The Cost of Economic Inequality
http://thedianerehmshow.org/shows/2012-05-17/cost-economic-inequality
A discussion about the role of income inequality in today's economy and its consequences for our future.
Guests
James Galbraith
economist; Lloyd M. Bentsen Jr. chair in government/business relations and professor of government, Lyndon B. Johnson School of Public Affairs, University of Texas at Austin
author of "Inequality and Instability: A Study of the World Economy Just Before the Great Crisis."
David Wessel
economics editor, The Wall Street Journal; author "In Fed We Trust"
Edward Conard
Author of "Unintended Consequences: Why Everything You've Been Told About the Economy is Wrong." Former partner at Bain Capital.
Comments
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Conard ( May 17 show ) is an insufferable drone for Wall St and like his fellow criminals plays fast and losse with facts. He claimed that outsourcing to China " saves 19 out of 20 dollars which is then used to hire more teachesr and policemen ". None are true. Outsourcing to China has been a net loss since it started and the results are for all to see - starting with 3x jump in gas price because China buys more gas with the money they earn by manufactuing we outsource. Democracy cannot survive with extreme inequality ( GINI index Latin America & US 0.47, France & Sweden : 0.3 ). The US will turn into a Banana republic if we let Bain Capital run this country
Today's show highlights economic inequality. The problem, though, is political inequality. The U.S. Will always have economic inequality. This is alright as long as the people, citizens, enjoy political equality. The Great Gatsby was wrong politically - the rich are not any different from the rest of us in the public realm.
When enormous amounts of cash purchase legislation and legislators, the rest of us allow the rich their political inequality.
From Franklin D. Roosevelt, through Dwight Eisenhower, America understood that the privilege of paying taxes in this country is a privilege and it asserts the power of the non-rich to include the very rich in on our collective self-governance among political equals.
When you just look at economics, you distort the importance of equal political power in a democratic society. An economy exists to feed the people. When we invert this so that the people exist to feed the economy, we have the painful situation we are in today.
In a democratic society, the purpose of an economy is merely to serve the needs of providing food, shelter, education and culture that enables all citizens to participate in the public conversation as equals. It's not even really about "jobs." America needs an economy that supports independent thinking and acting politically free citizens.
PART ONE
A few random thoughts:
1) As Truman observed, if all the economists in the world were laid end to end they still wouldn’t reach a conclusion. There’s a reason Economics isn’t considered a “hard” science. I wonder how the success rates of its theories would compare with that of Newton’s Principia or Einstein’s Relativity?
2) Given that Economics depends on human behavior, I consider it merely a subset of psychology and psychiatry. Fortunately economists themselves are beginning to realize this, and discovering that (contrary to “classical” economic theory) decisions we make frequently are far from rational. Therefore, trying to create “rational” theories for an activity that is often non-rational may well be a fool’s errand. Conclusion: be very skeptical about any economic theory or argument.
3) It’s unfortunate that everyone keeps pronouncing Mr. Conard’s name as if it were “canard”. Unfortunate, but appropriate, because much of what he says strikes me as a canard.
TO BE CONTINUED
PART TWO
4) Citing examples of people like Zuckerman as defense of inequality, and a model for our economy, strikes me as a case of “one swallow does not make a summer”. (This is besides the fact that I personally consider Facebook to be a fad, and economically speaking, another case of the kind of “bubble” most infamously represented by the Dutch Tulip fiasco.) The real question should be how many of the people at the top of the “economic food chain” actually are the kind of “risk takers” Zuckerman (and other dot.com billionaires) allgedly represent? This is where the Great Recession we are in comes into play. The people responsible weren’t really taking risks. They were making fortunes risking other people’s money, and were making “phony” investments that looked great on paper, but which turned out to be a shell game. So, how many of the “top 1%” (to use that cliché’) actually live in a “risky” world?
5) Conservatives love to cite Hayek’s The Road to Serfdom. I think someone should write about “The New Feudalism”, which is where I think we’re going. During the Middle Ages the great majority of wealth, and the means of obtaining wealth, was land. It was concentrated into the hands of a few people (the aristocracy, with a monarch at the top). Everyone else were either “hired guns” (knights) or serfs. I think we are heading in the same direction, only instead of land the concentration consists of the new forms and sources of wealth, but the deplorable results could still be the same.
TO BE CONTINUED
PART THREE
6) Finally, one has to consider the political aspect of all this (and I don’t mean partisan or ideological politics). As more and more wealth and opportunities are concentrated in fewer and fewer hands, as the “leaders” of our society increasingly act as if they are, or give the appearance of, living in an entirely different world from “ordinary folk”, as people begin to despair of ever “getting ahead” in the current system, and perceive that system as stacked against them, how long will they support that system? The economic failures of the Great Depression helped bring about the rise of Fascism in Italy, Nazism in Germany, Militarism in Japan, and strengthened Communism in Russia. The same can happen here.
The irony is the devotees of the Laissez-Faire form of Capitalism keep failing to realize that the “hated” reforms and policies of FDR prevented that. Instead, they seem determined to create the kind of economy Marx thought Capitalism was “doomed” to end in, leading to his “vision” of the future. FDR helped defeat Marx, it would be ironic in the extreme if people like Mr. Conard end up fulfilling his prophecies.
@utahowl your comment bolsters my earlier comment. The current crop of entrepreneurs monetizes the work of government and educational institutions and adds very little innovation other than wringing greater productivity from workers with stagnant wages. It is troubling to hear that you and your colleagues receive so little benefit in fair compensation while the vultures feast at your hard work.
Two posters have questioned my reference to the Congressional Budget Office study as it relates to inflation.
The effects of inflation are indeed important but the CBO study that has been widely quoted already factors in inflation. In other words, you both are mistaken.
One poster pointed out twice that there are more two earner families now than there were when I was young Although both of my parents worked in order to get that 1200 square foot home in the suburbs, I don't know if the two earner effect was factored in the CBO study. At the same time, we should look at the fact that there are fewer two parent households now and that two parent households have always enjoyed a higher household income.
In addition, there are 10 to 12 million undocumented immigrants and although the huge majority are very hard working, most do not have a college degree and would therefore lower the family income level at the bottom.
My point remains the same. The middle class has far more now than we did 40 years ago. A 40 percent gain after inflation is not so shabby and, unless we are envious of Beyonce, Brady, and Buffet, what is the big problem?
I would just like to correct your speaker. The middle class is not an American invention, it was created many years ago. Moreover, there have been various empire's throughout history that have failed due to a decrease in/removal of their middle class. My question is, why exactly do your speakers believe that not having a middle class is a good or even a possibility?
Etaoin,
In your number 6 here....you are right on the money (no pun intended) here.
As I comment, in closing to tomorrows program thoughts....at this rate the revolution is merely an inevitability. It's not "if", but "when". One wonders why the defenders of the wealthy don't see or comprehend this.
Or, they may be paid not to.
Only a stooge would believe billionaires like the Koch brothers et al would donate huge sums to campaigns and expect nothing in return. They pay their money to get access and access means getting influence over the way the government does its business.
The idea of free speech was originally to allow each citizen an equal voice in the government aka "We The People", not just a few one-percenters with a megaphone the size of their checkbooks.
The one percenters can afford to donate to EVERY politician of every stripe (yes, every party) and have their influence take effect.
So, which one are you? Curly, Moe, Larry, or Shemp ?
By the way, none of this is "new"....... Karl Marx described the process of monetary clashes and the results a very long time ago - it's called "dialectical materialism".
God forbid that all our citizens follow their utmost greed and imitate so many of the one percenters. Note that, percentage wise, lower income folks contribute a higher percent of their wealth to causes when compared to the wealthy.
(these stats come from the IRS, by the way.)
Pancho:
You are absolutely right. What has been and continues to frustrate me is how many "poor whites" in this country seem to believe that skin color is somehow going to protect them. I've been in Appalachia, Eastern Kentucky, the Deep South, rural Oregon, and a number of other places that break my heart to see poor White poverty. However, when it comes to the economy they drink the kool-aid and still believe that it's better to eat the crumbs from a rich man's table than to join with those who economically share their plight and feast from the power of numbers and the strength of cooperation. I guess, Pancho, it's the dullard part that is frightening. Thanks for deepening the thought.
Kate
My parents, in their lifetimes, owned and paid for in full five homes that I personally know of. Neither of them finished school, and they were both semi-skilled textile workers. Since I had to help them with daily living as they aged, I was quite familiar with their financial situation. Their maximum life savings was approximately $30, 000. Their MONTHLY pensions for over 30 years with the same employer were in total slightly under $100. And yet they accomplished so much.
Most college graduates today will be lucky if they own ONE home before they die. They will be lucky if they have any savings at all. Our currency is almost worthless.
And yet there are people who really believe that this is progress. Talk about being out of touch with reality!
"Etaoin Shrdlu wrote:
PART THREE
The irony is the devotees of the Laissez-Faire form of Capitalism keep failing to realize that the “hated” reforms and policies of FDR prevented that. Instead, they seem determined to create the kind of economy Marx thought Capitalism was “doomed” to end in, leading to his “vision” of the future. FDR helped defeat Marx, it would be ironic in the extreme if people like Mr. Conard end up fulfilling his prophecies.
May 17, 2012 - 2:15 pm"
You stopped too soon, Shrudlu!!!
You can say what you want about the Commies, but they kept us honest.
Less than one Generation after the Soviet Union collapsed, our whole Economy and Society (and those of most of the Western World) lie in ruins!!!
Monte Haun mchaun@hotmail.com
Contrary to another commentator, Bernie Mihm’s figures are adjusted for inflation but not for cost-of-living (changes in what people require to live) or, more importantly, for the increases in debt (personal and one’s share of National Debt) accumulated during that period. Also, Mimh failed to adjust the income-per-household rates for the fact that the denominators might have shrunk over the period. If there is shrinkage of the number of people (or families) with incomes qualifying them as middle-class (as there has been), then the rate will inflate without there being any change in the numerator.
Aside from statistical considerations, we know production capacity had increased beyond demand in the mid-70s necessitating increased advertising and looser financing to pump up the demand. Subsequently, retirement plans failed mortgages are beng foreclosed on and the government was held up to put billions on the table to bailout these overextended institutions. All that money, including what went out as bonuses greatly increased what is owed by the average person (in order to be an American citizen).
So, now people are being told that their children will not be able to afford the ‘life’ sold to them as being their entitlement. I could go on about the failure of the government to protect the people from fraud or the insecurity brought on by financial bubbles exploding, the permanent loss of jobs, and the ‘sale’ of their Public Services (Schools, Prisons and all) to the same business interests that had to have the government rescue them a few years back. The infusion of these shock treatments is meant to prepare everybody for complete corporate takeover (too bad that the need for Economists will all but disappear then, too).
Bernie reply
I do not question your use of the CBO study. There are some things you left out. First the study ends in 2007 before the current crisis. There is no way the situation is the same in 2012 as it was in 2007. The situation is worse. Further I suggest you read where a significant part of the 40% came from, increases in health care insurance paid by employers and counted as income (see the definitions of income in the study) they (in the appendix) say 6-7% of the 40 is health insurance provided to employees as income (and a tax deduction for the employers – one of the largest supposed tax credit loopholes to be closed – we shall see). Further the adjusted inflation rate is based on CPI which does not include increases in gas prices (and other things)..
What is the big problem? The big problem is that in real terms middle income has flat lined while the incomes of the upper 10% to 1% has increased exponentially.
What is the big problem? The big problem is that without a thriving middle class there is not thriving demand. Our current economic morass is not the result of the bogus job creators uncertainty or worry about tax policy, it is lack of demand. No thriving middle class, no demand, no small, or eventually, large business.
The rich in our culture have successfully captured the surplus generated over two generations and they intend to keep every bit of it, while resisting any increases in the money supply to prevent what they captured from becoming less valuable.
More and more people believe that the government is bought and paid for by the 1%, when the perception of legitimacy declines to a point serious problems ensue. Neither the Patriot Act, nor the NDAA, both of which allow for warrantless spying of American citizens and indefinite detentions will prevent the problems.
Bernie reply
I do not question your use of the CBO study. There are some things you left out. First the study ends in 2007 before the current crisis. There is no way the situation is the same in 2012 as it was in 2007. The situation is worse. Further I suggest you read where a significant part of the 40% came from, increases in health care insurance paid by employers and counted as income (see the definitions of income in the study) they (in the appendix) say 6-7% of the 40 is health insurance provided to employees as income (and a tax deduction for the employers – one of the largest supposed tax credit loopholes to be closed – we shall see). Further the adjusted inflation rate is based on CPI which does not include increases in gas prices (and other things)..
What is the big problem? The big problem is that in real terms middle income has flat lined while the incomes of the upper 10% to 1% has increased exponentially.
What is the big problem? The big problem is that without a thriving middle class there is not thriving demand. Our current economic morass is not the result of the bogus job creators uncertainty or worry about tax policy, it is lack of demand. No thriving middle class, no demand, no small, or eventually, large business.
The rich in our culture have successfully captured the surplus generated over two generations and they intend to keep every bit of it, while resisting any increases in the money supply to prevent what they captured from becoming less valuable.
More and more people believe that the government is bought and paid for by the 1%, when the perception of legitimacy declines to a point serious problems ensue. Neither the Patriot Act, nor the NDAA, both of which allow for warrantless spying of American citizens and indefinite detentions will not prevent the problems.
This video was withheld from the TED web site. Now it has been made available...
The Talk On Income Inequality That Was Too 'Political' For TED:
http://www.huffingtonpost.com/2012/05/17/nick-hanauer-ted-talk_n_1524435...
To meangreen:
Did you happen to notice in the CBO report the definition of income? it included health insurance benefits paid for by empolyers. In fact, 6-7% of the supposed 40% of the increase in middle class incomes comes from the increase in health insurance benefits (in essence employee income). So much for the argument that health insurance is not employee income, and thus something they pay for.
I listened to the debate and it seemed academic and unattached. I thought maybe I had misunderstood what it was supposed to be about so I checked the site for more intention. There is no statement; only brief notes about the panel. First, there is Edward Conroy, “Romney's Former Bain Partner” whose book supposedly makes concludes that the consequences of inequality of income are “unintended” and then, as per the title, goes on to tell us: “Everything You've Been Told About the Economy Is Wrong” -- so, we should now retake Econ 101 or what?
Then there is James Galbraith, whose book establishes “that inequality causes instability”. Wait, his “instability” is Market not Social Unrest. He says: ”the movement of inequality is dominated by the movement of non-wage incomes.” He continues to dispute the notion that we face more crises, saying: “We haven't recovered from the last one. …. Until we deal with the toxic behavior of the banks, and until we stabilize the speculative movement in resource costs .., we will not … recover.” So, if we never recover we will never have more crises, so not recovering is a solution? How brilliant?
Then there is Ben Bernake with his new book: “In FED We Trust”. Well, since he is the Fed, I shouldn’t have expected to hear much in the way of suggested reforms. So, I figured, I must have simply misunderstood what the show was to be about. It was certainly not to be about anything germane to those protesting or about the government’s role in all this.
Then, I got my brain flash: If it was intended to be a dispassionate match between academic authors, why does their page lead off with this dramatic picture of a young Occupier holding a sign saying “Tax the 1%”? We are not only being lectured to by some effete theoreticians but we are being patronized as well.
@mnemecek,
Nothing in your autobiography (which my family, including grown children, can match and probably raise you), invalidates my point about how well those at the top have done – and it’s been at the expense of the society that made their wealth possible. If you were honest with yourself, you would understand that even those who have done very well could not have done it without the material and social infrastructure that a developed society provides.
The averages which you are so proud of mask an ugly disparity in wealth and income the likes of which have not been seen since before the New Deal. A combination of enough jobs and educational opportunities can level the playing field. Unfortunately, jobs that can sustain even a modest standard of living are becoming fewer and more demanding of education and skills at the same time as more and more of our young people are being deprived of decent public schools and priced out of higher education.
Finally the truth is allowed to be told (after months of censorship):
http://www.marketplace.org/topics/wealth-poverty/nick-hanauer-ted-talk-i...
Not that it really is that relevent to the discussion, but I take a bit of an issue saying rock stars and athletes didn't produce jobs. What about the workers at the stadium during a sports event or concert? What about the roadies for a rock band or the person who ensures a team's equipment arrives safely? What about the people who drive and fly the musicians and athletes to the event? Those jobs would not be there if it weren't for the musicians or athletes at the stadium or venue that night. And there are other jobs besides this they influence. What about a guitar model for sale like the one the rock star plays? What about the team jersey the fan can buy with the athlete's number on it? What about the people who are involved in the production and sale of these items? I wouldn't say they produce no jobs.
vageiger Thank You. You make some important points.
Even after examining the facts that you have presented, it is clear
that the middle 60 per cent of households have enjoyed a substantial
rise in household income. It might be 40 per cent. It might be a
little more or less but its still substantial
I agree that the data would be different today than 2007 but both 2007
and 1979 were at similar points in the business cycle and that is
the reason that CBO uses those two years.
The reason gasoline is excluded from the CPI is that the price is
volatile and could seriously skew the inflation rate either up or down over the course of just one year. Here is a chart showing the inflation adjusted price of gas. It looks like the years 1979 and 2007 have very similar gasoline prices so that that would not change the results of the CBO study.
http://inflationdata.com/inflation/inflation_rate/gasoline_inflation.asp
Medical costs are a whole other issue and they do account for just 6 per cent of the 40 per cent gain but perhaps at least a part of that
is the advances in medicine over those years. MRI's and AIDS medications
are just two examples.
This study was done by the nonpartisan Congressional Budget Office . It has been widely cited by many to "prove" that the middle class is somehow not getting ahead and even disappearing. The fact is that this just isn't true and that those who advocate that position are only using the income gains
of the top 1 percent and either unknowingly or deliberately omitting
the forty per cent gains of the middle class.
One further point that the highest gains are not just concentrated in the top one cent but the top one tenth of one per cent. This further strengthens my argument. In 2007 the average middle class person still has an average car except that it is much safer and has a lot more features than the car a similarly employed family might have had in 1979.They still have the average middle class home except it is now larger than that 1979 house has a lot more stuff inside.There is an extremely small segment of the population that in 1979 had two or three expensive cars and a huge house.
Now that same segment has four or five super expensive cars and a super-huge house.
Mr Galbraith may be concerned if someone in the Hamptons now has two more cars and a larger second home than they had before, but that doesn't really bother me as long as everyone else is also advancing.
The middle class (in which I live) is struggling and maybe dissappearing. You casual dismasal of the 2007 time frame is indicative of how you are seeking to establish a baseline upon which the gullible might be anchored. It is misleading. I have a Toyota with manual transmission, 4 cycl. It is possibel to acquire, though they will try like hell to sell you something different, unfortunately I cannot buy a slant 6 from an American maker, their loss.
You do not address the increase in middle income as a result of increasing health care premiums paid by employers (tax deductible to them - not you) that is income to employees. Why? Why do you not address this issue? let me guess, you chose not to. Which leads me to conclude that you are not really willing to deal with the decline in middle class income, and thus demand and thus why we are in this continuing economic decline. Keep asserting that the job creators create jobs for which there is no demand. Live in fantasy land.
Well, Bernie got the conversation sidetracked (called a smokescreen) and is obfuscating it with a comment based on his interpretation of a study done between 1979 and 2007 (yes, that is five years ago) and uses one aspect (a 40 percent rise in middle income during that whole period) as the proof that income is rising for the middle class. What that has to do with the rest of the report that shows income inequality is rising and that this is somehow better for the economy is confusing.