Americans Vastly Underestimate Wealth Inequality, Support 'More Equal Distribution Of Wealth': Study

by William Alder

Americans vastly underestimate the degree of wealth inequality in America, and we believe that the distribution should be far more equitable than it actually is, according to a new study.

Or, as the study's authors put it: "All demographic groups -- even those not usually associated with wealth redistribution such as Republicans and the wealthy -- desired a more equal distribution of wealth than the status quo."

The report (pdf) "Building a Better America -- One Wealth Quintile At A Time" by Dan Ariely of Duke University and Michael I. Norton of Harvard Business School (hat tip to Paul Kedrosky), shows that across ideological, economic and gender groups, Americans thought the richest 20 percent of our society controlled about 59 percent of the wealth, while the real number is closer to 84 percent.

More interesting than that, the report says, is that the respondents (a randomly selected 5,522-person sample, reflecting the country's ideological, economic and gender demographics, surveyed in December 2005) believed the top 20 percent should own only 32 percent of the wealth. Respondents with incomes over $100,000 per year had similar answers to those making less than $50,000. (The report has helpful, multi-colored charts.)

The respondents were presented with unlabeled pie charts representing the wealth distributions of the U.S., where the richest 20 percent controlled about 84 percent of wealth, and Sweden, where the top 20 percent only controlled 36 percent of wealth. Without knowing which country they were picking, 92 percent of respondents said they'd rather live in a country with Sweden's wealth distribution.

As the new Forbes billionaires list, released Wednesday, testifies, the richest Americans are getting richer, even as the country as a whole gets poorer. After 2005 income inequality continued to balloon.

READ the study:

norton ariely in press

10 Reasons Not to Tax the Rich. And Why They're All Bad

by Paul Buchheit

We hear them all the time, the reasons for unrestricted capitalism, minimal government, lower taxes for the rich. So often that many Americans start to believe them. But the facts and common sense reveal good reasons NOT to NOT tax the rich.

(1) The rich deserve what they earn because of hard work and initiative.

They use other people's money to create assets that don't exist and then bet on them to fail. It seems like twisted humor, but it's real, all part of the murky world of derivatives and credit default swaps. Those who make the most money avoid taxes by calling their income "carried interest" instead of income.

Others not directly involved in financial chicanery still make out well. The stock market has grown 7 times faster than America's GDP since 1981, and two-thirds of the country's stocks are owned by the wealthiest 1% of Americans. That's not enough for some CEOs, though. For many of them it's 'legal' to backdate their stock options to a time in the past when the price was higher.

(2) It's not fair to "soak the rich."

It's been just the opposite for the past 30 years.

Based on Internal Revenue Service figures, if the average middle-income family had just maintained its share of America's productivity held in 1980, it would be making $10,000 more per year ($45,000 instead of $35,000). Some estimates are much higher, up to $30,000 more per year based on Bureau of Labor statistics.

In 1980 the richest 1% got one out of every fifteen income dollars. Thanks to tax cuts and deregulation, they now get THREE out of every fifteen dollars. They already had a big slice of pie, then they cut a second piece, and then a THIRD piece.

Meanwhile, every U.S. taxpayer contributes about $600 a year to pay for the tax cuts that give $34,000 a year to each of the wealthiest 1% of Americans. And now a trillion dollars of public money is used to bail out the failing banking system

(3) "Spreading the wealth" and "redistribution" are other names for socialism.

Not socialism, but social responsibility. Taxes support public infrastructure, including roads, bridges, water treatment systems, railroads. Public money is used to invest in research and development for science and technology.

Much of the tax burden disproportionately benefits the rich: property laws protect private property and capital investment; trade pacts and national defense policies are designed to protect wealth. Bill Gates, Sr. explains, "The government that protects their business activities...that's what creates capital and enables net worth to increase."

(4) The great wealth of the rich stimulates the economy.

Low-income earners have a higher "Marginal Propensity to Consume," which means that they spend a greater percentage of their overall income on consumption. High-income earners, on the other hand, will save more. The very rich in our country have put much of their money into mansions, yachts, jewels, and art.

An analysis by the Congressional Budget Service ranked 11 strategies to create jobs and stimulate the economy. Cutting taxes for the rich was ranked lowest.

The top 500 non-financial companies are currently holding $2 trillion in cash that could be used to create jobs and stimulate new business.

(5) Large incomes provide incentive for success.

Some hedge fund managers 'earned' enough money in one year to pay the salaries of every police officer, firefighter, and public school teacher in Chicago. A system that allows one man to divert the salaries of 50,000 public workers to his own pockets has gone well beyond "incentive-based."

Reputable studies show that life expectancy and 'happiness' increase very little after a certain threshold is reached. That threshold is about $75,000 per family.

(6) The very rich pay it back through taxes.

They pay less than 23% of their incomes in federal income tax. If state and local taxes, social security tax, and excise taxes are included, the lowest-earning half of America pays 24% of their incomes in taxes, almost as much as the richest 1%.

The top tax rate has gone from 90% in 1960, to 70% in 1972, to 50% in 1984 50, to 40% in 1996, to 35% in 2008. But much of billionaires' earnings is subject to only a 15% tax because of a loophole that allows hedge fund income not to be called income.

Furthermore, about 500 people a year renounce their U.S. citizenship and repatriate themselves to countries such as Belize and the Cayman Islands to avoid taxes entirely.

(7) The very rich lost massive parts of their fortunes in the recession.

They lost money, but no more, percentage-wise, than average mid-level earners. Wealth data from the Census Bureau and the Federal Reserve show that the richest households have INCREASED their median incomes relative to other earners since 2006.

(8) "Income mobility" shows that the poor can get rich, and vice versa.

This argument relies on a 2007 U.S. Treasury Department report about income mobility that states "Among those with the very highest incomes in 1996 - the top 1/100 of 1 percent - only 25 percent remained in this group in 2005." But nearly 9 out of 10 of those in the top 1% remained in the top quintile of earners over those ten years. They may have dropped out of the most elite 1% group, but they remained close. The apple doesn't fall far from the tree.

(9) The rich support worthwhile causes.

According to the Chronicle of Philanthropy, the wealthy "give their biggest donations" to colleges, hospitals, and cultural organizations and "rarely make large gifts to social-service groups, grass-roots organizations, or nonprofit groups that focus on the poor or minorities."

And as noted by former Secretary of Labor Robert Reich, hundreds of millions of dollars are being contributed to congressional and state election races. Especially since the Supreme Court ruled against limits on corporate contributions.

(10) Inequality is necessary to sustain a healthy and productive society.

This may be the worst reason of them all. Not only is it not necessary, but it's dangerous: Richard Wilkinson and Kate Pickett have documented the numerous studies that correlate inequality with shorter life expectancies, increased disease and health problems, and even higher murder rates.

The statistics clearly indicate that rates of illness in an unequal society are higher at all levels of income, even for the very wealthy.

Paul Buchheit is a faculty member in the School for New Learning at DePaul University.

The Haves, the Have-Nots and the Dreamless Dead

by Emily Kaiser

WASHINGTON - In 2007, when the world was on the brink of financial crisis, U.S. income inequality hit its highest mark since 1928, just before the Great Depression.

Coincidence? Maybe not.

Economists are only beginning to study the parallels between the 1920s and the most recent decade to try to understand why both periods ended in financial disaster. Their early findings suggest inequality may not directly cause crises, but it can be a contributing factor.

This raises a host of social, economic and political questions. Should public policy aim to reduce inequality, and if so by what means? Does concentrated wealth at the top of the income spectrum generate asset bubbles, or vice versa? Could raising taxes or interest rates ward off financial meltdowns?

Americans are generally not bothered by inequality because they believe with hard work, they, too, can strike it rich. Government policies aimed at spreading the wealth rarely get much support. (Remember 2008, when then-candidate Barack Obama's campaign-trail comment about redistributing the wealth catapulted "Joe the Plumber" into media stardom?)

"It is usually only left-leaning rich people that care about inequality in the U.S.," said Carol Graham, a senior fellow at the Brookings Institution think tank who studies the economics of happiness.

Those attitudes may be subtly shifting, although it is unclear that this is anything more than just a temporary knee-jerk reaction to the latest bout of turmoil.

Public opinion polls show voters mixed on whether to back higher taxes on the wealthiest households, as President Obama has proposed. The issue is so contentious that Congress put off its decision until after the November 2 midterm elections.

Resentment toward Wall Street is simmering as bankers' paychecks swell to pre-crisis levels while unemployment remains more than twice as high as it was in 2007. Some politicians have been voted out of office simply because they supported the $700 billion bank bailout enacted in 2008.

Yet there is nowhere near majority backing for the sort of progressive New Deal policies passed during the Great Depression, which helped narrow the wealth gap and keep it contained until it resumed widening in the 1970s.

This time around, the wealth disparity narrowed in 2008 because rich households took a heavier hit from the financial crisis, but Census Bureau data shows it turned around immediately. In 2009, inequality was at the highest level since Census began tracking household income in 1967.

America has one of the largest wealth gaps among advanced economies. Based on an inequality measure known as the Gini coefficient, the United States ranks on a par with developing countries such as Ivory Coast, Jamaica and Malaysia, according to the CIA World Factbook.

TRACKING THE DIVIDE

Emmanuel Saez, a University of California, Berkeley, economist who was awarded a 2010 MacArthur Foundation "genius" grant for his work on income inequality, said recession-induced income declines for the super-rich tend to be fleeting unless there are "drastic" regulatory and tax policy changes.

His research with co-author Thomas Piketty shows the top 1 percentile of households took home 23.5 percent of income in 2007, the largest share since 1928, but that slipped back to 20.9 percent in 2008. (Unlike Census, Saez relies on IRS tax data, which is released with a two-year lag, so he does not yet have figures for 2009.)

During the last period of economic expansion, 2002 to 2007, the top 1 percent enjoyed 10.1 percent annual income growth, adjusted for inflation. For the other 99 percent, the growth rate was just 1.3 percent, Saez found. That meant the top 1 percent received 65 cents of every dollar in income growth.

"We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional reforms should be developed to counter it," he concluded.

COMMON THREADS

There is little agreement among economists about what precisely links high inequality to crises, which helps explain why so few officials saw the financial upheaval coming.

Rapid expansion of credit is one common thread.

Robert Reich, a Berkeley public policy professor and a labor secretary under President Bill Clinton, thinks stagnant middle-class wages led households to pull equity from their homes and overload on debt to maintain living standards.

Raghuram Rajan, a professor at the University of Chicago's Booth School of Business and a former chief economist of the International Monetary Fund, believes governments tend to promote easy credit when inequality spikes to assuage middle-class anger about falling behind.

"One way to paper over the rising inequality was to lend so that people could spend," Rajan said.

In the 1920s, it was expansion of farm credit, installment loans and home mortgages. In the last decade, it was leveraged borrowing and lending, by home buyers who put no money down or investment banks that lent out $30 for each $1 held.

"Housing credit gave you an instrument to assist those falling behind without them feeling they're beneficiaries of some sort of subsidy," Rajan said. "Even if their incomes are stagnant, they feel really good about becoming homeowners."

BUBBLES AND YACHTS

Another theory is that concentration of wealth at the top sends investors searching for riskier interest-bearing savings. When so much cash is sloshing around, traditional safe investments such as Treasury debt yield very little, and wealthy investors may seek out fatter returns elsewhere.

Mark Thoma, who teaches economics at the University of Oregon, wonders if the flood of investment cash from the ultra-rich -- both in the United States and abroad -- encouraged Wall Street to create seemingly safe mortgage-backed securities that later proved disastrously risky.

"When we see income inequality rising, we ought to start looking for bubbles," he said.

Kemal Dervis, global economy and development division director at Brookings and a former economy minister for Turkey, said reducing inequality isn't just a matter of fairness or morality. An economy based on consumption needs consumers, and if too much wealth is concentrated at the top there may be times when there is not enough demand to support growth.

"There may be demand for private jets and yachts, but you need a healthy middle-income group (to drive consumption of basic goods)," he said. "In the golden age of capitalism, in the 1950s and 60s, everyone shared in income growth."

MISSING THE LINK

The fact that economists are even examining the link between inequality and financial crises shows just how much the thinking has changed in the wake of the Great Recession.

Paul Krugman, the Nobel prize-winning economist, said that before 2008, when he spoke of inequality approaching levels last seen before the Great Depression, it would inevitably lead to questions about whether another crisis was looming.

"No, I'd say -- there really isn't a clear reason why high inequality should lead to macroeconomic crisis," he recalled in a presentation to a conference on income inequality in June.

Now, he says, he is considering whether inequality somehow creates macroeconomic vulnerability.

Krugman certainly wasn't the only one who dismissed the idea of a connection between inequality and crisis before the latest episode.

Ajay Kapur, a Deutsche Bank strategist, spotted the inequality parallels between the 1920s and the most recent decade, but didn't see the meltdown coming. The former Citigroup strategist created a stir five years ago when he built an investment strategy around his thesis that essentially divided the world into two camps: the rich and the rest.

Kapur told clients in 2005 that the United States and a handful of other economies were developing into "plutonomies" where the wealthy few powered economic growth and consumed much of its bounty, while the "multitudinous many" shared the leftovers.

Plutonomies come around only once or twice a century, he argued -- 16th century Spain, 17th century Holland, the Gilded Age. The last time it happened in the United States was during the "Roaring 1920s".

There was money to be made by buying shares of luxury companies that made toys for the rich, he told clients, suggesting a basket of stocks that included upscale retailer Burberry and luxury home builder Toll Brothers.

"When I presented this to clients, they said, 'Okay, this is interesting because you're telling me what happened in the 1920s is happening right now, and you obviously know what happened after 1929, right?'," Kapur said in an interview.

His response? That can't happen again because we know better now.

"To be perfectly honest.... I certainly didn't think it would all melt down in 2007. I'd be lying if I said that."

Kapur still isn't convinced there is a direct connection, and points out that 2007 and 1928 are only two data points and it's dangerous to draw conclusions from such a small sample.

SEEDS OF INEQUALITY

Inequality doesn't always lead to financial crisis, which makes it difficult for policymakers to know when it might be growing into a serious problem that ought to be addressed.

Many of the root causes -- technological advances, financial innovation, higher education -- are social goods, not ills, so it makes little sense to attack them.

The traditional view among economists is that combating inequality would hurt growth. Many argue that inequality is "if anything, favorable to -- or at least a necessary by-product of -- economic growth," as Federal Reserve Bank of Dallas researchers wrote in a 2008 paper on inequality.

In the decades before the Great Depression, advances in mass-production and transportation enabled large-scale factories to churn out more goods with fewer workers.

In the past two decades, the big change was the explosion of personal computing and the Internet. The ability to instantaneously transmit masses of information over thousands of miles meant workers no longer needed to be in the same place, and jobs could easily shift to low-cost locales such as Bangalore, India, or Shenzhen, China.

Demand for unskilled labor fell. The relatively small segment of the population with the qualifications to compete -- in the 1920s, a high school diploma; in today's economy, a college degree -- earned more money, widening the wealth gap.

Unemployment data bears that out. Even before the latest recession started in late 2007, the jobless rate for those with only a high school diploma was more than double the rate for those with at least a Bachelor's degree. As of September 2010, unemployment among high school graduates was 10 percent; for those with a four-year college degree it was just 4.4 percent.

This suggests one government response to inequality should be to channel more money into education, said Jack Ablin, chief investment adviser for Harris Private Bank in Chicago.

Ablin said only a small sliver of his high net-worth clients inherited their wealth, so simply comparing wealth concentration between the 1920s and now may be a bit unfair.

"Becoming wealthy in the olden days was almost genetic," he said, referring to wealth handed down from generation to generation.

I CAN BE BILL GATES

The work hard, get rich formula is deeply embedded in the American psyche, which helps explain why Americans have generally tolerated inequality.

For every dynastic family name such as Kennedy or Rockefeller, there are those who reached the top through creativity and sweat, from Sam Walton who built the global Walmart empire from a single dime store in Arkansas, to Google founders Larry Page and Sergey Brin who started their company in a garage.

Rags to riches tales are an integral part of what makes the United States a beacon to immigrants who dream of a better life. No one embodies that better than President Obama, whose mother once turned to food stamps to feed her family, yet he was able to attend top-tier universities and aspire to the most powerful office in the world.

Graham, the Brookings economist who studies happiness, said most Americans, including the poor, believe that hard work is more important than luck in getting ahead.

"If I work hard enough, I too can be Bill Gates," is how Graham explains the philosophy.

The only groups that don't share that view and consistently rank toward the bottom on measures of happiness are the long-term unemployed and those without health care, she said.

Both groups grew during the recession. As of September, there were 6.1 million people who had been out of work for more than six months, more than four times as many as there were at the start of the recession.

Deborah Coleman is one of the long-term unemployed. There is no disguising the anger felt by the 58-year-old former telecommunications company manager in Cincinnati, who has been out of work for more than two years.

"Am I pissed that I have lost everything while the rich on Wall Street are still living it up? You bet I'm pissed," she said. "I'm one of the many people who've lost everything and then been swept under the carpet."

TAXING THE RICH

Graham does not yet have enough data to determine whether attitudes toward inequality shifted after the financial crisis, but she suspects there has been very little movement.

The debate over whether to extend Bush-era tax cuts for the wealthiest households may provide an early litmus test. Obama has proposed keeping the lower tax rates only for families making less than $250,000, but Republicans and a handful of Democrats went them extended for all.

Obama's framing of the issue suggests the White House does not see much voter support for using tax policy to even out income inequality.

On the campaign trail in 2008, Obama told Joe Wurzelbacher, who became known as Joe the Plumber, that if the economy is good for those at the bottom, it's going to be good for everyone. His comments about redistribution sparked fury among conservatives who saw it as evidence the future president harbored socialist leanings.

Since that "spread the wealth" gaffe, Obama has chosen his words more carefully and regularly points out that he is no modern-day Robin Hood.

Ending the tax breaks for the wealthiest "isn't to punish folks who are better off -- God bless them -- it is because we can't afford the $700 billion price tag," Obama said recently.

His opponents say imposing higher taxes would kill the economic recovery because the rich spend, invest and hire more than everyone else, faintly echoing the plutonomy theme laid out by Deutsche Bank's Kapur.

DREAMLESS DEAD

Like cholesterol, there is a "good" and a "bad" kind of inequality, according to Francois Facchini, an economist at the University of Paris.

The "good" kind is aspirational. It encourages people to strive toward success, like Graham's Bill Gates analogy. The "bad" kind fosters disillusionment, a feeling that no matter how hard you work, you cannot win.

Pollster John Zogby sees a growing number of Americans falling into the second category. He calls them the "Dreamless Dead," those who no longer believe in the existence of the American Dream of hard work begetting success.

Those who work hard but fail to get ahead lose faith in the dream, he said. Beginning in the 1990s, Zogby noticed an increase in the percentage of people who said they were working in jobs that paid less than previous positions.

"That's when I started to zero in on the American Dream because my assumption was it was going up in smoke," he said.

In the early 1990s, 14 percent of those polled by Zogby said they were making less money than they had before. After the recession, the percentage had more than doubled.

Janet Townsend, who has worked at General Motors for 34 years, is one of those faced with the prospect of a drastic pay cut. She was told she'd have to take a 50 percent wage reduction because GM wanted to sell the Indianapolis plant where she works to a private investor. Union workers opposed the deal. The plant will be shut next year.

"I haven't seen any auto executives or Wall Street bankers taking a paycut, in fact their pay seems to keep going up," she said. "This country is built on the principles of life, liberty and the pursuit of happiness.

"But when a corporation tries to make me take a 50 percent pay cut, then you're taking away my right to pursue happiness while enhancing your own."

A NEWCOMER TO WASHINGTON

If inequality can lead to financial catastrophe and voter outrage, should Washington try to stop it from getting too wide?

Obama's avoidance of spread-the-wealth comments would indicate the White House does not think there is political backing for policies aimed explicitly at redistribution.

However, at least one new arrival to Washington's policy-making scene, Fed Vice Chairman Janet Yellen, has expressed concern that extreme inequality could ultimately undermine American democracy.

"Inequality has risen to the point that it seems to me worthwhile for the U.S. to seriously consider taking the risk of making our economy more rewarding for more of the people," she wrote in a 2006 speech.

The public policy response depends on what the root problem really is. Thoma, the University of Oregon economist, said it still isn't clear whether bubbles cause inequality or inequality causes bubbles.

If it is the former, Yellen and the Fed could play a role in preventing disaster by raising interest rates or tightening regulation when they see evidence of a dangerous asset price bubble building.

Fed Chairman Ben Bernanke has argued that interest rates are too blunt of an instrument to prick asset bubbles because they could tip the entire economy into recession rather than targeting a narrow source of instability.

If inequality is the core issue, more progressive taxes or investing in education programs might be more effective.

ON AVERAGE, YOU'RE DOING OKAY

Before policymakers can act, they will need to get better at identifying unsafe imbalances.

The most commonly used measuring tools, such as per capita income, can be misleading because they report at averages. Data on average income, for example, can be skewed by huge gains at the top, making spending power appear higher than it really is.

Willard Wirtz, who was President John F. Kennedy's labor secretary in the 1960s, is often credited with saying: "When you have your head in the freezer and your feet in the oven, on average you are doing okay."

Steve Landefeld, director of the Bureau of Economic Analysis which produces thousands of reports including GDP, has proposed adding more data series that might serve as an early warning system that imbalances were building.

One bright red flag that policymakers seem to have missed pre-crisis was the disconnect between swiftly rising house prices and stagnant wages for most middle-class workers.

TESTING SOCIAL COHESION

Left alone, income inequality looks likely to continue rising at least through this year. The stock market has already regained more than half of the ground lost between an October 2007 all-time high and a March 2009 trough. Those gains flow disproportionately to the wealthy.

Meanwhile, the overall unemployment rate will probably end the year about where it started, at 9.7 percent, while the education gap widens. The jobless rate for college graduates has come down by 10 percent since January; for those who didn't finish high school, it has risen 1 percent.

This pattern has been in place for more than a decade and it has not generated much popular support for addressing income inequality. That may change as strained U.S. finances eventually force officials to choose where to cut spending.

In the next five years, the government debt burden may reach a critical point where it is growing at a faster rate than the economy, pushing up taxes and diverting money that could be spent more productively on research or education.

Credit rating agency Moody's has warned that the budgetary decisions facing the United States and many other rich countries may "test social cohesion."

"Will society accept the measures that need to be taken to stabilize the debt position of the government?" Moody's analyst Steven Hess said in an interview.

"Economic growth is not going to get the country out of the negative debt trajectory it now faces," he said.

Means-testing social security payouts so that less money goes to the wealthiest would be one way to help curb the deficit and income inequality at the same time. Other ideas might include phasing out tax write-offs for mortgage interest for higher-income homeowners.

Both options are likely to be considered by a federal deficit commission that is due to report its findings in December. Its recommendations, however, are not binding, so Congress may choose an entirely different path -- one that does less to address inequality.

Hess said he did not expect the sort of riots and protests that have marked austerity pushes in Greece and other parts of Europe, but said inequality can heighten social tension.

Kapur, the strategist behind the plutonomy thesis, said the forces that put the United States into his plutonomy category appear to have peaked, and he has shifted his investment focus to emerging markets where returns look sweeter.

Although he did not see the financial crisis coming back in 2005, he accurately predicted what would eventually undermine his investment strategy. Time will tell whether he also foreshadowed shifts in U.S. attitudes toward inequality.

"Perhaps one reason that societies allow plutonomy is because enough of the electorate believe they have a chance of becoming a Pluto-participant," he wrote back then.

"Why kill it off if you can join it? In a sense, this is the embodiment of the 'American Dream'. But if voters feel they cannot participate, they are more likely to divide up the wealth pie, rather than aspire to be truly rich."

(Additional reporting by Nick Carey and Kim Dixon; Editing by Jim Impoco and Claudia Parsons)

Wall Street Has Already Voted

by Holly Sklar

Before Wall Street drove our economy off a cliff, bullish Citigroup strategists dubbed the United States a "plutonomy." They said, "There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the 'non-rich,' the multitudinous many, but only accounting for surprisingly small bites of the national pie."

Inequality had increased so much since the 1980s, Citi strategists noted in 2005, that the richest 1 percent of households and the bottom 60 percent had "similar slices of the income pie!" Even better, they said, "the top 1 percent of households account for 40 percent of financial net worth, more than the bottom 95 percent of households put together." And the Bush "administration's attempts to change the estate tax code and make permanent dividend tax cuts, plays directly into the hands of the plutonomy."

In "Revisiting Plutonomy: The Rich Getting Richer," Citi strategists considered the risk of backlash. "Whilst the rich are getting a greater share of the wealth ... political enfranchisement remains as was - one person, one vote," they said. "At some point it is likely that labor will fight back against the rising profit share of the rich and there will be a political backlash against the rising wealth of the rich." This could be felt, for example, "through higher taxation (on the rich or indirectly though higher corporate taxes/regulation)."

Fast forward. Wall Street wrecked the economy and was bailed out by the rest of us. "Pay on Wall Street is on pace to break a record high for a second consecutive year," the Wall Street Journal reports. Main Street, meanwhile, suffers record high foreclosures speeded by robo-signers.

Big businesses have a record amount of nearly $2 trillion in cash and are borrowing money cheap to buy other companies, buy back stock and pay out more dividends. Small businesses can't get credit to buy more equipment or hire more workers.

According to the latest IRS data, the 400 richest taxpayers increased their average income by 399 percent, adjusted for inflation, between 1992 and 2007, and lowered their effective income tax rate by 37 percent - from 26.4 percent to 16.6 percent.

This year, the Forbes 400 richest Americans, all billionaires, enjoyed an 8 percent rise in their wealth - while more than one out of eight Americans depends on food stamps.

The backlash is here, but it's lashing in the wrong direction. The anti-government Tea Party rage plays directly into the hands of the Kings of Wall Street.

Wall Street has already voted, pouring money into Republican campaigns and anti-Democratic ads by astroturf groups that don't have to disclose their Big Bank, Big Oil, Big Business donors. "Our target ratio for the 2010 cycle is 80-20 Republican," American Financial Services Association representative Karen Klugh told Politico.

Wall Street expects a good return on their investment. "Wall Street is preparing for a Republican surge in Congress that could help it block proposed taxes on banks and investments, blunt new financial regulations and regain some of the lobbying firepower it lost during the financial crisis," Bloomberg reports. "Banks would prefer to have Republicans overseeing the regulators, lobbyists said."

Wall Street wants freedom to gamble with our money - including the Social Security funds Republicans want to try again to privatize.

"The Republican agenda could also give new life to free-trade agreements with Colombia, Panama and South Korea," Bloomberg reports. That's good news for the plutocrats. As Citigroup said in 2005, "Globalization is making it easier for companies to either outsource manufacturing (source from cheap emerging markets like China and India) or 'offshore' manufacturing (move production to lower cost countries)."

Average wages are 7 percent lower today, adjusted for inflation, than they were back in 1973. Do you want to go lower?

The richest 1 percent has more wealth than the bottom 95 percent combined, but just 1 percent of the vote.

Wall Street plundered your livelihoods, homes and retirement funds - and now they want you to bail them out, again, with your vote.

They want to sell you bait-and-switch candidates like they sold you bait-and-switch mortgages. And laugh all the way to the bank.

Wall Street has voted. It's your turn.

Holly Sklar is author of "A Just Minimum Wage: Good for Workers, Business and Our Future" (www.letjusticeroll.org) and "Raise the Floor: Wages and Policies That Work for All of Us." She can be reached at hsklar.writer[at]gmail.com.

Distributed by McClatchy-Tribune News Service

It's Official: US Now a Banana Republic

After more than a century imposing banana republics on much of the rest of the world, the American ruling class has finally achieved the same for the homeland...

by Nicholas D. Kristoff

In my reporting, I regularly travel to banana republics notorious for their inequality. In some of these plutocracies, the richest 1 percent of the population gobbles up 20 percent of the national pie.

But guess what? You no longer need to travel to distant and dangerous countries to observe such rapacious inequality. We now have it right here at home — and in the aftermath of Tuesday’s election, it may get worse.

The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976. As Timothy Noah of Slate noted in an excellent series on inequality, the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.

C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.

That’s the backdrop for one of the first big postelection fights in Washington — how far to extend the Bush tax cuts to the most affluent 2 percent of Americans. Both parties agree on extending tax cuts on the first $250,000 of incomes, even for billionaires. Republicans would also cut taxes above that.

The richest 0.1 percent of taxpayers would get a tax cut of $61,000 from President Obama. They would get $370,000 from Republicans, according to the nonpartisan Tax Policy Center. And that provides only a modest economic stimulus, because the rich are less likely to spend their tax savings.

At a time of 9.6 percent unemployment, wouldn’t it make more sense to finance a jobs program? For example, the money could be used to avoid laying off teachers and undermining American schools.

Likewise, an obvious priority in the worst economic downturn in 70 years should be to extend unemployment insurance benefits, some of which will be curtailed soon unless Congress renews them. Or there’s the Trade Adjustment Assistance program, which helps train and support workers who have lost their jobs because of foreign trade. It will no longer apply to service workers after Jan. 1, unless Congress intervenes.

So we face a choice. Is our economic priority the jobless, or is it zillionaires?

And if Republicans are worried about long-term budget deficits, a reasonable concern, why are they insistent on two steps that nonpartisan economists say would worsen the deficits by more than $800 billion over a decade — cutting taxes for the most opulent, and repealing health care reform? What other programs would they cut to make up the lost $800 billion in revenue?

In weighing these issues, let’s remember that backdrop of America’s rising inequality.

In the past, many of us acquiesced in discomfiting levels of inequality because we perceived a tradeoff between equity and economic growth. But there’s evidence that the levels of inequality we’ve now reached may actually suppress growth. A drop of inequality lubricates economic growth, but too much may gum it up.

Robert H. Frank of Cornell University, Adam Seth Levine of Vanderbilt University, and Oege Dijk of the European University Institute recently wrote a fascinating paper suggesting that inequality leads to more financial distress. They looked at census data for the 50 states and the 100 most populous counties in America, and found that places where inequality increased the most also endured the greatest surges in bankruptcies.

Here’s their explanation: When inequality rises, the richest rake in their winnings and buy even bigger mansions and fancier cars. Those a notch below then try to catch up, and end up depleting their savings or taking on more debt, making a financial crisis more likely.

Another consequence the scholars found: Rising inequality also led to more divorces, presumably a byproduct of the strains of financial distress. Maybe I’m overly sentimental or romantic, but that pierces me. It’s a reminder that inequality isn’t just an economic issue but also a question of human dignity and happiness.

Mounting evidence suggests that losing a job or a home can rock our identity and savage our self-esteem. Forced moves wrench families from their schools and support networks.

In short, inequality leaves people on the lower rungs feeling like hamsters on a wheel spinning ever faster, without hope or escape.

Economic polarization also shatters our sense of national union and common purpose, fostering political polarization as well.

So in this postelection landscape, let’s not aggravate income gaps that already would make a Latin American caudillo proud. To me, we’ve reached a banana republic point where our inequality has become both economically unhealthy and morally repugnant.

Copyright 2010 The New York Times

WalMart Heirs Have Same Net Worth As Bottom 30% of US

by Pat Garofalo

Income inequality in the U.S. is currently the highest its been since the 1920s, with the 400 richest Americans (who are all billionaires) having as much wealth as the bottom 50 percent of Americans combined. And as it turns out, just one wealthy family has managed to amass a fortune equal to that of the combined net worth of the bottom 30 percent of Americans — the Waltons, heirs to the WalMart fortune, as Sylvia Allegretto, a labor economist at the Center on Wage and Employment Dynamics, found:

The triennial Survey of Consumer Finances (SCF) is one of the best sources for data on wealth in the U.S. And, of course the Forbes 400 estimates the worth of the wealthiest amongst us—all 400 wouldn’t be captured in the SCF. If we look at both the SCF and the Forbes 400 we can glean some interesting insights.

In 2007 (the most recent SCF) the cumulative wealth of the Forbes 400 was $1.54 trillion or roughly the same amount of wealth held by the entire bottom fifty percent of American families. This is a stunning statistic to be sure.

Upon closer inspection, the Forbes list reveals that six Waltons—all children (one daughter-in-law) of Sam or James “Bud” Walton the founders of Wal-Mart—were on the list. The combined worth of the Walton six was $69.7 billion in 2007—which equated to the total wealth of the entire bottom thirty percent!

Not only have the Waltons gathered a fortune equal to that of the bottom third of the country, but they spend it lobbying to cut their own taxes. For years, the Waltons have been supporting efforts to cut the estate tax, the tax levied on inheritance. Conservatives intent on cutting this tax — which they’ve brilliantly dubbed the “death tax” — led to President Obama agreeing to a “compromise” last year that lowered the rate and increased the tax-free exemption, giving a senseless tax break to extremely wealthy families.

According to the Congressional Budget Office, “for the 1 percent of the population with the highest income, average real after-tax household income grew by 275 percent between 1979 and 2007,” while it grew by just 18 percent for the bottom 20 percent of the income scale. In a given year, the richest ten percent of the country takes home about one quarter of total income. But Congress still saw fit last year to give a tax break to the very richest families, who have collected fortunes that dwarf anything the rest of the country will ever see. (HT: Huffington Post)

© 2011 ThinkProgress
http://thinkprogress.org/economy/2011/12/09/385941/walmart-heirs-worth-3...

Half of America In Poverty? The Facts Say It's True

by Paul Buchheit

Recent reports suggest that almost 50% of Americans are in poverty or at a "low income" level. The claim is based on a new supplemental measure by the Census Bureau that includes health care, transportation, and other essential living expenses in the poverty calculation.

The concept of "low income" is controversial. It has been defined as earnings between 100 and 199 percent of the poverty level, a claim which, if true, would place every American family making $50,000 or less at a near-poverty level.

Conservative organizations believe the whole 'poverty' issue is overblown. The Cato Institute blames LBJ and Obama for reversing a declining poverty rate. Forbes blames the calculations. The Heritage Foundation argues, "The average poor person, as defined by the government, has a living standard far higher than the public imagines...In the kitchen, the household had a refrigerator, an oven and stove, and a microwave." The case for a growing "consumption equality" is alternately defended and denied.

With emotions running high on both sides, we need to take a balanced look at the available data to determine how well the highest-earning family of the poorest 50% -- a family with a $50,000 income -- can survive. (The maximum individual income for the poorest 50% is about $30,000.)

Start with taxes. It is frequently noted by conservatives that the richest 1% pay most of the federal income taxes, and indeed they paid about 37 percent in 2009, more than the poorest 90% of Americans. But only the richest 5% of Americans have experienced income growth since 1980. And during that time, their tax rate has dropped from 34% to 23%. As for the 3 percent rate paid by the poorest 50%, the Tax Policy Center sums it up nicely: "The basic structure of the income tax simply exempts subsistence levels of income from tax."

More relevant to the poverty issue is that federal income tax is only a small part of the tax expense for lower-income families. According to a study by The Institute on Taxation and Economic Policy, the poorest 50% paid about 10 percent of their incomes in state and local taxes (the richest 1% paid 5 percent). Congressional Budget Office (CBO) figures reveal that the bottom 50% pays about 9 percent of their incomes toward social security (the top 1% pays just under 2 percent). CBO also shows that the bottom 50% is paying about 2 percent of their incomes on excise taxes, a negligible expense for the people at the top. Another year of Bush tax cuts will chop another 1-2 percent off the taxes of the very rich.

So total taxes for the poorest 50% are 24 percent of their incomes (3% + 10% + 9% + 2%), as compared to 29 percent for the richest 1% (23% + 5% + 2% - 1%).

Other significant expenses for low-income people, based on the most conservative estimates from the Bureau of Labor Statistics, the Census Bureau, the National Center for Children in Poverty, the Carsey Institute, and the Economic Policy Institute, include food (10%), housing (27%), transportation (6%), health care (5%), child care (8%), and household expenditures (5%). Expenses for insurance and savings and entertainment, although important to most households, are not being included here.

Energy costs hit low-income families especially hard, taking about 20% of their incomes. At the $50,000 income level the burden is closer to 12%, as generally agreed upon by the Bureau of Labor Statistics, the Coalition for Clean Coal Electricity, the Department of Housing and Urban Development, and the American Gas Association.

Total expenses for the richest family in the bottom half of America?

24% taxes
27% housing
34% food, health care, child care, transportation, household needs
12% energy

That's 97% of their income. The richest family among 70,000,000 households is left with just $1,500 for a car, appliances, a TV, a cell phone, a loan repayment, an occasional night out. It comes to $30 a week, barely enough to take the family out for a pizza.

Critics bemoan the amounts of aid being lavished on lower-income Americans, making dubious claims about $16,800 in government funds going to every poor family and families with $90,000 incomes being classified as "near poor."

The fact is that only 4,375,000 families (out of 70,000,000 in the bottom half) received Temporary Assistance for Needy Families (TANF) in 2010, for a total expense of about $36 billion. Current federal budgets include about $350 billion for food, housing, and traditional 'welfare' programs for needy children, elderly care, and energy assistance. This averages out to about $400 per month per family.

Another fact is that earnings have remained flat for most people while productivity has grown 80% since 1980. If a $50,000 family had received a fair share from their contribution to America's growth, they'd be making $90,000, and they wouldn't need a dime from government.

Conservatives complain about the TVs and refrigerators owned by low-income people. But it's the height of insensitivity to admonish people who are trying to survive in a perversely unequal society.

Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (http://UsAgainstGreed.org, http://PayUpNow.org, http://RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at paul@UsAgainstGreed.org.

Economic Downturn Took a Detour at Capitol Hill

by Eric Lichtblau

WASHINGTON — When Representative Ed Pastor was first elected to Congress two decades ago, he was comfortably ensconced in the middle class. Mr. Pastor, a Democrat from Arizona, held $100,000 or so in savings accounts in the mid-1990s and had a retirement pension, but like many Americans, he also owed the banks nearly as much in loans.

Today, Mr. Pastor, a miner’s son and a former high school teacher, is a member of a not-so-exclusive club: Capitol Hill millionaires. That group has grown in recent years to include nearly half of all members of Congress — 250 in all — and the wealth gap between lawmakers and their constituents appears to be growing quickly, even as Congress debates unemployment benefits, possible cuts in food stamps and a “millionaire’s tax.”

Mr. Pastor buys a Powerball lottery ticket every weekend and says he does not consider himself rich. Indeed, within the halls of Congress, where the median net worth is $913,000 and climbing, he is not. He is a rank-and-file millionaire. But compared with the country at large, where the median net worth is $100,000 and has dropped significantly since 2004, he and most of his fellow lawmakers are true aristocrats.

Largely insulated from the country’s economic downturn since 2008, members of Congress — many of them among the “1 percenters” denounced by Occupy Wall Street protesters — have gotten much richer even as most of the country has become much poorer in the last six years, according to an analysis by The New York Times based on data from the Center for Responsive Politics, a nonprofit research group.

Congress has never been a place for paupers. From plantation owners in the pre-Civil War era to industrialists in the early 1900s to ex-Wall Street financiers and Internet executives today, it has long been populated with the rich, including scions of families like the Guggenheims, Hearsts, Kennedys and Rockefellers.

But rarely has the divide appeared so wide, or the public contrast so stark, between lawmakers and those they represent.

The wealth gap may go largely unnoticed in good times. “But with the American public feeling all this economic pain, people just resent it more,” said Alan J. Ziobrowski, a professor at Georgia State who studied lawmakers’ stock investments.

There is broad debate about just why the wealth gap appears to be growing. For starters, the prohibitive costs of political campaigning may discourage the less affluent from even considering a candidacy. Beyond that, loose ethics controls, shrewd stock picks, profitable land deals, favorable tax laws, inheritances and even marriages to wealthy spouses are all cited as possible explanations for the rising fortunes on Capitol Hill.

What is clear is that members of Congress are getting richer compared not only with the average American worker, but also with other very rich Americans.

While the median net worth of members of Congress jumped 15 percent from 2004 to 2010, the net worth of the richest 10 percent of Americans remained essentially flat. For all Americans, median net worth dropped 8 percent, based on inflation-adjusted data from Moody’s Analytics.

Going back further, the median wealth of House members grew some two and a half times between 1984 and 2009 in inflation-adjusted dollars, while the wealth of the average American family has actually declined slightly in that same time period, according to data cited by The Washington Post in an article published Monday on its Web site.

With millionaire status now the norm, the rarefied air in the Capitol these days is $100 million. That lofty level appears to have been surpassed by at least 10 members, led by Representative Darrell Issa, a California Republican and former auto alarm magnate who is worth somewhere between $195 million and $700 million. (Because federal law requires lawmakers to disclose their assets only in broad dollar ranges, more precise estimates are impossible.)

Their wealth has created occasional political problems for Congress’s richest.

Mr. Issa, for instance, has faced outside scrutiny because of the overlap of his Congressional work and outside interests, including extensive investments with Wall Street firms like Merrill Lynch and Goldman Sachs, as well as land holdings in his San Diego district. In one case, he obtained some $800,000 in federal earmarks for a road-widening project running along his commercial property.

Senator John Kerry, a Massachusetts Democrat who is married to Teresa Heinz Kerry, set off an uproar last year when it was disclosed that he had docked his $7 million, 76-foot yacht not in his home state but in neighboring Rhode Island, which has no sales or use tax on pleasure boats. (Mr. Kerry, worth at least $181 million, voluntarily paid $400,000 in Massachusetts taxes after criticism.)

Representative Nancy Pelosi, the House Democratic leader, was challenged about her wealth, as much as $196 million, by a member of her own party a few weeks ago. Representative Laura Richardson, a California Democrat who is among the poorest members of Congress with as much as $464,000 in debt, attacked Ms. Pelosi at a closed-door Democratic caucus meeting for endorsing a Congressional pay freeze, according to a report in Politico that was confirmed by other members.

Ms. Richardson angrily told Ms. Pelosi that, unlike her, some members needed the raise. Members now make a base pay of $174,000 and would automatically get a cost-of-living adjustment unless they were to decide, for a third straight year, to pass it up. Sheila Krumholz, executive director of the Center for Responsive Politics, said the rising Congressional wealth fuels public doubts about whether members are more focused on their constituents’ interests or their own investment portfolios.

“There’s always a concern that they can’t truly understand or relate to the hardships that their constituents feel — that rich people just don’t get it,” she said.

In an effort to gauge how directly the country’s economic problems affected lawmakers, The New York Times contacted the offices of the 534 current members (one seat is vacant) for an informal survey. It asked if they had close friends or family members who had lost jobs or homes since the 2008 downturn.

Only 18 members responded.

Half the respondents said they had close friends or relatives who lost homes, while the other half said their personal contact was limited to constituents who came for help.

Two-thirds said they had close friends or relatives who had been laid off or had shut down a business during the downturn. The rest knew no one in that category personally.

Representative Anna G. Eshoo, a California Democrat who took part in the survey, said several cousins in their 40s and 50s whom she considers brothers and sisters lost their jobs recently. Without college degrees, none have found work, and they have emphasized to her the importance of unemployment benefits.

“Personal stories are very powerful because it’s not a theory,” Ms. Eshoo said. “It’s not talking points of a party. These are people experiencing the harshness of what is an economic depression for them.”

Multimillionaires in Congress “view life through a different lens,” she said.

Ms. Eshoo herself has escaped the worries weighing on her cousins. While she reported being in debt in 2004, she is now worth an estimated $1.8 million, her financial reports show. She said the rise came mostly from the sale of a family home where she lived for 40 years.

“I was fortunate,” she said. “I’ve lived from paycheck to paycheck most of my life, and I’m a single mother.”

One likely cause of the rising wealth, political analysts say, is the growing cost of a political campaign. A successful Senate run cost on average nearly $10 million last year, and a successful House race was $1.4 million, significantly above past elections.

The prohibitive cost has inevitably drawn richer candidates who can help bankroll their own campaigns and attract donations from rich friends — while deterring less well-off candidates, political analysts say.

The data analyzed by The Times corroborated the idea that incoming members are in fact richer than those in the past. The freshman class of 106 members elected last year, including many Tea Party-backed Republicans, had a median net worth of $864,000 — an inflation-adjusted increase of 26 percent from the 2004 freshmen.

Once in Congress, members benefit from many financial perks unavailable to most Americans. Beyond a base salary of $174,000 — an increase of about 10 percent since 2004, somewhat less than inflation — members get extra pay for senior posts and generous medical and pension benefits, as well as accouterments of power often financed by taxpayers or their campaigns.

While the housing collapse nationwide has hurt many Americans, lawmakers still find the real estate sector the most popular place to park their money, statistics from the Center of Responsive Politics show, and members of Congress continue to profit from their investments there. Perhaps the most tantalizing but hotly debated factor in the rising wealth of Congress is lawmakers’ performance in the stock markets — and the question of whether they are using their access to confidential information to enrich themselves.

In a study completed this year, Mr. Ziobrowski at Georgia State and his colleagues found that House members saw the stocks they owned outperform the market by 6 percent a year. Their research from several years ago found that senators did even better, at 12 percent above average. The researchers attributed the performance to a “significant information advantage” that lawmakers hold by virtue of their positions and the fact they are not bound by insider-trading law.

However, a separate study last year by researchers at Yale and the Massachusetts Institute of Technology found that the portfolios of lawmakers actually performed somewhat worse than average investors. It found that members did do better when investing in companies in their home districts or associated with campaign donors — suggesting that they benefited from their political connections — but still not as well as the average investor.

While concerns go back decades about lawmakers trading on confidential information, the issue drew renewed attention with a new book on the topic, “Throw Them All Out” by Peter Schweizer, and a “60 Minutes” report in November. Both linked high-level briefings that Congressional leaders received on the 2008 financial crisis and on health care to their purchase and sale of certain stocks.

Members insisted that they never traded on information that was not public, and some Congressional leaders pointed out that their investments were in blind trusts managed by professional advisers. Nonetheless, the publicity led some 90 members of Congress to call anew for a ban on insider trading.

Mr. Pastor, the Arizona congressman, said he never relied on fancy stock investments to make money. He said the key to his good fortune was watching what he spends, paying off debts and, at age 68, collecting Social Security and a pension from his days as a county supervisor.

“I don’t see myself as a man of great wealth,” he said. “To say that I’m enjoying a millionaire’s lifestyle — well, I can tell you, I guess a millionaire’s income doesn’t go very far these days.”

Emmarie Huetteman and Derek Willis contributed reporting.

Copyright 2011 The New York Times
http://www.nytimes.com/2011/12/27/us/politics/economic-slide-took-a-deto...

High and Rising Levels of Low-wage Work Cause for Concern

For Immediate Release: January 26, 2012
Contact: Alan Barber, (202) 293-5380 x115

Washington, D.C.- A new report released today by the Center for Economic and Policy Research (CEPR) shows that countries can succeed in reducing low pay, if they take the right steps.

“Low-wage Lessons” (http://www.cepr.net/index.php/publications/reports/low-wage-lessons_cites five lessons on low-wage work), drawn from the recent experiences of the United States and other rich nations. The most important lesson is that countries with more "inclusive" labor-market institutions --high minimum wages, high rates of unionization, a generous safety net, and other similar features-- have a far smaller share of their population in low-wage jobs.

“A country cannot outgrow low-wage work,” said John Schmitt, author of the report and a senior economist with CEPR. “Higher levels of per capita GDP on their own do not lead to a reduction in a country’s share of low-wage work.”

The experience of the United States stands primarily as a model for how not to succeed in reducing low-wage work. The United States has the lowest unionization rate among rich countries, a weak minimum wage, a stingy benefits system, and the highest rate of low-wage work among rich economies. About one-fourth of U.S. workers are in low-wage jobs, according to the standard international definition of low-wage work of earning less than two-thirds of the national median wage. (The median wage is the wage received by the worker exactly in the middle of the wage distribution.)

In the United States, the minimum wage and the Earned Income Tax Credit (EITC) are the two most important policies in place to fight low pay. But, the report argues that they have largely been ineffective.

"The minimum wage and the EITC could be excellent tools to fight low-wage work," Schmitt said, "but, they have been set far too low to make a difference."

The report also emphasizes that low pay is only the most obvious problem facing low-wage workers in the United States. Low-wage workers are also far less likely to have health insurance, paid sick days, paid family leave and other benefits that are common in higher-wage jobs.

###

http://www.cepr.net/index.php/publications/reports/low-wage-lessons

http://www.cepr.net/

Liberals’ Inequality Narrative Ignores Free Trade, Union Busting

by Roger Bybee

The Occupy movement forcefully injected a long-taboo topic—America’s appalling “banana republic”-level economic disparities—into the mainstream political debate.

That inequality has immense implications, from falling wages, to deteriorating healthcare coverage, the overgrown financial sector, and the decline of America's productive base. Such sweeping inequality, deeply rooted in our economic and political system of legal payoffs and policy paybacks, has been intensifed by unionbusting and globalization.

But even many of America’s most liberal mainstream politicians and pundits have narrowed the debate over inequality, perhaps out of a desire to shield President Obama from any pressure coming from his left. The issue of tax inequities has soared in importance, exposing the privileged status enjoyed by CEOs and hedge fund and private equity executives like Mitt Romney. But other crucial dimensions of inequality painfully experienced by ordinary Americans have been crowded out.

For example, the liberal and likable Lawrence O’Donnell, host of MSNBC’s The Last Word, declares in a TV ad that all the talk about “class war” amounts to a battle over a proposed 4 percent increase in tax rates for the super-rich. Really, Lawrence?

The richest 1 percent did not triple their share of the nation’s income during the last three decades—to the current 24 percent—simply through the tax system alone. Nor did the tax system allow the wealthiest 1 percent to capture nearly 9/10 of producitivity gains in recent years, representing a $3 billion upward shift in income.

American media employ a disproportionately large share of pundits who either deny or defend the riches accruing to America’s "job creators”—ranging from the outraged George Will to the sly discounting of the problem by NPR’s Adam Davidson. They are accompanied by a chorus of leading voices—Thomas Friedman and Fareed Zakaria, to name just two, who gloss over the inequities caused by global corporate supremacy.

Even the supposedly liberal pundits—E.J. Dionne, Howard Fineman, Jonathan Alter, Ezra Klein and Richard Wolffe, among others—are remarkably confined in their discussions of inequality. They almost never refer to the 35-year campaign of union-busting by Corporate America, in which 90 percent of union organizing drives are greeted with high-pressure resistance from management, according to Christopher Martin's 2003 book on media coverage of labor, Framed! .

The crucial fact that 31,358 workers get fired in a typical year while trying to unionize thier workplace, according to author Philip Dine, is almost uniformly omitted from liberal pundits' explanations of U.S. inequality. Only in their coverage of public-employee battles in Wisconsin did MSNBC hosts like Rachel Maddow and Ed Schultz discuss union-busting and its role in pushing down wages and eliminating workers’ voice on the job.

The other central weapon in the class war against workers—the threat or actual relocation of production to brutal low-wage conditions found in Mexico and China—has been almost entirely absent from the comments of MSNBC hosts and guests.

John R. MacArthur, publisher of Harper's and author of the superb 2000 book on NAFTA,“The Selling of Free Trade, believes that too many liberal and progressive commentators and pundits have been afraid of criticizing President Obama on a fundamental issue of loyalty to working-class interests. “The so-called liberal media and even its leftish fringe are almost all in the bag for Obama,” said MacArthur, whose book extensively details the almost-unanimous endorsement of NAFTA by the US press corps in 1992 and 1993.

“Obama has been terrible on these issues of globalization,” says MacArthur, pointing to his abandonment of his promise to re-negotiate NAFTA. (The President has even failed to enforce the weak side agreements on labor and environmental issues, following in the footsteps of Bill Clinton and George W. Bush).

Yet the liberal politicians and media voices who should be challenging the role of free-trade and unionbusting in driving down wages and increasing inequality have almost uniformly remained silent. While liberal on a wide variety of issues, pundits like Dionne and Wolffe continue to adhere to the free-trade faith without examining its consequences in lost jobs, depressed wages and devastated factory towns.

Others seem to be operating from the notion that any criticism of Obama will weaken his chances for re-election. “Meanwhile, Obama’s raising money from all the corporate interests who benefit [from free trade],” MacAruthur notes. “People who should be speaking out—like Sen. Sherrod Brown [D-Ohio]—are just not doing it."

Auto bailout far from ideal

To be a bit more specific: Obama’s “bailout” of the auto industry has been portrayed by liberals, especially Ed Schultz, as an unalloyed success. Led by Wall Street financier Steven Rattner, the program caused tens of thousands of GM and Chrysler workers to lose their jobs; federal funds allowed a Chrysler engine-production unit to be shifted from Kenosha, Wis. to Saltillo, Mexico; the number of GM cars imported into the country from Mexico, China, and elsewhere is almost doubled; and no vacant plants were converted to the domestic manufacturing of mass transit equipment.

The valid criticisms of the bailout, raised by the Rev. Jesse Jackson, auto industry expert Prof. Harley Shaiken and others have been borne out, but nonetheless almost entirely forgotten. In his State of the Union address this week, President Obama highlighted the auto industry bailout as one of his signature achievements.

MacArthur notes that when Obama aide David Axelrod was interviewed by CNN’s Candy Crowley, she asked him how the auto bailout was different from what Mitt Romney had done at Bain Capital, a private-equity firm that laid off workers and shut down plants. “Axelrod was really left fumbling for an answer,” he said.

The point is not to sink Obama with a fusillade of criticism about the offshoring of jobs promoted by the free trade agreements he pushed through Congress, but to hold him at least minimally accountable on issues that are crucial to workers so that we do not see an electoral re-run of 2010 this year, when alienated blue-collar workers stay at home, and some vote Republican.

“Here we have the right wing attacking Romney about Bain Capital plundering companies and shutting down plants and moving jobs overseas. The left wing ought to be making a similar critique of Obama,” MacArthur says.

Without any audible and visible pressure to aggressively move to lift wages and control the export of jobs, Obama will simply fall back on pleading with executives to engage in “insourcing” jobs, and then exaggerate the importance of a minor, perhaps inconsequential, trend.

But most of the public, wary of free-trade agreements, knows that the trickle of jobs returning to the U.S. is far smaller than the torrent headed to China and Mexico, a torrent that continues to decimate the families and communities that were once part of the nation’s strong industrial base.

© 2012 In These Times
http://www.inthesetimes.com/working/entry/12626/liberals_inequality_narr...

Roger Bybee is a Milwaukee-based freelance writer and progressive publicity consultant whose work has appeared in numerous national publications and websites, including Z magazine, Common Dreams, Dollars & Sense, Yes!, The Progressive, Multinational Monitor, The American Prospect and Foreign Policy in Focus.

The Heroes of Wall Street-How Democrats Got Their Pockets Picked

by Kevin Horrigan

It's hard to read Thomas Frank's new book, "Pity the Billionaire," without being astonished at what utter nincompoops Democrats are.

This surely was not Frank's primary intent. The book is subtitled, "The Hard-Times Swindle and the Unlikely Comeback of the Right," so it's pretty clear where Frank coming from. But the obvious subtext is how, in a two-party system, Democrats allowed Republicans to pull off the greatest cross-dressing scam since RuPaul became America's Drag Queen.

Frank is a journalist and polemicist best known for his 2004 book "What's the Matter with Kansas?" that explored how Republicans in his home state had used social issues to persuade people to vote against their own economic best interests.

In "Pity the Billionaire," he examines how Republicans -- with help from some Democrats --created policies that led to the financial collapse of 2008, the Great Recession, massive income inequality and the gutting of the middle class. And then the Democrats sat back as the GOP reinvented itself as populist defenders of free-market capitalism.

"Now there is nothing really novel about the idea that free markets are the very essence of freedom," Frank writes. "What is new is the glorification of this idea at the precise moment when free-market theory has proven itself to be a philosophy of ruination and fraud. The revival of the Right is as extraordinary as it would be if the public had demanded dozens of new nuclear power plants in the days after the Three Mile Island disaster; if we had reacted to Watergate by making Richard Nixon a national hero."

For Frank, a key moment in this bizarre turn of events came on Feb. 19, 2009, less than a month after President Barack Obama's inauguration. The TARP bailout bill proposed by President George W. Bush and endorsed by candidate Obama had been passed the previous fall. The new president had just signed the $787 billion economic stimulus bill.

On that day, CNBC business reporter Rick Santelli stood on the floor of the Chicago Board of Trade and began ranting about the unfairness of it all. Not the bank bailout, mind you, but the 6.3 percent of the TARP program intended to help people modify their underwater mortgages.

As it turned out, this program hasn't been particularly successful because banks refused to go along. But on that Feb. 19, Santelli was incensed at the unfairness of it all -- that "losers" with bad mortgages might be helped and that the salt-of-the-earth traders who were cheering him on were being punished for being successful and prudent.

Santelli's rant went viral on the Internet. So-called Tea Party rallies began to be held. "Your mortgage is not my problem," read a sign at one of them.

Self-promoters seized them as a way to cash in -- a fine conservative tradition, Frank writes -- and the right-wing foundations funneled money to them. What could have been, and should have been, populist outrage against the people whose greed brought the house down was subtly turned into protests against "elitists" (i.e., Democrats) who were attacking "free markets" (i.e., cracking down on banks and health care costs).

The Tea Party, Frank says, became defenders of a Darwinian version of free markets intended to "trample the weak."

Frank spends a great deal of attention on the various absurdities peddled at the time by Glenn Beck on Fox News -- "bogus populism shores up ironclad elitism and ... bogus enlightenment serves the most grotesque form of dupery."

But Beck and his ilk could not have gotten away with it had (a) people been more discerning about what they were hearing and (b) had Democrats mounted some kind of response.

As to (a), Frank quotes from one of the Tea Party's favorite movies, "Network," where the mad-as-hell-not-going-to-take-it-any-more newscaster Howard Beale explains, "We deal in illusions, man. None of it is true. But you people sit there day after day ... we're all you know."

As to (b), the question of where the Democratic response was, that's still a mystery. Aside from perhaps Elizabeth Warren, architect of the Consumer Financial Protection Bureau and now a U.S. Senate candidate in Massachusetts, no Democrat has been particularly successful in articulating where the blame belongs.

Until recently, Obama floated above it all, finding common cause with Wall Street and health insurance firms, trying to compromise with people who were elected not to compromise, playing his preferred "long game," avoiding intemperate language.

This allowed the GOP to retake control of the House and pass themselves off as defenders of the average guy. And anyone who has the temerity to point out how stupid you'd be to fall for that is labeled an "elitist." As the British political scientists David Runciman has noted, "There is nothing voters hate more than having things explained to them as though they were idiots."

Republicans understand that. Democrats aren't very good at it. If they hope to avoid catastrophe in November, they'd better figure it out.

© 2012 Kevin Horrigan
http://www.cleveland.com/opinion/index.ssf/2012/01/how_democrats_got_the...

Kevin Horrigan is a member of the St. Louis Post-Dispatch editorial page staff.

Social Justice Quiz 2012: Thirteen Questions

by Bill Quigley and Sam Schmitt

Question One. The combined pay of the 299 highest paid CEOs in the US is enough to support how many median salary jobs?

45,000? 83,000? 102,325?

Two. The median net worth of black households in the US is $2,200. What is the median net worth of white households in the US?

$4,400? $44,000? $97,000?

Three. The US Department of Housing and Urban Development issues a national survey every year listing fair market rents for every county in the US. HUD also suggests renters should pay no more than 30 percent of their income on housing costs. In how many of the USA’s 3068 counties can someone who works full-time and earns the federal minimum wage pay 30% of their income and find a one-bedroom apartment at the fair market rental amount?

19? 368? 1974?

Four. How much must the typical U.S. worker earn per hour to rent a two-bedroom apartment if that worker dedicates thirty percent of his income, as HUD suggests, to rent and utilities?

$9.39? $14.63? $18.46?

Five. The wealthiest 1 percent of the US has a net worth which is how many times greater than the median or typical household’s net worth?

50? 150? 225?

Six. Which of these countries puts the highest percentage of their people in jails and prisons?

China? Iran? Iraq? Germany? Russia? USA?

Seven. In 2012, the US will pay out about $620 billion for old age Social Security benefits to 45 million families. How much is budgeted for military spending by the US in 2012?

$310 billion? $620 billion? $836 billion?

Eight. The US is number one in the world in military spending. How much more does the US spend compared to the top 15 countries in the world in military spending?

More than any 2 other countries combined? More than any 5 other countries combined? More than all the rest of the 15 top military spending countries combined?

Nine. How many people in the world live on less than $1.25 a day?

150 million? 500 million? Over 1 billion?

Ten. How many people in the world live without electricity?

500 million? One billion? One and half billion?

Eleven. The US government donates over $30 billion a year in official development assistance (foreign aid) to poor countries. Where does that rank the US government in percentage of giving among the richest 23 countries?

First? Tenth? Nineteenth?

Twelve. The US government donates over $30 billion a year to poor countries. How much do US consumers spend on pets and pet supplies each year?

$10 billion? $30 billion? $67 billion?

Thirteen. The poverty rate among children in the US is over 20 percent. How does US compare with the rest of the 30 nations surveyed by the Organization for Economic Cooperation and Development?

First? Tenth? Twenty-sixth?

Answers to Social Justice Quiz 2012:

One. The combined pay of the top 299 CEOs is enough to support 102,325 average jobs. Source: Corporate Paywatch.

Two. The median net worth of white households in the US is $97,900. Source: Economic Policy Institute.

Three. Except for eleven counties in Illinois and another eight in Puerto Rico, there is no county in the US where a one bedroom fair market rate apartment is available to a person working full-time at the minimum wage. Source: The National Low Income Housing Coalition.

Four. The typical worker must earn $18.46 an hour to rent a two bedroom apartment. Source: National Low Income Housing Coalition.

Five. In the last numbers reported, the top 1 percent had net worth 225 times greater than the median or typical household’s net worth, the highest ever recorded. Source: Economic Policy Institute.

Six. The rate of incarceration per 100,000 people is: USA 730, Russian 534, Iran 334, China 122, Iraq 101, and Germany 86. Source: International Centre for Prison Studies, University of Essex.

Seven. $836 billion. Over $713 billion on military programs and another $123 for veterans affairs. Source: US Office of Management and Budget, Fiscal Year 2012.

Eight. The US spends $100 billion more on our military than the next highest 15 countries combined. More than China, UK, France, Russia, Japan, Saudi Arabia, Germany, India, Italy, Brazil, South Korea, Australia, Canada and Turkey combined. Source: Stockholm International Peace Research Institute, 2011 Yearbook.

Nine. 1.4 billion people live on less than $1.25 a day. Source: United National Development Program, Human Development Report 2010.

Ten. One and half billion people, more than one of every five people in the world, live without electricity. Source: United Nations Development Program, Human Development Report 2011.

Eleven. US government ranks 19th out of 23 countries in assistance to poor nations, giving about two-tenths of one percent of US gross national income to poor countries. Source: Global Issues: Foreign Aid for Development Assistance.

Twelve. US consumers spend $67 billion each year on pets, pet products and services. Source: US Census Bureau 2012 Statistical Abstract.

Thirteen. The US poverty rate among children ranks the US 26th among 30 nations in the rate of poverty among children. Source: Poverty among children. OECD.

Bill Quigley is Associate Director of the Center for Constitutional Rights and a law professor at Loyola University New Orleans. He is a Katrina survivor and has been active in human rights in Haiti for years. He volunteers with the Institute for Justice and Democracy in Haiti (IJDH) and the Bureau de Avocats Internationaux (BAI) in Port au Prince. Contact Bill at quigley77@gmail.com

Sam Schmitt is a law student at University of Montana School of Law.

On Poverty: If It’s Sunday, It’s Myths in the Press

Sunday Washington Post: Spinning Myths about the Poor
by Greg Kaufmann

James Wilson’s January 29 op-ed in the Washington Post­­­­—“Angry about inequality? Don’t blame the rich”—is oh so polite, and oh so offensive, as it peddles myth after myth that essentially add up to this: the poor have no one but themselves to blame, they’re not that poor anyway, and taxing rich people won’t help them.

Wilson argues that for the poor to rise we must “encourage parental marriage” and “induce them to join the legitimate workforce.” He points out that the poor have things like plumbing and heat, “a telephone, a television set, and a clothes dryer,” and there are fewer malnourished children. He says improving low-income mobility “has nothing to do with taxing the rich” and “the problem facing the poor is not too little money.”

“He’s right, there are fewer malnourished children and less substandard housing—largely because of public policy, which costs money,” says Georgetown University law professor Peter Edelman, who accompanied Senator Robert Kennedy on his poverty tour as an aide and is author of a forthcoming book, So Rich, So Poor. “Food stamps, Medicaid, housing vouchers, energy assistance—they all require resources, and they’ve all faced cuts.”

Wilson says ultimately the plight of the poor is about “too few skills and opportunities to advance themselves.”

“As though the hundreds of billions in high-income tax breaks couldn’t serve some useful purpose in that regard—for education, child care, subsidized jobs, infrastructure investment that would create jobs,” says Debbie Weinstein, executive director of the Coalition on Human Needs.

Here are just a few things made worse by tax breaks for the wealthy: unequal schools segregated by race, class and quality that are funded by property taxes. Hungry kids who aren’t ready to learn and early interventions that would significantly improve brain development are shortchanged. Parents working two or even three jobs who can’t pull their families out of poverty, afford childcare, or take job training or community college courses to better themselves because those don’t count towards meeting their (low-wage) work requirement for welfare benefits.

And what of that push for marriage? It would be great if there were all kinds of marital opportunities out there for happy families, and one idea is to start looking at the cradle to prison pipeline if that’s a serious societal goal. Another important point noted by Half in Ten in its Restoring Shared Prosperity report is that marriage isn’t the only route to the antipoverty affect conservatives tout—it’s two incomes that are key. Only 4 percent of households with more than one earner are in poverty as compared to 24 percent with a single earner. So Wilson might consider calling for funding of summer and year-round programs aimed at connecting disadvantaged youth to education and work experience, or subsidized jobs that were supported by Democratic and Republican governors alike.

Jack Frech, director of the Athens County Department of Job and Family Services in Appalachian Ohio, has been working with poor people for over thirty years.

“The right would have you believe that the poor are pretty well off and their plight is due entirely to their own character flaws,” Frech told me. “They don’t believe that poor parents have any incentive to work hard to make life better for their kids—as if there is a means test for loving your children. But the poor parents I know experience anguish watching their children go without basic necessities, and they suffer greatly from cuts in programs. The depth of their poverty and daily struggle to survive make the inadequately funded education programs available to them unlikely to succeed. On the other hand, the massive tax cuts granted to rich people at the federal and state levels haven’t been invested in jobs here but in offshore investments and new technologies that have increased their profits at the expense of people in this country.”

The dream is not a TV, a dryer and a coffee maker in every home. It’s equal opportunity regardless of race and class. And, Jimmy, that takes money.

GOP (and Dems?) to Poor Kids: Pony Up

In his State of the Union address one year ago, President Obama drew a clear line on deficit reduction when he said, “Let’s make sure that we’re not doing it on the backs of our most vulnerable citizens.”

A year later, he and his fellow Democrats have an opportunity to make good on that commitment, because House Republicans passed the “Refundable Child Tax Credit Eligibility Verification Reform Act” that would raise taxes on working poor families in order to (very) partially pay for a payroll tax cut extension. If the GOP has its way—and a House and Senate conference committee is considering it now—only taxpayers filing with a Social Security number would be eligible for refunds under the Child Tax Credit, not people using “individual taxpayer identification numbers (ITINs).”

Republicans are banking on anti-immigrant sentiment to win the day because many people using ITINs are undocumented workers—never mind that they are paying both income and payroll taxes.

Over 80 percent of impacted families are Latino. They earn on average about $21,000 annually, less than the poverty line for a family of four, and stand to lose $1800 on average. That’s money families need to survive, going towards food, rent, heat, clothing, childcare—which is exactly why the tax credit was created in the first place. In fact, it kept 1.3 million children out of poverty in 2009. According to the National Immigration Law Center, 5.5 million children would be affected by the new law, “4 million of whom are US citizens but all of whom are deserving of our support.”

All of this burden would be placed on the backs of what the President calls “our most vulnerable citizens”—children—for at most $24 billion in savings over 10 years. The payroll tax extension is expected to cost $120 billion. Just a .2 percent surtax on millionaires could raise as much dough as the child tax increase—a 1.9 percent surtax on them would generate $155 billion over 10 years. But what fun is that when you can demonize the poor, immigrants, and undocumented workers in one fell swoop?

According to people close to House-Senate negotiations, this bill has a shot at becoming the law of the land. “It’s my sense that the Democratic Leadership is preparing to sell out on the issue to get a compromise,” one senior House staffer told me.

Stand up for kids in poverty, Latinos, immigrants, families and an America that doesn’t pile onto those already bearing the heaviest load—here:
http://hq-salsa.wiredforchange.com/o/5873/t/0/blastContent.jsp?email_bla...

Fun With Mitt

Mitt reveals a problem he has with multi-tasking—“you can choose where to focus: you can focus on the rich, you can focus on the very poor, my focus is on middle-income Americans”—and also a problem with poor people.

Mitt equates concerns about economic inequality and social mobility with preferring China, Russia, Cuba, or North Korea over America.

Mitt’s worst nightmare: the discussion of wealth distribution “in quiet rooms” is suddenly interrupted.

What will Mitt do next? Please offer your predictions in comments below.

Tweet of the Week

“Tough choices” usually means taking money from people who can’t hire enough lobbyists—poor people. @NLCHPhomeless

For further reading and additional resources please see the extended version of this post at The Nation.

© 2012 The Nation
http://www.thenation.com/blog/165773/week-poverty-american-commitment-ch...

Greg Kaufmann is a Nation contributor. His column, This Week in Poverty, posts every Friday morning. His work has also appeared on Common Dreams, AlterNet, Tikkun.org, NPR.org, CBS News.com, and MichaelMoore.com. Constructive comments and ideas will also be read at WeekInPoverty@me.com. Please follow him on Twitter as well.

The Best Reason for the Very Rich to be Paying a Lot More Taxes

by Paul Buchheit

Before getting into the best reason, here are some of the usual -- and always good -- reasons. First of all, for every dollar the richest 1% earned in 1980, they've added three more dollars. The poorest 90% have added ONE CENT.

The richest million families have not worked three times (let alone 300 times) harder than the other 99 million families.

The richest 10% own 80% of the stock market, providing billions in "unearned income" that is taxed at less than half the rate of income earned through real work. The richest million families may have actually worked LESS than the other 99 million families.

A number of individuals have had one-year incomes over a billion dollars, enough to pay the salaries of 25,000 teachers or health care workers or emergency responders. It's questionable whether a guy who makes a billion betting on a mortgage collapse is worth even one teacher or health care worker or emergency responder.

Next is the woeful state of tax collections on the people making most of the money. Mitt Romney pays 15%, Warren Buffett 17.4%. The richest 400 Americans, 16.6%. The whole top 1% (a million families) paid less than 23% in 2006.

Average Americans pay more than that. Studies show that when state and local taxes, payroll taxes, property taxes, sales taxes, and excise taxes are tallied up, low-income people can be paying a higher percentage of taxes than the rich, perhaps up to 40% of their incomes.

Average Americans are also paying more than corporations. For every dollar of workers' payroll tax paid in the 1950s, corporations paid three dollars. Now it's 16 cents.

Whew. A lot of good reasons for the rich to be paying a lot more in taxes.

But here's the BEST REASON. The super-rich like to believe their own initiative and creativity have been the primary drivers of growth in technology and science and business and medicine. Some innovative business leaders deserve credit for putting the pieces together on specific initiatives. But the pieces themselves were put together over many years by thousands of less conspicuous people. As Elizabeth Warren said, "There is nobody in this country who got rich on his own. Nobody."

Consider just a simple communications device. The pieces were put together by a procession of chemists, physicists, chip designers, programmers, engineers, production-line workers, market analysts, testers, troubleshooters, etc., etc. They, in turn, couldn't have succeeded without another layer of people providing sustenance and medical support and security and administrative assistance and transportation and office maintenance for the technologists. ALL of them contributed to the final product.

You say a lot of them DID get paid? Well, then, something's wrong, because few of the profits over the last 30 years went to this "middle class" of people to keep them financially secure, and to keep them educated in all the new technologies that are replacing their jobs.

The long-term dependency on the supporting members of society is the best reason for the most fortunate among us to care about everyone else. Sadly, research suggests that wealthy people have less empathy for people unlike themselves, because they no longer have reason to associate with them.

This psychological gap between the rich and the rest of us naturally diminishes the incentive for the 1% to support anyone beneath their economic class. Thus less tax revenue and more cutbacks. Cuts in federal spending have been accompanied by an onslaught of social ills, including the highest poverty and homicide and incarceration and obesity and mental illness rates, an increasing child mortality rate, the highest health care costs, low global rankings in math and science scores. We continue to cut the programs that support a stable society.

The most fortunate among us have succeeded because all of America has supported them for 60 years. Yet they've somehow come to believe that they did it all on their own. Nothing could be further from the truth. They should be thanking all the people who contributed to their success.

Thanking them by paying taxes.

http://UsAgainstGreed.org

Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at paul@UsAgainstGreed.org.

The Death of the Great American Middle Class

By Salvatore Babones

The American economy has done well over the past forty years. America’s national income per person has almost exactly doubled since 1970.[1] The United States has been the richest major country in the world for over 100 years now, and it remains the richest major country in the world today.[2] The American economy in 2010 generated $47,436 for every man, woman, and child living in the country.[3] On current projections, this figure will rise by a further $1000 per year for the next several years.[4]

That’s a lot of money for a lot of people. Unfortunately, all of that money doesn’t go directly into ordinary Americans’ paychecks. Some of it goes into corporate profits, payroll taxes, and other expenses. The remaining personal income actually paid out to Americans through their paychecks and profits came to $40,094 per person in 2010.[5] That’s still over $40,000 for every man, woman, and child living in America.

Of course, that doesn’t mean that a family of two adults with eight children will make $400,000 a year. Most children don’t work, and when they do work they don’t earn very much. Spreading total US personal income out among just the adult population[6] would give an average of income of $52,952 for every American adult.

In other words, if America’s total personal income were evenly distributed, the typical married couple would be making over $100,000 a year.

If the typical single person in America were making $52,952 a year and the typical married couple were making $105,904 a year, the United States really would be a very rich country. The problem is that most people actually make much less than this. The typical American adult makes just $26,134.[7] Half of all Americans make less than this.

How can it be that the typical American adult makes just $26,134 when America is the richest nation on Earth? The answer is that a few high-income Americans gain the lion’s share of America’s national income. As illustrated in the figure below, the top 5% of American households made as much money in 2009 as the entire bottom 50% combined.[8] That’s amazing. Out of about 120 million households in America today, the richest 6 million make as much money as the poorest 60 million.

Put a slightly different way, the same data show that the richest 20% of households take home more income than the other 80% combined. There really are two Americas: the top 20%, and everybody else. By definition, most Americans fall into the category of “everybody else.”

It wasn’t always like this, and it doesn’t have to be like this. America used to be one of the most equal countries in the free world, a place where anybody could make a decent living, support a family, and retire well. Such simple dreams are increasingly out of reach for ordinary Americans who fall in the middle of the country’s income distribution.

FORTY YEARS OF STAGNATION FOR AMERICAN WORKERS

The figure below shows the median male income for American men since the end of the Civil War in 1865.[9] The median income is the income of the average or typical person. Men’s incomes are used because the proportion of women working outside the home has changed dramatically over the years. Where data are available for women, they tell a similar story.

It’s obvious from this figure that typical male incomes rose continuously from the 1860s through the 1960s. Between 1865 to 1973 typical male incomes rose by a factor of 10, from $3425 a year to $34,762 a year. Male incomes rose in every single decade for more than a century.

It’s also obvious that this growth ended in the 1970s. Since the 1970s there has been no increase in male median incomes — at all. None. In fact, since 1973 typical male incomes have fallen by 7.4%, from $34,762 a year to $32,184 a year. Typical male incomes fell slightly in the 1970s, rose slightly in the 1980s and 1990s, then fell again in the 2000s.

That’s remarkable, considering that American national income per person has doubled over the same period. But it gets worse. For American men of any given age, incomes have fallen dramatically since 1973. For American men aged 45-54 years old incomes have fallen by 11.1%; for men 35-44 years old incomes have fallen by 18.7% since 1973, and for men aged 25-34 years old incomes have dropped by an astounding 26.7%.[10]

Yes, the average American young man in 2009 makes one-quarter less than the average American young man did in 1973. American men today are — literally — worse off than their fathers were. The typical young male Americans made $43,530 in 1973, compared with just $31,914 today.[11] No wonder young adults can’t afford to move out on their own these days.

How it is possible that the US economy has doubled in size without helping the average working man at all? The answer can be divided into three parts. First, more and more women work outside the home. This boosts the overall size of the economy without boosting the wages paid by any particular job. Second, the population is getting older as baby boomers mature. Older people are more experienced and thus earn more (on average), even though incomes for people of any particular age haven’t changed.

The third part, however, is the biggest. It’s rising inequality. Pretty much all of the economic gains of the past forty years have gone to the top half of American workers. Most of those gains have gone to the top 1%. It has been estimated that 58% of all the income growth in the US economy between 1976 and 2007 went to the top 1% of households in America.[12] To get into that top 1% a household has to be bringing in over $405,000 a year.[13]

For the 99% of Americans whose household incomes are well under $400,000 a year, there has been very little improvement since the 1970s. For individual Americans in the middle of the income distribution, there has been no improvement at all.[14] For Americans at the bottom, things have actually gotten worse since the 1970s.[15]

It sounds like the same old story: the rich get richer and the poor get poorer. But as shown in the figure above, that’s not really true. For at least a century from 1870 to 1970 it was the people in the middle — or at least the working men in the middle — who got richer.

THE MIDDLE SIXTY AT HOME AND ABROAD

According to a recent survey, 91% of American adults identify themselves as “middle class.”[16] Of these, 53% identify themselves as falling in the middle of the middle class, 18% in the upper middle, and 18% in the lower middle class. Taking the middle of the middle as a benchmark, over half of all Americans seem to feel like they live pretty typical lives. They’re probably right.

On surveys and in actual incomes there’s a bulge of Americans who fall somewhere in the middle of the distribution. They’re more than half the population, but far short of the whole population. They’re the Middle Sixty. Above them are the Top Twenty — lawyers, doctors, investment bankers, and business executives. Below them are the Bottom Twenty — the poor. The Middle Sixty, Top Twenty, and Bottom Twenty roughly correspond to normative ideas of well-off, middle-class, and poor.

The “Middle Sixty” are the roughly 60% of Americans who live lives of plenty, but not lives of luxury. They never go hungry, but they can’t afford to hire kitchen help. They’re not homeless, but they have one home, not two or three. Their kids don’t go to private prep schools, but their kids can go to college if they work hard and get the grades. The Middle Sixty live ordinary, typical American lives.

A good way to think about what it means to be a member of the Middle Sixty is to think about owning a car. Most Americans own a car. It might be a Hyundai or it might be a Hummer, but either way it’s one car for each adult driver. Only poor Americans can’t afford their own cars. Only rich Americans can afford to have collections of cars. For the vast majority of Americans in the middle, one car per driver is enough.

People at the high end of the Middle Sixty might drive expensive new cars while people at the low end of the Middle Sixty drive cheap used cars, but life is pretty similar either way. They all drive their cars on the same roads and park in the same spaces at the same supermarkets. They all have kids in carseats and pump their own gas. When the car needs service, they have to get up early and drop it off before work. Some of the Middle Sixty have nicer lifestyles than others, but they all have pretty much the same lifestyle.

A good indicator of the strength of the middle class in a country is the proportion of all the income in that country that goes to the Middle Sixty. For example, one problem in Mexico is the lack of a strong middle class. In Mexico, the Middle Sixty take home just 46.6% of Mexico’s income, even though they make up 60% of Mexico’s households.[17] In Mexico, so much of the nation’s income goes to the Top Twenty that there’s very little left for the Middle Sixty, or for the poor.

The amazing thing is, by this measure even Mexico has a stronger middle class than the United States. The Middle Sixty in America take home just 46.3% of America’s income.[18] This is by far the lowest figure of any major developed country. The figure below shows Middle Sixty income levels for the United States, Mexico, and four other countries.[19] The United States scores at the rock bottom of the league for the economic strength of its middle class.

It might be even worse than this. The data used to calculate the official US Census Bureau income statistics don’t accurately measure incomes over about $100,000. As a result, they don’t adequately capture the recent rise in the incomes of the super-wealthy. To address this gap, the Federal Reserve conducts a survey every three years that is specifically designed to measure the incomes of people earning over $100,000 a year.[20]

The latest data available from that Federal Reserve study are for 2007. The results suggest that the income share of the Middle Sixty is actually just 35.8%.[21] To put that number in context, a 35.8% income share is literally “off the chart” of the figure above. Using that same Federal Reserve data, the Middle Sixty income share was 44.6% in 1982, the first year that the survey was conducted.[22]

For those who don’t remember 1982, it was a tough year for the middle class. Since then, though, the income share of the Middle Sixty has dropped to nearly 11 points below Mexican levels. And that was in 2007, which was a good year for most Americans. The latest Federal Reserve survey was conducted in 2010, but the data have not yet been released. Considering the state of the economy in 2010, it’s likely to be a bloodbath for the Middle Sixty.

The United States didn’t always have the world’s weakest middle class. Back in 1968 the US Middle Sixty took home 52.3% of all the nation’s income (based on the official statistics).[23] That implies that in 1968 the US middle class was stronger than any middle class in the world is today. The US Middle Sixty might have been even stronger in the 1950s, but unfortunately data are not available to tell. The data start in 1968, and it’s been all downhill from there.

THE REASONS BEHIND THE TRENDS

Total US national income per person rose by 99.3% over the 30 years from 1969 to 2009.[24] Why then have incomes for most Americans been stagnant or falling? Why do American families now need two incomes to have the standard of living they used to have with just one? Why aren’t today’s young adults making twice as much as their parents did were when they first entered the labor market thirty years before?

The answer is that all of the growth in the American economy over the past forty years has gone to the top half of Americans. Most of it has gone to the Top Twenty. If the US income distribution today had remained unchanged from 1969, by 2009 the average American household would have had an income of $86,479 instead of $49,777.[25] If the US income distribution had become more equal in the four decades after 1969 — as it did in the four decades before 1969 — the average American household would be doing even better.

The fact that the average American household today has an income of $50,000 instead of $100,000 can be attributed entirely to rising instead of declining inequality over the past four decades. America has far greater income than ever before in its history, but that income is concentrated in fewer and fewer hands. Rising inequality is killing middle America.

Sociologists and economists have been conducting detailed quantitative analyses of rising inequality for more than a quarter century now. It’s no mystery why inequality has been rising in America. As a recent 11-country comparative study concluded, the main factors that determine whether a country is equal or unequal in its income distribution are “union density, the strictness of employment protection law, unemployment benefit duration, unemployment benefit generosity, and the size of the minimum wage.”[26]

By far the most important of these is union density: the percentage of workers who are covered by a union contract or collective bargaining agreement.[27] Around the world, wherever workers have unions, they get better pay.[28] The most recent estimates suggest that unionization increases an individual worker’s pay by about 17%,[29] but some argue that the effect on total pay (including benefits) could be as high as 43%.[30] Though researchers argue over the exact figure, research consistently shows that unions increase workers’ wages.

In the end the key issue is bargaining power. Obviously, workers who bargain as part of a union are in a better bargaining position than workers who don’t have a union. But it’s not just a matter of unions. Where unemployment benefits are generous, workers can bargain harder, since it’s not catastrophic if they lose their jobs. And having a good minimum wage means that when unemployed workers run out of insurance payments they can be sure of earning at least a living wage when they do go back to work.

So how does America compare on union coverage? As the figure below makes clear, the United States has just about the lowest level of union coverage in the world.[31] This figure compares the proportion of workers who are covered by union-type collective bargaining contracts across the United States and 11 western European countries. Union coverage in the United States is now lower (by far) than anywhere in western Europe. Even at its height in 1953, US union coverage was low by European standards. Today it is absolutely in the basement.

At the union peak in 1953 well over 40% of American workers were covered by collective bargaining agreements. Considering that union workers were never very poor and never very rich, that 40% accounts for the majority of the Middle Sixty. In other words, it used to be normal for Americans to be in a union. Ralph Kramden, Archie Bunker, and Fred Flintstone were all union members. Ronald Reagan was a six-term union president before he became a politician. In 1960 he even called his union out on strike!

Of course, the decline of unions isn’t the only reason why inequality is rising in America. There is some evidence that America is pulling apart along regional lines, with New York and Los Angeles pulling away from the rest of the country.[32] There’s also some evidence that technological change is creating situations in which the top-ranked people in any industry (like sports and movie stars) end up taking home more and more of the available pay.[33] After-tax inequality is also affected by changes in the tax system.

To some degree the decline in union membership is also just a symptom of a much broader trend: the decline of society and the rise of individualism. This trend is associated with increased consumerism and free market economics. People place their own interests above the common good. In particular, American businesspeople increasingly ask not what’s good for their employees, their customers, or their coworkers, but what’s good for themselves. Nowhere is this better illustrated than when looking at executive pay.

The chief Executive Officer (CEO) is the top employee, the commander-in-chief, of any public company. In the United States, CEOs run their companies with very few constraints. Technically they are supervised by boards of directors, but most American CEOs serve as chairmen of their own boards of directors — and even select their own board members. Shareholders are the legal owners of a public company, but if shareholders are unhappy it’s much easier for them to sell their shares than to fire their CEOs.

It’s been widely reported that CEOs now receive enormous salaries, hundreds of times as much as their own workers. The average annual pay of a Fortune 500 CEO was over $8,000,000 in 2009.[34] That’s about 200 times the earnings of the average American adult who works full-time.[35]

Much less widely reported has been the growing gap between how much companies pay their CEOs and how much they pay the small number of top executives who work directly under the CEO. Between 1993 and 2006 CEOs at America’s top 1500 public companies received average annual raises of 8.8% per year.[36] Corporate seconds-in-command received annual raises averaging 5.4%, thirds-in-command 5.2%, fourths-in-command 5.0%, and fifths-in-command 4.6%.[37]

In other words, inequality is rising even within the boardroom. It is rising everywhere we look. The rising pay gap between corporate fourths- and fifths-in-command has nothing to do with union coverage, unemployment insurance, technological change, or the premiumization of life in New York and Los Angeles. It can only be traced to changing norms of what’s considered acceptable behavior in setting pay. Forty years ago, executives might have felt some pressure to take care of their employees before taking care of themselves. They certainly don’t anymore.

CLOSING THOUGHTS

Ronald Reagan, the conquering hero of American conservative mythology, was born in 1911. He came of age during the Great Depression. People of his generation had it tough. They worked hard to make ends meet, but their hard work was rewarded with ever-increasing standards of living. For Americans of their generation, things started out hard but got better and better as time went on. They were perpetual optimists, because living in America they could always be sure of one thing: life would be better for their children than it was for them.

That’s simply not true anymore.

Today, American confidence in the future has reached an all-time low. Americans are optimists by nature, and optimists still outnumber pessimists by 54% to 42%, but the gap is narrower than ever before.[38] By a small margin of 38% to 37%, more Americans actually think life was better in the 1960s than it is today.[39] Among those who are old enough to actually remember adult life in the 1960s, the ratio is 49% to 30% in favor of the sixties.[40]

That’s not just nostalgia. Life really was better in the late 1960s for many Americans, and certainly for most white Americans. Perhaps more importantly, the United States of forty years ago had much more of an ethic that they were all in it together. In the 1960s and 1970s, American CEOs paid themselves roughly 40 times as much as an ordinary worker.[41] That’s not exactly slumming it, but it seems positively frugal by today’s standards.

What’s incredible is not that so many people are no better off than their parents were forty years ago. What’s incredible is that so many people are no better off than their parents were forty years ago despite the fact that American economic output per person has doubled in that period. The problem isn’t that the economy is stagnant. It’s not stagnant. It’s growing. The problem is that the rewards of that growth are all going to a very small number of people — ironically, to the people who need them least.

There’s both good news and bad news to be read in this benchmarking of the great American middle. The good news is that there are plenty of resources in America for everyone to live a very good life. There’s so much income generated every year in America that if we distributed it evenly the average household could be living on $100,000 a year. Even allowing for the kinds of inequality found in America in the 1960s and 1970s — CEOs making 40 times their workers’ salaries instead of 200 times — the average household could be bringing in $80,000 a year. That’s not too bad.

The bad news is that there’s no sign that Americans are prepared to take it into their own hands to reduce inequality. Fewer than half of Americans have a favorable view of unions; even after a major recession, slightly more Americans have a positive view of businesses than of unions.[42] Americans are not going to the polls to demand that their political leaders implement policies that are known to reduce inequality. Perhaps most importantly, Americans are not moving away form the divisive beggar-thy-neighbor individualism that caused inequality to rise in the first place. Instead, they seem to be embracing it.

NOTES

[1] Based on figures from the 2010 National Income and Product Accounts from the US Bureau of Economic Analysis, Table 7-1.

[2] Based on real national income per capita estimates from Angus Maddison (2010), Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD, Table 3.

[3] Based on 2010 US GDP estimates from US Bureau of Economic Analysis release BEA 11-02, Table 3, divided by 2010 US population estimates from US Census Bureau release NST-PEST2010-01, Table 1.

[4] Based on 2011 and 2012 US growth projections from the International Monetary Fund’s World Economic Outlook Update, January 2011.

[5] Based on 2010 US personal income estimates from US Bureau of Economic Analysis release BEA 11-02, Table 10, divided by 2010 US population estimates from US Census Bureau release NST-PEST2010, Table 1.

[6] Based on the age structure of the US population in 2009 from US Census Bureau release NC-EST2009, Table 2.

[7] Based on 2009 figures from US Census Bureau release PINC-01, Part 1.

[8] Based on an analysis of 2009 figures from US Census Bureau Income Inequality Historical Table H-2.

[9] Data for 1865-1946 based on E.H. Phelps Brown and Margaret H. Phelps Brown (1968), A Century of Pay: The Course of Pay and Production in France, Germany, Sweden, the United Kingdom, and the United States of America, 1860-1960, Appendix 3. Data for 1947-2009 are based on figures from US Census Bureau Historical Income Statistics Table P-8. The three separate inflation-adjusted Phelps Brown and Phelps Brown indices have been spliced together at their overlap points, then spliced to the Census Bureau 2009 dollar series using the average conversion rate between the two sources for the years 1947-1960 ($72.87 in 2009 dollars per Phelps Brown and Phelps Brown index point). Linear interpolations have been used to fill the gaps in the series due to World War I (1914-1919) and World War II (1942-1944).

[10] Based on figures from US Census Bureau Historical Income Statistics Table P-8.

[11] Based on figures from US Census Bureau Historical Income Statistics Table P-8.

[12] Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez. 2009. “Top Incomes in the Long Run of History,” NBER Working Paper 15408; the authors include single-person households as “families,” making their definition of a family near-identical to the US Census Bureau definition of a household.

[13] Based on Atkinson et al’s figures for the top 1% extrapolated using top 5% income growth rates since 2007 from US Census Bureau Historical Income Statistics Table H-1.

[14] Based on figures from US Census Bureau Historical Income Statistics Table P-8.

[15] Based on the application of income ratios from US Census Bureau Historical Income Statistics Table IE-2 to data from US Census Bureau Historical Income Statistics Table P-8.

[16] Pew Research Center (2008), Inside the Middle Class: Bad Times Hit the Good Life.

[17] Based on 2002 figures (the most recent available) from Matthew Hammill (2005), Income Inequality in Central America, Dominican Republic and Mexico: Assessing the Importance of Individual and Household Characteristics, Table 3.

[18] Based on 2009 figures from US Census Bureau Historical Income Statistics Table H-2.

[19] All figures are the most recent available. Canadian figures are for 2008 and come from Statistics Canada CANSIM Table 202-0405. United Kingdom figures are for 2008-2009 and come from UK Office for National Statistics report on Effects of Taxes and Benefits on Household Income Table 2. French figures are for 2008 and come from INSEE Revenus et Niveaux de Vie Mass des Niveaux de Vie Détenue par les x% les Plus Riches. Australian figures are for 2007-2008 and come from Australian Bureau of Statistics Document 6523.0 Table S1.

[20] The Survey of Consumer Finances, which contains a supplemental sample targeting high-income individuals.

[21] Based on figures from Edward N. Wolff (2010), Levy Economics Institute Working Paper 589: Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze — An Update to 2007, Table 2. In this paper Wolff does not disaggregate figures for the lowest two quintiles. To construct the Middle Sixty percentages, Wolff’s “bottom 40%” figures have been split out using the ratio between the bottom two quintiles observed for the relevant year in US Census Bureau Historical Income Statistics Table H-2 to arrive at a second quintile imputation, which was then added to Wolff’s third and fourth quintile figures.

[22] Again based on Wolff’s figures with an imputation for the second-to-bottom quintile.

[23] Based on 1968 figures from US Census Bureau Historical Income Statistics Table H-2.

[24] Based figures from the 2010 National Income and Product Accounts from the US Bureau of Economic Analysis, Table 7-1.

[25] Arrived at by applying US GDP growth between 1969 and 2009 to the US median household income level in 1969.

[26] Winfried Koeniger, Marco Leonardi, and Luca Nunziata (2007), “Labor Market Institutions and Wage Inequality, Industrial and Labor Relations Review, Vol. 60, pp. 340-356 (quote from p. 340).

[27] Koeniger et al (2007), Table 2.

[28] Alex Bryson (2007), “The Effect of Trade Unions on Wages,” Reflets et Perspectives de la Vie Économique, Vol. 46, pp. 33-45.

[29] David G. Blanchflower and Alex Bryson (2004), “What Effect Do Unions Have on Wages Now and Would Freeman and Medoff Be Surprised?” Journal of Labor Research, Vol. 25, pp. 383-414, Table 2.

[30] Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto (2007), The State of Working America 2006/2007, Table 3.32.

[31] Based on figures from Barry Hirsch and David Macpherson, U.S. Historical Tables, accessed through the unionstats.com website. The 1953 US figure is imputed from the 1953 private sector workers’ membership figure from Barry Hirsch (2008), “Sluggish Institutions in a Dynamic World: Can Unions and Industrial Competition Coexist?” Journal of Economic Perspectives, Vol. 22, pp. 153-176, adjusted upward by the historical average of 25% to account for government workers and workers who were covered by union contracts but who were not union members. Figures for European countries are drawn from L. Fulton (2009), Worker Representation in Europe, Labour Research Department (London) and European Trade Union Institute, accessed through the worker-participation.eu website.

[32] Robert J. Gordon and Ian Dew-Becker (2008), Controversies about the Rise of American Inequality: A Survey, NBER Working Paper 13982.

[33] Robert H. Frank and Philip J. Cook (1995), The Winner-Take-All Society.

[34] Scott DeCarlo (2010), “What the Boss Makes,” Fortune Magazine online April 28, 2010.

[35] Based on data from US Census Bureau Historical Income Statistics Table P-38.

[36] Based on data from Changmin Lee and Woonam Seok (2009), “The Structure and Pay Distribution in the Executive Team,” working paper, Samsung Research Institute of Finance, Table 6.

[37] Again based on Lee and Seok (2009), Table 6.

[38] Based on data from the Pew Research Center for the People and the Press (2011), “Economy Dominates Public’s Agenda, Dims Hopes for the Future,” p. 2.

[39] Again based on Pew (2011), p.13.

[40] Again based on Pew (2011), p.14.

[41] Based on figures from G. William Domhoff (2011), “Power in America: Wealth, Income, and Power,” Who Rules America? website, University of California at Santa Cruz, Figure 8.

[42] Based on data from the Pew Research Center for the People and the Press (2011), ” Labor Unions Seen as Good for Workers, Not U.S. Competitiveness,” p. 2.

http://www.debtdeflation.com/blogs/2012/02/28/the-death-of-the-great-ame...

Salvatore Babones (@sbabones) is a senior lecturer in sociology & social policy at the University of Sydney and an associate fellow at the Institute for Policy Studies (IPS). You can find more of his commentary on the US economy at http://salvatorebabones.com.

Makers, Takers and $2-a-dayers

by Michelle Chen

One official measure of poverty around the world is surviving on $2 per day or less. It’s a condition many Americans could barely imagine living in. And yet the official data suggests that while politicians insist the U.S. is insulated from such deprivation, a large share of the country is feeling a cold draft from the “Third World.”

A set of new analyses (http://www.offthechartsblog.org/tag/under-2-a-day-in-america-series/) from the Center on Budget and Policy Priorities (CBPP), drawing from a study of income data by the University of Michigan's National Poverty Center, shows that for well over a million households, many of them with children, are besieged by hardship of an epic magnitude:

The number of U.S. households living on less than $2 per person per day — which the study terms “extreme poverty” — more than doubled between 1996 and 2011, from 636,000 to 1.46 million, the study finds... The number of children in extremely poor households also doubled, from 1.4 million to 2.8 million.

The World Bank's $2-per-day metric derives from a perennial cliché in humanitarian circles, generally used to describe poor countries in the Global South. But while some question the usefulness of such simplistic measures, the phrase has a unique application in a country that’s historically represented the top of the human development scale. And one reason why the U.S. has so many people stuck at the bottom (http://www.theatlantic.com/business/archive/2011/10/income-inequality-is...) is because in many communities, this inequality is practically written into the law, with public assistance programs virtually enforcing the extreme poverty line.

Since bipartisan welfare “reform” under the Clinton administration, which precipitated the gutting of programs and erosion of benefit levels over time, the poorest households have become mired in outmoded welfare systems that don’t correspond to real social needs:

Benefits are below half of the poverty line in every state. For a family of three, benefits are only about $2 per person per day in Mississippi and Tennessee and only slightly more than $2 per person per day in Alabama and South Carolina, for example.

It's basic math: Add the recent recession to years of wealth-hoarding by the richest Americans, factor in endemic socioeconomic, racial and gender inequality, and you get polarization that's global in scale and intensity. This is reflected in each individual whose daily standard of living is worth the cost of a Wall Street financier’s morning coffee.

Although the stimulus package enacted by the Obama administration gave a temporary boost to welfare programs, those dollars have dried up. The safety net is further unraveled, according to the CBPP, by a block-grant funding system in which the benefit “does not increase in response to increased need.” Meanwhile, recently proposed budget cuts to federal housing assistance (from both the White House and Congress) would raise the cost of rent for hundreds of thousands of struggling families. In other words, the “ownership society” is effectively disowning its neediest members.

Extreme poverty is acutely painful for already vulnerable demographics. The largest jump in $2-a-day poverty—a stunning three-fold increase since 1996—hit female-headed households. Children in poverty, who face long-term barriers to education and healthcare, and are disproportionately black and Latino (but including many whites as well), tend to carry these hardships into adulthood.

According to CBPP researcher Arloc Sherman, these trends affirm other research suggesting that “it has become harder to access welfare.” Since the reforms of the 1990s, which instituted onerous work requirements and other restrictions, the percentage of very poor families covered by Temporary Assistance for Needy Families (TANF) has tumbled.

On the other hand, what’s left of the safety net continues to play a critical role in preventing total devastation for many. “I suspect for those who lost jobs in the recession, Unemployment Insurance—thanks in part to [The Recovery Act]—played a big role in keeping people's cash incomes above $2 per person per day,” Sherman told In These Times.

While the presidential hopefuls race to outdo each other in gratuitously denigrating the poor (along with people of color, single women and other time-honored scapegoats), it’s important to keep in mind that these populations don’t fit the standard caricatures of welfare queens and freeloaders.

The CBPP’s research also reveals that the population that uses public assistance--those conservatives demonizeas the “entitlement society”--primarily consists of old folks, people with disabilities--oh, and people with jobs. In fact, “People who are neither elderly nor disabled — and do not live in a working household — received only 9 percent of the benefits.” So in a labor market offering about one slot for every four job-seekers, a good chunk of those “entitlements” go to the very same “hardworking Americans” that right-wing rhetoric contrasts with the supposedly undeserving poor.

The right pushes a delusional narrative (http://nymag.com/news/features/gop-primary-chait-2012-3/) of country divided between “makers and takers”—the productive go-getters versus the welfare-hungry sloths. But when you crunch the numbers, it becomes all too clear who the real takers are: the ones who make it harder for everyone else to make a living.

© 2012 In These Times
http://www.inthesetimes.com/working/

Michelle Chen is a contributing editor at In These Times. She is a regular contributor to the labor rights blog Working In These Times, Colorlines.com, and Pacifica's WBAI. Her work has also appeared in Common Dreams, Alternet, Ms. Magazine, Newsday, and her old zine, cain.

Some Outrageous Facts about Inequality

by Paul Buchheit

Studying inequality in America reveals some facts that are truly hard to believe. Amidst all the absurdity a few stand out.

1. U.S. companies in total pay a smaller percentage of taxes than the lowest-income 20% of Americans.

Total corporate profits for 2011 were $1.97 trillion. Corporations paid $181 billion in federal taxes (9%) and $40 billion in state taxes (2%), for a total tax burden of 11%. The poorest 20% of American citizens pay 17.4% in federal, state, and local taxes.

2. The high-profit, tax-avoiding tech industry was built on publicly-funded research.

The technology sector has been more dependent on government research and development than any other industry. The U.S. government provided about half of the funding for basic research in technology and communications well into the 1980s. Even today, federal grants support about 60 percent of research performed at universities.

IBM was founded in 1911, Hewlett-Packard in 1947, Intel in 1968, Microsoft in 1975, Apple and Oracle in 1977, Cisco in 1984. All relied on government and military innovations. The more recently incorporated Google, which started in 1996, grew out of the Defense Department's ARPANET system and the National Science Foundation's Digital Library Initiative.

The combined 2011 federal tax payment for the eight companies was just 10.6%.

3. The sales tax on a quadrillion dollars of financial sales is ZERO.

The Bank for International Settlements reported in 2008 that total annual derivatives trades were $1.14 quadrillion. The same year, the Chicago Mercantile Exchange reported a trading volume of $1.2 quadrillion.

A quadrillion dollars is the entire world economy, 12 times over. It's enough to give 3 million dollars to every person in the United States. But in a sense it's not real money. Most of it is high-volume nanosecond computer trading, the type that almost crashed our economy. So it's a good candidate for a tiny sales tax. But there is no sales tax.

Go out and buy shoes or an iPhone and you pay up to a 10% sales tax. But walk over to Wall Street and buy a million dollar high-risk credit default swap and pay 0%.

4. Many Americans get just a penny on the dollar.

For every dollar of NON-HOME wealth owned by white families, people of color have only one cent.

For every dollar the richest .1% earned in 1980, they've added three more dollars. The poorest 90% have added one cent.

For every dollar of financial securities (e.g., bonds) in the U.S., the bottom 90% of Americans have a penny and a half's worth.

For every dollar of 2008-2010 profits from Boeing, DuPont, Wells Fargo, Verizon, General Electric, and Dow Chemicals, the American public got a penny in taxes.

5. Our society allows one man or one family to possess enough money to feed EVERY hungry person on earth.

The United Nations estimates that $30 billion is needed to eradicate hunger. Several individuals have more than this amount in personal wealth.

There are 925 million people in the world with insufficient food. According to the World Food Program, it takes about $100 a year to feed a human being. That's $92 billion, about equal to the fortune of the six Wal-Mart heirs.

One Final Outrage...

In 2007 a hedge fund manager (John Paulson) conspired with a financial company (Goldman Sachs) to create packages of risky subprime mortgages, so that in anticipation of a housing crash he could use other people's money to bet against his personally designed sure-to-fail financial instruments. His successful gamble paid him $3.7 billion. Three years later he made another $5 billion, which in the real world would have been enough to pay the salaries of 100,000 health care workers.

As an added insult to middle-class taxpayers, the tax rate on most of Paulson's income was just 15%. As a double insult, he may have paid no tax at all, since hedge fund profits can be deferred indefinitely. As a triple insult, some of his payoff came from the middle-class taxpayers themselves, who bailed out the company (AIG) that had to pay off his bets.

And the people we elect to protect our interests are unable or unwilling to do anything about it.

http://UsAgainstGreed.org

Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at paul@UsAgainstGreed.org.

Workingman’s Constitution

by William B. Forbath

Austin, Tex.

Work and opportunity, poverty and dependency, material security and insecurity: for generations of reformers, the constitutional importance of these subjects was self-evident. Laissez-faire government, unchecked corporate power and the deprivations and inequalities they bred weren’t just bad public policy — they were constitutional infirmities. But liberals have largely forgotten how to think, talk and fight along these lines.

And they’ve done so at the wrong time. The Supreme Court is again putting up constitutional barriers against laws to redress want and inequity. While it handed liberals a victory on the Affordable Care Act, it also gave a boost to conservatives to revive the old laissez-faire Constitution in the polity and courts: new doctrine and dictums for their attack on the welfare and regulatory state.

But there is a silver lining for liberals as well: in much the same way that the conservative court of the 1930s forced Franklin D. Roosevelt and his allies to construct the constitutional foundations of the New Deal state, today’s court challenges the White House, the Democrats and the liberal legal community to reassert a constitutional vision of a national government empowered “to promote the general Welfare” and — in Justice Ruth Bader Ginsburg’s terse formula — “to regulate the national economy in the interest of those who labor to sustain it.”

The majority opinion of Chief Justice John G. Roberts Jr., along with the jointly written dissent of the other four conservatives, outlines the doctrinal and rhetorical bases for assailing much of the New Deal-Great Society constitutional order over the coming years.

The opinions are laced with shout-outs to the Tea Party and the right wing, affirming their crackpot originalism. The joint dissent, for example, invokes James Madison’s views on the spending power to shed doubt on the constitutionality of three “federal Departments devoted to subjects not mentioned among Congress’ enumerated powers”: Education, Health and Human Services and Housing and Urban Development.

The joint dissent also offers a stark revision of federal spending doctrine that could sharply curtail new social provisions. Even the new doctrine that the majority adopted may hobble efforts to condition federal grants-in-aid on compliance with national goals, like child-care assistance for the working poor.

You would think that liberals would have a full-bodied response. They don’t.

Instead, they are on the defensive, training their fire on the revivalists’ theory of constitutional interpretation. But conservatives dominate the debate not because they have a killer theory (they don’t), but chiefly because they have a bold, clear account of past constitutional commitments, adding up to a vision the Constitution promises to promote and redeem: individualism, small government, godliness and private property.

Liberals have too often been complacent and purely defensive. The Constitution, they often declare, does not speak to the rights and wrongs of economic life; it leaves that to politics. Laissez-faire doctrines were buried by the New Deal.

Until last week, this response may have been understandable. But it was always misleading as history, and wrong in principle, as well. And it was bad politics, providing no clear counternarrative to support the powers of government now under attack from the right.

That’s a major failing, because there is a venerable rival to constitutional laissez-faire: a rich distributive tradition of constitutional law and politics, rooted in the framers’ generation. None other than Madison was among its prominent expounders — in his draft of the Virginia Constitution, he included rights to free education and public land.

Likewise, many framers of the Reconstruction amendments held that education and “40 acres and a mule” were constitutional essentials that Congress must provide to ex-slaves. They also held that equal rights and liberty for white workingmen required a fair distribution of initial endowments, including free homesteads and free elementary and secondary education, along with land-grant-funded state colleges.

In the wake of industrialization, turn of the century reformers declared the need for a “new economic constitutional order” to secure the old promises of individual freedom and opportunity. America was becoming a corporate oligarchy, making working people wage slaves, impoverished and ill-equipped for democratic citizenship.

The New Deal brought this progressive vision to partial fruition. In the preindustrial past, Roosevelt explained in countless speeches, the Constitution’s guarantee of equal rights “in acquiring and possessing property” joined with the ballot and the freedom to live by one’s “own lights” to ensure the Constitution’s promise of “liberty and equality.”

But the “turn of the tide” came with the closing of the frontier and the rise of great “industrial combinations.” New conditions demanded new readings. “Every man,” he said, has a “right to make a comfortable living.” Alongside education, “training and retraining,” decent work and decent pay, his Second Bill of Rights set out rights to social insurance, including health care.

The distributive tradition has evolved, but its gist is simple and durable: you can’t have a republican government, and certainly not a constitutional democracy, amid gross material inequality.

That’s because gross economic inequality produces an oligarchy in which the wealthy rule. Insofar as it produces a lack of basic social goods at the bottom, gross inequality also destroys the material independence and security that democratic citizens require to participate on a roughly equal footing in political and social life. And access to such goods is essential to standing and respect in one’s own eyes and those of the community.

In the face of the court’s new constitutional offerings to the assault on the welfare and regulatory state, liberals must remind Americans of the constitutional promises and commitments that led us to create that state in the first place. They must remind lawmakers that there are constitutional stakes in attending to the economic needs and aspirations of ordinary Americans, their dread of poverty and their worries that mounting inequalities are eroding our democracy and its promises of fairness and opportunity.

The Constitution on this account promises real equality of opportunity; it calls on all three branches of government to ensure that all Americans enjoy a decent education and livelihood and a measure of security against the hazards of illness, old age and unemployment — all so they have a chance to do something that has value in their own eyes and a chance to engage in the affairs of their communities and the larger society. Government has not only the authority but also the duty to underwrite these promises.

Often during the 2008 campaign, and a few times since, the former constitutional law professor in the White House has spoken in this key. Now he might take a leaf from Roosevelt and use the bully pulpit to explain these constitutional ideals for our time. He should defend the distributive tradition and its vision of government as if our constitutional democracy depended on it. After all, it does.

William E. Forbath is a professor of law and history at the University of Texas.

Copyright 2012 The New York Times
http://campaignstops.blogs.nytimes.com/2012/07/05/workingmans-constituti...

Three Ways the Rich and Powerful Have Cheated Young Americans

by Paul Buchheit

My own generation faced the Vietnam War. We were at risk of getting drafted, and then maimed or killed in an unwinnable battle against imagined evils.

Today's young people are being drafted into an economic war that they don't understand. It's a slowly waged, diabolical war that substitutes debt and underemployment for missing limbs and psychological disorders. The soldiers are college-age men and women who can't find jobs or pay tuition, and who are seduced into submission by the promise of eventual rewards. The Vietnamese jungle has turned into Wall Street.

For those of us who weren't particularly good activists in the 60s, age has widened our perspective, and the lack of opportunities for our children has given us a second chance to protest, to help make it clear how the leaders of my generation have abandoned the people they no longer need.

Young America, here's why you should be angry:

1. The Great WEALTH Transfer

18- to 35-year-olds: Your median net worth has dropped 68% since 1984. It's now less than $4,000.

The Richest 1%: They tripled their share of income between 1980 and 2006, then took 93% of all the new income in the first year after the 2008 recession. Their median net worth is now over $5,000,000.

2. The Lack of JOBS: No one's hiring, so you have to "create your own job."

This from Michael Barone of the Washington Examiner: "The good news is that information technology provides the iPod/Facebook generation with the means to find work and create careers that build on their own personal talents and interests...creating your own career will produce a stronger sense of satisfaction and fulfillment."

Sounds easy, doesn't it? Just grab your iPhone, open up Facebook, and create your own job. Become an entrepreneur, just like the richest Americans. Except that the richest Americans aren't entrepreneurs. Based on U.S. tax return data, only 3% of the wealthiest 130,000 Americans are entrepreneurs. Most are in management or finance.

As your parents and mentors, we told you to stay in school and work hard and everything would be fine. But you don't have jobs. Over half of college graduates were jobless or underemployed in 2011. More than 350,000 Americans with advanced degrees were receiving food stamps or some other form of public assistance.

If you do have a job, it's probably not paying much. Salaries for new graduates dropped 10% just in the last year. Worse yet, most of you are dealing with college loan debt, which averages $24,000, and with the reality of zero net worth for over a third of you.

As wages are hitting an all-time low, corporate profits are hitting an all-time high. But the corporations that have built their profits on American innovation and labor are telling you they don't need you anymore. Apple -- much admired for its slick products -- shows little respect for anyone below upper management. With 47,000 employees, about 1/10 the number employed by IBM, Apple makes a profit of $420,000 per employee. Yet most Apple store workers make about $12 per hour.

And your representatives in Washington are no help. In October, 2011 Senate Republicans killed a proposed $447 billion jobs bill that would have added about two million jobs to the economy. Nearly two-thirds of the American public had supported the bill.

3. The Portrayal of EDUCATION as a "lifetime investment"

Yes, it's a lifetime investment, for the holder of your student loans.

As corporate profits and CEO salaries and incomes of the 1% have surged over the past ten years, education financing declined by 24 percent, and tuition at state schools increased 72 percent. Since 1985, while consumer prices have approximately doubled, tuition has risen almost 600%.

Total state education cuts for fiscal 2012 were $12.7 billion. A study by Citizens for Tax Justice noted that 265 of our nation's largest companies avoided about the same amount in state taxes each year from 2008 to 2010.

So your massive tuition bills are paid for with mounting student debt, which has more than tripled in the past ten years. Here again my own generation has deceived you. Our once-idealistic anti-war activists now excel at flashy marketing and sloganeering, with admissions pitches of "affordability" and "lifetime investment," and carefully avoided references to costs and debts and contracts.

To make up for lost revenue, cutbacks continue and educational opportunities disappear. State colleges are eliminating expensive-to-run engineering and computer science departments. Arizona doubled college tuition in four years. California K-12 schools have one counselor for every 800 students. Ohio's Governor Kasich suggested rationing college majors among state schools. Illinois cut 2012 educational funding by a greater percentage than any other state; not to be outdone, Pennsylvania's Governor Corbett tried to cut higher education funding by half, and New Hampshire DID cut university funding by half. Florida's college tuition is up 15% in a year, Nevada's is up 13%, Tennessee's about 10%, Washington's 24% over two years.

Hell No, We Won't Go Into Servitude

College graduates, you shouldn't be working for $12 an hour. The computer and networking technologies that gave life to companies like Apple and Google grew out of 50 years of public research. It was an accomplishment of society, not of a few well-positioned individuals. You, the descendants of industry pioneers, and the potential creators of even greater technologies, deserve at the very least a decent-paying job.

Your anti-war protest, if a time-weathered opinion matters, would include a flood of job demands at the offices of U.S. and state senators and representatives. In person and online. You are part of the fastest and most sophisticated means of communication ever devised. You have the power to make demands.

But first you have to get mad.

http://UsAgainstGreed.org

Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at paul@UsAgainstGreed.org.

The Twinkie Manifesto

by Paul Krugman

The Twinkie, it turns out, was introduced way back in 1930. In our memories, however, the iconic snack will forever be identified with the 1950s, when Hostess popularized the brand by sponsoring “The Howdy Doody Show.” And the demise of Hostess has unleashed a wave of baby boomer nostalgia for a seemingly more innocent time.

Needless to say, it wasn’t really innocent. But the ’50s — the Twinkie Era — do offer lessons that remain relevant in the 21st century. Above all, the success of the postwar American economy demonstrates that, contrary to today’s conservative orthodoxy, you can have prosperity without demeaning workers and coddling the rich.

Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”

Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.

Nor were high taxes the only burden wealthy businessmen had to bear. They also faced a labor force with a degree of bargaining power hard to imagine today. In 1955 roughly a third of American workers were union members. In the biggest companies, management and labor bargained as equals, so much so that it was common to talk about corporations serving an array of “stakeholders” as opposed to merely serving stockholders.

Squeezed between high taxes and empowered workers, executives were relatively impoverished by the standards of either earlier or later generations. In 1955 Fortune magazine published an essay, “How top executives live,” which emphasized how modest their lifestyles had become compared with days of yore. The vast mansions, armies of servants, and huge yachts of the 1920s were no more; by 1955 the typical executive, Fortune claimed, lived in a smallish suburban house, relied on part-time help and skippered his own relatively small boat.

The data confirm Fortune’s impressions. Between the 1920s and the 1950s real incomes for the richest Americans fell sharply, not just compared with the middle class but in absolute terms. According to estimates by the economists Thomas Piketty and Emmanuel Saez, in 1955 the real incomes of the top 0.01 percent of Americans were less than half what they had been in the late 1920s, and their share of total income was down by three-quarters.

Today, of course, the mansions, armies of servants and yachts are back, bigger than ever — and any hint of policies that might crimp plutocrats’ style is met with cries of “socialism.” Indeed, the whole Romney campaign was based on the premise that President Obama’s threat to modestly raise taxes on top incomes, plus his temerity in suggesting that some bankers had behaved badly, were crippling the economy. Surely, then, the far less plutocrat-friendly environment of the 1950s must have been an economic disaster, right?

Actually, some people thought so at the time. Paul Ryan and many other modern conservatives are devotees of Ayn Rand. Well, the collapsing, moocher-infested nation she portrayed in “Atlas Shrugged,” published in 1957, was basically Dwight Eisenhower’s America.

Strange to say, however, the oppressed executives Fortune portrayed in 1955 didn’t go Galt and deprive the nation of their talents. On the contrary, if Fortune is to be believed, they were working harder than ever. And the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973.

Which brings us back to the nostalgia thing.

There are, let’s face it, some people in our political life who pine for the days when minorities and women knew their place, gays stayed firmly in the closet and congressmen asked, “Are you now or have you ever been?” The rest of us, however, are very glad those days are gone. We are, morally, a much better nation than we were. Oh, and the food has improved a lot, too.

Along the way, however, we’ve forgotten something important — namely, that economic justice and economic growth aren’t incompatible. America in the 1950s made the rich pay their fair share; it gave workers the power to bargain for decent wages and benefits; yet contrary to right-wing propaganda then and now, it prospered. And we can do that again.

Copyright 2012 The New York Times
http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto....

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