After Piketty the new question: Can we, should we, afford the rich?

from Jamie Morgan’s “Piketty’s Calibration Economics: Inequality and the Dissolution of Solutions?” – an open access paper in current issue of Globalizations

In the neoliberal age, we have naturalised the rich. However, the success of Thomas Piketty’s Capital in the Twenty-First Century has done a great deal to legitimate a rather differently inflected concern. It is now permissible to ask: can we, should we, afford the rich? Growing income and wealth inequality have gradually become areas of public concern, but this concern has become more acute, and more politically febrile, in the wake of the global financial crisis. The election victory by Syriza in Greece, and the Occupy Movement speak directly to this. Austerity responses to the crisis have distributed the fallout costs to the many from the few who benefitted most from the preceding decades. Meanwhile, central bank policy responses have created new opportunities for the global rich to become even richer.1 To a large degree, the idea that the rest of us are dragged along in the wake of the wealthy has been exposed as a myth.

What exactly is all this productivity for?

from David Ruccio

It’s a story that could have appeared in the pages of George Packer’s magnificent book, The Unwinding: An Inner History of the New America. Or from the pen of Molly Ivins—which is good, since Esther Kaplan was recently awarded the 2015 MOLLY National Journalism Prize for her article, “Losing Sparta: The Bitter Truth Behind the Gospel of Productivity” [ht: bn]. 

Workers wages in the United States are lower today than they were back in 1972. (3 charts)

from David Ruccio

 

The Wall Street Journal notes that workers wages in the United States are lower today than they were back in 1972.

In particular, both average real weekly earnings and real hourly earnings of production and nonsupervisory workers peaked in October 1972 (“when Richard Nixon won re-election, Eugene Cernan became the last man to walk on the moon and the Dow Jones Industrial Average closed above 1,000 for the first time”) and they still haven’t reached that level more than four decades later.

Trade and the Fed: Making the rich richer

from Dean Baker

One of the greatest scenes in movie history occurs at the end of Casablanca. Humphrey Bogart is standing over the gestapo major’s body with a smoking gun. When the police drive up, the French colonel announces that the major has been shot and orders his men to “round up the usual suspects.”

Nearly all Democrats, and even many Republicans, now agree that inequality is a serious problem. They are desperately struggling to find ways to address the problem. Meanwhile, they will likely stand by and watch as the Fed raises interest rates. They will mostly like jump on board of the Trans-Pacific Partnership (TPP) and other trade deals that may come before Congress. While these policies go into effect, which are designed to redistribute income upward, we can count on our political leaders rounding up the usual suspects: looking for reasons why most workers are not sharing in the gains from economic growth.

Starting with the Fed, the purpose of raising interest rates is to slow economic growth and to keep workers from getting jobs. The ostensible rationale is that if the unemployment rate gets too low, then wages will start rising more rapidly and then we could have a problem with inflation. In order to ensure that inflation doesn’t become a problem, the Fed raises rates and keeps the unemployment rate from falling further. 

Falling real wages in the USA 2007- 2014

from David Ruccio

As the Economic Policy Institute explains,

4 charts showing increasing inequality in the USA

from David Ruccio

Let’s end the year with some important charts assembled by Steven Rattner.

Yes, economic growth picked up and financial markets soared to new record highs. But—and it’s a big but—wages remained stagnant (barely budging in real terms), income inequality got worse (increasing from already grotesque levels), the tiny minority at the top made out like bandits (just as they were doing before 2007), and government programs (even with a Democratic president and Senate) did little to ameliorate the effects of stagnant wages and growing inequality. 

America’s decade of declining real wages

from David Ruccio

“We allow our fellow Americans to be exploited for the benefit of corporate greed and unnecessary wars. This nation has become an embarrassment.” That’s how tintin from the Midwest responded to the news that many factory jobs today pay far less than what workers in almost identical positions earned in the past.

Perhaps even more significant, while the typical production job in the manufacturing sector paid more than the private sector average in the 1980s, 1990s and early 2000s, that relationship flipped in 2007, and line work in factories now pays less than the typical private sector job. That gap has been widening — in 2013, production jobs paid an average of $19.29 an hour, compared with $20.13 for all private sector positions.

In addition, according to a new study by the National Employment Law Project [pdf], wages in U.S. manufacturing are not keeping up with inflation.

What Yellen didn’t say

from David Ruccio

 

source

The other day, I reported that Fed chair Janet Yellen said a great deal about existing levels of economic inequality at the Conference on Economic Opportunity and Inequality in Boston.

Real median income of working-age American families 1975-2013 (chart)

from David Ruccio

There are two periods to focus on in this recently updated chart of the real median income of working-age American families:

The Vicissitudes of the Market Would Be a Big Improvement

from Dean Baker

Bob Kuttner has a good column in the Huffington Post comparing the progress made in improving the living standards of ordinary people in the forty years following the New Deal with the deterioration of the last three decades. However the piece doesn’t go far enough in contrasting the former period with the latter period.

After noting the lack of progress in recent years he comments:

“You wonder why people are turning away from the Democrats’ proposition that affirmative government can buffer people from the vicissitudes of the marketplace? You wonder why millennials are attracted to the libertarian proposition that we’re all on our own anyway?”

Of course the problem of the last three decades is not the “vicissitudes of the marketplace,” but rather deliberate actions by the government to redistribute income from the rest of us to the one percent. This pattern of government action shows up in all areas of government policy. 

In the US since 1949 inequality has increased with each expansion, with most gains going to the 1% (2 charts)

from David Ruccio

Americans have no idea how unequal the distribution of income is.

from David Ruccio

4% in 40 years

from David Ruccio

Neil King, Jr., for the Wall Street Journal, is perplexed:

It is in many ways both the ultimate economic puzzle and the great political challenge: Why have American incomes remained so flat, for so long, and what can be done to change that?

Uh, well. Maybe it’s this, maybe it’s that. King just can’t be bothered to figure it out.

So, let’s help him out: American incomes are flat precisely because of the anti-union, free-trade, decrease-taxes, cut-social-programs, don’t-raise-the-minimum-wage policies

The wage-productivity gap in the G20 (2 graphs)

from David Ruccio

 

Maximum wage—or, even better, no wages

from David Ruccio

One way of dealing with the problem of growing inequality is to establish a maximum wage. That’s what Franklin Delano Roosevelt proposed back in the early 1940s—a 100 percent marginal tax rate on incomes over$25,000 a year (roughly $350,000 in today’s dollars)—in order to “provide for greater equality in contributing to the war effort.”

Infuriated conservatives saw red, literally. The “only logical stopping place for this movement,” fumed Princeton economist Harley Lutz, would be “a completely communistic equalization of incomes.”

Simon Wren-Lewis reports his own recent suggestion for a maximum wage was greeted in much the same manner.

Well, if mainstream economists are going to howl about tinkering with tax rates, why not make them howl about a real change in the system whereby incomes are distributed? Like Filip Spagnoli’s suggestion to get rid of wage-labor entirely.

The gap in the USA between the rate of growth of productivity (now at 11.4 percent) and that of wages (1.5 percent) continues to widen

from David Ruccio

The gap between the growth of productivity (now 11.4 percent higher than in January 2007) and that of wages (only 1.5 percent higher) continues to widen (according to Reuters).

Is it any wonder, then, that income inequality continues to rise?

Your tax dollars at work: charities that make the rich richer

from Dean Baker

We usually think of charities as being a story where money flows down from those on top to those who are most in need. But in our vibrant 21^st century economy, charity often flows in the opposite direction, with rest of us subsidizing the incomes of very rich. That is the implication of several recent news stories.

For example, we have John Sexton the president of New York University. The university was recently in the news because of a story reporting that workers building its Abu Dhabi campus are often beaten and have their wages stolen. This campus is part of an ambitious expansion plan designed by Sexton, who reportedly makes $1.5 million a year and stands to pocket a “longevity bonus” of $2.5 million if he stays into 2015.

The University of Chicago is another school where the president, Robert Zimmer, appears to be doing rather well financially. Mr. Zimmer’s compensation for 2013 was reportedly $1.9 million after having spiked to $3.4 million the prior year. This compensation comes in spite of the fact that the school has an operating deficit and may be at risk of a credit downgrade.

A study by the Institute for Policy Studies found that student debt and low-paid faculty increased more rapidly at the universities with the 25 highest paid presidents than the national average. At the very least this suggests high presidential pay is not associated with scoring well in terms of either holding down student debt or minimizing the share of adjunct faculty.

CEO-to-worker compensation ratio, USA 1965 – 2013

from David Ruccio

In charting the amount of the surplus that ends up in the hands (or, if you prefer, pockets or bank accounts) of CEOs, the Economic Policy Institute finds that: 

Profit inflation

from David Ruccio

A couple of weeks back I wrote that, when mainstream economists debate the causes of inflation, they focus only on labor costs and forget all about profits.

Piketty, plutonomists, and the legal framework

from Edward Fullbrook

Plutonomists, like real-world economists, know that the main determinant of income and wealth distribution is the legal framework in which an economy functions.    The Plutonomy Movement, by far the most powerful political force of our age, is founded on the underground application of this basic principle.  Occasionally this becomes manifest when one of plutonomy’s strategic documents is leaked.   Such an event happened last week when the Bank of American Merrill Lynch report “Piketty and Plutonomy: The revenge of inequality” found its way into non-plutonomist hands.  In addition to posts on this blog, there was coverage in the Chinese and the Australian press and Brad Delong posted an excerpt from the report including three graphs.  Here is another excerpt, very brief, and number 42 of the report’s 45 figures.  Red indicates “regulatory legislation” and green “deregulatory legislation”.