to get.  It’s directly counter to the money in circulation paradigm.  A circulatory system deprived of money is good thing those who make money from money instead of labor.

But to persuade the mass of people, the 99%, the ones earning money from labor, it’s necessary to change the metaphor.  That’s been rather effectively in the second half of the 20th century.  It’s been done by extending a different metaphor.  Economists have long used the word liquidity for the idea of how easy it is to convert an asset into cash and therefore spent. For example, real estate (particularly in this market) is very illiquid.  I could own a $1 million house but be unable to buy a Coke from the 7-11 store because I lack any cash.  That’s an extreme example of illiquidity.  In contrast, a liquid asset is one that is either actually cash or easily turned into cash so it can be spent.  There’s a whole range of assets in between with varying degrees of liquidity.

This idea of liquidity and it’s association with cash has been used to push a metaphor that suggests the problem is too much money in the economy.  We’re peppered with phrases like “drowning in debt” or a house mortgage that is “underwater”.  It makes us feel that the liquid stuff is undesirable.  So we get  a central bank that’s reluctant to create and inject money into the economy because critics claim that will create too much liquidity and they falsely claim that it’s inflationary.  When the central bank does increase inject liquidity into the economy, it does it by getting the money to precisely the people who keep it from circulating.  We get a government that refuses to use it’s ability to directly inject money into the economy and get it into circulation.

Government ultimately is the source of all money.  Only government can define and create money.  It has two ways to do it. It can simply create (“print” or “mint” if you will, but it’s not that way anymore) money and spend it.  That puts money immediately into circulation in the circular flow of goods and services.  Or, the government could create money reserves for the banks, a riskier strategy.  The banks then can lend using a fractional reserve logic.  If the banks lend out the reserves, then money is created.  If the borrowers from the banks spend the borrowed money, then it’s in circulation.  If the borrowers use the money to simply buy other financial assets, then it’s not in circulation and is sterile.

In our modern system, the government (in the U.S. and many other nations) has delegated the responsibility for creating money and putting it into circulation to quasi-private central banks such as The Federal Reserve Bank.  In today’s workings of the financial system, these central banks have further delegated the responsibility and decision-making on money-creation to private commercial banks by providing reserves for whatever level of loans they choose.  When those banks choose not to create money or choose not to create and provide money in a way that puts it into circulation, the system suffers. We suffer from too little liquidity.

Daniel Becker at Angry Bear made this point very well in a long post there in June 2011.  He points out that we should really talk about “dehydrating in debt”, not “drowing in debt”.  The dehydration metaphor leads us directly to the solution – more money in circulation.  I from the conclusion to his post:

Got that? Let’s summarize: The share of income to the 99% of people declined from 1976 onward. At the same time the means of making money changed from labor production to money manipulation (producer economy to finanicialized economy) adding to the reduction in share of income. We also changed the ideology to one from relying on the vast population (as represented by the individual and We the People) to relying on a small portion of the population to distribute what money was created. We did this for 33 years. By 1996, people were borrowing as a means to sustain their standard of living (not increase it). If the people are not spending to increase their standard of living, then is the economy really growing? By 2006 people were no longer able to make the payments and consumption was declining.  Then gas hit $4/gal and winter heating was looking like another $4000 to $6000 would be needed.

To date, nothing has been done to address this. Nothing at all. And, by “this” I mean, the income inequality that has resulted in an an economy where a very small group of people (top 1%) are taking money out of the system (that is money that would fuel the engine) faster than the engine can make it which results in an ever faster declining share to the rest of the people. Instead, we have refined new fuel and dumped it right into the top 1%’s hands and wonder why the engine is still sputtering?

One other issue I have with framing and the words used today: Under water.

People are not under water. They are not drowning in debt. On the contrary, people are dehydrating. They are starving for water. Do you know what the symptoms are of dehydration? You get thirsty and then urinate less to conserve water. (debt spending) Then you stop making tears and stop sweating. (can’t borrow) Eventually your muscles cramp, the heart palpitates and you get dizzy. (close to bankruptcy, voting against your interest) Let it go long enough and you get confused, weak and your coping mechanisms fail. (Tea Party, etc) In the end, your systems fail and you die. (recession)

People are dehydrating and Washington is doing nothing about it because they believe it is drowning.  They are throwing out life boats to people in a desert.  That is the chart Ken linked to.

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.

Banks Want to Do To Student Loans What They Did to Mortgages

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On the heels of yesterday’s post about student loans and their growth.  I want you to know that Wall Street is hot on the problem.  They’ve made a quiet proposal to the “supercommittee” that’s supposedly addressing government deficits to have the government subsidize the banks via fees without creating any more student loans or taking on any risk.  The essence of the whole proposal is to leave the government on the hook for student loans but to use accounting tricks to “take them off the books”.  It’s similar to the ways the big banks prior to the crisis would take debt and obligations they had and hide them in “special purpose entities” so they wouldn’t have to show them on their books.  There’s no benefit to investors, students, or the government from the proposal. Only the banks benefit.  But maybe that’s why they aren’t talking about the proposal in public but instead try to get it passed quietly through lobbyists.

Jason Delisle of New America Foundation’s Higher Ed Watch explains (bold emphases are mine):

The investment banking industry – and its friends in Congress – have cooked up a scheme they are pitching to the “supercommittee” that they say would reduce the federal debt and cut federal spending. Supposedly, the plan would take the government’s $555 billion direct student loan holdings off of its books. In reality, the plan, which would allow the bankers to earn fees on a $555 billion deal, plus $100 billion more every year, would not reduce the debt or cut spending. But that hasn’t stopped Wall Street from trying.

A proposal that could only have been be cooked up by investment bankers is circulating on Capitol Hill. It would refinance the $555 billion direct student loan portfolio with new debt backed 100 percent by the federal government. But this new debt would not be called U.S. Treasury debt, despite the 100 percent guarantee, and therefore not counted as part of the national debt. In other words, the new debt would be used to pay off the old debt (Treasury bonds) that the government issues to finance direct student loans. To be sure, the mechanics of the proposal are more complicated than that, but the effect of the proposal would be to move all outstanding and future student loans from bonds backed 100 percent by taxpayers to another set of bonds backed 100 percent by taxpayers but not counted as part of the national debt. …

The proposal would increase federal spending because the new securities the government would issue to finance direct loans would have higher interest costs than the Treasury bonds they would replace, effectively increasing the cost of every direct loan. Investors would view the new securities as slightly less desirable than Treasuries (even though they still carry a 100 percent guarantee from the federal government) because they will not be as liquid (easily bought and sold among investors). The new securities would also be subject to prepayment risk…Then there are the fees that the government would have to pay to investment banks (the “syndicate of underwriters”) to put the new securities on the market each year. Those fees could cost taxpayers tens or even hundreds of millions of dollars every year.

Apparently the supporters of the proposal claim that it would “diversify funding sources”.  In other words, if someday, somehow, some investors wouldn’t want to buy U.S. Treasury bonds (something is emphatically NOT happening now since interest rates are at record lows), then maybe they might be interested in something that’s backed by the U.S. but isn’t called a Treasury bond.  In other words, there’s a slight chance that pigs might someday fly away from the farm so let’s have a bunch of hogs that well call “pink cows”.  Jason speaking again:

Some members of Congress – particularly Republicans – would simply feel better if the direct loan program were funded with “private capital” rather than U.S. Treasury bonds….[but] the securities would be sold in the same markets as Treasury bonds and the capital raised to finance direct student loans would be no more or less “private” than it was before.

If the Wall Street proposal to refinance direct student loans doesn’t actually reduce the debt, increases the federal budget deficit, and doesn’t make the program’s financing any more dependent on the private market than it already is, what does it do? It effectively addresses what some see as the direct loan program’s biggest shortcoming; it doesn’t allow Wall Street to make a ton of money off of it.

So Wall Street wants to do to student loans what it’s done to home mortgage finance.  Have somebody else, such as the federal government, guarantee that they cannot lose any money.  Then, they want to bundle them and re-sell them solely for the purposes of making more fees – just like they did with mortgage-backed securities and credit default swaps and other derivatives.  If I recall correctly, that didn’t really work out too well now did it?  Well it worked out for the banks, but not for the rest of us.

Student Loans and the Building Crisis

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Student loans are gradually becoming a crisis.  At the macro level, student loans are the only sector of consumer finance that is growing since the recession began 3 years ago.  Federal student loans outstanding now total more than $1 trillion.  That’s more than total credit card debt.  From Mybudget360.com:

Student loan debt only segment of household debt expanding

The Federal Reserve tracks federally backed student loan debt and the figures are astounding.  The only sector of household debt that has expanded in manic fashion during this recession is with student loans:

debt growth by sectors

Every sector has taken a hit including:

-Home equity revolving debt

-Automobile loans

-Credit card debt

-Other debt

Yet there goes student loan debt saddling countless students with back breaking debt.  Make no mistake, much of the for-profits are growing simply because of the government:

“(USA Today) For profit-schools. The highest default rates are at for-profit schools that tend to serve lower-income students and offer courses online. The University of Phoenix, the nation’s largest, got 88% of its revenue from federal programs last year, most of it from student loans.”

This is absolutely nonsense and shows how the coupling of Wall Street and the government have simply turned education into another commodity to water down and gamble on.  Like the multiple card game tables in Las Vegas higher education is the hottest game in town.

But unlike credit card debt, student loan cannot be reset or forgiven in bankruptcy court.  It’s a permanent burden on the former student.

In theory, the loan shouldn’t be a burden because it was an investment in greater earning power of the former student and now potential worker.  But since this current era of lesser depression or workers depressionbegan, incomes for the college educated have actually declined.  CalculatedRiskBlog quotes from the New York Times recent analyses of U.S. household incomes: (bold emphases are mine)

From the NY Times: Recession Officially Over, U.S. Incomes Kept Falling. A few excerpts:…

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.

What’s more, the unemployment rate is also up for graduates (and all other categories). Mybudget360.com puts a graph to the income dynamics:

 Yet if we look at the earnings potential during the bubble years we see a very troubling picture:

earnings-of-college-grads-and-cost-of-college

Source:  BusinessWeek

Since 2000, in real terms college costs are now up by 23%

Since 2000, in real terms real pay for college graduates is down by 11%

This means potential disaster for graduates and other former students. From Leo Komfield at New America Foundation’s Higher Ed Watch:

The Department of Education recently announced that the national student loan default rate has risen to over 8 percent and we know that this measure provides only a limited view of the troubles that borrowers are having repaying their student loan debt. In the current economy, we can only expect things to get worse unless the Education Department tackles this problem head-on.

Among the defaulters are a large percentage of unemployed college students. It’s bad enough to be unemployed; however, when you add to this difficulty with being classified as a defaulter, you are really in trouble. Defaulting on federal student loans results in a lifetime of financial purgatory — it destroys your credit, making it impossible to obtain a credit card, car loan, and home loan, and it puts you at risk of having your wages garnished, and your tax refunds intercepted by the IRS.

The student loan market is back in the news as it makes its unrelenting march to the $1 trillion mark.  This crippling figure comes in the face of a decade of lost wages for middle class Americans.  Just like the housing bubble people were supplementing a disappearing middle class with more debt.  The allure of housing was that never in our history have we seen national home prices fall, until they did in dramatic fashion.  The same cultural nostalgia for education in every respect has created a zombie higher education system that is now expanding like the mortgage markets at the height of the housing bubble.  Why?  For-profit schools have largely lured in countless Americans into a system that has provided very little economic gains for students while enriching these Wall Street listed companies.  It should come as no surprise that the highest default rates stem from the for-profit system and most of these loans are federal loans.  In 2010 there were $100 billion in student loan originations, the highest ever in the midst of the deepest recession since the Great Depression.

But it also spells a crisis on a much larger scale.  Reports are showing that the OccupyWallStreet movement (#OWS) is partially made up of significant numbers of young people and recent graduates in particular.  These are not the “dirty hippies” and “degenerates” that many conservatives have labeled them.  Rather, they are the people who followed the “rules”. They studied. They went to college.  In large numbers they took responsbility for their future by taking on student loans and investing in their human capital – all things society has told them to do.  Now, almost 4 years since the recession began, there aren’t any jobs for them.  They’ve graduated and now face payments on those loans.  But the jobs simply don’t exist.  When young people are educated and then are denied opportunity, there’s danger for society.  That’s the recipe for revolutions as we’ve seen in Tunisia and Egypt already this year.

 

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.