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Inequality Bulletin, 2010

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The greater the gap between the rich and everyone else, the more dangerous economics becomes.

Summary of Key Points

Inequality and "Guard Labor"

“That’s almost certainly false,” Bowles tells SFR. “Prior to about 20 years ago, most economists thought that inequality just greased the wheels of progress. Overwhelmingly now, people who study it empirically think that it’s sand in the wheels.” ... Bowles offers a key reason why this is so. “Inequality breeds conflict, and conflict breeds wasted resources,” he says.

This is from a profile of Samuel Bowles:

Born Poor?, by: Corey Pein: ...Bowles’ most recent paper ... examines how wealth is transferred from parents to children in hunter-gatherer societies versus agricultural societies. That might seem distant... But everyone can relate to his chosen subject: inequality. ...

Bowles’ course was set in 1968, when he was an assistant professor at Harvard, and the Rev. Dr. Martin Luther King Jr. came to his department looking for advice on the next stage of his social justice campaign.

“We were just elated that we could use economics, which we had so painstakingly learned, to answer questions that Dr. King thought were important,” Bowles tells SFR. “We were also extremely angry that we were totally unable to answer the questions on the basis of having gotten a PhD at Harvard.”

King’s assassination that year cut short the equality movement. ...

Most economists in 1968 thought of inequality as “somebody else’s problem,” Bowles tells SFR. “I actually was denied the right to teach a graduate course in inequality because it was said not to be economics.” It wasn’t always thus.

“The founders of the discipline of economics, almost to a man—and they were only men—thought that the problem of distribution between classes—they used the word classes—was the key to understanding why nations grew or not,” Bowles says. What Bowles sees as the essence of his profession [is] problems of wealth distribution...

Isn’t inequality merely the price of America being No. 1?

“That’s almost certainly false,” Bowles tells SFR. “Prior to about 20 years ago, most economists thought that inequality just greased the wheels of progress. Overwhelmingly now, people who study it empirically think that it’s sand in the wheels.” ... Bowles offers a key reason why this is so. “Inequality breeds conflict, and conflict breeds wasted resources,” he says.

In short, in a very unequal society, the people at the top have to spend a lot of time and energy keeping the lower classes obedient and productive.

Inequality leads to an excess of what Bowles calls “guard labor.” In a 2007 paper on the subject, he and co-author Arjun Jayadev, an assistant professor at the University of Massachusetts, make an astonishing claim: Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.
Guard Labor versus Inequaltiy (Gini) across States

The job descriptions of guard labor range from “imposing work discipline”—think of the corporate IT spies who keep desk jockeys from slacking off online—to enforcing laws... The greater the inequalities in a society, the more guard labor it requires, Bowles finds. ...

The problem, Bowles argues, is that too much guard labor sustains “illegitimate inequalities,” creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time—perhaps starting their own businesses...

Liberals tend to think of inequality as a matter of class and race—and that’s true, he says. But individual success hinges on a big X factor: “There’s a lot of luck involved,” Bowles says.

No politician’s promise can remove that element of unpredictability. Which means the smart policy, in Bowles’ view, is for the government to care for people who suffer misfortune through no fault of their own. ... “The whole idea of social security,” Bowles says, “is to insure the unlucky by having the lucky pay a little extra.” ... [more here]

With progressive taxes the lucky do pay a little extra, and that allows society to provide social insurance to the unlucky.

There are many additional ways to justify progressive taxation, e.g. the principle of equal marginal sacrifice, and if the guard labor hypothesis is correct, it provides yet another rationale for a progressive tax code.

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[Jun 28, 2015] Keynes, The Great Depression And The Coming Great Default

Jun 28, 2015 | Zero Hedge
falak pema

you guys have it ALL wrong.

Keynes was there to check OLIGARCHY neo-feudalism. This crisis is about Oligarchy neofeudalism.

We need a balance between state and private enterprise. Right now we have "inverted totalitarianism" :an alliance between state and private Oligarchs where, unlike Mussolini model; its private enterprise that RUNS THE WORLD; the 1%.

The state is their slave; even FED belongs to its paymasters : the TBTF aka JP Morgan and now GS. Since Glass Steagall revoke; engineered by the GS squid cabal allowing Investment banks to rule the roost to MAXIMISE shareholder returns, the whole shooting match of supply side deregulated Reaganomics; all based on asset hiking based on short term quarterly reports; has morphed capitalism beyond recognition.

The world of capital changed in 1981...the day all that mattered was shareholder value based on short term steroid pumping that the 1971 "our money your problem" had initiated based on petrodollar hegemony fueled on perpetual DEBT.

The cumulative effect of 1971/1981/1991 outsourcing NWO mantra post Iraq 1 and SU default was what we have spawned today: a three step process where petrodollar debt + FIRE economy oligarchy enrichment+ NWO outsourcing based on cheap oil and cheap labour have built this casino capitalism model now compounded by derivative financialisation toxic shenanigans.

Now tell me WHAT has KEYNES got to do with this monetarist construct based on Friedman's 1971 mantra?

You guys deny the time line of facts and its irrefutable logic all based on petrodollar hegemony, and arms bazar supremacy.

[Jun 19, 2015] Debt: War and Empire By Other Means

"... Corrupt officials burden taxpayers with unsustainable amounts of debt for unproductive, grossly overpriced projects. "
"...would be wrong in these instances to blame the whole country, the whole government, or all corporations, except perhaps for sleepwalking, and sometimes willfully, towards the abyss. For the most part a relatively small band of scheming and devious fellows abuse and corrupt every form of government and organization and law in order to achieve their private ambitions, often using various forms of intimidation and reward."
"...The TPP and TTIP are integral initiatives in this effort of extending financial obligations, debt, and control."
"... "Economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain. As a result, whatever is fragile, like the environment, is defenseless before the interests of the deified market, which becomes the only rule." Francis I, Laudato Si "
Jun 19, 2015 |

This video below may help one to understand some of the seemingly obtuse demands from the Troika with regard to Greece.

The video is a bit dated, but the debt scheme it describes remains largely unchanged. The primary development has been the creation of an experiment called the European Union and the character of the targets. One might also look to the wars of 'preventative intervention' and 'colour revolutions' that raise up puppet regimes for examples of more contemporary economic spoliation. From largely small and Third World countries, the candidates for debt peonage have become the smaller amongst the developed Western countries, the most vulnerable on the periphery. And even the domestic populations of the monetary powers, the US, Germany, and the UK, are now feeling the sting of financialisation, debt imposition through crises, and austerity. What used to only take place in South America and Africa has now taken place in Jefferson County Alabama. Corrupt officials burden taxpayers with unsustainable amounts of debt for unproductive, grossly overpriced projects.

It would be wrong in these instances to blame the whole country, the whole government, or all corporations, except perhaps for sleepwalking, and sometimes willfully, towards the abyss. For the most part a relatively small band of scheming and devious fellows abuse and corrupt every form of government and organization and law in order to achieve their private ambitions, often using various forms of intimidation and reward. It is an old, old story. And then there is the mass looting enable by the most recent financial crisis and Bank bailouts. If the people will not take on the chains of debt willingly, you impose them indirectly, while giving the funds to your cronies who will use them against the very people who are bearing the burdens, while lecturing them on moral values and thrift. It is an exceptionally diabolical con game.

The TPP and TTIP are integral initiatives in this effort of extending financial obligations, debt, and control. You might ask yourself why the House Republicans, who have fought the current President at every turn, blocking nominees and even stages many mock votes to repeatedly denounce a healthcare plan that originated in their own think tank and first implemented by their own presidential candidate, are suddenly championing that President's highest profile legislation, and against the opposition of his own party? The next step, after Greece is subdued, will be to extend that model to other, larger countries. And to redouble the austerity at home under cover of the next financial crisis by eliminating cash as a safe haven, and to begin the steady stream of digital 'bailing-in.'

This is why these corporatists and statists hate gold and silver, by the way. And why it is at the focal point of a currency war. It provides a counterweight to their monetary power. It speaks unpleasant truths. It is a safe haven and alternative, along with other attempts to supplant the IMF and the World Bank, for the rest of the world. So when you say, the Philippines deserved it, Iceland deserved it, Ireland deserved it, Africa deserves it, Jefferson County deserved it, Detroit deserved it, and now Greece deserves it, just keep in mind that some day soon they will be saying that you deserve it, because you stood by and did nothing.

Because when they are done with all the others, for whom do you think they come next? If you wish to see injustice stopped, if you wish to live up to the pledge of 'never again,' then you must stand for your fellows who are vulnerable. The economic hitmen have honed their skills among the poor and relatively defenseless, and have been coming closer to home in search of new hunting grounds and fatter spoils.

There is nothing 'new' or 'modern' about this. This is as old as Babylon, and evil as sin. It is the power of darkness of the world, and of spiritual wickedness in high places. The only difference is that it is not happening in the past or in a book, it is happening here and now.

"Economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain. As a result, whatever is fragile, like the environment, is defenseless before the interests of the deified market, which becomes the only rule." Francis I, Laudato Si

You may also find some information about the contemporary applications of these methods in The IMF's 'Tough Choices' On Greece by Jamie Galbraith.

"Plunderers of the world, when nothing remains on the lands to which they have laid waste by wanton thievery, they search out across the seas. The wealth of another region excites their greed; and if it is weak, their lust for power as well. Nothing from the rising to the setting of the sun is enough for them. Among all others only they are compelled to attack the poor as well as the rich. Robbery, rape, and slaughter they falsely call empire; and where they make a desert, they call it peace."

Tacitus, Agricola Posted by Jesse at 11:46 AM Email This BlogThis! Share to Twitter Share to Facebook Share to Pinterest

Category: currency war, debt peonage, debt slavery, neo-colonialism, new world order

[Jun 12, 2015] Bilderberg 2015: where criminals mingle with ministers by Charlie Skelton

Jun 12, 2015 | The Guardian
Convicted criminals. Such as disgraced former CIA boss, David Petraeus, who's just been handed a $100,000 (£64,000) fine and two years' probation for leaking classified information.

Petraeus now works for the vulturous private equity firm KKR, run by Henry Kravis, who does arguably Bilderberg's best impression of Gordon Gecko out of Wall Street. Which he cleverly combines with a pretty good impression of an actual gecko.

... ... ...

"Can I go now?" Another no. So I continued my list of criminals. I moved on to someone closer to home: René Benko, the Austrian real estate baron, who had a conviction for bribery upheld recently by the supreme court. Which didn't stop him making the cut for this year's conference. "You know Benko?" The cop nodded. It wasn't easy to see in the glare of the searchlight, but he looked a little ashamed.

... ... ...

I decided to reward their vigilance with a chat about HSBC. The chairman of the troubled banking giant, Douglas Flint, is a regular attendee at Bilderberg, and he's heading here again this year, along with a member of the bank's board of directors, Rona Fairhead. Perhaps most tellingly, Flint is finding room in his Mercedes for the bank's busiest employee: its chief legal officer, Stuart Levey.

A Guardian editorial this week branded HSBC "a bank beyond shame" after it announced plans to cut 8,000 jobs in the UK, while at the same time threatening to shift its headquarters to Hong Kong. And having just been forced to pay £28m in fines to Swiss regulators investigating money-laundering claims. The big question, of course, is how will the chancellor of the exchequer, George Osborne, respond to all this? Easy – he'll go along to a luxury Austrian hotel and hole up with three senior members of HSBC in private. For three days.

High up on this year's conference agenda is "current economic issues", and without a doubt, one of the biggest economic issues for Osborne at the moment is the future and finances of Europe's largest bank. Luckily, the chancellor will have plenty of time at Bilderberg to chat all this through through with Flint, Levey and Fairhead. And the senior Swiss financial affairs official, Pierre Maudet, a member of the Geneva state council in charge of the department of security and the economy. It's all so incredibly convenient.

... ... ...

Related: The Guardian view on HSBC: a bank beyond shame | Editorial

consumersunite MickGJ 12 Jun 2015 15:23

Let's see, maybe because we have read over their leaked documents from the 1950s in which they discussed currency manipulation and GATT. Everything they have discussed in their meetings over the past decades has almost come to fruition. There are elected officials meeting with criminals such as HSBC. Did you even read the article? If you did, and you are not het up or whatever you call it, then you are of a peasant mentality, and there is no use talking to you.

The Bilderberg set call people like you either their "dogs" (if you are in politics or the military) or the "dead." I won't be looking for your response because you have confirmed that you do not matter.

Carpasia MickGJ 12 Jun 2015 10:52

Thank you for your comment, my good man. Hatred is human, and helps us all to avoid pain, for pain, especially unnecessary pain, is allowed to be hated by the agreement of all, if nothing else is. I would hate to be beaten by Nazis. Thus, I would avoid going to a place where that could occur. That is how hatred works for me. It is the only way it can work, and not be pernicious to the self and others.

I distrust the international order as it is the means, harnessed by money, whether corporate or state or individual or monarchical, by which this world is being destroyed. Could things have been better? Jesus is on one end of the spectrum, and Lord Acton on the other, of the spectrums of viewpoints from which that could be properly assessed. If the corruption at the heart of the international order is not regulated properly, this world will come to an end, not the end of the world itself, but the end of the world as we know it. This is happening now. The world is finite.

I am not a xenophobe. In my experience, the people that are most likely to hurt me, and thus deserve fear, are those closest. Perhaps that is a cynical way of describing it, but anyone who thinks honestly about it would accede to the notion that it is the people who "love" us that hurt us the most, for we agree too be vulnerable to them. It is the matrix of love.

As for Austria and Bavaria, I have visited both places and they were, both, the cleanest locales I have ever seen, with Switzerland having to be mentioned in the same breath, of course.

I take a certain liberty in writing. I am not damning the human race, or strangers to me. If I did not entertain, but caused offence, I apologize to you. I do not possess omniscience, and my words will have to speak for themselves.

Thank you, again.

DemonicWarlordSlayer 12 Jun 2015 08:02

"How Geo Bush's Grandfather Helped Hitler's Rise to Power" in the UK Guardian >

"Did Geo H W Bush Coordinate a JFK Hit Team" at Veterans Today >

"9/11 Conspiracy Solved, Names, Connections, Details" on of the

Demonic Warlord's Crimes Against Humanity....end feudalism.

Carpasia 12 Jun 2015 07:09

Excellent article.

I visited Austria once, and I know of what he speaks. It was the one place I have ever visited that I thought I would be jailed if I littered. I was wandering at the time, but I tentatively had a meal of chicken and departed henceforth.

Austrians are an interesting lot, to be sure. That they are perfect goes without saying. Their main virtue is that they do not travel, and that strangers, which we call tourists these days, are not welcomed. If only we were all like that, the world would be a far better place.

Austrians do everything well, including crime. Some of the greatest crimes in the world have been committed by Austrians, but their crimes did not include not having their papers.

During World War 2, and I pass over Hitler, the German machine of death had an unusually high proportion of Austrians in commanding roles assisting it. It can not be explained away by saying they were some kind of faux Germans, and so it matters not. Indeed, if anything, Germans are faux Austrians, looked at in the broad brush of history. Men of many nations joined the Germans and adorned themselves with the Death's Head, but many Austrians might as well have tattooed it onto their foreheads. I know of what I speak, for I read on it, and will justify if questioned.

Reinhard Heydrich is an epitome of this, in the true sense of the word. Kurt Waldheim was another, too young too rise too far before the Ragnarok of May of 1945, but government of the world was not out of his reach, a man who had materially assisted the transportation of the Jews of Thessaloniki to the gas chambers of Auschwitz and, when challenged, was unrepentant, not as a racist, but as something worse even, as a man whose great virtue was that he followed orders. It is order that the Austrians value over everything. Even crime is ordered.

In the common-law west we think criminals are disordered beasts to be locked up. We do not give them papers. They are registered only to warn us of their existence, and we do not like to let them travel, as much as we could benefit by their absence, because we think they flee to license, and we think it wrong to inflict them upon innocents abroad. In Austria, the criminal is the man with no papers. If he has papers, all is well, and he is no criminal, whatever he has done.

colingorton 12 Jun 2015 03:19

What do you mean "where criminals mingle with ministers". That is assuming that ministers are not criminals. Considering that there will be ministers from the USA, Canada, France, Germany, Italy, Japan and the UK, I'd suggest that there is a near 100% certainty that some, if not all, the ministers there are criminals.

That one group of almost-certainly-criminals meets another group of almost-certainly-criminals is hardly surprising. That the whole shebang is protected by the host's police force is even less so.

How far can all this mutual back scratching go? It seems that the only alternative left is far too drastic, but there really seems to be no place for a legal alternative, does there?

[Jun 07, 2015] Secular Stagnation: The Time for One-Armed Policy is Over

"...Stagnation is gripping several of the world's largest economies and many view this as secular, not transient."
"...Above all, ideology must conceal, denigrate, diminish, slander and distract from the ONE effective strategy that workers collectively have. This is the spectre that haunts all economics."
"...For many of those who consume the bottom layers of it, what they are ingesting is a barbarous Pink Slime cultural sludge that makes them stupid, frivolous, dependent, impulsive and emotionally erratic – something like perpetual 15 year olds. "
"...In the center, we have the neoliberals, who are convinced that our world will spontaneously and beneficially organize itself if only we turn the macroeconomic tumblers and stumble on the right interest rate, or inflation rate, or some other version of the One Parameter to Rule Them All mindset. They are also too devoted to the religion of demand-goosing: the idea that everything will be all right as long as we generate enough "demand" – as though it makes no difference whether people are demanding high fructose cotton candy or the collected works of Shakespeare."
"...Profits and income share at the top soared; wages and income share at the bottom fell, and employment was maintained by speculative bubbles and increasing debt until the last bubble burst, and the system collapsed."
"...How is an increasing deficit and QE supposed to solve our problems in this situation other than by propping up a failed system that makes the rich richer and the poor poorer by increasing government debt?"
"...It seems quite clear to me that it is going to take a very long time for the system to adjust to this situation in the absence of a fall in the value of the dollar and the concentration of income. That kind of adjustment means reallocating resources in a very dramatic way so as to accommodate an economy in which resources are allocated to serve the demands of the wealthy few in the absence of the ability of those at the bottom to expand their debt relative to income."
"...It was the fall in the concentration of income that led to mass markets (large numbers of people with purchasing power out of income) that made investment profitable after WW II in the absence of speculative bubbles, and it was the increase in the concentration of income that led to the bubble economy we have today that has led us into the Great Recession."
"...I think neoliberalism naturally leads to secular stagnation. This is the way any economic system that is based on increasing of inequality should behave: after inequality reached certain critical threshold, the economy faces extended period of low growth reflecting persistently weak private demand. An economic cycle enters recession when total spending falls below expected by producers and they realize that production level is too high relative to demand. What we have under neoliberalism is kind of Marx constant crisis of overproduction. The focus on monetary policy and the failure to enact fiscal policy options is structural defect of neoliberalism ideology and can't be changed unless neoliberal ideology is abandoned. Which probably will not happen unless another huge crisis hit the USA. 2008 crisis, while discrediting neoliberalism, was clearly not enough for the abandonment of this ideology. Like in most cults adherents became more fanatical believers after the prophecy did not materialized. The USA elite tried partially alleviate this problem by resorting to military Keynesianism as a supplementary strategy. But while military budget was raised to unprecedented levels, it can't reverse the tendency. Persistent high output gap is now a feature of the US economy, not a transitory state. "
Jun 05, 2015 |
Willem Buiter, Ebrahim Rahbari, Joe Seydl at Vox EU:

Secular stagnation: The time for one-armed policy is over: Stagnation is gripping several of the world's largest economies and many view this as secular, not transient.

This column argues that many economies need both demand-side stimulus and supply-side reform to close the output gap and restore potential-output growth. A combined monetary-fiscal stimulus – i.e. helicopter money – is needed to close the output gap, and this should be accompanied with extensive debt restructuring, policies to halt rising inequality, and additional public infrastructure investment.

Selected Skeptical Comments

Sandwichman -> anne:

Workers, collectively, have a single, incontrovertible lever for effecting change -- withholding their labor power. Nothing -- not even imprisonment or death -- can prevent workers from withholding their labor power! Kill me and see how much work you can get out of me.

This is the elementary fact that the elites don't want workers to know. "It is futile!" "It is a fallacy!" "You will only hurt yourselves!"

Once one comprehends the strategic importance of making the withholding of labor power taboo, everything else falls into place. Economics actually makes sense as a persuasive discourse to dissuade from the withholding of labor power.

Above all, ideology must conceal, denigrate, diminish, slander and distract from the ONE effective strategy that workers collectively have. This is the spectre that haunts all economics.

Dan Kervick:

Good stuff by Buiter et al, but here are some suggested additions to the litany of supply side woes:

1. Ineffective economic organization, both inside corporate firms and outside of them.

a. Many corporations are now quite dysfunctional as engines of long-term value creation – but not dysfunctional as vehicles of short-term value extraction for their absurdly over-incentivized key stakeholders.

b. The developed world societies are facing an extreme failure of strategic economic leadership, at both the national and global level, and at both the formal level of government and the informal level of visionary public intellectuals and industrial "captains". There is no coherent consensus on which way lies the direction of progress. Since nobody is setting the agenda for what the future looks like, risk trumps confidence everywhere and nobody knows what to invest in.

2. Dyspeptic dystopianism. The intellectual culture of our times is polluted by obsessive, nail-biting negativity and demoralizing storylines preaching hopelessness: the robots are going to destroy all the jobs; the Big One is going to bury everything, the real "neutral" interest rate is preposterously negative, etc. etc. etc. With so much doom and gloom in the air, there is no reason to invest wealth, rather than consume it. Robert Schiller touched on this at a recent talk at LSE.

3. The popular culture of 2015 America is – as in so many other areas - a tale of two cultural cities. For many of those who consume the bottom layers of it, what they are ingesting is a barbarous Pink Slime cultural sludge that makes them stupid, frivolous, dependent, impulsive and emotionally erratic – something like perpetual 15 year olds. People like this can be duped by the most shallow demagoguery and consumerist manipulation, and can't organize themselves to pursue their enlightened self-interest. Enlightened artists and cultural custodians need to step up, organize and find a way to seize the American mind back from the clutches of consumer capitalist garbage-mongers and philistine society-wreckers.

4. Laissez faire backwardness. We are struggling under left-right-center conspiracy of Pollyanna freedom fools, who despite their constant kvetching at one another all share in common the view that progress is self-organizing.

On the left we have the Chomsky and Graeber-style "libertarian socialists" who are convinced we could have a functioning and prosperous society in which seemingly every action is voluntary and spontaneous, nobody is ever compelled to do anything that their delicate little hearts don't throb to do, and who seemingly have no idea of what it takes even to run a carrot farm.

On the right, we have the clueless paranoid libertarians who think the whole world should revolve around their adolescent desire not to be "tread on", and seem to have no idea of what it takes – and what it took historically - to build a livable civilization.

In the center, we have the neoliberals, who are convinced that our world will spontaneously and beneficially organize itself if only we turn the macroeconomic tumblers and stumble on the right interest rate, or inflation rate, or some other version of the One Parameter to Rule Them All mindset. They are also too devoted to the religion of demand-goosing: the idea that everything will be all right as long as we generate enough "demand" – as though it makes no difference whether people are demanding high fructose cotton candy or the collected works of Shakespeare.

5. I'm an optimist! This is all going to change. We have nearly reached Peak Idiocracy. We're on the verge of a new age of social organization and planning and a return to mixed economy common sense and public-spirited mobilization and adulthood. This will happen because ultimately all of those teenagers will stop denying reality, and stop struggling to escape the realization that a more organized and thoughtfully planned way of life is the only thing that will work in our small, resource strapped, crowded 21st century planet.

George H. Blackford:

Since the 80s, US companies have been buying abroad to sell at home as foreign countries used our trade deficits to depress their exchange rates. Profits and income share at the top soared; wages and income share at the bottom fell, and employment was maintained by speculative bubbles and increasing debt until the last bubble burst, and the system collapsed.

There seem to be no more bubbles in the offing. The dollar is overvalued. Debt relative to income is unprecedented, and the concentration of income has created stagnation for lack of investment opportunities.

How is an increasing deficit and QE supposed to solve our problems in this situation other than by propping up a failed system that makes the rich richer and the poor poorer by increasing government debt? Does anyone really believe this sort of thing can go on forever in the absence of a fall in the value of the dollar and in the concentration of income? Who's going to be left holding the bag when this system collapses again?

It seems quite clear to me that it is going to take a very long time for the system to adjust to this situation in the absence of a fall in the value of the dollar and the concentration of income. That kind of adjustment means reallocating resources in a very dramatic way so as to accommodate an economy in which resources are allocated to serve the demands of the wealthy few in the absence of the ability of those at the bottom to expand their debt relative to income.

We didn't smoothly transition from an agricultural economy to one based on manufacturing. That transition was plagued with a great deal of civil unrest, speculative bubbles, booms and busts that eventually led to a collapse of the system and the Great Depression.

And we didn't smoothly transition out of the Great Depression. That was ended by WW II and dramatic changes in our economic system, the most dramatic changes being the role and size of government and the fall in the concentration of income for thirty-five years after 1940.

It was the fall in the concentration of income that led to mass markets (large numbers of people with purchasing power out of income) that made investment profitable after WW II in the absence of speculative bubbles, and it was the increase in the concentration of income that led to the bubble economy we have today that has led us into the Great Recession.

What this means to me is that we are not going to get out of the mess we are in today in the absence of some kind of catastrophe comparable to WW II if we, and the rest of the world, do not come to grips with the fundamental problem we face in this modern age, namely, the trade deficit and the concentration of income.



I think neoliberalism naturally leads to secular stagnation. This is the way any economic system that is based on increasing of inequality should behave: after inequality reached certain critical threshold, the economy faces extended period of low growth reflecting persistently weak private demand.

An economic cycle enters recession when total spending falls below expected by producers and they realize that production level is too high relative to demand. What we have under neoliberalism is kind of Marx constant crisis of overproduction.

The focus on monetary policy and the failure to enact fiscal policy options is structural defect of neoliberalism ideology and can't be changed unless neoliberal ideology is abandoned. Which probably will not happen unless another huge crisis hit the USA. 2008 crisis, while discrediting neoliberalism, was clearly not enough for the abandonment of this ideology. Like in most cults adherents became more fanatical believers after the prophecy did not materialized.

The USA elite tried partially alleviate this problem by resorting to military Keynesianism as a supplementary strategy. But while military budget was raised to unprecedented levels, it can't reverse the tendency. Persistent high output gap is now a feature of the US economy, not a transitory state.

"Top everything" does not help iether (top cheap oil is especially nasty factor). Recent pretty clever chess gambit to artificially drop oil price playing Russian card, and sacrificing US shall industry like a pawn (remember that Saudi Arabia is the USA client state) was a very interesting move, but still expectation are now so low that cheap gas stimulus did not work as expected in the USA. It would be interesting to see how quickly oil will return to early 2014 price level because of that. That will be the sign that gambit is abandoned.

In a way behaviour of the USA elite in this respect is as irrational as behavior of the USSR elite. My impression is that they will stick to neoliberal ideology to the bitter end. But at the same time they are much more reckless. Recent attempt to solve economic problems by unleashing a new wars and relying of war time mobilization so far did not work. Including the last move is this game: Russia did not bite the offer for military confrontation that the USA clearly made by instilling coup d'état in Ukraine. Now it look like there is a second attempt to play "madman" card after Nixon's administration Vietnam attempt to obtain concession from the USSR by threatening to unleash the nuclear war.

[Apr 10, 2015] Tyler Cowen's Three-Card Monte on Inequality Beat the Press

Tyler Cowen used his Upshot piece this week to tell us that the real issue is not inequality, but rather mobility. We want to make sure that our children have the opportunity to enjoy better lives than we do. And for this we should focus on productivity growth which is the main determinant of wealth in the long-run.

This piece ranks high in terms of being misleading. First, even though productivity growth has been relatively slow since 1973, the key point is that most of the population has seen few of the gains of the productivity growth that we have seen over the last forty years. Had they shared equally in the productivity gains over this period, the median wage would be close to 50 percent higher than it is today. The minimum wage would be more than twice as high. If we have more rapid productivity growth over the next four decades, but we see the top 1.0 percent again getting the same share as it has since 1980, then most people will benefit little from this growth.

The next point that comes directly from this first point is that it is far from clear that inequality does not itself impede productivity growth. While it can of course be coincidence, it is striking that the period of rapid productivity growth was a period of relative equality. At the very least it is hard to make the case that we have experienced some productivity dividend from the inequality of the post-1980 period.

And many of the policies that would most obviously promote equality also promote growth. For example, a Fed policy committed to high employment, even at the risk of somewhat higher rates of inflation, would lead to stronger wage growth at the middle and bottom of the wage ladder, while also likely leading to more investment and growth.

While Cowen talks about immigration as being a question of low-paid workers who might drive down the wages of the less-educated, they are millions of bright highly educated professionals in the developing world who would be happy to train to U.S. standards and compete with our doctors, lawyers, and other highly-paid professionals, many of whom populate the one percent. This policy would also lead to both more rapid growth and greater equality. (We can repatriate a portion of the earnings of these professionals to their home countries to ensure they benefit as well.)

And, we can have a modest financial transactions tax that would eliminate waste in the financial sector while also reducing the income of many of the richest people in the country. Were it not for the political power of Wall Street, we undoubtedly would have put in place financial transactions taxes long ago. (We do still have very small taxes that are used to finance the operation of the Securities and Exchange Commission and the Commodities and Futures Trading Commission.)

It is also important to remember that the well-being of children depends to a large extent on the well-being of their parents. If the minimum wage had kept pace with productivity growth since 1968 (as it did between 1938 and 1968) it would be over $17 an hour today. The children of a single parent earning $34,000 a year would have much better life prospects than the children of a single parent earning $14,500 a year. In this sense there is a very direct relationship between inequality and mobility.

The long and short is that we know of many measures that can both reduce inequality and increase growth. And, if we want to make sure that everyone's children have a shot at a better standard of living in the future then we should make sure that their parents have a better standard of living today.

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Financial predators produce nothing of value
written by RandallK, April 05, 2015 10:49

The "take-over and loot" artists of Wall Street produce nothing of value and are burdensome to taxpayers - we support the agency which partly funds the stolen pensions - yet rake in more money annually than most wage earners.
What did collateralized debt products produce? Nothing, or close to nothing would be my answer.
We not only need to tax the sales of stocks and bonds, we need to bring back Glass-Steagall(sp?) and make a number of financial products illegal.
Then there's the matter of "too big to fail and too rich to jail," to correct.

Mobility for Whom, to Level What Playing Field Where - For Winners Take All
written by Last Mover, April 05, 2015 11:41

The concept of mobility helps us distinguish between "good inequality" and "bad inequality." Reductions in inequality can follow from a leveling in either direction - by elevating the poor or pushing down the wealthy. It is the plight of the poor that we most need to improve.
Somehow these discussions never get to the part where MNCs used their newfound global mobility to pit workers in different nations against each other in head to head competition and drive wages to subsistence levels in some cases.

That really gave workers a chance to perk up with new mobility opportunities to be more productive as they earned what they were worth, didn't it. After all, it wasn't like MNCs had a lock on the market and overpaid themselves with productivity gains they didn't actually earn, instead extorted with market power. LOL.

These discussions also conveniently ignore the intentional immobility of white collar professionals designed to shield them from competition, especially from abroad, like doctors and CEOs. Cowen would rather talk about reducing regulations on barbers, hairdressers and interior decorators so they can be more mobile and productive. LOL.

written by loneract, April 05, 2015 1:14

The Upshit seems to contain outright lies 2/3 of the time. Usually when Leonardt or Cowen is writing.

Marko, April 05, 2015 4:42

Tyler Cowen is right up there with Laffer , Mankiw , et al in his diligence at defending the perks of the 1%.

The goal is to shift the focus of attention away from anything involving those elites , typically by concentrating instead on poverty or mobility. They can imagine a system of high mobility and low poverty ( as measured relative to median income ) among the 99% in which the 1% captures an even larger share of the income pie than they do currently. Think of plantation slaves as the 99% and plantation owners as the 1% and you get an idea of what their ideal "win-win solution" looks like. High relative mobility and low relative poverty among the 99% , continued concentrated income and wealth flows to the 1%. Problem solved.

Summers is right , for once. The big action in inequality is in the trillion dollars of current gdp that used to flow to the bottom 90% of income-earners that now flows to the top 1%. Similar dynamics apply for wealth.

Ignore the misdirection and focus on the big problem : big money.

watermelonpunch, April 05, 2015 8:16

I'm not sure what that Tyler is rooting for here.

Is he saying that everyone ought to start at the bottom?
For example, someone with a science aptitude born into a wealthy family, ought to be forced to put off their education to mop floors for 2 years, to "earn their chops"?

Because that's the only way I can see his argument having an internal logic at all.

Otherwise, it just sounds like he's saying that people with various disabilities or other limitations, should rightfully (in his mind) be relegated to substandard living conditions struggling for survival with limited access to the benefits our civilization affords "their betters" ... as long as if a child born into that penury has some bit of a chance to "strike it big" if they have enough smarts & ambition & luck.

I fall back to the obvious ... that we - CIVILIZATION AS A WHOLE - NEED people operating the sewage treatment plants, fixing the roads, collecting the trash, cleaning hospitals, working on the farms, packaging & transporting foods etc., and wiping butts when people get too old & infirm to do it for themselves.
Civilization as a whole should be GRATEFUL there are those people who are willing & able to do those things, and recognize that people who do these vital things in society by paying them a fair wage.

In fact, I'd argue that some of these jobs are HARDER and require more aptitude that a lot of "higher jobs" Cowen thinks pay more out of "good inequality".

I'd like to see the branch manager at my bank try to swing the trash cans on my block like my city's garbage crew. (Or live in a neighborhood where the rubbish is piled up for that matter.)

How many accounts department managers would last 2 minutes on a roofing job?

I can think of one manager I knew at a company who would leave her dirty oatmeal dishes in the little bathroom sink all day. Under NO circumstances do I think that woman should ever be trusted to work in a hospital or kitchen.

And then the story I heard from someone about a warehouse manager who would throw fits yelling & start throwing things around when he'd get stressed out. Is that the guy you want alone with you wiping your butt in your hospice room when you're 92?

Would any of us want to buy food sold in a dirty grocery store? And how much luck is a doctor going to have to save your life in a filthy operating room?

Tyler Cowen's shell game is an insult to every citizen.
And it's a injury to every citizen with limitations whether they're born with them or acquire limitations by tragic accident or simply aging.

Richard H. Serlin, April 05, 2015 10:59

High Inequality and High Mobility = Very High Risk Lives

Well, Cowen is always happy to mislead for the libertarian/plutocratic cause, and he has to, as the truth gives no chance to his side in a democracy.

But this extreme inequality is fine of we have high mobility is so wrong, because high mobility is high chance to go up, and high chance to go down. If it's just high chance to go up, that's just growth (which is decreased when you don't invest in the 99+% to give as much as possible to the 1%, or 0.1%).

High inequality with a high probability of plunging into the abyss because of high mobility? That's just a terribly risky life for you and your family, and risk decreases utility and welfare. Who wants to live in a world made that dangerous. And certainly the high mobility that the rich will allow is among the 99%, not among the 0.1%.

bakho, April 06, 2015 5:33

If Cowen is truly concerned about mobility, he would promote policy to encourage mobility.
Improve childhood nutrition
Universal PreK
Health Coach Programs
Programs that would give teens facing double digit unemployment, their first job and on the job training.
Programs that would improve the skill set of youth who are not college bound.
Free Community college, etc.
Raising the MinWage
Less inequality in distribution of resources among communities

I have yet to see him promote any of these measures.

A little parity perhaps?
written by Kat, April 06, 2015 8:34

I just read an AP story about the plight of some poor, poor Americans that had property confiscated under the Castro regime. Congress is on the case-- after all the descendents of these "victims" are so poor they cannot even afford to repair their concrete steps. I did not see skills training mentioned as a fix for their plight.
I think if you thought really, really hard you might be able to come up with a few examples of the US government using its force to confiscate property or support the confiscation of the value of labor from a person. In these cases training is the key to redistributive justice.
And I have yet to see skills training as an answer to all the job creators who simply cannot make a go of it without subsidies and tax breaks.

written by Bloix, April 06, 2015 9:57

"We want to make sure that our children have the opportunity to enjoy better lives than we do."

I have never met an upper middle class parent who wants his kid to have "the opportunity" to have a better life. These parents do not say, "I want my child judged fairly on his merits, and if he winds up as a barista that's fine with me."

written by urban legend, April 06, 2015 2:19

All wage workers need to be organized. The elite forces have spent 200 or so years trying to give the public ill thoughts about labor unions, with but a very brief reprieve roughly between roughly 1934 and 1947 -- with Taft-Hartley "right-to-work" reinforced by the anti-union propaganda film, "On the Waterfront," signalling a return to corporate and corporate media-bashing of all collective bargaining activities. Those toxic forces are really feeling their oats right now, having even compromised the Democratic Party with fundamentally anti-worker people like Rahm Emanuel and Arne Duncan. Only the unions themselves, a few stalwart Democratic office-holders and some bloggers are offering resistance.

There have been embers of recognition that the engineered weakness of labor has coincided with -- and almost surely played a huge causative role in -- the disconnection between productivity and labor compensation. It is going to be a long and continuous, never-ending slog to start the country in the other direction. It's a simple story to make: labor union weakness = low wages = poor demand = weak economy for almost everyone, including small businesses. Hillary Clinton could campaign on that equation, even without attacking Wall Street (other than the dishonest players, whom she must make clear she will not defend), and present herself as the true champion of business because she, unlike the Republican candidates who pretend to be pro-business but actually are the opposite, will follow policies that will promote the growth of demand for their goods and services.

FDR proved you could talk common sense economics like this to the American people. Obama looked like he was campaigning on the equation, but it turned out he was only a little for it and was even actually against it in some respects. He made virtually no push-back against the negative propaganda about unions that has prevailed for three generations. Let's hope this time can be different. But it won't be different unless the people who understand the equation put heavy pressure on all Democratic candidates to think and talk that way.

written by Bob Hertz, April 06, 2015 7:45

I fully support all the posts that call for greater bargaining power for workers.

However, I do wish to point out that many many workers with tiny or nonexistent productivity gains have seen very nice increases in their incomes in the past two decades.

College professors and senior nurses and federal statisticians do very valuable work.
But most of them work fewer hours than they did 20 years ago and have fewer students or patients than 20 years ago.......yet this "EdMed" complex has had very nice wage gains, to say nothing of benefits that private sectors workers can only dream of.

If you rented a meeting hall and had a gathering where the only attendees would be those whose incomes had gone up faster than inflation, I do NOT think that the hall would be filled with persons who increased their productivity. I think it would be filled with persons who had credentials and connections.

accelerating inflation
written by Dishwasher, April 07, 2015 2:01

And many of the policies that would most obviously promote equality also promote growth. For example, a Fed policy committed to high employment, even at the risk of somewhat higher rates of inflation, would lead to stronger wage growth at the middle and bottom of the wage ladder, while also likely leading to more investment and growth.
I agree with you on doctors, lawyers, and other highly-paid professionals.

On minimum wage, to me a minimum wage is a second best solution, a wage subsidy or a basic income guarantee better distributes the burden of helping low income workers.

written by Dishwasher, April 07, 2015 2:23

Above I should have said isn't it accelerating inflation that helps debtors and wage earners and not just inflation? And it cannot continue to be accelerated without very bad consequences.

[Dec 05, 2010] More Evidence That the Deficit Hysteria is Misguided and Destructive " naked capitalism


"to gut social programs and preserve low taxes for the rich".

That is exactly what this seems to be about and nothing else: the media manipulation and the political manipulation are not less important than the financial manipulation. All in order to rob the poor to give to the rich in an institutionalized manner.

Tertium Squid:

With annual deficits well over $1T projected into the foreseeable future, we in America can sleep well at night knowing that the dreaded "austerity" will never haunt these shores.

Even so, too bad poor people and the unemployed aren't getting a piece of all that action. If they'd hired a lobbyist maybe they'd have had a place at the table.

But you know the saying – if you aren't at the table, you're on it.


The facts are absoultely clear:

1. No one, I repeat NO ONE among the elites cares about the deficit or the debt. The Bailout, the wars, Pentagon budgets, Big Ag subsidies, and all other corporate welfare proves this.

2. "Austerity" is not, and is not intended to be, any kind of "fiscally conservative" or "fiscally responsible" measure. By definition any such conservative would focus 100% on the corporate welfare listed in (1).

"Austerity" is and is intended to be nothing but robbery, plain and simple. Anyone who advocates one cent in SS cuts or any other spending cuts before ALL corporate welfare has been purged is simply a thief, or advocating this crime.

3. To give a specific example, since health care costs are so out of control, and since we all know Single Payer is the only policy which would save a huge amount rather than increase these costs (the Obama-Republican racket bailout will only increase them; their own CBO says so), no one who supported Obamacare (like all Democrats) or will support it going forward (like Republicans who refuse to repeal it; we can be sure if Reps push that, they'll get enough Dems to join them) has any right to an opinion at all on the cost of anything, or to claim any concern for "responsibility".

4. Deficit terrorism like that propagated by the NYT (which is a rabid supporter of the wars and also supports the Bailout, health racket bailout, and corporate welfare in the broad sense) is therefore nothing but a criminal propaganda campaign on behalf of "austerity". It's qualitatively similar to telling people being herded onto trains that they're being sent to a place with better conditions. Some Nazi propagandists ("journalists") were later tried for that.

5. This is clas war, plain and simple. (The likes of Stiglitz and Krugman are also conscious liars when they continue with nonsense like this:

But as Joseph Stlglitz points out, the advocates of austerity have a lot in common with medieval bloodletters. When it's pointed out that their programs made matters worse, their response is that they simply weren't implemented aggressively enough.

It's their part of the scam to pretend the austerity-mongers are well-meaning but mistaken. Thugman explicitly said "I don't think you can resort to class war explanations". He knows this is a lie. Krugman and Stiglitz in fact support the overall agenda, or at least won't oppose their system as such. Either way they want us to think, "these are our elites, they mean well, and we have to believe in them overall, even if we disagree about this or that."

A medieval bloodletter wasn't intentionally trying to murder the patient.)

6. So the people's agenda here is clear:

We have to absolutely reject deficit terrorism. It's been proven to be a false idea, and at any rate not one single person who argues in favor of it has any standing to do so whatsoever, since the only true fiscally responsible position would be: Let's end ALL corporate welfare, including the wars and the Bailout, and restitute everything the banks stole. Let's institute Single Payer, which will save trillions. Then we'll see whether or not we need to cut any social programs.

Since there is no such advocate, we can regard the subject as closed, and stick to a few simple demands:

Total Austerity for the Corporate Welfare, Not One Cent More From the People.

No Taxes on the Non-Rich. (Meaning we must reject absolutely any new tax or tax increase which isn't 100% upon corporations and the rich.)

And again, refuse to even discuss deficits or debt except in terms like the ones this comment outlines. Refuse to even discuss beyond: "Deficits? OK, then let's end all corporate welfare."

[Dec 05, 2010] Class And Social Security by Paul Krugman

Digby sounds the warning: a fair number of "centrist" Democrats – probably including the Incredible Shrinking President - seem willing, even eager, to join up with Republicans in cutting Social Security benefits and raising the retirement age. As she says, this is idiotic even in narrow political terms: in the very next election, Republicans will run ads in which they pose as the defenders of Social Security, while Democrats are the meanies who want to take away your retirement.

The question you have to ask is, why are Democrats such suckers on this issue?

The proximate cause is that cutting Social Security is one of those things you're for if you're a Very Serious Person. Way back, I wrote that inside the Beltway calling for Social Security cuts is viewed as a "badge of seriousness", which has nothing to do with the program's real importance or lack thereof to the budget picture; that column elicited a more or less hysterical reaction, which sort of proved the point. (Looking back at the column, I was surprised to see that it was about the ISP himself; tales of a debacle foretold.)

But why Social Security? There was a telling moment in 2004, during one of the presidential campaign debates. Tim Russert, the moderator, asked eight or nine questions about Social Security, trying to put the candidates on the spot, while asking not once about Medicare, which serious people – as opposed to Serious People – know is the real heart of the story. Why the focus on Social Security?

The answer, I suspect, has to do with class.

When medical expenses are big, they're big; even the very affluent are grateful when Medicare pays the bills for their mother-in-laws bypass or dialysis. The importance of Medicare, in short, is obvious to all but the very rich.

Social Security, by contrast, is something that matters enormously to the bottom half of the income distribution, but no so much to people in the 250K-plus club. A 30 percent cut in benefits would represent disaster for tens of millions of Americans, but a barely noticeable inconvenience for VSPs and everyone they know. A rise in the retirement age would be a vast hardship for people who do manual labor, but if anything a gift to VSPs, who don't want to step aside in any case. And so on down the line.

So going after Social Security is a way to seem tough and serious - but entirely at the expense of people you don't know.

[Nov 22, 2010] The Key to Understanding Recession and Recovery The Wealth Pyramid by Charles Hugh Smith

The top 20% are prospering and spending money; the bottom 80% are not, but thanks to vast wealth disparity, the top slice of households can keep consumer spending aloft. This provides an illusion of "recovery" that masks the insecurity and decline of the bottom 80%.
zero hedge

The Key to Understanding "Recession" and "Recovery": The Wealth Pyramid

The top 20% are prospering and spending money; the bottom 80% are not, but thanks to vast wealth disparity, the top slice of households can keep consumer spending aloft. This provides an illusion of "recovery" that masks the insecurity and decline of the bottom 80%.

There is statistical and anecdotal evidence supporting both a "we never left recession" and "the economy is recovering" interpretation. The key to making sense of the conflicting data is to understand that there are Two Americas.

Roughly speaking, we can divide the U.S. economy into "Wall Street"--the financialized part of the economy which encompasses the FIRE (finance, insurance and real estate) economy and its bloated partner in predation, the Federal government--and "Main Street," the looted, overtaxed remainder of the "real economy" which isn't a Federally supported corporate cartel (i.e. the military-industrial sector, the "healthcare"/sickcare sector, Big Agribusiness, etc.)

Main Street is small business, entrepreneurs, shopkeepers, small property owners (independent motels, vineyards, truck farms, etc.) and local service providers (dentists, accountants, etc.). This class of small business and their employees is in decline: Few Businesses Sprout, With Even Fewer Jobs (

Needless to say, the Federal/financialized/corporate cartel tranch of the economy is doing very, very well, thank you. The number of Federal employees pulling down $150,000 annually is skyrocketing, hundreds of billions in revenues slosh into National Security and sickcare cartels, and Wall Street bonuses are in the tens of billions.

A thin, overhyped tranch of the tech economy is also doing well--Google employees just got a 10% raise, for example--but this overhyped tranch includes a razor-thin share of the 130 million person U.S. workforce. Google's global workforce is about 23,000, Twitter has a staff of roughly 300 and Facebook employs about 1,500 people.

There are two Americas in terms of wealth and income: In terms of income, the top 10% earn about half the total income, and in wealth, the top 5% own roughly 70% of all financial wealth.

I have prepared a Wealth and Income Pyramid of the U.S. to illustrate this reality. Notice that the "middle class" is mostly a figment of nostalgia and/or political illusion. Only the top quintile (top 20%) are really doing well in terms of income, and only the top 5% are prospering in terms of assets and unearned income (non-wage income).

This goes a long way to explaining how "consumer spending" can be "recovering" even as the incomes of the bottom 80% stagnate or fall. The top 5% of Americans by income are responsible for 37% of all consumer spending-- about the same as the entire bottom 80% by income (39.5%).

David Stockman, director of the Office of Management and Budget under President Reagan, recently noted in an editorial that the top 1% of Americans received two-thirds of the gain in national income from 2002 to 2006.

Over the past 25 years since 1985, the top 1 percent's share of national income has doubled; in 2007, it netted 23 percent of the nation's total income. The income of the wealthiest Americans--the top 0.1 percent-has tripled in that 25 year period. This wafer-thin slice of Americans now earn as much as the bottom 120 million people.

Out of 113 million households, 1/100 of 1% rake in $10 million or more annually. As consumers, the top 5% carry the same weight as the bottom 80%. The top 10% take in 50% of the income. (The sources are listed in Two Americas: The Gap Between the Top 5% and the Bottom 95% Widens August 18, 2010.)

This explains how Nordstroms' earnings can rise by a healthy 43% while Wal-Mart's sales in the U.S. can decline. Frequent contributor Cheryl A. reported that on a trip to Wilmington, DE, the shopping mall was packed with shoppers and people dining out: "It's like there never was a recession."

Meanwhile, I took an old friend who was visiting the San Francisco Bay Area to a restaurant in San Francisco that has never failed to be busy in the past 10 years, and the place had more empty tables than customers. The sidewalks were crowded with people, but how many were spending money?

I think the answer is obvious: the top 20% are spending money lavishly, as per their consumerist lifestyle, while the bottom 80% are taking the kids to Costco for entertainment.

The top 20% pay the vast majority of the taxes: According to the Congressional Budget Office (CBO), the top 20% paid 86.3% of all Federal income taxes, 43.6% of Social Security, 87.8% of corporate taxes and 34.1% of Federal excise taxes. After including earned-income tax credits, the bottom 60% of households paid less than 1% of all Federal income taxes, and the households between 60% and 80% paid 13%.

But the top quintile's share of national income rose despite th tax burden. In other words, income disparity has widened even though the wealthy pay the bulk of Federal taxes.

The notion that American households are paying down debt is simply unsupported by the facts. According to the Fed Flow of Funds report, consumer credit (credit cards, auto loans, etc.) has declined a paltry 0.7% from $2.59 trillion in 2008 to $2.4 trillion--and most of that was not debt paid off but uncollectible debt written off by banks.

In other words, the households with substantial incomes may not be adding to their debt load but they certainly aren't paying it down much either--they're spending freely in the malls and in "fine dining restaurants" just like they did in 2007.

The top 20% of U.S. households are spending, so "recovery" is in the air. Those with household incomes of $100,000 or more are buying new vehicles (which explains why vehicle sales are rising) and spending freely, while the bottom 80% scrape by.

That's how you get a statistical "recovery" that masks the recessionary misery of the bottom 80%--the "real economy" left to rot as the Federal government channels the national income into politically powerful corporate cartels, Federal fiefdoms and Financial Elites.

For more on the Two Americas, please read:


As best I can tell, all the facts in this piece are accurate, but there is a huge scam buried in it.

Who are we to say - who is anyone to say - what income distribution should be?

Anyone claiming that is acting as a simple tyrant. "This group is only entitled to this amont," etc.

Anyone supporting such an idea is Tyrant's Helper.

The only time any of us have a moral right to do anything about someone else's money is when they obtained it by force or fraud. In some of these cases (maybe many of them) that may be true, but the hidden scam that it is noble to decide how income should be distributed is a far more massive crime.


Income distribution? Are you talking about $8 billion per day printed at the Fed and disributed into corrupt banks? If that is what you mean, I'm with you.

But I don't really think that is what you mean...



Yes, what the Fed does is derfinitely a scam, but that's not what I referred to (as I'm sure you understood).

No one has any right to tell other people how much money they may or may not have. This whole "top 80%" discourse presumes otherwise, and that is a VERY dangerous thing.

You can tell others not to defraud or steal, but not what they are or are not entitled to.


Correct...but in order for market distribution of wealth to happen, you need a free market. Instead, we have corrupt bankers and corrupt politicians that have thwarted the free market. Ergo...we have Fed redistribution going on to the tune of trillions.

My point, of course, is that this is a very strange time [and article] to take up the cause of class envy. We have class theft...the largest theft in the history of the world.


On the first paragraph, we are in full agreement. :)

On the second, I guess I consider the hidden concept more of an imminent danger than you do. (No great matter.)

Best regards.


I think you guys have both missed the main cause of income distribution. It's the way it is because of the tax and regulatory policies of the last 30 years. You are going to get a very uneven distribution of wealth any time you tax the elites and middle class at nearly the same rates (and in many cases tax the elites at a much lower rate; capital gains). On top of that the corporate rate for large companies is quite low assuming they have half decent accountants and tax lawyers. So the already wealthy benefit even more from the low corporate rates.

On the other hand, small businesses (ie, the middle class) get taxed heavily relative to the wealth that they have and they have to deal with burdensome regulation relative to their size and capacity.

CH1, you assume that the rich are rich because they work harder and earn it. Its not always the case. They earn some of it initially and then our tax system works to perpetuate and maintain their wealth. Its exactly the same type of social planning that you fear except it favors the wealthy instead of the rest of the people.

Our tax code is thousands of pages not because of taxes on the middle class (which can mostly be gathered on 15-20 pages) but because of tax breaks and loopholes for the wealthy.

As for CH1's initial question, it is obvious that elected officials are there to guide how wealth should be distributed and they've overwhelmingly favored a small minority in recent decades.



Get what you earn, Earn what you get. If you make 100 million busting your hump selling "Pet Bullion" in little boxes or Crayons or hotel rooms or whatever.

You earned it. You Keep It. You Decide how You want it distributed (if at all). If you got it by fraud, it's different.

Gully Foyle


"If you got it by fraud, it's different."

Work is work. He who works hardest at his chosen profession, sorry smartest, wins the cash. No fucking way around it. Sometimes you eat the bear and sometimes the Bear eats you.

Al Gorerhythm

Gully Foyle

Work is work. I'm a professional burglar. I work hard at my chosen profession, sorry, smartest wins the cash.

Hope you don't complain if you're silly enough to go out to the movies one night, and I just happen to be in the neighborhood.

Sometimes the victim eats shit. Nothing personal, just business.


OK, read a great article showing how middle class America with "above average" income of $60k per household are ending up with nearly identical disposable income as a family earning $14k annually due to government assistance and rebalancing. So, while average American household income is approx. $55k, we now have a difficult situation in which those with marginally "above average" household incomes are only arguably little better off than those households living in poverty.

I'm not knocking a family struggling to make $14.5k. For what it's worth, average person making $14.5k a year works 40hrs a week x 50wks a year @ $7.25/hr. Not easy raising a family either way. However, I thought the important point was what it takes for America to simply sustain the current state of redistibutive affairs, so, come with me on a flight of fancy, and let's make some assumptions how this status quo could be sustained:

1- Hold the $13.7 Trillion national debt at current levels and let it grow no faster than GDP growth (about 2 to 3% / yr) and pay interest only on this ( @ 3% / yr...ridiculously low but so what, it's my assumption) w/ no plan to pay down any principle (it's ok, we haven't paid any since 1960) and no further debt growth (so no further annual deficits in excess of 3% of GDP and Federal government must cut their spending roughly by half from currently 25% of GDP to 15%).

2- We enact a 30yr plan to fully fund the $111 Trillion "unfunded liabilities" through taxation (Medicare, Medicaid, Social Security). Everybody gets what they've been promised. 3- We tax the 110 million US federal taxpayers (although I believe only 51m actually had any federal tax liability last year…again, bear with me as we will have population growth over those 30yrs which will mean we may eventually get to 110m taxpayers…and the numbers below simply double if you base it on those actually paying federal taxes). 4- Let's assume corporations and other tariffs on trade and imports make up 20% of the payments as they are 20% of tax receipts 5- To personalize this, let's take this down to a per taxpayer basis at a not so low monthly payment to be paid in addition to all their other current bills and taxes.

And waaalaaaa…

Servicing national debt per taxpayer = $248/mo

( $13.7T / 110m fed taxpayers = $124k / TP * 3% (-20%) / yr)

Funding "unfunded" liabilities per taxpayer over 30yrs = $2222/mo

($111T / 110m fed taxpayers = $1,000,000 * 30yrs (@ 0%)(-20%))


So, only $2470 / mo ($29,644 / yr) or nearly all the "average" households disposable income per every American tax payer in addition to their current bills and taxes for the next 30yrs and the unfunded's would be current and national debt interest payments are current (debt is still $13.7T but should be easily manageable from a GDP standpoint assuming GDP grows at any rate

OK, so its not likely we will stop running an annual deficit or that we'll tax ourselves to make up for the unfunded liabilities. Perhaps we should be having a conversation about how we get that $ / per taxpayer number down to a manageable level (some combo of lower benefits and higher taxes)??? Perhaps we should be doing this tomorrow???

Gully Foyle


Dude read or watch Harrison Bergeron


Did we read the same article? Where was there any suggestion of income re-allocation?

That income and assets are distributed is simply fact, and the article points out how they are distributed.

But there are many facts to go along with the "why" things are as they are, and these facts are primarily politically based.

...and when I say politically based, I am not supporting "liberals" or "conservatives". I mean bought and paid for corporatist politicians of all stripes. The laws are written to favor the few over the many, as the article clearly implies.

As the owner of a small business for more than 30 years, I know this to be true, and have been railing about it for more than 20 years. It is not a recent problem, but a slow-growing cancer approaching critical stages.

The America I grew up in and loved is gone.


I hear you. Even the business climate has been tilted to the rich corporations against the little guy in America. All the while politicians cry that they support small business, all the laws they write only support corporate interests. And yes, it is in a critical stage now with the Citizens United decision that corporate money=free speech. It is only going to get worse. We will have monopolies in every sector and the individual will be shit out of luck starting a small business.


You make a decent point. But the rich have bent the rules to favor them.

A logical extension of being rich. Doesnt make it right , but understandable.

Of course a flat tax on and on would help out all. But I'm afraid that the rich and powerful will simply ride it all into the ground.

Name one group that has given up anything (by choice) for the greater good.

Some here have seen this clip , I ordered the book.


Goddamn, this place is loaded with trolls lately!

The author (one of the more cogent commentators on the scene) is clearly making no recommendation about redistributing wealth. He's stating the well-understood economic principle that vast disparities in wealth are not conducive to growing a healthy economy. All tail and no dog has never been sustainable for long.

I follow the time-honored practice of not speaking if I have nothing to say. Try it out CH1.


Now I'm a troll? Well, that's better than some people have thought of me.

Dude, I started my saying that I thought the facts were legit. (That's trolling?) Then I pointed out a hidden assumption in the language used. I think it is an important point to make.

FWIW, I think the author is a good guy. But, you have called me "troll," and will now be likely to defend that position. Ah well...


Vast wealth disparities are also poison for a democracy.

If you want to kill economic growth the best way to do it is to kill the democracy.


1.The entire 'Financial System' is a fraud 2.All Government taking is a fraud, and the taking is by force.

Al Gorerhythm

Stop your whining. Work is work, honest or not. All's fair in wealth accumulation, didn't you know. Now, get back to work and put your savings in a bank or IRA.


what is left out here is that had the banks been nationalized or some form there of,trillions of$ could have gone to infrastructure,energy,what the fuck ever and created good jobs. right now this recovery would be real with more of the bottom people spending and investing. IT IS THAT SIMPLE


I work in software - not at Google or Facebook, but as an independent consultant. I have been instrumental for developing software solutions that have made the clients that I work with tens of millions of dollars. My income this year, for the first time, is very low six figures. The CEOs of a few of the companies that I work with make anywhere from 10-10,000 times that counting in stock options and perks.

In general, the people that are in that upper 1% are not adding commensurate value to the organizations that they work with. Instead, they get the big bucks because of their connections and because they have suitable disposable income to invest freely without it impacting their daily life.

CH1, you argue that there is in fact no moral right to do anything about someone else's money (expect when obtained by force or fraud). I'd say that both are at work right now. How many people were fired in the last three years in order to make the stock price of companies look better? How many people lost pensions and life savings because of fraud and misrepresentation? How many people have lost their homes because there were few rentals available and you had to pay a million+ in mortgage capital and interest to get a home, due to speculation and securities fraud?

Income distribution is generally an indicator of how healthy a society - the more equitable the distribution, in general the more productive that society is. As wealth becomes concentrated, productivity - the ability to create meaningful change - drops, as does the overall standard of living. In the long term, that creates crime, social decay, lower lifespans, and reduced opportunities, not just for the bottom half, but even for those people at the very top, and it increases the likelihood that revolutionary forces (generally from the upper middle class), will end up fomenting radical (and violent) change, usually directed at those in the upper upper tranches.


Maybe the bottom 80% can pool some money together and buy a lobbyist to pay off the politicians to write laws that favor the poor.


Maybe they could get off their asses and vote in an election or two; no lobbyist required.

Al Gorerhythm

Any recommendations?


There is nothing wrong with pointing out class disparity, and no one with any sense would deny that massive wealth inequality will doom a democracy.


The only time any of us have a moral right to do anything about someone else's money is when they obtained it by force or fraud.

Well, there ya go then. Does that include ex-wives whose husbands were banking thieves?


I didn't read anything in the article that suggested a redistribution of income. Regardless, the whole fucking charade is becoming obvious to everyone. I don't think any ZH readers would suggest replacing fascist system with a communist one. A fair capitalist one would be nice, however.


Capitalism without legal bribes would be nice indeed.


That it would!

Folks when Wang here says he was at the malls and they were busy and he didn't see any of those 42+ million on food stamps there, well, He's looking at his peeps, that is the crowd that IS doing well.

And it's why he didn't see any of those walmart shoppers when he was coming out of Nordstroms....

So don't tell him the system needs to be changed.

As Pedro(amplified by a SNL skit) used to say...

"De System has be verry verry good to me"

This explains how Nordstroms' earnings can rise by a healthy 43% while Wal-Mart's sales in the U.S. can decline


I'd take a communist system over a fascist one if those are the only two choices.


OT: The BLS just e-mailed me letting me know the entire last year and a half of ECI data is wrong


I'd believe some of the stats, but I disagree with the title, for sure. My parents technically qualify as part of the "top 20%" based on household income (around $68K), and they ain't doin' great at all.


The top 20% of U.S. households are spending, so "recovery" is in the air. Those with household incomes of $100,000 or more are buying new vehicles (which explains why vehicle sales are rising) and spending freely, while the bottom 80% scrape by.

I think they might need to scrape up another 32K to make it


Sure enough. 100K sounded high for the top quintile, but there it is. According to the Fed's stats, 100K-150K is 11.4% of households, then another 8% are above 150K.

Kinda sad you can't qualify as "rich" until you're getting into such tiny percentages of the population.


I qualify in the 11.4% category and I sure as hell don't feel rich. Granted, it's offered me the opportunity to deleverage the "traditional" way (i.e. not by default). However, that is only through penny pinching (and I mean pinching).


I should clarify given how that previous post sounded: for damn sure 100-150K is not rich. The stats put everyone in the 200K+ range in the same category, which is just patently absurd.

It fascinates me that even when looking at the top 3.4% "bracket" of household incomes, you know that the vast majority of those people aren't "rich" by any stretch of imagination.

It's a shame. We could've done better.


$68K is a long ways from the top 20%. It's amazing just how many people think they are part of the movers and shakers that aren't.


I think he does a good job of distinguishing between those who earn their money, mostly the bottom 80%, and those who get their money at the point of a gun, the government.


What happened to RoboTrader's post? It was the first one and I was trying to reply so I could make sure I understood his ridiculous assertion.


I keep getting junked....


Attn: Bears

Right now, I see more signs of strength instead of weakness.

Yes, the financials are trading very badly right now, but if the market was headed for a crash, the leading stocks would not be breaking out to new highs and certainly retail stocks and transports would have already rolled over and would be in a decisive downtrend by now.

Remember, at the prior tops, a large percentage of sectors were weak and the market was being held up by just a few "key" stocks.

We don't have anything like that right now.

In fact, the weaker sectors like energy are getting stronger. Just look how oil has crashed from $88 to $80 in just a few days and the OIH, XOP and XLE have hardly moved.


I haven't seen any nah-nah-nahs because I don't look for them. So gold or some other sacred cow takes a whallop three days in a month... toughen up the ego a bit and smile because you bought at $800. That's not the point anyway.

The point is that the grating variations of: "gold [or insert other bullshit noun here] is the only phenomenological construction feasibly capable of fulfilling all of mankind's storage of value needs..." are just pompous, sterile theorizing.

If somebody points out that some near-BK, piece of trash stock is outperforming every possible benchmark it is "rolling on ecstacy at Burning Man" hilarious.



s the oldest bull in this club of two i remain true to my thesis: "this is a kudzu recovery" as the "green shoots" no one speaks of anymore "turns out to be a weed garden" (or worse--and i'm beginning to think the latter.) the stock market didn't collapse in the 1970's and I don't see how it's possible for it to collapse in this time frame either. clearly as in the 70's however, "governments are collapsing." actually "they're called countries" and "they're being annihilated." perhaps "they should go public"? "Greece (ticker symbol =+= ) as ADR began trading today--it is expected that Ireland (ticker symbol <?>) will be going public soon...brought to market in an IPO underwritten by....


A large income and/or social disparity is a foundational cornerstone of revolution.

Barry McBear

Slavery under the veil of "freedom".


Seems like every time this topic comes up the lead in is about the "ultra-rich" but then sure as shit when the nitty gritty of taxes come into play anyone making over $250k, even if they live in an expensive part of the country, get lumped into the same category as Warren Buffett and Bill Gates, aka "evil rich people who need to get fucked in the rear with taxes" according to some


Take all the metal you can, but it won't break Morgan Chase

Submitted by cpowell on Mon, 2010-11-22 20:05. Section: Daily Dispatches

3:12p ET Monday, November 22, 2010

Dear Friend of GATA and Gold (and Silver):

Noting J.P. Morgan Chase & Co.'s central role in suppressing the price of the monetary metals, particularly silver, the international journalist and provocateur Max Keiser has been waging a campaign to smash the market-manipulating investment bank by persuading civic-minded people to buy and take possession of at least 1 ounce of the precious metal. A comic excerpt from Keiser's recent program on the Russia Today television network promotes the campaign at YouTube here:

Of course GATA applauds anything that gets people out of paper claims and into real metal, but we're skeptical that even the exhaustion of public inventories of silver and the explosion of the huge short positions nominally on Morgan Chase's books will hurt the bank very much. For those short positions, like the overwhelming interest rate derivative positions on the books of Morgan Chase, are probably not Morgan Chase's own at all but rather the U.S. government's. Certainly no financial institution would undertake such disproportionate positions -- positions that essentially make Morgan Chase both the silver market and the interest-rate market -- without effective assurance that government would backstop those positions. No other investment bank has undertaken such disproportionate positions.

So much of the spending and lending by the Federal Reserve, Treasury Department, and Exchange Stabilization Fund is secret that there can be nothing outlandish about such suspicions. No one can deny that the government also has intimate and secret communications with J.P. Morgan Chase & Co. about the markets. After all, the bank is a primary dealer in U.S. government securities and often acts openly on behalf of the U.S. government and thus in effect has access to virtually infinite amounts of money for market intervention.

Indeed, there is long history along these lines, since even before creation of the Federal Reserve, J.P. Morgan himself -- the banker, not the bank -- functioned in extremis as the central bank of the United States. And in her prize-winning biography, "Morgan, American Financier," the writer Jean Strouse reported that Morgan's first big score in the financial markets was his cornering the gold market in New York during the Civil War. Further, Morgan's monopolizing of industries was a major cause of enactment of anti-trust law.

Yes, exhausting the metal available for delivery could blow up the commodity futures markets, an admirable objective insofar as those markets, overloaded with derivatives, long have been largely mechanisms of price suppression. (See the British economist Peter Warburton's 2001 essay discerning this:

But if the metal runs out, the commodity exchanges will change their rules or implement rules already adopted requiring cash settlement and prohibiting new long positions. The government can cover any amount of such settlements in cash through its agents. This sort of thing has been done before and can be done again.

In short, take the metal out of the banking system -- yes, all you can. That will make market manipulation a lot more difficult and drag it into the open. But you won't crush J.P. Morgan Chase, for the investment bank is the government and the government is the investment bank.

The big objective here is to take control of the government away from the bankers and return it to the people. This is just the latest round in an old political struggle -- the struggle between the financial interests and the producing interests -- that has been simmering in the United States since William Jennings Bryan made it the center of his presidential campaign in 1896.

Advocating free coinage of silver back then, Bryan told the Democratic National Convention in Chicago that went on to nominate him: "Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business. I stand with Jefferson rather than with them, and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business."

CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.


Oh, by the way....

On the subject of "insider selling"....

Anyone consider that the PigMen have to offload some stock to pay for their expensive gifts to their mistresses?

No doubt, the sales of fine perfume, lingerie, handbags, jewelry, etc. are reaching records.

Any wonder why JWN, COH, TIF, etc. are leading the tape nowadays?


Money isn't wealth. Money is worthless paper or useless metal. What matters is what you can get with your money, which requires production. Instead of breaking things down by how much money these different classes have, why don't we break it down by how much they produce? If the fraction remains the same, then we have justice. If not, and I think you will find that we do not, then something is amiss.

Chuck Bone

The common misunderstanding about economics and wealth is that the problem with wealth is how its distributed. In reality, this is not the case as wealth is something that does not come naturally. It must be created and/or produced by some purposeful activity. Those who focus on the distribution then seek to implement policies to remedy this issue, and inevitbly they redistribute the means and incentives for further production away from those who have proven themselves the most capable. This (along with the knowledge/calculation problem) is why your socialist societies are always far poorer as a whole than your capitalist societies. That's a fact.

Of course beyond the whole society is worse off thing, there is the whole moral issue of expropriating the justly acquired wealth/property from some to the benefit of others. On a small scale we call this theft and jail the perpetrator, yet somehow when government does this on the enormous scale the thievery is OK.

I always think of government like a machine. The majority vote builds it with the intention of taking from some to give to those who are "most deserving," but ultimately they have no control over who controls the machine, and those with the most to lose and the who can pay the highest price are the ones who end up controlling it (read: the bankers' lobby). Until people realize that ANY forcible removal of justly acquired property from one to benefit another, whether done by government or by the hamburglar, is not OK, we will continue to have a society in which fraud is unpunished, banking cartels continue to obliterate all but the most fortunate in the world, and the income gap grows every larger.


democracy is not a suicide pact. that's what the American public voted "no" on in November. Simple as that. What I'd like to know is "since when is capitalism?"

Gully Foyle

But it balances out since the bottom have most of the kids.

The real question is where the fuck is FORECLOSURE COURT? Fuck Judge Judy! I want to see some random bitches battling it out on tv! Maybe have Springer Judge it, or Tim Stack.


I wonder what America we are talking about. The original sea pirates that came over and gave out infected blankets or the one where infected zombie banks are running the show?

War on terror indeed, funny thing about being vested in nursing homes (good racket btw) is eventually rich or poor, everyone ends up half mad and shitting themselves eventually. Wrap your head around that without sometype of chill up your spine and not be terrified. At least if a bomb goes next to you in a cafe, your life will be done in a quick clip. Instead most will be given their sanity and life away inch by inch, once in a while grasping onto a moment of clarity with the full understanding they've crapped themselves and some stranger has been collecting bit of lint and shiny objects on your behalf.

Isn't getting old grand, enjoy the next week, you'll be thinking about this.


Interesting post, I have always wondered why we deny death so much. I am reading Becker's "Denial of Death" for some insight, existentialism study gave me some insight all these years, so trying to throw some neo-freudian spin on it.

After seeing 2 grandparents in your described endgame, I want to go differently...with any luck when "that" time nears, I will still have the witheral to be able to take up a backpack, get dropped off in the middle of the mountains, and let nature take its course and become bear food or something useful.

Convolved Man

All these comparisons between wealth and poverty, winning and losing is very unsettling. From now on, let's just talk about wealth and winning.

Ok, all you wealthy, winning people know the other kind of people?

You do?

Well then, help them!

What, you're afraid their condition will rub off on you like some contagious disease?

Then we will institute organizations and agencies that will act as intermediaries, thus insulting you from direct observation and contact with these others.

Problem solved.

Now get back to creating wealth!

Everything is proceeding as planned.


I think that the original point being made was that no one or who has the right to say who is in certain financial categories.

There are many ways to hide income; the Asians, over many centuries, before this country was even discovered, were in full bloom. Their peoples were going thru all the ies that we are now, and learning to survive.

Right now, I am classified as low income, but if the truth were known, I actually meet far higher criteria, due to gold, silver, hidden assets, etc.

I think that this is what the initial contributor was saying.

He is correct. And it throws off the Feds concepts and influences the "stats."

In America, now, there is a huge hidden economyl--thank god.


Whilst the article generally rings true, I had to read it twice just to make sure, but it hardly seems credible that "As consumers, the top 5% carry the same weight as the bottom 80%." I mean really, do the 5% live in malls with their credit cards permanently jammed in the readers? That's a LOT of consuming. What do the rich have for breakfast? Gold flakes with diamond sprinkles? Anyway, that inverted pyramid does not paint a picture of a healthy society - more like a socio-economic graphic of the Middle Ages.

Convolved Man

You must not get to involved with numbers, unless directly related to the creation of wealth.

You are to receive proper indoctrination on the consumption habits of wealthy individuals through our "Life Style's of the Rich and Famous", "MTV Cribs", and "Orange County" documentaries; which should stimulate envy, thus promoting emulative consumption.

Everything is proceeding as planned.


The top have more disposable income, the bottom are purchasing essentials. Conspicuous consumption (BWM, Rolex, DeBeers) is very expensive.


The scale of wealth has changed while our relative perception of it has not; and, its not about wealth distribution, it's about mechanisms for wealth redistribution. Society has not developed mechanisms to deal with issues of wealth redistribution in near zero growth environment. So, we are learning as we go.

Hate him or love him Bernanke is doing his job: because you have a job. President Obama is doing his job, because he is a the lighting rod of so much societal anger not his causing; and he knows that. I think we all want justice; but this is not the movies; I am sure it will come; just not with blazing glory. More likely in badly lit courtrooms, one decision at a time. Then, eventually we will all die, and nobody will give a shit except to the extent it makes them a buck. So, what the fuck is my point? This is it: Give generously to those in genuine need because it's simply the right thing to do. To do otherwise should be treasonous.



I respectfully disagree. I provide an essential service (municipal water and sewer engineering), and I would have a job with or without Bernanke.

Capitalism is fine as long as it is regulated. It rewards innovation, allocates capital efficiently, and provides a public benefit. Without regulation it becomes exploitation.

Most capitalism is very beneficial. Americans still have excellent sanitation, police services, and judiciary. Where the judiciary is failing with foreclosures, the free press and our adversarial legal system are making rapid headway. The FED privatized the currency, and I think this is wrong, and progress is being made here too.

As far as the FED, which is a HUGE topic of discussion here, I think it is recognized that it has outlived its usefulness. That is why it is being treated at the 'Bad Bank'. It will be loaded up with bad assets, and wound down over the next 6 years or so.


WTF, I am not interested in income distribution; the whole problem is allowing people the opportunity to use their resources and ideas to move ahead, achieve.

Here is my example: I lived in Calif. for many years, where opportunity flourished. I got ahead, lost some, got it back. I was not held down, but was master of my own fate.

Two years ago, I moved to Kansas. Here, people are not provided with the opportunity to get ahead, use their brains, be small businessmen, entrepreneaurs (sp). Everyone is tied down by taxes. Everyone is locked in; move a little up, pay more taxes--locked back in--no chance to get ahead. Dull, grey population, huge American resource gone to hell. (and don't throw that old man in my face, who inherited it all). This is not a Republican state, but a fuck'n socialist cum fascist bedrock.

What America was built on was taken away by affirmative action, taxes, and misplaced liberal swamp gas. It still exists in the unions who are now running this country and bleeding it dry with $150,000 per year salaries given to ninnies and uneducated dolts.


It was also taken away by unfair trading treaties, unnecessary wars, and a poor educational system. Liberal/Conservative, Democrat/Republican is a false choice, my friend. None of them have our best interests at heart. And either way you are voting for a politician, who was funded by a banker.


"Unions who are now running this country"?? Excuse me?

Do you realize that unions represent all of 7% of the working population?


Thanks for that. It explains why the spx has doubled since mar 09

Next time please try to give a more timely buy signal

Btw all these high PE stocks over $100 and $200 WILL announce splits, then watch for a pipe up


This article is full of shit. The top wealth classes have lost the most in this downturn, or more generally, in the past decade, as stocks have gone nowhere. The people getting ahead are the government workers, the civil servants, and the people on social security and other welfare programs, who keep getting increases in their pay into an environment of deflation.

In real terms, the wealth of the top 5% has dropped precipitously. The stock market is still down 20-30% from 2007 levels. If you index against commodities, the top 5% has lost 70-80% of their wealth in the past decade.

I know we shouldn't cry a tear for the wealthy, but at least realize that its not the 'rich' that are running around spending, keeping the economy going. Its the welfare/civil servants who are.


You are wrong. Are you a drone?

But yes, your Gov't entitlement recipients are getting the goods. This is about to end.


spinone, I could not agree more. You are spot on. As for the indexes going up lately, well, has anyone in here learned about POMO?

I have stocks, Canadian stocks, and they are going up too, but they are not controlled by POMO and HFTs.


"blazing glory"? i like's just an interest rate though. no biggie. insofar as "the rich people got us" well..."they got me" that's for sure. when last i checked "they got nothing on you" because "where's the income?" now if we're talking rich INSTITUTIONS then I'm with you. The last time we actually had a "plutocracy" was over 90 years ago. It's simply not possible to have one right now. We have as we always have since WWII "government" or perhaps more accurate to our age "WAR." Needless to say "obliterating 90% of American people in the name of fighting 1500 deadenders" can only be made possible by "the word." Again "that word is called WAR." Needless to say "we haven't thought about how to pay for that thing for some time now." Certainly not since 2008 where we decided to "never let a crisis go to waste" instead.

no cnbc cretin

So, everything is okay. BS! That chart reminds me of the Roman Empire, and yes, the US is an empire. Or the French revolution.

History has proven, this scenario is not substainable. Take away Ben's QE, QE2, America collapses.

[Oct 26, 2010] Scary New Wage Data

October 25, 2010 | Economist's View

David Cay Johnston:

Scary New Wage Data: Now for some really scary breaking news, from the latest payroll tax data.

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined, but at the very top, salaries grew more than fivefold. ...

Measured in 2009 dollars, total wages fell to just above $5.9 trillion, down $215 billion from the previous year. Compared with 2007, when the economy peaked, total wages were down $313 billion or 5 percent in real terms.

The number of Americans with any wages in 2009 fell by more than 4.5 million compared with the previous year. Because the population grew by about 1 percent, the number of idle hands and minds grew by 6 million.

These figures show, far more powerfully than the official unemployment measure known as U3, how both widespread and deep the loss of jobs was in 2009. ... Only 150.9 million Americans reported any wage income in 2009. That put us below 2005, when 151.6 million Americans reported wages, and only slightly ahead of 2004, when 149.4 million Americans held at least one paying job.

For those who did find work in 2009, the average wage slipped to $39,269, down $243 or 0.6 percent, compared with the previous year in 2009 dollars.

The median wage declined by the same ratio, down $159 to $26,261, meaning half of all workers made $505 a week or less. Significantly, the 2009 median wage was $37 less than in 2000.

To give this some perspective, from 1992 to 2000 the number of people earning any wages grew by 21 million, but nine years later just 2.8 million more people had any work.

These wage data, based on the Medicare flat tax on all compensation, tell us only about the number of people who earned wages and how much. They tell us nothing about whether these individuals were underemployed, had to work more than one job, earned fringe benefits, or were employed at a level commensurate with their abilities.

But they do give us a stunning picture of what's happening at the very top of the compensation ladder in America. The number of Americans making $50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year. But that's only part of the story.

The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009. That's nearly $10 million in weekly pay!

You read that right. In the Great Recession year of 2009 (officially just the first half of the year), the average pay of the very highest-income Americans was more than five times their average wages and bonuses in 2008. And even though their numbers shrank by 43 percent, this group's total compensation was 3.2 times larger in 2009 than in 2008, accounting for 0.6 percent of all pay. These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers. ...

Back in 1994, when the top category the government reported on was $20 million or more of compensation, only 25 people were in that rarefied atmosphere, and their average earnings came to just under $45 million in 2009 dollars.

What does this all mean? It is the latest, and in this case quite dramatic, evidence that our economic policies in Washington are undermining the nation as a whole. ...[continue]...

Posted by Mark Thoma on Monday, at 09:58 AM in Economics, Income Distribution | Stumble, Digg,, Reddit, Tweet, Share, Like | Permalink Comments (44)


From a pure (ahem!) "free market perpective", we should then conclude that the contribution of an immense majority of workers is less valuable now than in 2007, while the contribution of those at the top is 5 TIMES more valuable that in 2007.

Is there any way this proposition can pass the smell test?

Those at the top are taking advantage of cheap borrowing costs to inflate earnings and captive boards to increase wages.

Overall, focusing on this group is a red herring. Look at the $500K plus crowd.


Sooner than later, we shall have to talk seriously about the roots of income inequality in this country.

I challenge anyone, anytime, anyplace to provide a cogent and common sense rationale to such a skewed distribution of income.

Let's be honest here: this is the result of a deliberate set of policy choices. Misguided policy choices that will cost us nothing less than our economic supremacy and well being.


The PGA Tour has many significant spots on the money list. For the sake of this column, we'll include the leader, the last person to qualify for the Tour Championship (#30), and the last person to keep his PGA Tour card (#125). Let's have a look at how these numbers stack up from 1986 to last year, a span of 21 years.

The average earnings of these three positions from 1986-1996 are $1.3 M, $455,298, and $113,311. The average earnings of these three positions from 1997-2006 are $7.2 M, $1.6 M, and $447,613."

There is quite a bit of analysis in the article. One that jumps out is how much flatter the earnings of the #125 place are than the #1 or #30. And how much overall earnings increased (of course not for for the guy who is #1000 in golf in the country and tries unsuccessfully for years to break into the Tour).

It seems hard to credit the uneven distribution of golf prize earnings to some conspiracy of the rich. Small increments of performance (real or perceived) in a global market can be worth a lot.

There may be "a deliberate set of policy choices" at work, but I think you have to control first for other factors before invoking that as an explanation.


" Small increments of performance (real or perceived) in a global market can be worth a lot."

'Global market'. Precisely.

All of the other advanced economies of the world occupy the same globe we do, last time I checked.

Given the much reduced levels of inequality in most other advanced economies, that means the burden is on you to explain why "a deliberate set of policy choices" is not the only rational explanation for those inequality differences.

Yeah, that's right, when the subject is wages of US workers, let's change the subject and start talking about the earnings of pro golfers.

Confuse and obfuscate...wouldn't want people actually realizing who's screwing them...


If you want a cogent and common sense rationale for the outcome, perhaps the first place to look: the past 30 years of policy advice from economists to democratically elected officials, from Reagan to Bush II. I'm sure it's there. After all, the electorate bought it, too.

Helen Wheels:

"Narrowing the base while adding weight to the apex does not make a stable structure."

Here it is in a nutshell


As I said before, the kind of income inequality with which this country finds itself mired in is similar to the income inequality that other nations in the past experienced just before a revolution. We're slowly getting there, but getting there all the same.


"The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009. That's nearly $10 million in weekly pay!"

I find it difficult to believe that the income he is taking about is "wages" paid by an employer to an employee. Where do these people work? Is this financial sector compensation?


The local gun store has a help wanted sign in the window. They can't keep up with the increased sales.
Not funny, but the point is well taken.
when the tea party declared open season on your own feet, people got fired up
It may or may not be a matter of keeping up with sales, but I don't know your store of course. Hereabouts one also sees help wanted signs in all kinds of businesses none of which have anything to do with guns, or look like they cannot keep up with sales.
Maybe they don't have enough sales, or their help has moved on to better opportunities, moved out of town, etc.


The wage data is a symptom of the new job reality

As a society we are going to have to deal with the fact that there is less work to do and do it in some productive manner or risk some bad stuff. Heck even Time fricken magazine is asking "will there be a civil war?"" now

Even if we could reverse outsourcing and off-shoring automation is really putting the hurt on peoples ability to earn a wage.

Things like streaming media, Craigslist and automation are job killers on an amazing scale. Without the FIRE bubble we are quickly hitting the real U6 unemployment rate which is around 20-30% mostly lower and middle class men. If anyone (not people here obviously) can't see the possible social disaster, I'll lay it out for them ...

Its their friends and family that run the military and police ..

Things get bad enough and its back to tribal loyalty and this experiment ends in a fire,

Given that we have many "griefers" who are still sore about the civil war , any kind of functioning civil society as we know it is not a forgone conclusion ..

Heck the absolute best case scenario is Japan style sub-replacement fertility and continuous permanent population and economic decline

The preventive solutions to this mess are not all that pleasant to free trade and market ideologues but they include heavy education subsidy , trade controls, a shorter work week reinforced by said trade policy and direct income support, maybe via a citizens wage (like the Alaska State fund) and national health care. This means more taxes and a much smaller military as well ..

I personally doubt we'll choose wisely as American society tends lurch from crisis to crisis instead of planning. Eventually the US will simply reach a point where our accumulated mistakes will take us out and we'll wake up either as 5 separate nations, a 2nd/3rd world backwater (Hello Prayer of the Rollerboys minus Japan) or with the revolutionary brigades or 1187th lift infantry or waking the President "calling new elections"

carping demon
"As a society we are going to have to deal with the fact that there is less work to do"

Very few people seem to recognize that.

How much work there is to do is in good part a matter of social policy. A lot of useful things are not done, look at crumbling or outdated infrastructure. Then employers are allowed to underhire and overwork their staff.

More "primary" jobs will lead to other, multiplier, jobs in service and manufacturing industries, as long as all new jobs are not offshored. Automation is part of the story but it's not nearly the sole culprit.

Chuck Roast:

Johnson fails to discuss the resultant plight of American children. Fully one in five children are members of families that are recipients of food stamps. In all probability, most of these children are protein deficient.

Implicit in what Johnson is saying is that the rich are slowly cannabalizing working and middle classes. There is a simple solution to this twin problem - require the wealthy to physically participate in the Food Stamp program.

The wealthy eat quite well and are a tremendous source of untapped protein. By eating the rich, we could have a simultaneous diminution in the Plutocrat class and an improvement in the health and well being of a large segment of American children. Moreover, the general predation of the rich would quickly decline and the lives of 95% of the population would improve.

Beautiful, and worthy of The Onion, which is saying something. :-)


Oh No:

Yeah, that's right, when the subject is wages of US workers, let's change the subject and start talking about the earnings of pro golfers.

Confuse and obfuscate...wouldn't want people actually realizing who's screwing them...

[I like this.]


"The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009."

Am I the only one whose gut says that's driven by capital gains of various sorts- e.g. hedge fund managers? The stock market did go up by, what, 40% in 2009? That's a once-in-a-generation event and if it is what is driving the result it is not a sign of doom to come. I'd guess the number for 2010 will be much more modest.

Of course, it indicates that hedge fund investors are being really, really dumb in tying the compensation of the people managing their funds so strongly to the market. But that's hardly a failure of public policy. The only other factor needed to produce these results is the rise in the stock market...again, no disaster.


Medicare is not taxed on capital gains.


The hedge fund kings do not earn capital gains except on their own capital. They earn a bonus based on the capital gains of their investors. They are, however, taxed on their bonus as if their bonus was a capital gain due to a sweetheart tax deal they bought with campaign $$$. According to one of the president's speeches, the top 25 hedge fund kings earned an average of $1billion apiece, so agroup of 74 people averaging $500million probably includes a lot of hedge fund kings and some banksters whose stock options or stock bonuses vested in 2009. Very few people, if any, outside finance have the opportunity to earn on that scale. Is this a great country or what?

NOte that the sweetheart deal was set up in the 1950s according to more money than god. So we have a lot of politicians to blame for it, starting with Ike and going forward.


"The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009."

Am I the only one whose gut says that's driven by capital gains of various sorts- e.g. hedge fund managers? The stock market did go up by, what, 40% in 2009?

[Say what, when, where, and how? The stock market did what in 2008? Really?]


Admittedly I'm off by a bit, but the 40% comment is in reference to 2009, not to 2008.


"The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009."

Am I the only one whose gut says that's driven by capital gains of various sorts- e.g. hedge fund managers? The stock market did go up by, what, 40% in 2009?

Vanguard 500 Stock Index Fund

Average annual returns as of 9/30/2010

Davis X. Machina:

Unfortunately what little tumbrel-manufacturing capacity the US ever had was largely off-shored in the '90's.


I'm sure the increase in wages over $50 million is due to people at the lower end falling out of the category leaving a smaller number of higher earners. Not because of wage / income growth of that magnitude.

Too many textbook theorists....:

You don't need to be a noble prize winning Economist to look around your house and see how National labour has been subsituted for foreign labour.

Fact is we really only need so much consumer junk.

So its obvious that sooner or later its just going to cause mass unemployment. All the offshoring thats been going on for the last 15 years has just been masked with an asset appreciation bubble and thus consumption via debt.

Fiscal or monetary policy is NOT going to fix the root problem, America either makes more of the product US consumers need or it forces the likes of China to accept more US exports. It really is that simple.


Am I the only one whose gut says that's driven by capital gains of various sorts- e.g. hedge fund managers? The stock market did go up by, what, 40% in 2009?

[The stock market was down 37.0% in 2008 and up 26.5% in 2009. The point is that the wealthiest in terms of income were remarkably shielded in 2008 and gained remarkably in 2009. Income difference increased and markedly and in a time of severe recession and tepid recovery the increasing income differences on top of prior important difference is simply not to be dismissed.]


"Unfortunately what little tumbrel-manufacturing capacity the US ever had was largely off-shored in the '90's."

This is false. Manufacturing capacity and employment increased significantly through the Clinton years and relatively slowly even through the Bush years.

July 5, 2010

Industrial Capacity in Manufacturing, 1992-2010

1992 ( 72.6) 1993 ( 74.6) Clinton 1994 ( 76.8)

1995 ( 80.6) 1996 ( 85.8) 1997 ( 92.2) 1998 ( 100.3) 1999 ( 107.1)

2000 ( 113.1) 2001 ( 117.9) Bush 2002 ( 119.9) 2003 ( 119.9) 2004 ( 119.5)

2005 ( 120.7) 2006 ( 122.8) 2007 ( 125.7) 2008 ( 127.8) 2009 ( 127.1) Obama


2010 ( 126.2)



Manufacturing capacity and employment increased significantly through the Clinton years and manufacturing capacity increased relatively slowly even through the Bush years though manufacturing employment decreased through the Bush years.

Manufacturing jobs were however added through the Clinton years.

Wisdom Seeker:

Corroborating the wage data is the chart on Page 21 of the National Economic Trends report put out monthly by the St. Louis Fed (a small PDF: )

Proprietors' Income and employee "Compensation", as a share of GDP, have been in decline. Only corporate profits have increased as a share of GDP. The latter have returned to pre-crash historically high "bubble" levels. Compensation is approaching series lows last set in 2006. Proprietors' Income is declining from a peak in 2004-2005, which may reflect the heyday of many small housing bubble businesses. But it is still above historical norms.

I share David Kay Johnson's (that is, the original author's) concern that this information received minimal media coverage. But I suppose that one cannot expect corporate media, funded by corporate advertisers, to publish news which would suggest that actions should be taken to rebuild wages and proprietor's income at the expense of corporate profits?

It would also appear that the Obama administration has been a great friend to business, given that corporate profits as a share of GDP have increased nearly 4% since he took office. Though perhaps the corporate officers are aware that much of this "profit" is fraudulent, and they're blaming Obama for "making them" cook their books??

Mean reversion of corporate profits/GDP to historical norms is to be expected, and implies a 30-50% reduction in the ratio (with magnified impact on equity prices since P/E ratios will contract as well) ... but by what mechanism?


That look so weird huh!


"Admittedly I'm off by a bit, but the 40% comment is in reference to 2009, not to 2008."

I know, I know, but the point is when a financial manager has done terribly for several years, fixing rewards so that they win even in very bad years and win bigger than ever in good years is a serious, serious problem.



"Admittedly I'm off by a bit, but the 40% comment is in reference to 2009, not to 2008."

Right, but hedge fund managers in general won in 2008 and 2009 no matter the losses in 2008 which were in no way made whole in 2009. That is the actual trick with hedge fund managing that was pointed to by Princeton's Malkiel years ago.

[Oct 16, 2010] "Income Inequality: Too Big to Ignore"

Oct 16, 2010 | Economist's View

Robert Frank says rising inequality is "a bad thing," and that economists shouldn't be so reluctant to say so:

Income Inequality: Too Big to Ignore, by Robert Frank, Commentary, NY Times: ...During the ... last three decades..., all significant income growth has been concentrated at the top of the scale... Yet many economists are reluctant to confront rising income inequality directly, saying that whether this trend is good or bad requires a value judgment that is best left to philosophers. But that disclaimer rings hollow. Economics, after all, was founded by moral philosophers...

Adam Smith, the father of modern economics, was a professor of moral philosophy... "Wealth of Nations,"... was ... peppered with trenchant moral analysis. Some moral philosophers address inequality by invoking principles of justice and fairness. But because they have been unable to forge broad agreement about what these abstract principles mean in practice, they've made little progress. The more pragmatic cost-benefit approach favored by Smith has proved more fruitful, for it turns out that rising inequality has created enormous losses and few gains, even for its ostensible beneficiaries. ...

The rich have been spending more simply because they have so much extra money. Their spending shifts the frame of reference that shapes the demands of those ... below them... These cascades have made it substantially more expensive for middle-class families to achieve basic financial goals.

In a recent working paper based on census data for the 100 most populous counties in the United States, Adam Seth Levine..., Oege Dijk ... and I found that the counties where income inequality grew fastest also showed the biggest increases in symptoms of financial distress. ...

The middle-class squeeze has also reduced voters' willingness to support even basic public services. Rich and poor alike endure crumbling roads, weak bridges, an unreliable rail system, and ... poorly maintained dams that could collapse at any moment.

Economists who say we should relegate questions about inequality to philosophers often advocate policies, like tax cuts for the wealthy, that increase inequality substantially. That greater inequality causes real harm is beyond doubt.

But are there offsetting benefits? There is no persuasive evidence that greater inequality bolsters economic growth or enhances anyone's well-being. Yes, the rich can now buy bigger mansions... But this appears to have made them no happier. ...

In short, the economist's cost-benefit approach - itself long an important arrow in the moral philosopher's quiver - has much to say about the effects of rising inequality. We need not reach agreement on all philosophical principles of fairness to recognize that it has imposed considerable harm ... without generating significant offsetting benefits.

No one dares to argue that rising inequality is required in the name of fairness. So maybe we should just agree that it's a bad thing - and try to do something about it.

According to this research, the political consequences of widening inequality will make it more difficult to "do something about it":

A "one dollar, one vote" explanation of the welfare state, by Loukas Karabarbounis, Vox EU: Why do Europe and the US, both affluent regions, differ so much in the size of their welfare state? To answer this question, this column examines OECD countries between 1975 and 2001, finding that countries with wealthier rich- and middle-classes are associated with a smaller welfare state while those with a richer poor class are associated with a larger one – supporting the "one dollar, one vote" explanation. ...

In the one dollar, one vote equilibrium, when a group of voters becomes richer (relative to the mean), redistributive policies tilt closer to its most preferred size of redistribution. Thus, for instance, when the rich become even richer, redistribution decreases which is line with the preference of the rich because with a progressive system of taxes the rich are the ones who pay more taxes. On the other hand, when the poor become richer, redistribution increases which is in line with the preference of the poor because the poor are the ones who are more likely to benefit from increased social transfers like unemployment insurance and pensions.

The one dollar, one vote theory of the welfare state contrasts sharply with the widely used ''one person, one vote'' institution (where the median class is the decisive voter) and the ''utilitarian'' model of redistribution (where the government chooses redistribution to maximize a weighted average of citizen's welfare). A natural explanation for the one dollar, one vote result is that political influence is not uniform across groups of voters and that political participation is increasing in income. Indeed,... I show that in all countries of the sample income is strongly correlated with various indices of political participation ranging from signing petitions to discussing politics with friends and from participating in demonstrations to becoming affiliated with political parties. Since money is associated with more power, income inequality has sharply different implications for redistribution than postulated by the median voter theory and the utilitarian model.

The one dollar, one vote result provides an explanation for the increasing difference in the size of the welfare state in Europe and the US. From 1980 to 2001, the growth of European redistribution exceeded the US by approximately 2.7%. According to my estimates, this may be because the European poor did not become relatively as poor as the American poor while the US increased redistribution relative to Europe because the American median voter became poorer. These two opposing effects cancelled each other off. However, the growth of the rich's income relative to the mean in the US exceeded the growth of rich's income relative to the mean in Europe. According to the one dollar, one vote theory of the welfare state, the faster growth of the rich's income in the US allowed the rich to increase its political influence and tilt policy closer to its most preferred redistribution which involves a smaller welfare state. As a result, the growth of redistribution in the US lagged Europe's.

Selected Comments


Brother you're right, you're right, you're right, you're right, you're... soooo right. There is ample evidence that lesser inequality, in a market economy, leads to greater happiness. If only it were not a taboo for us Americans to look at how other countries do things. Ronald Reagan's snake oil continues not to be the tonic he promised.

[Oct 13, 2010] The Peoples' Slice Of The Pie

Economists are forever trying to come up with theories to explain unemployment and wages. It is always a "hot" topic, and the Bureau of Labor Statistics (BLS) monthly release on the employment situation is arguably the one statistic which can - and does - move markets most.

I won't go into the various economic theories on how wages, unemployment and inflation all come together to shape (or "clear"), the labor market. I have a more fundamental question, instead: How important are wages in today's economy, overall? Or, to put it more precisely, how come we have allowed gainful employment and earned income to become so unimportant?

The following chart shows that wages and salaries as a percentage of GDP have been dropping steadily for 40 years, from a high of 54% of GDP in 1970 to a low of 43.5% this year (see chart below). Including other forms of compensation like pension and medical benefits does not alter the picture appreciably: total compensation of employees went from 60% of GDP in 1970 to 54% this year.

Simply put, then, working people are getting a smaller slice of the economic pie.

Yeah, The Pie Is Bigger But Your Slice Is Smaller

This is as major of a transformation of the economy as it gets but it is almost never discussed by academic economists, who are forever trying to figure out how to model unemployment, or interest rates, or whatever econometric datum strikes their fancy. It's like pondering the price of candle oil while Rome burns. And they get Nobels for it, too!

(A small aside about the Nobel Prize for economics: it was not part of Alfred Nobel's will in 1895. It was instituted and funded much later, in 1969, by Sweden's central bank; it is formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Considering its provenance in the depths of Money Central, it's highly unlikely that a more "radical" economist is ever going to be awarded one. )

Anyway, who's been eating the Peoples' Slice Of The Pie (TM) then?

Is it proprietors of small businesses or farms? Hardly. Their income as a share of GDP was 8% in 1970 and it's still around 7% today.

For a clue, look at the following chart of net dividends as a percentage of GDP: they have steadily climbed over the years and literally soared after 2003 to nearly triple what they were in the 70's.

If stock ownership was even somewhat evenly distributed amongst Americans I would have no real problem with this picture. But, it isn't - not by miles and miles. The richest 10% families owned in 2007 a mean $700,000 worth of stocks, while the next 15% owned a mere $53,000. The rest, i.e. 75% of the people, owned next to nothing at all (see chart and table below).

Chart: FRB Survey of Consumer Finances, 2007

The United States, indeed the entire West, has in recent times been transformed from a society defined by the constructively paired work-income relationship, to one oriented towards an asset-debt pair. Even worse, most assets are now owned, controlled and exploited by an ever-shrinking minority of super-rich, forcing the vast majority of the people into virtual debt slaves. That's what Virulent Capitalism is all about, in my opinion.

But does anyone really give a hoot? Are important economists really screaming bloody murder? Are politicians really taking notice? The short answer is no.

Notice my main recommendation on the right: Animal Spirits is an excellent book authored by George Akerloff and Robert Shiller, two economists who hardly fit the classical model. For example, they make mincemeat of the deeply-ensconced theory that humans are constantly acting in their so-called "rational" self interest when they make economic decisions. Akerloff ans Shiller are willing - and scientifically able - to tear down the entire foundation upon which classical economics has been resting for centuries.

And yet...

Whilst they correctly identify the causes of the current crisis and properly point accusingly to all the proper directions, what is it that they recommend as a solution? That the Fed should target credit expansion, i.e. make as much credit available to the economy as possible. Not a word about the huge deficit in earned income, not a peep about the enormous asset ownership gap. Instead, more credit, more debt for the masses.

Sorry guys, that's plain insane.

Don't get me wrong. Animal Spirits is an otherwise excellent book, well worth reading for its spirited departure from classical metrics-based economic theory. Buy it, read it, profit from it. But, my point here is that even such forward-thinking economists atavistically fall back to old remedies when faced with financial crises. It's like a modern day doctor correctly diagnosing TB and then prescribing a long stay in a Swiss mountain sanatorium as a cure. Well, good luck with that...

(Maybe it's because Akerloff's wife is none other than Janet Yellen. Yup, maybe he's being very rational, after all. From a personal peace-in-the-family standpoint, of course. Eh...)

P.S. This post was written during the weekend, so I should seriously consider testing myself for ESP because the Nobel committee just announced its choices for the aforementioned Economics prize - and guess what? They gave it to three economists for their work on unemployment, job vacancies and wages. Same old, same old unfortunately.

[Oct 07, 2010] Does Inequality Make People More Conservative

October 07, 2010 | Economist's View

Rising inequality is associated with a shift toward conservatism for both the wealthy and the poor:

Does Inequality Make People More Conservative?, Monkey Cage: Yes, according to some new research (pdf) from Nathan Kelly and Peter Enns. They rely on a a yearly measure of "policy mood" from 1952-2006. This is an omnibus summary of the public's ideological leaning, liberal to conservative. (See the graph and corresponding Excel file at Jim Stimson's homepage.) They also draw on a specific measure of the public's support for welfare. The question is whether and how both measures respond to inequality.

Their first main finding: increases in inequality are associated with a conservative shift in mood and increasing opposition to welfare. (For more on why this would be true, see this paper (pdf) by Roland Benabou.)

Their second main finding: increases in inequality are associated with a conservative shift among both the wealthy and the poor.

One natural objection: perhaps some citizens, and especially poorer citizens, just do not realize that inequality has increased. But the third main finding contradicts this: over time, the poor are actually more likely to perceive increased inequality than do the wealthy.

Kelly and Enns offer some further speculation on why, in particular, the rich and poor respond in parallel to rising inequality:

Despite the fact that parallelism is not driven by lack of information about income inequality, we think it is possible that the way information about distributional outcomes is framed is important. This idea is rooted in Gilens's …argument is that during good economic times news stories focus on individualism (enhancing opposition to welfare) and during bad economic times stories emphasize people being down on their luck (enhancing support for welfare).

Given that rising inequality since the 1970s has been driven in large part by gains at the top of the income distribution, media frames over this period may have increasingly emphasized stories of individualism, thus generating a negative link between rising inequality and public opinion liberalism. The decline in inequality prior to the 1970s, by contrast, was driven primarily by increasing incomes at the bottom of the income distribution and may have generated stories emphasizing government's role in education and job creation. This could explain why declining inequality up to the 1970s pushed public opinion in a liberal direction.

See the paper for some further discussion and appropriate caveats.

That explanation doesn't ring very true to me, but I don't have anything better to offer. Any ideas?

(When you are puzzled by a regression result, the tendency is to question the statistical technique or the quality of the data. So, in that tradition, the autocorrelated error structure for the regressions in Table 2 where the results are disaggregated by income could be signaling a misspecified model. For example, citing the paper they cite to justify the correction for autocorrelation, "analysts should view autocorrelation as a potential sign of improper theoretical specifcation rather than just a narrow violation of a technical assumption." If the model is, in fact, misspecified then the results cannot be trusted. I'd also prefer to see the autocorrelation corrected by adding more lags to the error correction model rather than using the Prais-Winsten estimator as in the paper -- or at least try adding more lags as an alternative -- and see if it makes a difference for the results. That's the more usual correction to the autocorrelation problem in the applications of the error-correction models I'm familiar with.)

Other Peter T :

I think this is broadly true (with an important caveat). I would put it down to lags between frames of reference and reality - in better times people mostly tell themselves their good fortune is down to their own superior qualities - and this frame then makes them initially more conservative when bad times arrive. It must, after all, be due to some fault in themselves. Also bad times fragment societies, so reducing the ability to see it as a common problem.

But if bad times persist, then the thinking shifts.

hix :

Dangerous to just say liberal=pro redistriubtion conservative= for redistribution in the American context. American liberals and conservatives arent that different from the European definitions afterall as many would want us to believe those that push liberal agendas in the Europeans sense under the Democrats banner for example. Being conservative is also asociated with things like going to church and jingoism which are natural escapism mechanism in bad times.

The shift in welfare attitudes could be secondaryonce speople chose the church goer and foreigners hater tribe, they just accept the other baggage relativly unreflected because everyone else in the churchgoer foreigner hate tribe thinks that, the priests tell the same etc.

Matt Young :

High inequality simply implies bad news, from any perspective. Bad news makes us conservative.

save_the_rustbelt :

Could it be the view the federal government and both political parties are a force in increasing inequality?

The complete and utter contempt for politicians these days includes a theme that most politicians are owned by the rich, and especially Wall Street.

bakho :

In the US Republicans and Conservatives have been very successful in shifting the tax burden from the wealthy to the middle class. Many of the wealthy pay far lower tax percentages than the middle class. Median incomes get hit with the full payroll tax. The wealthy get off the hook on income over $100K. The middle class get full taxation on wages. The wealthy get a huge break on capital gains speculations.

The wealthy have created a situation where redistribution does not occur from the wealthy to the poor. Redistribution goes from the middle class to the poor and the wealthy. This builds resistance in the middle class that objects to government spending that primarily benefits the top income groups.

Broad based public spending that benefits the middle class as well as the poor often has good support. For example, Medicare and Social Security. Clinton programs aimed at boosting take home pay for low income workers relative to welfare were popular both with the poor who benefitted directly and the middle class. Public support depends a lot on the character of the program.

Realist :

Other Peter T said it perfectly, IMO:

"Also bad times fragment societies, so reducing the ability to see it as a common problem.
But if bad times persist, then the thinking shifts."

Bakho, you claim:

"The wealthy have created a situation where redistribution does not occur from the wealthy to the poor. Redistribution goes from the middle class to the poor and the wealthy. This builds resistance in the middle class that objects to government spending that primarily benefits the top income groups."

But the people (high, mid, low income) don't get to CHOOSE where the money goes, so your premise that "Republicans and Conservatives have been very successful in shifting the tax burden from the wealthy to the middle class." is totally false. If you think that the Republicans, a minority for the last 4 years, have so much power to shift the tax burden onto the middle class, then why can't they stop Obama from killing the Bush tax cuts from ending with the snap of their fingers??

Perhaps the reality is the gov't, albeit necessary, is an inefficient distributor of funds. It is not only inefficient, but it also sets the rules up in a way that benefits the ruling class (dems and reps) the most and the ruling class desires to keep all of its money. So the very people you demonize, the rich, are the very people you think will do a better job distributing it, the gov't.

Bakho, here's more evil behavior from the evil rich-ahem, I mean your beloved gov't that is so concerned for the poor and disenfranchised. No gov't, whether it be Clinton, W, or Obama (with an all dem legislative branch) has ever changed this, b/c they make the rules to benefit them. Now, the savior, Obama, has proven he's a hack with this tidbit of information:

"The biggest single waiver, for 351,000 people, was for the United Federation of Teachers Welfare Fund, a New York union providing coverage for city teachers. The waivers are effective for a year and were granted to insurance plans and companies that showed that employee premiums would rise or that workers would lose coverage without them, Santillo says."

From this article:

*Sniff* *Sniff* anyone else smell and unequal protection suit?


The wealthy of this country do control where the money goes. The poor tend to die younger so a lot more of the SS and Medicare benefits go to the wealthy. Most of the defense spending benefits the wealthy. At the state level the wealthy control much more of the spending. More education dollars are spent on school districts with a lot of wealthy residents compared to poor districts. The wealthy can take advantage of roads and airports they need for their businesses. States subsidize all sorts of infrastructure and tax incentives for wealthy businessmen. The wealthy obviously benefit from the system by the very fact that the system has allowed them to become wealthy. The wealthy are very protective of the government services that come their way and are quick to cut services that only benefit the middle and lower classes. This erodes public support for government programs. At some point the wealthy will discover that the infrastructure has deteriorated to a point that they take their business elsewhere. Oh wait, the wealthy are already building factories and exporting jobs to other countries.

Michael Cain:

"Perhaps the reality is the gov't, albeit necessary, is an inefficient distributor of funds."

At least in the US, isn't this obvious?

The federal government funds or operates multiple large health insurance/care programs: Medicare, Medicaid, TRICARE, the VA system, and the Federal Employees Health Benefit system. Each state operates its own set of multiple programs: Medicaid, employee health insurance, public health clinics, etc. And counties. And cities. How much simpler and cheaper would it be to have a single national health insurance program that rolled all of these together, with a limited set of options under the big umbrella?

Or the education funding stack, from feds down to the local school board, each source with its own auditing and reporting requirements. In my state, over 60% of K-12 education funding comes from the state's General Fund and the percentage is growing steadily; why not let the state take care of policy instead of local boards (the state is paying the majority of the bills, after all) and hire a single professional administrator to run the school district? As well as imposing some sanity on the size of districts; we have districts as small as 100 students and as large as 85,000.

Many of the people claiming they want "smaller" government don't, really, since they are generally unable to point to places where they would make any major spending cuts. But they certainly want "simpler" government.

Rune Lagman:

Medicare pays for twice the number of medical procedures (hip replacements, cataract surgery, cancer treatments) than private insurance. The Medicare budget is around $500B. Private health insurance premiums around $1000B.

Medicare delivers twice the product at half price. I smell a smoking deal.


That a real distortion unless you factor in the type of procedures. Cataract surgery is usually a quick outpatient procedure, in and out in less than three hours, and high volume, and not all that expensive compared to other procedures.

Patrick :

I think it makes perfect sense. As poor people's prospects diminish, they get nasty and unwilling to share what little they have. Sounds like the road to conservatism to me.


To accept a system of gross inequality as an unchangeable fact is a mark of the greatest servility. Conservatism is its ideological mask, although it has different effects dea different ideological strategy among the masters and the servants, but both sides agree that the masters have the 'merit' to be masters and there can be nothing more horrible than equality.

d4winds :

"Their first main finding: increases in inequality are associated with a conservative shift in mood and increasing opposition to welfare."

classic chicken & egg.

Sebastien :

When things get really bad for someone they'll look for outside help. Conservatism is almost always portrayed as being better for the economy, so that's where they'll put their trust. They reinvent themselves. They shift their focus from policies that help them to policies that help people in positions of power. Ideas like "Trickle Down" sound radical, and that's the point.


Right now the federal government has a big round target on its back. The majority of Americans haven't participated in income growth and so have less money to spend than they did in years past. But their taxes seem to be climbing, nonetheless.

So they blame government. Who else are they to target? Someone who delivers their heating fuel? The local gas station? The store that sells them their favorite clothes? The supermarket?

That's way too many targets. Better to focus, at least initially, on something easy to identify. That would be Congress, the President and the federal bureaucrat. Republicans take rational political advantage with this fact of life.

Republicans don't possess the right tools, of course, so the economy isn't going to recover any quicker if they win in November. At some point the fog clears and the public begins to make some distinctions.

The initial 'conservatism' starts to unwind. Viewpoints change.

The only fly in this ointment could be that the public isn't so conservative at the moment: That the public has already started making some distinctions. Personally, I'm suspicious the public's at that point right now. But if they are, that changes the dynamic quite a bit.

anne :

October 6, 2010

Media Coverage Might Explain Greater Anger Over Public Pensions Than Wall Street Bonuses

The Washington Post had a piece * that highlighted efforts to cut pensions for state and local workers. The piece told readers that there is declining support for public sector workers because many people resent the fact that they have been forced to take pay cuts while public sector workers often have had their pay and benefits protected.

It is worth noting that major media outlets, like the Washington Post, routinely highlight and often exaggerate the pay and benefits received by public sector workers. In contrast, they deliberately mislead their audience about the extent of public support for major Wall Street banks.

For example, media outlets have repeatedly highlighted the fact that most of the TARP loans to the banks have been repaid without pointing out that these banks benefited enormously from having access to trillions of dollars in loans and loan guarantees at below market interest rates. Without these guarantees Goldman Sachs, Citigroup, Morgan Stanley, Bank of America and many other large banks would have gone bankrupt. Their shareholders would have lost hundreds of billions of dollars, freeing up wealth for non-Wall Street America. And their top executives would not be drawing pay in the tens of millions of dollars (@100 public sector worker pensions).

Major media outlets have acted almost as though they were conducting a political campaign. They have flooded the public with reports minimizing the cost to the public of the Wall Street bailouts while putting out endless stories (many largely false) about overpaid public sector workers.


-- Dean Baker

Ryan M S Finley:

I've always kind of suspected this might be the case. Here's my theory. As the upper-middle and upper classes become wealthier, more social, economic, and cultural distance (for lack of a better term) emerges between the well-off and the not-so-well-off, leading to a decrease in empathy toward the lower income people.

Maybe even more importantly, as the well-off become wealthier, they tend to develop this idea that their success is mostly or completely attributable to their own efforts. If true, this would mean that lower-income people could be just as successful - if only they applied themselves and "worked hard."

I remember reading this "Very Short Introduction" book on the New Deal. I think this guy called Eric Rauchway wrote it. There's this bit in there about how political support for the New Deal was partly a function of the fact that the Depression brought formerly well-off people to ruin. The whole "there but for the grace of God go I."

I know it's mushy and speculative, but that's my theory.


"Rising inequality is associated with a shift toward conservatism for both the wealthy and the poor."

Didn't work for the French Revolution or the Paris Commune. Sure those people eat a lot of moldy cheese(1), but there's something to be said for their public spirit.

Note 1: not a pejorative. I rather like moldy cheese.

mark :

In response to Prof Thoma's question, I think the scope of the inquiry requires so much data to derive a robust thesis that it exceeds existing capability to collect and crunch the necessary data. Put another way, when you're seeking to explain a social attitude in a nation of 200-300 million people over a period of over 50 years, the data points that might be relevant and have to be ruled out for any thesis to hold up are just too many to process with any respectable degree of confidence. You just wind up ultimately with guesses, assertions and postulates that can never be proven one way or the other.

This is the same perspective I have offered when claims are made to be able to asccertain marginal utility levels in a population of such size.


Try smaller randomized samples. Crunching is no problem, collection is.

If there's something in the regression, you'll find it in the p-values of the t-statistic for the coefficients.

It will also be reproducible.

Sadly, there's no laboratory to test these theories.

Just because you have an equation that works sometimes doesn't mean you've found causation. Does inequality cause conservatism or does conservatism cause inequality ... OR ... did we look for a whole bunch of things and happened on a couple but we expected that by chance so we're not really sure?

btg :

but hasn't there always been a racial dimension to inequality - real or perceived, and hence a racial aspect in the way redistributive programs are viewed...

by this i mean that many poor whites might oppose redistribution because they see the main beneficiaries as being poor blacks or hispanics?

on top of this, there has been a great change in attitude over the last 50 years - fanned by republicans and the media which no longer has to be unbiased. so instead hwere government was seen as being the solution, the helping hand, in times of crisis, government is now portrayed as being the source of the crisis - and when times are bad people are mor elikely to want something different than the status quo, and hence they end up opposed to more government/redistribution that might actually help/benefit them more than others them!

this is the tea party view, is it not?

Michael Turner:

"by this i mean that many poor whites might oppose redistribution because they see the main beneficiaries as being poor blacks or hispanics?"


Conservatism is very much about fear. Recessions are very much about fear -- "we have nothing to fear but fear itself", but that's a lot to fear sometimes. The fear of ending up among *those* people (the "mud people", in the words of someone who resorted to deceptively selling them mortgages they couldn't really afford) is certainly a real one among white Americans suffering from class insecurity. Fears activate other fears. As the fears pile up, the activation gets ever less rational.

Everybody should read Mein Kampf. It's quite a revelation to learn that Adolf Hitler had, earlier in life, been a believer in liberal democracy, and had also thought anti-semitism an intolerably vulgar prejudice. But submersion in ubiquitous economic insecurity, being a veteran of a fearsome war, then a civilian with only an arts education, a citizen of nation both disarmed and surrounded by former enemies, most of them vindictive ... Fear brings out latent aspects of personality. One of those aspects can be boldness, another the willingness to cynically play upon fears, and those two are a very dangerous combination when further combined with intellect and oratorical talent ....

Which is why I find Glenn Beck scarier than Sarah Palin, by far. Glenn Beck is really pretty intelligent, and obviously a lot of people find his schtick persuasive.

David O. :

Does a shift towards conservatism lead or lag actual conservative policies by government? And by how much? I would expect actual conservative policies to increase inequality, (sometimes pretty quickly), where 'entitlements' and taxation are concerned. It may be that taking appropriate account of lags would lead to the conclusion that shifts towards attitudinal conservatism are associated with greater inequality because such shifts are a reflection of attitudes immediately prior to, and during, actual conservative policies being implemented. This hypothesis should be capable of falsifiability.

Jim Harrison:

One hardly needs depth psychology to explain why the wealthy are conservative and favor inequality. As for the plebs, well, mistreated dogs are the most loyal.


People are not dogs. And a mistreated dog will abandon its owner.

jeffrey678 :

The Police broke down the doors of two residences at 2AM. Held elementary school children and their parents at gun point for an hour. This happened in a poor area of my town. The police had the wrong address both times. The poor probably want less of that type of government.

Stephen Kriz :

I think it is a case of "beggar thy neighbor" or schadenfruende - people like to see their neighbor suffering worse than them when times are tough. Since the rise of conservatism, with the election of Ronald Reagan, the country has begun to collapse, because they don't know how to govern and could care less about the poor.

Conservatism, at it's core, is about punishment and retribution. Those sentiments abound during difficult times. Hence, the correlation.

ken melvin :

... and the rats turn on one another. Nothing warms the heart of a prol as much as seeing a former middle class stooped


".... Does Inequality Make People More Conservative?......"

Is this a joke....? Is this the frivolous academic nonsense (bull sh*t) that you entertain your selves with as Rome Burns.....?

Good luck,


kievite said in reply to ECONOMISTA NON GRATA...

I completely agree. That's pseudoscience. My feeling is that the relationship is an opposite one: relentless neoliberal brainwashing using their dominance in MSM was used to sell the idea of beneficial effects of greater inequality on population using conservative thinking and neoclassical economics (via academic patsies of Chicago school) as a Trojan horse to suppress protests (as in "religion is opium for the people"). Collapse of the USSR also has its brainwashing effects despite the fact that it was neo-feudal society with pretty high inequality (standard of living of a member of Politburo was pretty close to standard of living of the top tier of Western elite and in some areas was higher -- for example he and members of his family they were completely outside rule of law like feudal lords of the past).

Here is one telling quote from Amazon review of Thomas Frank's book "What's the Matter with Kansas"

Using his home state of Kansas as the model and focal point, Frank asks rhetorically why it is that Kansans so willingly espouse right-wing social issues (creationism, defunding public schools, prayer in schools, pro-life) while simultaneously allowing their state to become economically devastated by Republican free market policies of unfettered, unregulated capitalism. In other words, why do Kansans (and many other Red Staters) vote consistently against their pocketbooks, against their own economic self-interest?

With great specificity, Frank illustrates these behaviors and their devastating economic consequences by describing individuals and communities in Kansas. These are some of the strongest parts of his book, since they demonstrate through real people and real towns how life has changed, and continues to change, under Republican conservative rule. If anything, Frank could use more of these examples, particularly more description of some of the small towns and communities in his state that are dying a slow and tortured economic death. Regardless, the examples given convey the sense that Kansans are voting Red even as they vote themselves economically dead.

Frank correctly ascribes this seemingly self-contradictory behavior to the idea that Conservatives have discovered a means to incite permanent "backlash" among the Red Staters through culture wars. Whatever the issue, whether it's Janet Jackson's right breast or gay marriage in Massachusetts, Conservative politicians whip up fierce indignation and activism by threatening the loss of American moral values to the eastern, intellectual elite who support the denigration of those values and the denial of moral absolutes. And, as Frank points out, despite years of bitter denunciation, almost nothing has changed. The war rages on, but the Conservatives rarely win even a skirmish.

By focusing attention on culture issues, the Conservatives not only distract their followers from economic concerns, they remove capitalism itself as an issue. For Red Staters, capitalism is a natural force, and free markets are an absolute good. Concerns about environment, globalization, estate taxes, Wal-Martization, health and welfare all disappear, since laissez-faire is an inviolable principle. Capitalism cannot and must not be regulated in this worldview, and any restrictions and regulations designed to "thwart" it are necessarily wrong if not evil. The fact that culture itself -- MTV, Hollywood, Howard Stern, Fear Factor -- is a capitalist product that follows the same profit motivations goes unnoticed. In Kansas, as in most places, there is no connection in people's minds between culture and capitalism.

Frank has put his thumb directly on the source of America's current problems, the so-called Red State, Blue State divide. As I write this review on July 9, 2004, the United States remains embroiled in Iraq and Afghanistan, our standing in the world is at an all-time low, Tom Ridge is warning against another imminent Al-Qaeda attack, the country is hemorrhaging jobs, young kids can less and less afford to go to college, gas and milk prices have soared to all-time highs, working men and women can't make ends meet even with two or more jobs, millions are without health insurance, the President claims the power to arrest and detain anyone he chooses without legal representation, and our education system is becoming enslaved to meaningless standardized tests. What solutions does our Republican President and Republican legislative branch offer? The Senate is too busy preparing for an all-out legislative war over a Constitutional amendment banning gay marriage to worry about real problems. The newspaper every day tells us just how correct Thomas Frank is in his analysis. Kansas isn't just Kansas, Kansas is us!

[Oct 02, 2010] Income gap between rich and poor in U.S. at record high

International Business Times

The income disparity between the wealthiest and poorest Americans expanded to a record high in 2009 as the recession tore at the fabric of the poor and lower middle-class, according to data from the U.S. Census Bureau.

The top 20 percent of American earners -- those making more than $100,000 annually - received 49.4 percent of all income generated in the country, compared with the 3.4 percent earned by those below the poverty line.

That translates to a ratio of 14.5-to-1, up from 13.6 in 2008 and almost double the low figure of 7.69 recorded in 1968.

The U.S. income gap between rich and poor is the greatest among Western industrialized nations.

"Income inequality is rising, and if we took into account tax data, it would be even more," said Timothy Smeeding, a University of Wisconsin-Madison professor who specializes in poverty.

"More than other countries, we have a very unequal income distribution where compensation goes to the top in a winner-takes-all economy."

The data also revealed that the number of Americans at the very bottom of the income ladder are at record highs. About 6.3 percent of the population are below half the poverty line - $10,977 for a family of four - up from 5.7 percent. This was the highest level since the government began tracking this group in 1975.

(The 2009 poverty level was set at $21,954 for a family of four, based on an official government calculation that includes only cash income. It excludes non-cash aid such as food stamps.)

Sheldon Danziger, public policy professor at the University of Michigan, commented that the U.S. has several programs and policies in place to fight poverty. But he added that the country "has trouble addressing ever-widening income inequality-even with a growing federal deficit and previous warnings by former Federal Reserve Chairman Alan Greenspan about soaring executive pay."

[Oct 01, 2010] America's Deepening Moral Crisis by Mark Thoma

October 01, 2010

Jeff Sachs is unhappy with "almost everybody":

America's Deepening Moral Crisis, by Jeffrey D. Sachs, Commentary, Project Syndicate: America's political and economic crisis is set to worsen following the upcoming November elections. President Barack Obama will lose any hope for passing progressive legislation aimed at helping the poor or the environment. ...

Much of America is in a nasty mood, and the language of compassion has more or less been abandoned. Both political parties serve their rich campaign contributors, while proclaiming that they defend the middle class. Neither party even mentions the poor...

America today presents the paradox of a rich country falling apart because of the collapse of its core values ..., the country is in the throes of an ugly moral crisis. Income inequality is at historic highs, but the rich claim that they have no responsibility to the rest of society. They refuse to come to the aid of the destitute, and defend tax cuts at every opportunity. Almost everybody complains, almost everybody aggressively defends their own narrow and short-term interests, and almost everybody abandons any pretense of looking ahead or addressing the needs of others. ...

The big campaign contributors to both parties pay to ensure that their vested interests dominate political debates. That means that both parties increasingly defend the interests of the rich, though Republicans do so slightly more than Democrats. ...

The result of all of this is likely to be a long-term decline of US power and prosperity, because Americans no longer invest collectively in their common future. America will remain a rich society for a long time to come, but one that is increasingly divided and unstable. Fear and propaganda may lead to more US-led international wars, as in the past decade. ...

America is vulnerable to social breakdown because it is a highly diverse society. Racism and anti-immigrant sentiments are an important part of the ... reason why so many are willing to heed the propaganda against helping the poor. ...

The lesson from America is that economic growth is no guarantee of wellbeing or political stability. American society has become increasingly harsh, where the richest Americans buy their way to political power, and the poor are abandoned to their fate. In their private lives, Americans have become addicted to consumerism, which drains their time, savings, attention, and inclination to engage in acts of collective compassion.

The world should beware. Unless we break the ugly trends of big money in politics and rampant consumerism, we risk winning economic productivity at the price of our humanity.

am :

Put me to tears because it rings so true to what's been happening in this country. I don't have anything to add to Sach's commentary, and instead will let it stand by itself as a rebuke to all the cheap rich people who think they got everything they have by themselves and stupid ethnocentric people calling for a government shutdown when what we need in these times especially is a strong government willing to do what private individuals won't do--come to the aid of the poor and the sick--to the aid of other human beings who just like the rich and the racist will bleed if pricked.


I agree that he hit the nerve. But this might be a sincere concern, or this might be crocodile tears. History of this individual and roles which he played are pretty controversial.

Sachs was a prominent neoliberal who contributed to immense sufferings in Bolivia, Chili, Poland and, especially, Russia with his "shock therapy" criminal scheme.

During the heydays of corrupt Yeltsin regime he advised the implementation of shock therapy that increased poverty from 2% to more then 40%. GDP dropped 50%. Suicide rate doubled, life expectancy for males dropped below 60 years (12,8% death rate increase), etc.

All-in-all he was at this time one of Harvard neoliberal academic mafiosi along with Summers and his protege Shleifer.


Agree, the moral debate happen a long time ago, and if I remember right the winner was:

Greed is good.

If these brilliant Harvard economists are upset with our current situation, then my question is - why did you do it?

Michael Turner:

I have to remind myself that this is the same incisive intellect who counseled "shock treatment" for reviving the economy of the former Soviet Union, and whose "Let's Save Africa" initiatives are perpetually stuck in Real Soon Now You Just Wait.

Surprise me, Jeffrey. Don't just whine about how depraved we've all become. (Or, OK: "almost" all of us.) Blow me away with a compelling *quantitative*, fact-based, fact-checked analysis showing everybody why America is, morally, going to hell in a handbasket.

Just to get you started, let's look at how incredibly uncharitable Americans have become. Oh, except that, if you look at the numbers, they aren't any less charitable than they've been in downturns that were less severe and much shorter.

"Total charitable giving fell to $303.76 billion in 2009, down from $315.08 billion in 2008. That's only a 3.6 percent decline in a year where national unemployment rates hit 10 percent at times."

It goes on:

"Individual giving hardly budged downward in a recession year where a large proportion of the population found itself hard-pressed to make ends meet. So who gave and who didn't? This was-or still is-a small "d" democratic type of recession, where people at all income levels have felt economic jolts. Did the market upsurge in the fourth quarter make such a difference for the very wealthy, who represent a small proportion of givers but a large slice of individual giving, that they could compensate for the small donors who had to cut back on their charitable deductions? The sudden generosity of the high net worth donor may not be the entire explanation, since Giving USA reports a 23.9 percent decline in charitable bequests."

You mean, just regular folks who aren't rich in the first place made up most of the gap left by "high net worth donors"? (Who might have kept their checkbooks closed because they were no longer of such high net worth in many cases?) But I thought we're ("almost") all a bunch of depraved, out-of-control consumers, with no thought for anyone but our pathetic selves?


Michael Turner...

"Charitable giving" is insignificant, Michael. According to the report you mentioned, total giving is around $300 billion, which is less than one tenth of US Government spending and only 2% of GDP. More importantly, most of those 300 billion dollars of "charitable giving" are hardly charitable--more like membership dues. The biggest category, "Religion" is largely made up of what people give to their own church; much of the "arts" category is affluent people supporting museums and opera companies that are mainly patronized by themselves and other affluent people; much of the "education" category is people giving to their own alma mater. And we should not forget that nearly all of this charitable giving is subsidized by a tax write-off. Sachs is an annoying personality and has often been wrong, but in this case I think he's right--and charitable giving really has very little to do with it.

Michael Turner

Sachs thinks he's right, you think you're right. But if some general depravity and mindless selfishness has in fact broken out, there ought to be measures of it somewhere. Even if charity $1,000 per capita per year is somehow "insignificant"?!, it ought to have dropped more sharply under the present circumstances if in fact Americans had gotten more selfish.

Show me some numbers. If it's as bad as he says it is, as bad as you think it is, it ought to be measurable in some way. Pick your own measure and check it.


Michael Turner...

I remember hearing nearly 20 years ago that there about one million non-profit organizations operating in the US. I'm sure there are more now. Now these were not churches I was hearing, but NPO's based on tax status. The reason I say this is because there has been a long tradition in the US of volunteerism based from the churches. Much of this has changed because the social sector has changed. The NPO is only a legal term based on taxing status, but operate much like a for profit will. The for profit hospital functions with the same goals as the not for profit hospital: a cured patient. But the for profit hospital will have a much more difficult time partnering with the government. It's not like a city hiring a private street sweeper to clean the streets once a week. A hospital is a complex organization, and a for profit hospital may not be as flexible in partnering with the government like a NPO can.

How the NPO's partner with government, as they compete with government, is still playing itself out. The desired result will be a greater level of citizenship in society, instead of citizens voting every two to fours years, and paying their taxes in the hopes the government will be the sole provider of welfare.

btg :

Michael Turner...

"I have to remind myself that this is the same incisive intellect who counseled "shock treatment" for reviving the economy of the former Soviet Union"

Recognising the disease, and knowing what to prescribe to cure that disease, are often talents that do not go together. Years ago I remember reading Milton Fried (Capitaliism and Fredom, I think) and felt that his critique of communism was spot on, while his other views I found wanting.

Funny thing though is that if Gorbachev had read the book he might have understood why communism could not be reformed by making it more open and democratic, unlike the Chinese who found a different cure.

Patricia Shannon

Michael Turner...

I think art museums are a favorite "charity" for the power elite because it props up their art investments.


I tend to agree with Jeffrey Sachs, and I've been wondering for several years about this idea that American charitable giving is so high. If Americans are so charitable then why do they freak out so much at the idea of their tax dollars going to pay for something like universal health care?

Who are the givers? Are they the same people as the freaker-outers or are they two separate groups?

What are they giving to? Are they contributing to their alma mater, arts institutions, their church? Are they donating their unwanted crap to Goodwill? Are they tax write-offs? These things don't really count as helping the poor. It reminds me of my sister-in-law who was so proud of the missionary work her church did in Africa, then I realized they were putting all that money and effort into converting people - that doesn't really count as helping the poor in my book.

So I'm highly suspicious of these statistics about charitable giving by Americans.

Michael Turner:

Well, then give me your *own* measures of the phenomenon Sachs claims.

You think it's in Americans "freaking out" over universal health care? They elected a president who promised to pass something like that; a lot of the people who don't like what got passed dislike it because it doesn't go far enough; and when you poll on the specifics on the legislation (rather than on "Obama's health care plan", which the GOP poisoned people's minds against) approval for it exceeds opposition in most polls. The main thing people don't like is seeing anyone being forced to pay penalties for not buying health insurance. But when presented with the program elements in aggregate, more go along with it than otherwise.

And as you can see here

even though more of those polled say the health care legislation will somehow make them worse off (I don't where they get this idea -- maybe from Republicans?), support for it is stronger than opposition to it.

And the trend seems to be toward greater support -- contrary to what Sachs would have you think about Americans getting meaner and more selfish.

Michael Turner...

"Well, then give me your *own* measures of the phenomenon Sachs claims"

Increasing inequality and increasing money spent on lobbyists--both of which have been going up a lot over the past several years. Again, I don't think "charitable giving" is a good measure of altruism, since much of what is counted as charity looks like selfishness to me. A country like Canada is less selfish and unequal than the US not because of its private charities, but because it has built robust public institutions that use WAY more than 2% of GDP.

Fred C. Dobbs

'Charitable giving' presumably includes
religious donations, tithing, etc. (Why
wouldn't it?) Secular progressives don't
do this. IF they're donating, it's to
UNICEF & other NGOs of 'dubious repute'.

Religious donations are unlikely to decline
in proportion to a sinking economy, I'd bet.

Fred C. Dobbs...

UNICEF is hardly of more dubious repute than many of our religious institutions--but I suppose it depends whom you ask. Most of the churches in my neighborhood are using their money to support their own operations, keep their buildings heated, etc.--so I regard most religious donations as equivalent to membership dues at a country club. I see most of my local churches as positive goods, but they are good for their own members--I do not think we should see them as charitable institutions. Are my bookstore purchases, or the money my wife pays her therapist, to be counted as charity?

Lafayette :


{Jeff Sachs is unhappy with "almost everybody"}

From what I've seen of this person, he is an academic gadfly. But, I could not agree more as regards his contentions in this commentary.

I am no one to take the moral high-ground but as punditry goes I sense that we do not talk about an Amoral America. I'm not sure, though I use it myself, about the word immoral. That is, yes, corporate cupidity on Wall Street (Investment Banking leading to the Great Recession) and Main Street (its originator part in the SubPrime Mess) was, I submit, immoral. These examples are two clear lapses of moral-integrity, trespassing clearly the boundary of professional negligence, that come to the fore regularly in Finance. (The list is long, see here: )

But I am even more concerned about the prevalent amorality of the both the authorities (who let it pass without the due diligence of market oversight) or the generalized sense of "I've got mine and Eff-you!" Which means that Ponzi Schemes (bubbles) are just fine as long as you are in the group that gets in at the bottom and out at the top before it bursts. You've become a "really smart fella".

This lack of concern for what is right or wrong was once inculcated as a value by parents. What has become of that family tradition? And if family instruction has been lax, should not education be filling the hole in the dike?

Where are the ethics courses in Business Schools? All over the place? Then why is that academic instruction failing? No, I fear something more endemic is happening within the population.

It's called apathy. Americans can get upset, they can bitch in a blog or over talk-show radio ... but they do not know how to influence the political process nor do they seem to care to do so. They think that voting alone perhaps is sufficient civic duty? Think again, it's just the beginning and not the end of the process.

Politics has devolved to a Spectator Sport in America, where the winner is elected without scoring points. And like most sports, there is a great deal of money involved. (The last PotUS election was supposed to have cost us half a billion dollars. Think of how much Health Care that could have bought or how many post-secondary diplomas ... )

Sachs is dead right about the money-in-politics problem. But, the problem is probably a bit larger. Nothing will change in LaLaLand on the Potomac for as long as these three innovations are not in place:
* Government funded elections for individual candidates with private funds going ONLY to get out the vote.
* A restriction on the tenure of Congressional terms of office, just like for the presidency.
* Grass-roots animation of the political process whereby both electors and the elected can debate matters of both local and national interest in moderated forums. (Key word, moderated, because it gets difficult to separate the forum chaff from the wheat, there's so much of the former.)


If the matter of money-in-politics is discussed at the grassroots level, then it will surely snowball, in time, to become (yet again) a national issue. Then, perhaps, we can find the kind of politicians who are willing to support significant change in the electoral funding process.

Airy-fairy idea? No, I don't think so. Political debate is doing just fine from where I watch it -- in France and on TV. Just take the politicians and media talking-heads out of the picture and put some knowledgeable academics (and researchers) and professional opinion analysts with the facts into a closed panel for debate -- along with a good moderator.

There is absolutely no room in the debate for personal defamation and slander, which is the hallmark of far too many American elections. Imagine the election funding-money saved if a bi-partisan panel were able to forbid smear campaigns from public television.

"The facts, Ma'am, just the facts". (Joe Friday on the original Dragnet TV series).

Michael Turner

"The facts, Ma'am, just the facts". (Joe Friday on the original Dragnet TV series).

Speaking of which: could you quantify the evidence for your opinion? Wall Street excess, campaign finance -- what if objective measures show that Americans in general haven't been particularly morally degraded by these? Except for switching off, or getting cynical about the system?


Michael Turner...


{Speaking of which: could you quantify the evidence for your opinion? Wall Street excess, campaign finance }

"Wall Street excess" -- ever heard of the Great Recession? Good, it was produced be Wall Street cupidity.

"Campaign Finance" - Goodness, this has been a known factor in Congressional corruption for some time. On this planet, at least ...

"what if objective measures show that Americans in general haven't been particularly morally degraded by these?"

Yes, this is a personal opinion based upon observation. But, in my case, it's made of Americans by an American who lives (and has been "corrupted" by Europe). Money simply does not have the same social significance in Europe as it does in the US. Work is not as important a social factor either.

There is more emphasis on Secular Relational Values (which are more social) in Europe.

Rather than getting into a detailed explanation here, I suggest you look at this interesting piece that explains the different values displayed in societies -- from WikiP here: and particularly on this graphic which demonstrates the large difference in values between the US and its European cultural forebears here:

The above is the focus of considerable research because it can be very revealing of what makes different (and differing) societies tick.

I will make one further supposition -- the higher the importance of relational values the higher the quotient of moral integrity of a people.



"Politics is far more pornographic than any art." Peter Lenk


The negativism is out of hand. Is the economy great? Hardly. But honestly, what would you expect? There was a huge bubble following on an earlier bubble and both have burst. There were 3 miserable quarters in late 2008/early 2009 and since then the economy has been growing. Not a boom, by any means, but decent growth. Frankly if you were paying attention to how big the bubbles were (historic), the surprise would be how well we are doing so soon after, not how poorly.

Yes, unemployment is way too high. But before we call the end of the world we have to look at how many are new college grads back home living with Mom and Dad. Optimal? Perhaps not, but they aren't starving. In many countries, including developed ones like Italy, unmarried people in their 20s commonly live with their parents. Many others of the unemployed are members of a 2-income household. In many cases they are able to get by, with a reduced standard of living certainly, but can manage on a single income. Certainly there are the true hardship cases of the unemployed who are the sole support of a family and have nothing to fall back on. So far, most of them have been able to get the assistance they need. I volunteer with groups that work to feed those in need and it's a struggle, but so far, most people are managing (barely). For those who remember the 1980s and the hordes of homeless on the streets of New York and other cities, there are fewer today than back then. Yes, one is too many, but there were more people on the streets in the 1980s.

As for the "lack of charity", in the area I live in, there has been a community Thanksgiving every year for about 30 years now. Thousands of people line up for hours starting at 6 AM Thanksgiving morning. Are they the poor looking for a free meal? Nope, they are the volunteers (including me and my family) waiting for hours in line to pick up meals to deliver to those in need. Not to mention the thousands more involved in preparing and packaging those meals starting well before the holiday.

So let's suppose, as may well be the case, that job growth continues to be sluggish for the next several years. Can the US survive as a society? Well, France has had unemployment over 8% continuously since the early 1980s. I lived there for a few years in the mid-90s and can attest it was and is a topic of constant conversation. Yet France is still there last I checked. Yes, there is a better social service network, but I defy anyone to visit the banlieux surrounding Paris, Lyon or Marseilles and tell me they don't remind one of the projects in a US city. Or watch the 2008 film "Entre les murs" (called "The Class" in the US) about a middle-school in a bad neighborhood of Paris and tell me it doesn't look like an inner-city school in the US.

It's a weak economy-not a war, tsunami or earthquake with hundred of thousands dead. We will survive people. Really.


I blame the income shift. Concentration of wealth among fewer and fewer people is a very bad development.

Demand is suppressed. By definition upward mobility is lessened. Wealth concentration warps the political processes, which in turn warps the economic processes.

Unfairness by any definition increases. Spending to combat the consequences of this unfairness increases.

The public's perception of their irrelevance to public policies increases the anger and divisiveness of governance. Witness the Tea Party. They're just mad. That they are overtly manipulated by their masters isn't acknowledged, but these masters should be very careful about what they create.

Carl Sandburg once wrote 'under a shovel of stars, the people move.' Where that public moves to is unpredictable and in human history, often violently self-destructive.

We live in interesting times.




{Can the US survive as a society? Well, France has had unemployment over 8% continuously since the early 1980s. I lived there for a few years in the mid-90s and can attest it was and is a topic of constant conversation. Yet France is still there last I checked. }

Yes, the US will survive. But the question I pose you is this: Since you think that "charity" is such a great fall back, why have a support mechanism that is so dependent upon benevolence, fickle as it may be, when a citizen should expect that the state have the social programs in place to support them in times of need.

Must the poor have to suffer from the FEMA-consequence, meaning that when push comes to shove the state will not be there for us?

And why not, whilst we are at it, fix that mechanism that make philanthropy so popular in the US -- which is the great income unfairness that allows the exaggerated accumulation of riches at the top. So much so that they don't know what in hell to do with it -- such that Gates & Buffet make giving away half their fortune an outstanding moral virtue.

I say tax the piss outta them and put the money to work moving the poor out of poverty permanently.



If you're arguing that certain goods (education, health care) should be, in effect, public utilities into which all pay and all receive services, that's fine. But that doesn't negate a role for voluntary philanthropy. In countries where health care is fully public, there are still philanthropies funding research, patient advocacy, extra services not covered under the public health service, etc. There is a British Cancer Society, a Canadian Diabetes Association, French AIDS groups, all of which are similar in size and scope to the comparable US groups, proportionate to population. It isn't either/or. And some NGOs (by no means all, but quite a few) do better, more innovative work than government organizations. This is certainly the case in the developing world.

As far as FEMA, the problem at least during Katrina was not largely lack of funding, but a catastrophic incompetence at the federal, state and local levels. Combined with the fact that below sea level land should never have been built in a hurricane zone. Yes, I've been to Holland, and they have done it, but with 15 million people in a tiny area, they had no choice. The US has plenty of land above sea level.

Now when you say, tax the shit out of them, I assume you mean some group of the very wealthy. The problem is that if you confiscated 100% of the income and assets of the top 1% it wouldn't be enough to provide health care and other necessary services for everyone. So, everyone, rich and middle class, is going to have to kick in. Instead of tax cuts for all, we should be talking tax increases for all.

I'm willing to pay my share to fund necessary services for everyone, provided they are competently run. I hope you are too, and aren't expecting Buffett and Gates to fund the entire tab, because as rich as they are, they can't. So, I'll get out my checkbook (as have they). Et tu, Lafeyette?



"Yes, unemployment is way too high. But before we call the end of the world we have to look at how many are new college grads back home living with Mom and Dad. Optimal? Perhaps not, but they aren't starving."

Things may be tougher than usual for recent college grads, but we have a two tier (or multi-tier) economy. The recession officially ended last year, and that is pretty much true for college grads. Unemployment is concentrated among the less educated, who are paying the price for the imprudence of their supposed betters.



I am a teacher, and I can tell you that the class in entre les murs looks pretty good to me. It looks nothing like an inner city school. The students are engaged--their worst sin, for most of the movie, is talking back to the teacher. In bad schools, the kids pay zero attention to the teacher, and are more focused on fighting amongst themselves. Of course, that fairy tale of a movie was probably depicting french schools inaccurately, too...

As for the homeless, they are coming back!



Most people are stupid, and we elites must lead them to a globalized promised land.


Interesting, the moral crisis of America evidently has nothing at all to do with America being continually at war and with President Obama deepening and Broadening American wars even when they are merely Presidential whims. Wars are as nothing beyond the occasional cheering. So too the astounding waste of resources on militarism is as nothing, so little does this matter that even an understanding of how vast military spending is has to be continually masked by President Obama who promised just the reverse in criticizing President Bush.

There is evidently no moral consequence of needless American warring. I quite understand.

Michael Turner


You'd never know from anne's version of events that Obama campaigned on increasing the troop commitment in Afghanistan, reducing the commitment in Iraq, and getting out of both wars as soon as possible.

You'd never know from anne's version of events that the defense budget approved by Congress for 2010 is well *above* what Obama's administration itself proposed, or that he strongly opposed pressure from the military to commit even more troops to Afghanistan.

You'd never know from anne's version of events that the administration has repeatedly committed itself to a pullout starting summer of 2011, and to reducing the defense budget in years following.

Because, you see, Obama=Bush, simply for inheriting his wars and not shirking the responsibilities that come with them.

This has been yet another one of those tedious editions of complex-but-reality-based answers to simplistic whining.

Noni Mausa :

The loss of American morality wasn't accidental, though it probably wasn't exactly planned either.

Instead, each thread of morality came under attack by those whose interests were constrained by that thread. Each separate attack weakened a thread, and also made it easier to weaken others.

And not just morality. Learning, common sense, understanding, judgment, even the concept of proof itself have been heavily attacked since the 70s. After all, how can you persuade people to purchase or invest when the product being offered is worthless or impossible at its core? Only by fraud and misrepresentation, and it is hard to defraud lots of people on a systemic basis if they are shrewd and prudent.

Opponents of terrorism say, truthfully, that "you cannot wage war on a technique." But they are also wrong. You can wage war on many techniques through education, common knowledge, and systemic recognition of these techniques as hazardous.

Fraud is actually a simple process. It consists of offering something large and distant (in time, space or likelihood) for something apparently smaller, but near and real. The small real thing is lost, the large distant thing proves illusory. If the fraudster can avoid retribution by convincing the loser that his loss is his own fault, or the luck of the game, or the fault of the other losers, so much the better. If he can go back to the original game and work it over and over -- it's fraudster heaven.

The attack on logic over the past generation may not have been designed to create fraudster heaven, but it has certainly done so. Only a dispassionate recognition of the game and refusal to play can bring us back from their heaven to our earth.



Noni Mausa...

"The loss of American morality wasn't accidental"

Loss? Are you saying that America today is less moral than it was when humans owned other humans as chattle? Than it was when Jim Crow laws held or when the Trail of Tears displaced the Cherokee? Or for that matter when one native tribe masacred another and stole their land, as happened long before Columbus? Or when people of one sex were little more than property? Oh how I long for those wonderful morally righteous days of the past! Not to mention the higher moral standards of other countries-China, where 1000s of coal miners die every year, India where millions are denied full standing based on their ancestry, even France which is throwing out the Roma.

Humans, Americans and otherwise were, are and will be selfish and venal. They will also be generous and kind. We are a contradictory and infuriating species. Anyone who believes the time and place they live in has a monopoly on any of those virtues and vices needs to get a wider perspective.


Noni Mausa...


{Opponents of terrorism say, truthfully, that "you cannot wage war on a technique." But they are also wrong. You can wage war on many techniques through education, common knowledge, and systemic recognition of these techniques as hazardous.}

Well put.

If the family can no longer be counted upon to teach children the basics of common sense or moral values, because the parents are themselves children who have never learned the elements of these attributes, then it behooves the educational system to assume the responsibility.

Otherwise, heaven help us -- we are already on the slippery slope to perdition.


Noni Mausa...

Interesting how you put this. Americans have not only been innovators in producing the consumer mentality, but they also lead the world in consumption. So it may easy for a man like Said Qtub to contrast his meaning of morality to the consumer level of morality of America. What Qtub correctly envisioned was America expanding its consumersim to the rest of the world, whether the citizens of those nations wanted to have it or not. Qtub felt obligated enough to stop the spread of American companies marketing their products in the Arab world, and eventually saw the worldwide spread of American consmerism as an act of war against Egypt and those nations who believe law should be used to enforce faith and morality.

anne :

"America's political and economic crisis is set to worsen following the upcoming November elections. President Barack Obama will lose any hope for passing progressive legislation aimed at helping the poor or the environment...."

-- Jeffrey Sachs

This may or may not be, the coming vote may have all sorts of fierce consequences, but I am tired of being threatened about what the consequences of a vote may mean when we have had a Democratic President and massive Democratic majority in Congress these 2 years and Democratic majority in Congress the 2 years before and that should have been time enough to prevent the coming end of the world should there happen to be just a few less Democrats in Congress after this election.

I have been less than impressed with the supposed progressive policies of the President and Congress these 2 years in particular, and have little sense why I should expect to be more impressed even if there is no change in the Congressional majorities and there may be the real problem. What the heck are all these progressive policies I keep hearing about?

Michael Turner


It's not a matter of mere Congressional majorities, anne. Haven't you figured that out yet? If you don't have 60 votes, you've got cold molasses. And the Dems include Blue Dogs -- some of whom are more conservative that some liberal Republicans. "Massive Democratic majority"? You need to learn how to count on something other than your fingers.

anne :

"You'd never know from ------ version of events that Obama campaigned on increasing the troop commitment in Afghanistan, reducing the commitment in Iraq, and getting out of both wars as soon as possible....

"This has been yet another one of those tedious editions of complex-but-reality-based answers to simplistic whining."

Simply notice the vicious sexist intimidation and understand.

Michael Turner


Oh, now I'm a sexist. It doesn't matter that, when anne said something about how Japan's unemployment rate was lower, I pointed out that the way Japan counts the unemployed, many women don't count, even if they've been looking long and hard for a job.

Simply notice the evasion, the dodging into stereotyping any opponent as having some *other* negative quality you associate with your usual ideological opponents, regardless of whether any facts support it or not.

Not the first time. For example, more than once, when I pointed out the political difficulties with getting adequate stimulus, anne insinuated that I must be in favor of doing nothing. It didn't matter that I'd promoted it avidly before, or still support it now.

Lying, ignoring facts, and hoping that repeating lies often enough will make them true: it's not just for BushCo anymore.

anne :

So that we understand, President Obama has vastly deepened and broadened the war in Afghanistan and brought war to Pakistan. President Obama has been continually bombing Pakistan even though we are not at war with Pakistan and even though Pakistan has been suffering through impossible flooding, especially flooding that has devastated the poorer regions of Pakistan. President Obama is keeping 50,000 American soldiers in Iraq and tens of thousands of military contractors.

President Obama has vastly increased military spending. President Obama has taken basic military spending from $737.3 billion yearly with President Bush in 2008 to $813.0 billion yearly as of April through June 2010.

Michael Turner


You wouldn't know from reading only the above that I've told anne repeatedly, here, that the Obama administration proposed spending less than $737.2B for 2010. She just can't get it through her head: there's also this constitutionally mandated institution called Congress, over which Obama does not have dictatorial control.

You also wouldn't know from what anne posts here that essentially all military action in Pakistan by NATO forces is conducted in cooperation with Pakistani military forces.

You also wouldn't know from what anne posts here that enormous amounts of aid to Pakistani flood victims is being provided by the U.S., and with extensive (if not exclusive) U.S. military support for long-distance delivery of it.

Nor would you know from what anne posts here that the death rate for U.S. soldiers in Iraq is now about 50% accidents or fatal illness, not combat-rerlated, and has been rather low for about a year now in any case (since, if nothing else, they get good, prompt medical attention over there, if there's an accident or illness on base.)

In other words, if you took a time machine trip from 1970 to the present day, and all you read was anne's version, you'd think something as bad as the Vietnam War was happening -- which was a war in which over 50,000 U.S. troops died (out of a U.S. population about 25% smaller at the time), and hundreds of thousands of Indochinese civilians killed, many of them in sorties where the total bomb tonnage from a single B-52 exceeded all of the explosive power delivered by some dozens of drone attacks against Taleban targets.

She thinks if she just keeps lying and distorting long enough, you'll believe her. anne, that propaganda tactic really only works if you already have a lot of power -- like, say, if you're George W. Bush or Donald Rumsfeld. And why would you want to be like either of them anyway?

Blankfiend :

Let the peasants eat credit!

anne :

"You need to learn how to count on something other than your fingers."

"This has been yet another one of those tedious editions of complex-but-reality-based answers to simplistic whining."

Simply notice the vicious sexist intimidation and understand. Tra la, tra la, tra la.

Euton :

Where have the Jeffrey Sachs' of the world been the last 30 years as America's "free-trade", "small government", corporatist elites drained small-town American of every single dollar and drop of blood to be found. It seems as if no stone was left unturned as the gems of our local communities were pillaged. Small-town manufacturers, grocers, bankers, eateries, retail, gas stations… all gone. There is nothing left of the America that existed 30 years ago. What we have as replacement are the chain fast-food outlets, big-box corporate retailers and predatory elite-run governments, all feeding on the carcass of what is left. I drive through suburbia now and can't even recognize one mile from the next. They all look identical, every shop, every store, every eatery.

Thirty years of sending our local money to Wall Street in the form of 401k plans and pension plans have disemboweled small communities. Thirty years of borrowing money that should have been taxed have gutted local governments. Our beautiful old towns sit dead while newly built strip malls now sit empty. American capitalism at its finest. Capital finding its best use. Somehow always ending up in the hands of fewer and fewer. Corporate America knows best. Yeah, right… they know best how to steal us blind.

I've watched this unfold my entire adult life. It seemed clear to me for decades where all this was headed (and I'm not the sharpest tool in the shed). But I suppose the money was good while it was there for the taking. Now there seems little left, and here comes Sachs complaining about an outcome that was preordained years ago by the actions of those who should have known better. I doubt Jeffrey Sachs will be going hungry any time soon. I doubt he'll face an illness with no hope of decent medical help or a broken tooth with no dentist. He won't be eating "poke-salat" tonight. He want subsist on hand-outs from the local Chevron; out of date corn-dogs offered for a steep discount before being thrown out in the trash. And finally, Jeffrey Sachs, for all the money I'm sure he's made, will never know the real meaning of the word self-reliance.

And yes Anne, rampant militarism and the "all-volunteer" army has become the jobs program for our new world order. We don't need FDR-style infrastructure jobs when we have an endless supply of poor people to oppress and rob other poor people around the globe. How lucky we are to have all those American poor to fill those silly-looking uniforms, hold those high-priced rifles and drive all that ridiculously expensive machinery of war. "All-volunteer"… what must the money managers at Vanguard think of it all?

I've become convinced that American will not change until the wealthy suffer at the hands of those who daily go without. I would hope this is not the case, but with each passing day I see the rich becoming more entrenched and more obstinate. The latest scuffle over taxes is just the latest, sickening example.

Americans need affordable education, universal health care, and a strong old-age pension. These three things would free even the poorest among us to explore all the opportunities that life has to offer, they would break the death grip of corporatism that now strangles us.

Why do we have none of these things Mr. Sachs?



Great analysis.

Galbraith the Elder wrote about a 'balance of powers' in the economy, between industry, govt, and labor.

We have gutted labor, and I think this is the result.

Also, we are a culture of abandonment, that is the flip side of our dynamism. Two words: the Rustbelt. It is staggering - and also, finally, self destructive - how we have abetted the decay and abandonment of huge swathes of our country, especially cities.

Finally, 'free market' ideology has a pernicious side effect, of devaluing judgment, wisdom, the skillful handling of complexity, at every level of society. It is simple when 'the market' blesses every greedy, even predatory, act as optimal.

anne :

January 30, 2010

National Defense Consumption Expenditures and Gross Investment, 2000-2010

(Quarterly at annual rates, Billions of dollars) *

Qtr1 Qtr2 Qtr3 Qtr4

2000 ( 360.6) ( 376.9) ( 372.7) ( 374.0)
2001 ( 383.7) ( 389.7) ( 395.6) ( 402.8) Bush
2002 ( 420.3) ( 431.9) ( 440.4) ( 458.2)
2003 ( 466.4) ( 507.2) ( 503.1) ( 515.1)
2004 ( 535.9) ( 545.6) ( 565.4) ( 556.2)

2005 ( 578.5) ( 586.1) ( 606.1) ( 585.5)
2006 ( 615.5) ( 624.1) ( 623.3) ( 636.6)
2007 ( 636.7) ( 657.0) ( 674.7) ( 679.9)
2008 ( 702.1) ( 724.9) ( 762.1) ( 760.2)
2009 ( 743.9) ( 769.9) ( 787.3) ( 785.4) Obama

2010 ( 796.3) ( 813.0)

* Seasonally adjusted

anne :

January 30, 2010

National Defense Consumption Expenditures and Gross Investment, 2000-2009

(Billions of dollars)

2000 ( 371.0)
2001 ( 393.0) Bush
2002 ( 437.7)
2003 ( 497.9)
2004 ( 550.8)

2005 ( 589.0)
2006 ( 624.9)
2007 ( 662.3)
2008 ( 737.3)
2009 ( 771.6) Obama

Patricia Shannon :

Several years ago, I read an article by a lady in public relations. She wrote of being in meetings where they discussed that they deliberately sponsored shows to encourage children to disrespect their parents, because then the children would keep bugging their parents until they bought the children what they wanted. (She did not approve, which was why she reported on it).

anne :

President Obama has massively increased military spending, from the $737.3 billion spent by President Bush in 2008 to the $813.0 billion being spend as of April through June 2010. Where with President Bush there were 30,000 American soldiers in Afghanistan in 2008, President Obama has about 100,000 American soldiers in Afghanistan.

As President Nixon during the war in Vietnam waged a secret bombing war against Cambodia and Laos with whom we were not at war, President Obama has been continually bombing Pakistan with whom we are not at war. President Obama has been bombing regions in Pakistan that are among the poorest and bombing them as Pakistan has been suffering the effects of devastating flooding.

Fred C. Dobbs


We should understand that under Bush Jr, the Iraq+Afghanistan War expenses were off-budget & hidden. Now those expenses appear in the budget.

Outsider :

"The best argument against democracy is a five minute argument with the average voter." Winston Churchill

Fred C. Dobbs


'It has been said that democracy is the worst form of government except all the others that have been tried.' - Winston Churchill

'Democracy is not "the worst form of government except for all those others that have been tried." Democracy is the worst form of government ever tried, period. Democracy ranks among the gravest threats to individual rights and individual liberty in human history.' - Lew Rockwell

djt :

Private schools, for example, arrange various types of events and auctions to enable people to pay part of thier child's tuition in a tax deductable payment, unlike straight tuition. It's a ruse that parents sending their kids to private school are well aware of and go along with. Does it count toward the $306 billion charitable giving? Yes, but it should not. It's giving to oneself.

Fred C. Dobbs

I've been involved with a few private schools over the years & never experienced this. Do tell?

PeonInChief :

Middle class people spend quite a lot of time rattling on about this kind of thing--without taking responsibility for bringing it about. I mean, how can one complain about income inequality when, for the last 30 years, our betters have advocated depressing wages for the poorest 2/3 of the population? What did they expect to happen? And yeah, a lot of people are "consumerist," paying rent, buying food, keeping the car going, etc., on incomes that require a certain portion of the necessities go on the credit card.



I also hear people complaining about jobs going overseas. Well, it wasn't billionaires loading up on Chinese-made goods at Walmart.

OldButStillThinking :

I see so many people railing against the rich on these forums. Most of the wealth generated in the past 10 years has ended up in the hands of the rich. Why? Look here:
Who is borrowing all of that money? It isn't the rich. Who makes money when people borrow money? It is the rich. It is unavoidable that people who borrow money for non-capital expenditures ultimately lose wealth and those lending gain wealth. What part of that is "evil" or unexpected?

yuan :

"Well, it wasn't billionaires loading up on Chinese-made goods at Walmart."

Another petite bourgeoisie poster criticizes the katrina underclass for depending on a union-busting monopolistic mega-corporation that ruthlessly destroyed all regional competition. The katrina poor have no choice but to consume subsidized manufactured crap from walmart because their income growth has decreased in real terms for a generation. The katrina poor cannot even afford the trip to some twee metro area to shop at whole foods and american apparel.


It wasn't the "katrina poor" who killed US manufacturing. The really poor spend their money on rent (housing is still made in the US) and food (still mostly domestic). It was the middle class who wanted 8 pairs of cheap imported shoes and 3 cheap imported TVs rather than 2 pairs of US-made shoes and 1 US-made TV.

Just keep blaming other; your mirror is fogged my friend...

yuan :

"What part of that is "evil" or unexpected?"

The need to borrow because the rich siphon away wealth/capital via unproductive speculation, political cronyism, endemic corporate fraud, and parasitic global wage arbitrage.

There will be a reckoning!

Min :

I do think that the US faces a moral crisis. And there are the usual suspects: lawyers, politicians, and economists. Still, I am optimistic. Human beings are moral, no matter how irrational that may seem to some.

Thanks to TV, I have been able to observe the striking changes in the moral climate of the US in the last 50 years, through viewing reruns of "Have Gun Will Travel". Despite being about a professional gunslinger, each episode is a morality play. Paladin is, as the song says, a "knight without armor". The American ethos was forged on the frontier. Self reliance is the core American value. But self reliance does not reduce to individualism. The challenges of the frontier require communities to work together. That may seem paradoxical, but all morality is paradoxical. You cannot reduce it to slogans.

There was a time when Americans believed in enlightened self interest. Today the enlightened part seems to have been lost. I think that in many ways Canadian society is closer to American society of the 50s and 60s than we are today. As Red Green says (on the Canadian "Red Green Show"), "Remember, we are all in this together." Canadians have not forgotten that.

Facing the most severe economic crisis of the lifetimes of most of us, I am afraid that we, and our policy makers, have lost sight of the fact that we are all in this together, and that remains a large part of our problem.

As Sachs points out, racism remains a problem for us. And it is part of what keeps us from pulling together. Having grown up in a racist society, I know that the deepest, most pervasive, and most subtle aspects of racism have to do not with conscious attitudes or treatment of individuals, but with those things that we accept without thinking, that have to do with groups. Few of us, for instance, believe that minorities are naturally stupid or lazy or morally deficient. Yet faced with facts that, to accept at just or right, we must make such assumptions, we accept them anyway, without reflection.

One of our myths is that America is the Land of Opportunity. That is no longer the case; social mobility has declined in recent decades, and is now lower than in Europe, which has always seemed less egalitarian tu us than America. A corollary to that myth is the belief that the poor deserve their fate. That belief is bolstered by free market mythology, which says that the market allocates goods and services in the optimal way. If the market does not reward you, it is your own damn fault. Sorry. Current rhetoric about structural unemployment is a reflection of these background beliefs. These beliefs are rarely invoked in argument or rhetoric, but they provide tacit support. They justify doing little or nothing about unemployment, because 1) it is unlikely to do any good (the stated argument) and 2) the unskilled, uneducated, slackers deserve what they get (the unstated background beliefs). Absent from the background is the belief that we are all in this together, that putting people back to work (whether they deserve it or not) would help us all.

Another major moral challenge, I think, is what ecologist Garrett Hardin warned about: PPCC, privatization of profits, commonization of costs. (These days we talk about socialization of risks and costs.) That may be taken as a definition of a kind of moral hazard, but it also describes business as usual for much of American society. (It also describes insurance, which is not such a bad idea. One of those moral paradoxes. :)) A hard nut to crack. We need to keep talking about it.

Another moral problem, I think, is the decline of prudence. This is related to the loss of the idea of enlightened self interest. It is also related to PPCC. Why be prudent if you can pass the cost or risk on to others?

It also seems to me that the level of fear in our society has grown. I think that this is no accident, it has been flamed by those who would profit from it. Fear mongering is nothing new, but the threat of nuclear annihilation when missiles are aimed at you from 10 minutes away gives a certain perspective. Take the so-called War on Terror. The aim of terrorism is to terrorize, to invoke fear. That fear, then, will lead the authorities to over-react, oppressing the people, who will then support the terrorists against the authorities. After the 9/11 attacks I thought that they would backfire on the terrorists, that people would sympathize with the US against the terrorists. We might lose some of our liberties, but that would not make us support the terrorists. I had not reckoned with the Bush II administration's ability to lose friends and alienate people.

It is not just terrorists. We fear the bond market, we fear ourselves, we fear our government. One reason that we are still mired in our economic mess is a failure of will. We heed the counsel of fear, allowing the fear mongers of the deficit and debt to paralyze us, so that we do not do what needs to be done.

anne :


Again, I don't think "charitable giving" is a good measure of altruism, since much of what is counted as charity looks like selfishness to me. A country like Canada is less selfish and unequal than the US not because of its private charities, but because it has built robust public institutions that use WAY more than 2% of GDP.


[Sep 27, 2010] Book Review - Aftershock - By Robert B. Reich - by SEBASTIAN MALLABY

American were not overconsuming, they were underconsuming as most of the money were diverted to super rich...

...A Berkeley professor, public radio commentator and Clinton-era labor secretary, he is fluent, fearless, even amusing. He cheerfully denounces members of his own party: Senator Chris Dodd for his cozy links to the financial industry, Tom Daschle for monetizing his connections after leaving the Senate and failing to pay taxes, Dick Gephardt for denouncing lobbyists and then becoming one. Recalling the 1950s, when white male workers had it good, Reich wryly acknowledges that others fared less well. In 1957, United Airlines advertised its "executive" service between New York and Chicago, promising comfortable slippers, a steak dinner and "no women on board except for two stewardesses."

Setting aside his confused stance on middle-class demand, Reich makes several cogent arguments. Drawing on well-known findings from psychology and economics, he notes that people find it hard not to increase consumption when others around them are spending lavishly. In a poor country, a man proves that he loves his wife by presenting her with a rose; in a country where the rich splash money on extravagant bouquets, even ordinary husbands feel obliged to buy six roses. Thanks at least partly to the example set by millionaire nuptials, the cost of the typical American wedding rose to about $28,000 from $11,000 between 1980 and 2007 after adjusting for inflation.

Caught between rising aspirations and stagnant wages, Reich says, middle-class Americans have gone through a series of coping mechanisms. First, women joined the workforce, giving families a second income. Then husbands and wives put in longer shifts, creating a species of family called DINS - "double income, no sex." Finally, families went into debt. In this sense, inequality helped to stoke the credit bubble.

Now that the bubble has burst, these coping mechanisms are exhausted. Americans are not going to push their working hours up even more. Already, according to some estimates, they sleep an average of one or two fewer hours per night than did their parents in the 1960s; in 2007 they spent a whopping $23.9 billion on sleep aids, from white-noise machines to medications. Nor are Americans going to incur more debts; to the contrary, the credit bust has forced them to pay down their balances. And so, as Reich puts it, Americans will "face a necessity they have managed to avoid for decades: They have to make do with less."

The belt-tightening is not likely to be popular, and Reich goes so far as to suggest that it could trigger a political convulsion. People are very likely to resent material losses bitterly if these are not broadly and fairly shared. And in the wake of the financial crisis, fairness has gone by the wayside: millions of Americans have lost jobs, but the financial sector has bounced back; eye-popping bonuses have returned; and last year the top 25 earners at hedge funds bagged a combined $25 billion. At some point in the not-too-distant future, Reich warns, C.E.O.'s may find that limousines are being purposely scratched and mobs are picketing their offices.

Reich concludes with a wish list of reforms that might head off such a confrontation. He wants a more progressive income tax, including negative taxes for anyone earning below $50,000. He wants a top income-tax rate of 55 percent, with the kicker that income from capital gains, now taxed at 15 percent, would face the same rate as income from salaries. He wants wage insurance - temporary compensation for workers who take big pay cuts when they shift jobs - as well as investments that make public transportation and Medicare more available. These proposals are generally reasonable - the top marginal tax rate was 70 percent or more between 1936 and 1980, a period of generally strong growth, and Medicare is more cost-effective than private insurance. But Reich also throws a few curveballs, and fails to discuss the gains in social fairness and economic growth that could be secured by limiting mortgage-interest deductions and other loopholes in the tax code.

But the really interesting question is whether Reich is right about the politics - whether the new Gilded Age will conjure up a new William Jennings Bryan, and whether such a candidate could be elected. Even in the harshest periods of American history, after all, economic resentments have been surprisingly muted and rabble-rousing populists have failed to win power. Toward the end of the Depression, in the late 1930s, a sociologist named Alfred Winslow Jones conducted field research around the violently strike-prone factories of Akron, Ohio, expecting that bitter industrial conflict might have created equally bitter class divisions. To his surprise, he found little evidence of such polarization.

Thus reassured, Jones migrated from sociology to journalism to finance. Ultimately, in a twist that Reich might grimly appreciate, he invented a fantastically profitable investment vehicle. He called it a "hedged fund."

Sebastian Mallaby is a senior fellow at the Council on Foreign Relations. His book "More Money Than God: Hedge Funds and the Making of a New Elite" was published in June.

[Sep 26, 2010] Entitlements, Taxes, Inequality and Three-Way Class Warfare

September 20, 2010 | charles hugh smith

The facts about taxes, entitlements and wealth inequality do not neatly fit any ideological straitjacket. This is blinding many to the seeds of 3-way class warfare in the U.S.

Longtime readers know that I reject all ideologies as misleading shortcuts taken to avoid rigorous independent analysis. This is why I am routinely accused of being "right-wing" and "left-of-center" in the same week, if not the same day.

Those who cling to "conservative" and "progressive" ideologies are bound by their quasi-religious faiths to ignore inconvenient facts about taxes, entitlements and wealth inequality. So let's start with the highly inconvenient facts which do not fit ideological straitjackets.

1. We have become a nation of complicit takers, with roughly half the populace receiving Central State-distributed cash or benefits. An astute reader recently summed it up: we have become a nation of takers. This is difficult to square with the shrill cries about the "social safety net" being shredded: Obstacle to Deficit Cutting: A Nation on Entitlements (

Efforts to tame America's ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history.

At the same time, the fraction of American households not paying federal income taxes has also grown to an estimated 45% in 2010, from 39% five years ago, according to the Tax Policy Center, a nonpartisan research organization.

A little more than half don't earn enough to be taxed; the rest take so many credits and deductions they don't owe anything. Most still get hit with Medicare and Social Security payroll taxes, but 13% of all U.S. households pay neither federal income nor payroll taxes.

As recently as the early 1980s, about 30% of Americans lived in households in which an individual was receiving Social Security, subsidized housing, jobless benefits or other government-provided benefits. By the third quarter of 2008, 44% were, according to the most recent Census Bureau data.

Some 41.3 million people were on food stamps as of June 2010, for instance, up 45% from June 2008. With unemployment high and federal jobless benefits now available for up to 99 weeks, 9.7 million unemployed workers were receiving checks in late August 2010, more than twice as many as the 4.2 million in August 2008.

Payments to individuals--a budget category that includes all federal benefit programs plus retirement benefits for federal workers--will cost $2.4 trillion this year, up 79%, adjusted for inflation, from a decade earlier when the economy was stronger. That represents 64.3% of all federal outlays, the highest percentage in the 70 years the government has been measuring it. The figure was 46.7% in 1990 and 26.2% in 1960.

Politically inconvenient fact 1: The U.S. is a full-blown Welfare State that borrows 40% of its budget to keep the swag flowing. While we can debate whether this is sustainable, good, bad, doesn't go far enough, etc., any government which spends 2/3 of its vast budget cutting checks to individuals is a welfare State.

"Conservatives" rail against "welfare" but their protest is the acme of hypocrisy, for "conservatives" have approved tax breaks for the super-wealthy ("corporate welfare") and also accepted with greedy nonchalance all the so-called "middle-class" welfare swag: Medicare (not self-funded by Medicare taxes), the mortgage interest deduction, Social Security (not self-funded, despite the propaganda), etc., i.e. the "welfare" they qualify for.

As for borrowing trillions to fund this "acceptable" welfare: the "fiscal conservatives" are once again the ultimate hypocrites, as they have approved stupendous deficits for 30 years with no qualms; indeed, their favored lackeys have repeatedly claimed "deficits don't matter." As long as you're collecting the swag, then they certainly don't matter to you; but they do matter to the nation (but who cares about the nation, really? Self-sacrifice is literally outside the current politics of experience.).

The vast Welfare State is also inconvenient for "Progressives/Liberals". They approve of all existing welfare, of course, and issue high, keening calls for more, more, more. What is inconvenient is paying for the Welfare State we already have.

The "progressive" ideology insists that the American Empire and military-industrial industry absorbs "most" of the Central State revenues. Clearly, this is not the case. The Empire (which I constantly rail against) is probably a "good deal" financially, if not morally, as the cost (roughly $700-$800 billion a year) "buys" unequalled soft and hard power, both of which are difficult to value until you don't have them.

The "progressive" faith holds sacrosanct the idea that all Federal welfare could easily be paid if only the wealthy "paid their fair share" (see below).

The real wealth of the nation is held by the 13,480 households which earn $10 million or more annually. Let's say we could nail each of those households with an additional $1 million tax bill. That would raise a meager $13 billion.

The notion that there is no way to fund the ballooning Welfare Corporate-State partnership except by taxing tens of millions of households at much higher rates is highly inconvenient to those who believe "the wealthy" can easily shoulder the $1.5 trillion the State borrows every year just to fund current welfare.

You want Swedish-style cradle-to-grave welfare? Then prepare to pay 60% tax rates--and not just the wealthy--everybody pays. That's the trade-off. Only the Swedes don't have a global Empire to support, so the effective rate in the U.S. would undoubtedly be higher than 60%.

It also appears that the cradle-to-grave welfare systems are not sustainable; those nations are finding that demographics and rising costs are rendering even 60% tax rates insufficient. The net result is a flourishing black market as everyone who can exits the crushing burdens of the "official" economy. That's also inconvenient for "progressives," who often imagine people are delighted to pay high taxes as long as they receive benefits.

It's also inconvenient that we can't blame "the bureaucracy" for the budget deficit. Take away the 65% transferred to individuals, the $700-$800 billion expended on Empire and $250 billion or so on interest paid on external debt (not the bogus inter-governmental debt owed the Social Secutity Trust Fund for its non-negotiable IOUs) and you have precious little bureaucracy to slash in the $3.5 trillion Federal budget ($1.5 trillion of which is borrowed).

2. The political consequences of this explosion of entitlements is political complicity in the status quo. I addressed this is Tyranny of the Majority, Corporate Welfare and Complicity (April 9, 2010).

In effect, voters who are collecting cash and benefits from the Central State and its Global Empire become complicit in the dominance of that State and Empire: they will meekly comply with State edicts and remain silent, lest their share of State swag be threatened.

This is how the State buys off its citizens with bread and circuses.

It's also how the majority--those drawing shares of State bread/swag--come to exercise political tyranny over the much smaller class of those paying taxes to fund the State swag:

According to the Congressional Budget Office (CBO), the top 20% paid 86.3% of all Federal income taxes, 43.6% of Social Security, 87.8% of corporate taxes and 34.1% of Federal excise taxes.

After including earned-income tax credits, the bottom 60% of households paid less than 1% of all Federal income taxes, and the households between 60% and 80% paid 13%.

The top 20% paid 68.7% of all Federal taxes: Income taxes, Social Security and Medicare, excise and corporate taxes. The top 10% of households paid fully 72.7% of all Federal income tax, the top 5% paid 60.7%, and the top 1% paid 38.8%.

No wonder voters love State swag--80% of the citizenry pay little to no income taxes--and the 7.5% Social Security tax deducted from their paychecks is a modest burden compared to those routinely handing over 40+% of their earnings to the Federal and state governments.

3. There are two classes of citizens paying taxes: those with earned income and a much smaller but wealthier class with vast unearned income. The truly pernicious fact revealed by effective tax rates is that those earning significant incomes from their own labor/enterprises pay most of the taxes, while the tiny slice of citizens who own most of the productive assets of the nation pay a much smaller percentage of their income because unearned income gets the big tax breaks.

This is not coincidental. If you control $100 million (to take a round number), a mere $100,000 "invested" in campaign contributions will "earn" you a specially devised tax break worth millions every year--especially if you join up with a few cronies and distribute several million dollars to craven politicos desperate for your millions to help them keep their place at the overflowing trough of State/Empire power and wealth.

In Who Rules America?, Sociologist G. William Dumhoff draws an important distinction between the net worth held by households in "marketable assets" such as homes and vehicles and "financial wealth." Homes and other tangible assets are, in Dumhoff's words, "not as readily converted into cash and are more valuable to their owners for use purposes than they are for resale."

Financial wealth such as stocks, bonds and other securities are liquid and therefore easily converted to cash; these assets are what Dumhoff describes as "non-home wealth" on his website Wealth, Income, and Power.

As of 2007, the bottom 80% of American households held a mere 7% of these financial assets, while the top 1% held 42.7% and the top 20% held fully 93%.

In a classic "divide and conquer" tactic, the State's Power Elites have sold a slew of new taxes to fund the guaranteed-to-implode "healthcare reform" (a.k.a. increased funding of sickcare cartels) on those earning $250,000 or more.

Everyone earning 10%-20% of that sum loudly applauds "sticking it to the rich" (the Tyranny of the Majority in full flower) while failing to note that the truly wealthy--the ones who don't have any earned income because they don't work in salaried jobs, the ones who own roughly half the nation's productive assets--pay nothing but a slice of their unearned income--much of which is protected by various specially crafted tax breaks.

4. The net result of this rising inequality is a high concentration of political power which flows from (and protects) the unearned income streams derived from the highly concentrated wealth. I have covered various aspects of this disparity in wealth, income taxes and political power numerous times. For example:

Housing and the Collapse of Upward Mobility (April 16, 2010)

The Con of the Decade Part I (July 8, 2010)

The Con of the Decade Part II (July 9, 2010)

One Year Later, No Sign of Improvement in America's Income Inequality Problem:

Income inequality has grown massively since 2000. According to Harvard Magazine, 66% of 2001-2007's income growth went to the top 1% of Americans, while the other 99% of the population got a measly 6% increase. How is this possible? One thing to consider is that in 2001, George W. Bush cut $1.3 trillion in taxes, and 32.6% of the cut went to the top 1%. Another factor is Bush's decision to increase the national debt from $5 trillion to $11 trillion. The combination of increased government spending and lower taxes helped the top 1% considerably.

Two Americas: The Gap Between the Top 5% and the Bottom 95% Widens (August 18, 2010)

As total household income declines, the wealthiest Americans take home a larger piece of the national income pie. In 2008, Americans reported $8.4 trillion in total income, down 4.6% from 2007. Adjusted for inflation, that is down 8.4%, the sharpest decline in total income since the brief recession that began in 1990.

David Stockman, director of the Office of Management and Budget under President Reagan, recently noted in an editorial that the top 1% of Americans received two-thirds of the gain in national income from 2002 to 2006.

Economists Emmanuel Saez and Thomas Piketty have reported that the top 10% of earners took home about half of all income as of 2007.

The number of people in the highest reaches of income also fell--tax returns reporting income of $1 million or more fell by 22% to 321,294, and the number of returns that reported income of more than $10 million fell 36% to 13,480.

The Political Class, the super-wealthy with vast unearned income and those drawing entitlements are all satisfied with this arrangement. Cash and cash equivalents paid to individuals by the Central State have ballooned up 80% above inflation, taxes on the super-wealthy are modest, and the difference--the $1.5 trillion annually needed to keep the swag flowing to the concentrated wealth/power holders (the Plutocracy) at the top and the complicit bottom (standard-issue welfare)--is borrowed from the Federal Reserve and global mercantilist sources of excess dollars accumulated from monumental trade imbalances.

Since the political class of "conservatives" and progressives" are equally dependent on and beholden to the holders of concentrated wealth for their political power, then their protests against the deficits, welfare, corporate power, etc. all ring hollow.

Citizens who decry the deficits while defending the programs which benefit them as untouchable are equally complicit.

You see where this is going in terms of class warfare. The political status quo is perfectly happy to keep the deficit-welfare state-Empire going: the super-wealthy contributors (whose wealth flows from lightly taxed unearned income) who enable their grip on power are happy enough with the status quo, as are the bottom 60% collecting State-issued benefits and checks.

The only class which is unhappy with the status quo are the citizens who earn substantial incomes from their labor and/or enterprises. They pay most of the taxes, and are taxed at much higher effective rates than the super-wealthy. As this class shrinks to a minority, the Plutocracy and the lower 60% thus share the same goal: saddle this class with whatever higher taxes become necessary to maintain the Empire and Welfare State status quo.

That sets up a three-way class war. The status quo will be defended by those benefitting from it: the top 1% and the bottom 60%, and the political class. The 20% who pays most of the taxes and receives relatively fewer benefits will be squeezed from both ends of the inequality spectrum.

But this alliance may fray as times get harder. The Plutocracy may find that despite their ownership of the mainstream media, the lower complicit class may begin chafing under the collar. Jaguars and Mercedes luxury vehicles may get "keyed" more often as symbols of Plutocratic over-reach, and politicos who could count on the masses being conveniently M.I.A. (not showing up to vote) may find a rising interest in upending the political feeding trough.

The 20% who earn the most and pay the most taxes have one basic choice against the Tyranny of the Majority and the concentration of wealth and political power: they can opt out. Quit the high-paying corporate gig, sell the business or close it down, cut their hours, move overseas, buy land and move to rural states, etc.

When the high-earners bail out, the status quo will truly be in trouble, because the top 1% has no desire to pay higher taxes, and the bottom 60% have little enough ability to pay more taxes. That's when the entire bloated, top-heavy Empire/Welfare State implodes, and the checks stop coming.

[Sep 22, 2010] The Angry Rich - Readers' Comments By PAUL KRUGMAN

September 19, 2010 |

Anger is sweeping America. True, this white-hot rage is a minority phenomenon, not something that characterizes most of our fellow citizens. But the angry minority is angry indeed, consisting of people who feel that things to which they are entitled are being taken away. And they're out for revenge.

No, I'm not talking about the Tea Partiers. I'm talking about the rich.

These are terrible times for many people in this country. Poverty, especially acute poverty, has soared in the economic slump; millions of people have lost their homes. Young people can't find jobs; laid-off 50-somethings fear that they'll never work again.

Yet if you want to find real political rage - the kind of rage that makes people compare President Obama to Hitler, or accuse him of treason - you won't find it among these suffering Americans. You'll find it instead among the very privileged, people who don't have to worry about losing their jobs, their homes, or their health insurance, but who are outraged, outraged, at the thought of paying modestly higher taxes.

The rage of the rich has been building ever since Mr. Obama took office. At first, however, it was largely confined to Wall Street. Thus when New York magazine published an article titled "The Wail Of the 1%," it was talking about financial wheeler-dealers whose firms had been bailed out with taxpayer funds, but were furious at suggestions that the price of these bailouts should include temporary limits on bonuses. When the billionaire Stephen Schwarzman compared an Obama proposal to the Nazi invasion of Poland, the proposal in question would have closed a tax loophole that specifically benefits fund managers like him.

Now, however, as decision time looms for the fate of the Bush tax cuts - will top tax rates go back to Clinton-era levels? - the rage of the rich has broadened, and also in some ways changed its character.

For one thing, craziness has gone mainstream. It's one thing when a billionaire rants at a dinner event. It's another when Forbes magazine runs a cover story alleging that the president of the United States is deliberately trying to bring America down as part of his Kenyan, "anticolonialist" agenda, that "the U.S. is being ruled according to the dreams of a Luo tribesman of the 1950s." When it comes to defending the interests of the rich, it seems, the normal rules of civilized (and rational) discourse no longer apply.

At the same time, self-pity among the privileged has become acceptable, even fashionable.

Tax-cut advocates used to pretend that they were mainly concerned about helping typical American families. Even tax breaks for the rich were justified in terms of trickle-down economics, the claim that lower taxes at the top would make the economy stronger for everyone.

These days, however, tax-cutters are hardly even trying to make the trickle-down case. Yes, Republicans are pushing the line that raising taxes at the top would hurt small businesses, but their hearts don't really seem in it. Instead, it has become common to hear vehement denials that people making $400,000 or $500,000 a year are rich. I mean, look at the expenses of people in that income class - the property taxes they have to pay on their expensive houses, the cost of sending their kids to elite private schools, and so on. Why, they can barely make ends meet.

And among the undeniably rich, a belligerent sense of entitlement has taken hold: it's their money, and they have the right to keep it. "Taxes are what we pay for civilized society," said Oliver Wendell Holmes - but that was a long time ago.

The spectacle of high-income Americans, the world's luckiest people, wallowing in self-pity and self-righteousness would be funny, except for one thing: they may well get their way. Never mind the $700 billion price tag for extending the high-end tax breaks: virtually all Republicans and some Democrats are rushing to the aid of the oppressed affluent.

You see, the rich are different from you and me: they have more influence. It's partly a matter of campaign contributions, but it's also a matter of social pressure, since politicians spend a lot of time hanging out with the wealthy. So when the rich face the prospect of paying an extra 3 or 4 percent of their income in taxes, politicians feel their pain - feel it much more acutely, it's clear, than they feel the pain of families who are losing their jobs, their houses, and their hopes.

And when the tax fight is over, one way or another, you can be sure that the people currently defending the incomes of the elite will go back to demanding cuts in Social Security and aid to the unemployed. America must make hard choices, they'll say; we all have to be willing to make sacrifices.

But when they say "we," they mean "you." Sacrifice is for the little people.


This is nothing new in American History. We are suckers and Mark Twain describes it in his time:?

And any time you talk with Hal Holbrook, the subject comes back to Mark Twain, that stage (and TV special) role that defined him decades ago and that he still brings to the stage 20-22 times a year. He recited a bit from the act, Twain's warnings about the people who cause recessions and who benefit from them, and those who suffer.

"Great republics do not last…Vast wealth and power corrupt. It incites dangerous ambitions and will bring the republic down. It will run down the Congress and crush the people's voice. This has been a strange panic. It's like a blight, a paralysis, in which a mighty machine has slipped its belt, and is still running and accomplishing nothing. A creepy and awful stillness has given us an atmosphere of apprehension. The phrase 'lay-off' has become common. The laying off of two and three thousand men has hal2become familiar. But there's a far greater and disastrous laying off all over this land – the discharging of one out of three employees in all the humble and small shops and insdustries across America. A blight has fallen upon us. And the monarchy of the rich and the powerful (is) author of it."


As a child, I felt a swell of pride and patriotism for my country. "Ask not what your country can do for you, but what you can do for your country." I also felt proud to call myself a Christian, a follower of Christ, who said, "What you did for the least of these brothers of mine, you did also to me." I felt proud to call myself a republican, who cared about the welfare of unborn children.

As I grew up, I've seen the terrible strife and rifts of our country, between the rich and poor, the republicans and democrats, those who think of themselves as Americans and those who think of themselves as individuals with no responsibility to their fellow man.

Where are the rich leaders? Why do the rich fight tooth and nail to protect their bottom line instead of standing up and saying it's time to lead by example and give back to their country? I want to be grateful and proud of them for showing their patriotism instead of appalled by their lack of generosity, their stingy spirits, their lack of gratitude for how this country has given them all the safety, tools and benefits to prosper without also instilling in them a desire to give more back to others in a great time of need. Where is their sense of duty and honor?

Where are the Christian leaders, the ones who will stand up and say it's meaningless to protect an unborn child if we don't care if the child is born into poverty, living on food stamps, attending a poor school in a dangerous neighborhood to parents with no access to affordable health care?

Where are the republican leaders, who will denounce the hate-filled lies and malicious propaganda, who will stand up and say, "Enough! We will not tolerate this kind of ugly behavior in our ranks. This is NOT who we are."

I'm waiting. But meanwhile, I'm advocating for the tax cuts to expire, and increasing my own charitable contributions with every extra bit I can afford. Because I'm an American, and I care about my country. And I want to be proud of that again some day. I want our WHOLE country to be proud of that, but first we have to behave in a way that makes us proud... instead of rich and angry or poor and frightened. We are a wealthy country full of good people-it's time we ALL remember who we are and act like it.

My personal appeal to the wealthy: In times of trouble, we look to you for leadership and generosity. Don't let your country down. Don't let yourself down. Show your character and patriotism, and make us all proud.


I've been in the US for the past 5 years and have to say the tax system is shaped like an "A". Falls most heavily on middle and upper-middle class and lets off the rich.

Not that I'm complaining, the tax system is extremely skewed towards the "investor" class as opposed to the "worker" class. A household with an income of $80,000 would pay 40c for every extra dollar earned through salary (counting payroll tax) to the government but max of 15c for every dollar realized through capital gains (median would be even lower because of 401Ks, IRAs and Munis).

When the tax issue is discussed people rarely mention that payroll tax burden of 15.3%. A Private Equity tycoon could have an income of 1bn and pay max of 15% rate while his receptionist making a middle class income would be paying 15.3% in just payroll tax + the federal tax rate. Plus the sales tax is never brought up, where middle income people pay a much higher percentage of their income to buy goods.

Part of the problem lies in the fact that average wealth of congressmen/senators is way above the national average, many of them being very rich would be affected by increase in taxes.

M. Winslow:

What I find particularly galling about the whining is the relatively low income tax rate the super-rich now pay compared to the past: 35% for the highest tax bracket. If course with various tax write-offs, the effective rate is lower. Compare this to 50% in the mid-80s, 70% from the early 60s to early 80s, and 92% in the 50s! Now many member of the super-rich are resisting an increase just to 39%. The last time the tax rate on the highest income levels were this low was in 1931. It went up to 68% in 1932. Try to find a negative correlation between economic growth and tax rates. You won't be the first. It's not there. Meanwhile, we are laying off teachers. This doesn't bode well for the future.


The US economy grew fastest in the 1950s and 1960s when there was plenty of money for infrastructure and other public investments. In the 1950s America's top tax rates varied between 91 per cent and 92 per cent on incomes over $400,000 per year. In the early 1960s, that dropped to 70 per cent. As the tax rates have fallen, so have the fortunes of the US economy and average Americans.

When taxes were cut to 50 per cent under Reagen... significantly higher than the Clinton tax rates... the exchange was supposed to be an end to loopholes. Loopholes are back, but not the rates.

Our civilization is collapsing not because of welfare cheats but because those who feel they can flee have no intention of protecting it.

Dan Romig:

Income inequality has been on the rise in the U S since the end of the post WW II industrial era. The reasons are many and complex, and history has shown that this unbalance has led to revolutions.

On the other hand, the idea that those who're successful should pay not just more taxes than those who earn less, but also a higher percentage of their earnings is simply jealous greed! The game of life has winners and those who come in second, and the government should be set up to allow the competition to be fair.

Government serves the people in a very unequal fashion. Some, the very rich, pay taxes of tens of thousands of dollars, and some don't pay at all. Further, some take from the government in food stamps, housing subsidies and other programs society has as safety nets, and this is not a bad system to protect those least fortunate.

What is a bad system though is to punish the winners by making them pay a higher percent of their bucks to Uncle Sam. Everyone above the poverty line should pay the exact rate, rich or middle class Paul, and the tax progressives (like yourself Dr.) deserve the rage of the angry rich.

Dean Drake:

Paul, I am angry over tax cuts, too - I think they all should expire at the end of the year, for everyone, including myself. The Congressional Budget Office's projections of deficits assume that the so-called Bush tax cuts all expire at the end of the year, and still they project unsustainable deficits going into the future. Obama makes a big deal about having to borrow an additional $700 billion to extend the tax cuts for the rich, but somehow forgets to mention that we would need to borrow an additional $3 TRILLION to extend the tax cuts for the middle class. If we cannot afford to extend the tax cuts for the rich, we certainly cannot afford to extend them for everyone else. Besides, the reality is that we all are going to have to give up something if this country's economy is to be saved. In the private sector, managers realize the only way sacrifice is accepted is when it is shared sacrifice. If taxes must go up, everyone should have their taxes increased, even if the increase on the middle class is less severe than on the rich. Otherwise, those singled out to pay the tab will quite reasonably get angry.

Joe M.Brooklyn:

Krugman is right about the angry rich. Go to the WSJ's website, which is as good a surrogate as any for much of the sentiment Krugman expresses here, and it is almost palatable the sense of seething anger many of the posters therein have for all things Obama. You would think taxes were going to the 90% bracket the way the people posting rant on about the path Obama is allegedly taking the nation down.

However, what Krugman doesn't tap into is the anger and fear among those in the hard working, honest middle class. I'm talking about the people who did all the right things and saved money, bought a house only within their means or were waiting until they had saved up enough for a decent down payment. People who want to live in nice, safe communities with decent schools for their children. People who want to know their investments will be there for their retirement years.

These honest people are sitting and looking at a tsunami having blown through their lives. Everyone else - Wall St investment managers, bankers, unions, teachers, zero down mortgage borrowers, etc. - has rigged or taken advantage of the system. Now these honest people are the chumps holding the bag for trillions in deficit that won't even likely cover the promises of Social Security and Medicare. Even worse, they now are facing the consequences of shattered investments, underwater home values and lost jobs. Who is out fighting for these people? It ain't Obama, it ain't the Democrats, it ain't the Republicans and it certainly ain't the rich. Perhaps it is time for some real progressive action like a revolution. Get your pitchforks!


Politicians aren't just representing the rich: they are the rich. The Senate is a millionaire's club; the House not quite so much but there are plenty of them in there.

robert feingolddartmouth,

A person's net worth is the real test of whether he or she is wealthy. A person who has a salary of $250,000 has three kids in college, lost half of his retirement account and 40% of the value of his home is not wealthy if his net worth is $250,000, but is if his net worth is $10,000,000. And the former scenario explains why a person might want to complain. He, like most, has suffered a loss during the meltdown and is struggling to recover. Especially if he or she is nearing retirement. So things aren't as simple as your anti-whining article portrays. People, with both high and low earning capacities, have been really hurt and all of them want to keep what they have. There is nothing wrong with that, just human nature. People want to do better and we have all had the rug pulled from under our feet. Perhaps a net worth test should be the trigger, so that income of $250,000 with net assets over one or two million dollars would be the trigger for ending that family's tax cut.


It's amazing that conservatives to insist that the rich are entitled to tax cuts when many of them have not used their money to invest in new businesses to create jobs for Americans. How can policymakers be irresponsible enough to continue to give more money to the rich indiscriminately when not all of them are helping the economy? Why not just give tax breaks only to companies that are hiring new workers on American soil? Or if they want to focus on income taxes, give income

[Sep 19, 2010] In Which Mr. Deling Responds to Someone Who Might Be Professor Todd Henderson - Grasping Reality with Both Hands

I suspect that this guy Henderson or someone who pretends to be him really has no any abilities as for law profession. I noticed that some (and pretty sizable) part of law profession (especially serving large investment banks) became kind of academic mafia :-(. One explanation is that he make a rather silly attempt milk franchise of Chicago school economic deregulatory framework "if individual bear full cost of their decisions they would make better decisions" (those who survive :-): his views reflect why he get the position in Chicago School. I viewed one of his presentation which while touch.

But there is something really suspicious about his IQ. Here is one comment: "Not a tax expert, but based on personal experience, I would think that someone in the income range of prof. Henderson is likely to be paying the Alternative Minimum Tax. If so, his taxes may not go up at all."

September 18, 2010 |
I had published a link and a long excerpt from Michael O'Hare's rant after reading University of Chicago Law Professor Todd Henderson.

And now somebody purporting to be University of Chicago Professor Todd Henderson writes:

I'm shocked and saddened at the personal nature of these attacks. Wow.

As for Mr. Deling' attacks...

I would like to note for the record that I have not made any attacks, or indeed comments at all--that all I did was to republish pieces of Michael O'Hare's attack. And I was thinking if I had any comments worth reading or any time to write them down, and deciding that I did not.

But being called "Deling" makes me think I have no choice.

So here is the rest of the comment by Professor Henderson (or the guy purporting to be him):

let me make just two observations. First, according to several tax sites, my taxes will go up by thousands, not down. I'm not a tax lawyer, so I'm not sure why.

Second, his [i.e., Michael O'Hare's] attempted budget leaves out a large category--education and daycare. This year, they will come close to $60,000, which is about $165 per day. Subtract this from the crude budget and that leaves $80 per day for five people.

But all this avoids the question of why we think the government will better allocate some part of whatever my income is.

So here is what I have to say:

Back in 2000, the U.S. government's long-term budget was out of balance--although not by all that much. The government had, you see, made promises--very popular promises--for Medicare, Medicaid, and Social Security without proposing sufficient funding streams to pay for those promises. So back in 2000, looking forward, we had a choice: raise taxes, or "bend the curve" by cutting the growth of spending.

Instead of doing either of these, we elected George W. Bush. Two wars. A big (and ill-advised) defense buildup that is very unsuited to protecting us from Al Qaeda and company. A huge unfunded expansion of Medicare. Plans for the unfunded expansion of Social Security that came to nothing. However, instead of raising taxes George W. Bush reduced them.

This simply does not work. As Milton Friedman liked to say, to spend is to tax. If the government spends somebody will pay for it. And if you don't levy the taxes to pay for it now all that means is that the person who owes the taxes does not know it yet.

So unless Professor Henderson (or whoever) has plans for serious cuts to Medicare, Medicaid, Social Security, and National Defense--and I see none on offer--his last point about government allocation is simply moot. George W. Bush has already allocated it with his defense buildup and Medicare Part D. Taxes are going up over the next decade--barring cuts of 1/3 to Medicare, etc. They can either go up smartly or we can pretend they don't have to go up, in which case they go up stupidly. The argument for small government was lost long ago, and was lost again and anew in the past decade with Medicare Part D and the wars of George W. Bush. I believe Todd Henderson was a deserter in that war--a supporter of George W. Bush, and of his unfunded Medicare Part D expansion, and of his wars of choice. So I don't think he has standing to make the small government argument--some people do, but he does not.

But Mr. Henderson's (or whoever's) comment and his post were, overwhelmingly, not an argument for a small government.

They were an argument that whatever taxes were paid, he should not have to pay more than he is currently paying because it is unfair: he is not "rich".

As best as Michael O'Hare could determine (and Professor Henderson or whoever it is does not challenge him), the Henderson annual family budget is this:

$455,000 a year of income, of which:

And of this budget, Professor Henderson (or whoever) writes:

Like most working Americans, insurance, doctors' bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby.... [W]e have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive. If our taxes rise significantly... the (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center...

Now it is time for a reality check on this "most working Americans." The median household income in the United States today is $50,000. Half of all households make more than this. Half of all households make less. The big expenses in the Henderson family budget--their $60,000 a year in contributions to tax-favored retirement savings vehicles, their $25,000 a year savings building home equity, their $55,000 for housing, their $60,000 in private school costs, even their $10,000 a year for new cars--are simply out of reach for the overwhelming majority of Americans. Half of all households make less than $50,000 a year--the Hendersons make nine times that. 90% of households make less than $100,000 a year--the Henderson's make 4.5 times that. The Henderson's are solidly in the top 1% of American households, in the select 1% group that receives more than $350,000 a year.

By any standard, they are really rich.

But they don't feel rich. They have a cash flow problem. When the bills are paid at the end of the month, the money is gone--and they feel that they have to scrimp.

I know how they feel. My household income is of the same order of magnitude than theirs (although somewhat less) and we too had to juggle assets quickly when it developed that an error in Reed College's housing system had caused them not to charge us $5,000 that we owe. We too have chosen to put our income in places (tax-favored retirement savings vehicles, building equity, housing, private college costs) where we think it is better used than $200 restaurant meals, $1000 a night resort hotel rooms, or $75,000 automobiles. But I don't think that I am not rich.

Professor Henderson's problem is that he thinks that he ought to be able to pay off student loans, contribute to retirement savings vehicles, build equity, drive new cars, live in a big expensive house, send his children to private school, and still have plenty of cash at the end of the month for the $200 restaurant meals, the $1000 a night resort hotel rooms, and the $75,000 automobiles. And even half a million dollars a year cannot be you all of that.

But if he values the high-end consumption so much, why doesn't he rearrange his budget? Why not stop the retirement savings contributions, why not rent rather than buy, why not send the kids to public school? Then the disposable cash at the end of the month would flow like water. His problem is that some of these decisions would strike him as imprudent. And all of them would strike him as degradations--doctor-law professor couples ought to send their kids to private schools, and live in big houses, and contribute to their 401(k)s, and also still have lots of cash for splurges. That is the way things should be.

But why does he think that that is the way things should be?

And here is the dirty secret: Professor Henderson thinks that that is the way things should be because he knows people for whom that is the way it is.

Cast yourself back to 1980. In 1980 a household at the bottom of the 1% rich households in America had an income equivalent in today's dollars $190,000 a year. They know of 1000 people--900 of them poorer than they are in income brackets 90-99% and 100 people richer than they are in the top 1% income bracket. The 900 people poorer than them back in 1980 had incomes from $85,000-$190,000 a year. Those are, if you are sitting at the bottom of the top 1%, the middle class who are not as successful as you. You don't look downward much. Instead, you look upward. Of the 100 above you, 90 in 1980 had incomes less than three times their incomes. And they would have known of 1 person of that 100 who was seven times as rich as they were.

Thus Professor Henderson in 1980 would have known who the really rich were, and they would on average have had about four times his income--more, considerably more, but not a huge gulf. He would have known people who were truly rich, and he would have seen himself as one of them--or as almost one of them.

Now fast forward to today. Today a household at the bottom of the 1% rich households in America has an income of nearly $400,000 a year--the income of that slot in the labor market has more than doubled, while the incomes of those at the slot at the bottom of the 10% wealthy has grown by only 20% in two decades. The 900 people he knows in the 90%-99% slots have incomes that start at $110,000 a year. Compared to Henderson's $455,000, they are barely middle class--"How can they afford cell phones?" Henderson sometimes wonders.

But he wonders rarely. He doesn't say: "Wow! My real income is more than twice the income of somebody in this slot a generation ago! Wow! A generation ago the income of my slot was only twice that of somebody at the bottom of the 10% wealthy, and now it is 3 1/2 times as much!" For he doesn't look down at the 99% of American households who have less income than he does. And he looks up. And when he looks up today he sees as wide a gap yawning above him as the gap between Dives and Lazarus. Mr. Henderson doesn't look down.

Instead, Mr. Henderson looks up. Of the 100 people richer than he is, fully ten have more than four times his income. And he knows of one person with 20 times his income. He knows who the really rich are, and they have ten times his income: They have not $450,000 a year. They have $4.5 million a year. And, to him, they are in a different world.

And so he is sad. He and his wife deserve to be successful. And he knows people who are successful. But he is not one of them--widening income inequality over the past generation has excluded him from the rich who truly have money.

And this makes him sad. And angry. But, curiously enough, not angry at the senior law firm partners who extract surplus value from their associates and their clients, or angry at the financiers, but angry at... Barack Obama, who dares to suggest that the U.S. government's funding gap should be closed partly by taxing him, and angry at the great hordes of the unwashed who will receive the Medicare, Medicaid, and Social Security payments that the government will make over the next several generations.

Do I wish that Professor Henderson had a little more self-knowledge? Yes. Is it pathetic that somebody with nine times the median household income thinks of himself as just another average Joe, just another "working American"? Yes. Do I find it embarrassing that somebody whose income is in the top 1% of American households thinks that he is not rich? Yes.

Do I hope to educate him so that he has a better grasp on reality and better understanding of America and of public policy? Yes.

Here is Henderson's original post:

We are the Super Rich " Truth on the Market: The rhetoric in Washington about taxes is about millionaires and the super rich, but the relevant dividing line between millionaires and the middle class is pegged at family income of $250,000. (I'm not a math professor, but last time I checked $250,000 is less than $1 million.) That makes me super rich and subject to a big tax hike if the president has his way.

I'm the president's neighbor in Chicago, but we've never met. I wish we could, because I would introduce him to my family and our lifestyle, one he believes is capable of financing the vast expansion of government he is planning. A quick look at our family budget, which I will happily share with the White House, will show him that like many Americans, we are just getting by despite seeming to be rich. We aren't.

I, like the president before me, am a law professor at the University of Chicago Law School, and my wife, like the first lady before her, works at the University of Chicago Hospitals, where she is a doctor who treats children with cancer. Our combined income exceeds the $250,000 threshold for the super rich (but not by that much), and the president plans on raising my taxes. After all, we can afford it, and the world we are now living in has that familiar Marxian tone of those who need take and those who can afford it pay. The problem is, we can't afford it. Here is why.

The biggest expense for us is financing government. Last year, my wife and I paid nearly $100,000 in federal and state taxes, not even including sales and other taxes. This amount is so high because we can't afford fancy accountants and lawyers to help us evade taxes and we are penalized by the tax code because we choose to be married and we both work outside the home. (If my wife and I divorced or were never married, the government would write us a check for tens of thousands of dollars. Talk about perverse incentives.)

Our next biggest expense, like most people, is our mortgage. Homes near our work in Chicago aren't cheap and we do not have friends who were willing to help us finance the deal. We chose to invest in the University community and renovate and old property, but we did so at an inopportune time.

We pay about $15,000 in property taxes, about half of which goes to fund public education in Chicago. Since we care the education of our three children, this means we also have to pay to send them to private school. My wife has school loans of nearly $250,000 and I do too, although becoming a lawyer is significantly cheaper. We try to invest in our retirement by putting some money in the stock market, something that these days sounds like a patriotic act. Our account isn't worth much, and is worth a lot less than it used to be.

Like most working Americans, insurance, doctors' bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby so we can both work outside the home. At the end of all this, we have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive.

If our taxes rise significantly, as they seem likely to, we can cut back on some things. The (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center, but these are only a few hundred dollars per month in total. But more importantly, what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions? Ask the entrepreneurs we employ and the new arrivals they employ in turn whether they prefer to work for us or get a government handout.

If these cuts don't work, we will sell our house – into an already spiraling market of declining asset values – and our cars, assuming someone will buy them. The irony here, of course, is that the government is working to save both of these industries despite the impact that increasing taxes will have.

The problem with the president's plan is that the super rich don't pay taxes – they hide in the Cayman Islands or use fancy investment vehicles to shelter their income. We aren't rich enough to afford this – I use Turbo Tax. But we are rich enough to be hurt by the president's plan. The next time the president comes home to Chicago, he has a standing invitation to come to my house (two blocks from his) and judge for himself whether the Hendersons are as rich as he thinks.

Selected Comments


You can't be too hard on this guy, DeLong, but I think your explanation of his plight, such as it is, is off. The simple fact of the matter is that this jackass has mismanaged his household accounts. With all that student loan debt, why does he own two cars, live in an expensive house (Chicago is cheap compared to Washington, DC, where I live), and hire folks to do what he & his wife can surely do for themselves? And what's wrong with the Hyde Park schools? If he can only afford public schools & Hyde Park's are no good, he should be living somewhere else--that's how my first wife & I did.

Now I'm old enough that my kids are grown & on their own (public schools, all the way), and Obama's $250K threshold is not a worry (though, god willing, we'll get there, and the sooner the better), but we've always managed things so that kids had day care, excellent public schools, & fancy summer camps & we all took fabulous vacations, had a great wine cellar, ate sumptuously, saved for retirement & private colleges neither kid wanted (UGMA accounts meant they got the money anyway), & always had the money to splurge on restaurants & the like when we wanted. Of course, we live in an unfashionable area in an ugly but comfortable track house, drive little rice burners, and save first, spend second. That's how it's done, no matter how much you make.


I lived in Chicago for 15 years. Ten of which I made do without a car. I suggest that Mr. Henderson take public transportation. The CTA is excellent. After totaling the costs you save on cars, plus in Chicago, parking tickets and fines can run $1,000 a year. Of course, he might run into his nanny or the people that do his lawn care.

Also, Jim's Original off the Dan Ryan has a great Maxwell St. Polish with fried onions, soda, and french fries for under 5 bucks.


I'm curious, was private school that cost $20K/kid three decades ago seen as an obligation for top percenters three decades ago? One of the excuses some of my childless friends give for not having children is their unwillingness to pay exorbitant tuition (because the alternative, public school, would be unthinkable). When did it become like that or has it always been that way? Also, they are very leveraged. Were top percenters carrying more than a year's income in student loan debt in 1980? If current $455k was $190K then, that would imply much higher tuition than the roughly $5K/year you paid at Harvard College in 1980. I mean, the tuition for 8 years undergrad plus graduate school would still be less than 25% of a top one percent income.


This guy made the mistake of deriving all his self-fulfillment from comparison with others. Doesn't he enjoy his work? Doesn't he want to make the world a better place? Does he have any hobbies? Doesn't he have a happy marriage?

And in a good year, I think we make more than $250K, and I really think I need to pay more in taxes. The only taxes that have gone up, are the regressive ones (property and sales). We've got a great credit rating, we're still far from underwater, we get to refi whenever we feel like it, and we just cut $100/month on our mortgage payments. No matter how much I might ever hate an income tax hike, I've been getting cuts while most of the people earning less than me have been getting hikes, and I get options that they do not.

It's absolutely, completely, unfair to the vast majority of the people in this country that their taxes should have gone up while mine (basically) went down. Does this rich whiny guy have no sense of perspective, no shame?


$60K for private schools that provide no better education, rather they just get his kids in with the kids of 'the right people'

For those without exceptional talent or intelligence, the reality is that 'knowing the right people' is their best probability for success in transactional careers like law and investment banking whose top ranks are filled with well-connected mediocrities, the GW Bushes of the world.

Not the way it should be (it stinks), but perhaps he's making a pragmatic investment in his kids' futures. Maybe it's how he got where he is, since he seems to have a rather blinkered and ill-informed Fox News perspective on his own finances.


Prof. Henderson graduated from Princeton in 1993 with a degree in engineering and received his law degree in 1998. Even if we assume that both Prof. Henderson and his wife are of humble origins and received no parental support for college, I'm a bit puzzled how he and his wife (assuming she graduated around the same time) could still have 500K in student loan debt, assuming they have been paying 60K a year towards it for about 12 years (let's assume they haven't been paying for 3 kids in private schools over this whole period to make up for the fact that their salaries were lower starting off).

I don't know much about tuition at US colleges or interest rates on student loans (being a Canadian with 0 student loans over my academic career) but does the math really add up? The only data I could find says that U of C law school tuition is today about 21K. How could Prof. Henderson himself have almost 250K in student loans, 12 years after graduating?

Cranky Observer:

> And what's wrong with the Hyde Park schools? If he can only afford
> public schools & Hyde Park's are no good, he should be living somewhere
> else--that's how my first wife & I did.

As a graduate of the Chicago Public Schools, and a south side school at that, I have to say that it has grown increasingly difficult over the last 20 years for parents with academic (or just middle-class) aspirations to send their children to city schools. Or in many cases just aspirations to see their children come home without gang signs, black eyes, or knife wounds. Particularly on the south side (including Hyde Park).

I will also say that while the aspirational areas of the City of Chicago are very expensive (contra dave, I believe more expensive than DC except during deep recessions to which DC is immune) there are plenty of nice, affordable neighborhoods and suburbs within an easy commute of Hyde Park. But they are to the south, and "no one" lives on the south side of Chicago (Hyde Park is granted an exception to the Chicago movers-and-shakers rule that there is no civilization south of 22nd Street until you get to Rio de Janero, or perhaps all the way around the globe to Cape Town).


Maynard Handley:

"right people'

For those without exceptional talent or intelligence, the reality is that 'knowing the right people' is their best probability for success in transactional careers like law and investment banking whose top how much it costs to raise (three) children, especially under the conditions of "giving them everything they want, from cable tv and cell phones to private schools and a large house"?

Call it what you like, pragmatic investment or otherwise, but
(a) the world does not owe him the right to raise as many children as he likes, at the standard of luxury that he desires AND

(b) he claims to have some knowledge of economics. Is he completely unaware of the way the pricing of positional goods works? The government (fed, state and city) could stop taxing him tomorrow and what would happen? The price of his house would rise to eat up much of his extra cash ---- irrelevant to him now, since he has made the purchase, but very relevant as a hypothetical in understanding the world. And likewise the cost of private school --- the best such schools, because only the best for his kids --- would rise to eat up the rest of the surplus, and presumably he has not paid the tuitions of all three kids for 12 years in advance.

It is truly amazing to see this over and over again --- people who claim to be deep economic thinkers who appear completely unaware of the very concept of elastic prices, and how they apply ESPECIALLY to the largest costs in their lives. That's the way the capitalist system works --- these items are priced at whatever cash the richest n% that buy them HAVE to spend on them.
Todd Henderson --- ignorant freaking moron.

Brad DeLong

Re: Nick said:

"Prof. Henderson graduated from Princeton in 1993 with a degree in engineering and received his law degree in 1998. Even if we assume that both Prof. Henderson and his wife are of humble origins and received no parental support for college, I'm a bit puzzled how he and his wife (assuming she graduated around the same time) could still have 500K in student loan debt, assuming they have been paying 60K a year towards it for about 12 years..."

It is barely possible if she is younger and if they have lived high on the hog -- i.e., never lived like assistant professors and borrowed all of her medical school expenses, for medical school can be horrifically expensive.

But you are right in your bigger point. We do have an unreliable narrator problem here: people with incomes barely over 250K don't have taxable incomes enough over 250K enough to find themselves paying materially more...

[Sep 9, 2010] When Economists Collide – Part II The Big Picture What is the composition of "personal consumption" and how big discretionally spending portion

Only 25% of personal consumption is discretionary spending. It is important to understand that personal consumption reflects bloated health care expenses. The other interesting question and what is wealth composition of the consumers (for example what percentage of the total is consumed by top 10% of wealthiest Americans).
The Big Picture

Invictus is a street insider, a long-suffering "lifer" whose close work with Wall Street research teams gives him unique insight into the current strategist spat.



It was noted back in October that a feud seemed to be simmering between the former Merrill Lynch Chief North American Economist David Rosenberg (now at Gluskin Sheff) and those who succeeded him, Economist Ethan Harris and Strategist David Bianco (who replaced Rich Bernstein).

Often nuanced in nature and discernible only to those who read the research from both shops, the differences occasionally bubble to the surface, as they have in the past few days. The nub of it, obviously, is that Rosenberg's outlook is decidedly dour, in sharp contrast to his successor(s), who are much more bullish.

So nuke another bag of popcorn, as the gloves appear to be coming off.

In a research note last week, Bianco asserted that it is an "investor misperception" that the consumer (PCE) is really 70% of U.S. GDP:

Personal Consumption Expenditures (PCE) do indeed make up about 70% of US GDP, making total US PCE or household spending about 15% of the global economy and bigger than the entire Chinese economy (Chart 2). How then can the US economy and the rest of the world grow with the US consumer in retrenchment? To answer that, we take a closer look at the composition of PCE.

Only 25% of personal consumption is discretionary spending

What many investors fail to realize is that the majority of PCE is not made up of iPods, handbags and dinners at the local Outback Steakhouse. Instead, about 75% of household spending is non-discretionary in nature, such as housing, healthcare, energy, food eaten at home and other household staples. We think it is worth noting that most of these non-discretionary items are made in the US.

While there is certainly room to reduce non-discretionary spending, the areas of consumer spending feeling the brunt of higher household saving rates are cars, travel, apparel, restaurants and other discretionary items that make up about 25% of PCE, equivalent to 20% of US GDP (Chart 3) or less as many of these nondiscretionary items are imported. 20% of US GDP is still significant, but far less than the 70% figure that makes the headlines. Another figure sure to make the headlines this time of year is retail sales. The contribution to US GDP from retail sales has actually been declining for over ten years. Excluding supermarkets, retail sales are under 40% of total consumption, or about 25% of GDP.

Bianco's piece was referenced in last Saturday's Barron's.

On Monday, Rosenberg was having none of it:

The "Streetwise" column in the current edition of Barron's (It's Still Too Early to Worry Too Much) runs with a series of assertions otherwise dubbed "common misperceptions" - one of them being that the U.S. consumer is really not 70%+ of the economy because "only a quarter of it is truly discretionary."

We'll get back to this in a second, but the fact of the matter is that much of what appears to be non-cyclical is in fact, cyclical (like elective surgery in health care; veal chops in the food category, etc). Second, even if this assertion is correct that 'only' 25% of consumer spending is economic-sensitive, it begs the question as to why that is important in anyone's analysis. Is 25% small? If it is, then what is going to be the driver for the economy going forward; government spending? If 25% is small, then how is it that on average consumer spending manages to generate 300 basis points of growth for the economy coming out of recessions - because they are buying more soap and toothpaste with the other 75%? Maybe that 25% (and that number is not correct but it doesn't matter in any event) is a huge swing factor in recessions and expansions for overall GDP growth. Once again, this is a classic failure to assess the economic shifts at the margin.

Even if consumer discretionary spending is just 25% of the total expenditure pie (and hence 17.5% of GDP), that would still make it the largest cyclical component of the economy - almost double capital spending and exports, just as an example, and almost eight times larger than housing and commercial construction.

Stay tuned. I expect this one's not over by a longshot.


This debate is long on bluster and short on rigor.

25% of whom? Is that an average ala Bill Gates and the bar full of firemen? [BR: All US Consumers]

75% of American families make less than 75k/yr according to the census bureau. Furthermore, the BLS tells me that the average American family spends 17k/yr just for housing. In fact, food, transportation, housing and healthcare account for 75% of the average family's annual expenditures. What about insurance and hair cuts and clothing and student loans and cable and 401ks and cell phones etc ad nauseum?

It's not enough that this duel is vapid; it's also lazy research on the authors' parts.

Rob Dawg:

It is over. Rosenberg wins by knockout. At that he is being kind to accept 25% of PCE as being discretionary at face value. As the mortgage lenders and municipalities have learned most painfully the modern consumer seems to treat even debt repayment and taxes as being discretionary. Even healthcare. Our plan changes in January are causing my family to switch from top tier to second tier. Technically between contributions employer+employee we will be paying less thus showing there is elasticity to be found in the 75% Bianco considers a fixed cost. Don't even get me started on cars, washers, other consumer durables.


@Rob Dawg: My wife and I did the SAME thing with our health plan – we traded down. We're also holding off on several big purchases like a car, refrigerator, oven, and dishwasher (the latter three being very old too, but still functional) for the foreseeable future.

The only thing we did do was replace all of our second floor windows using the $1,500 Energy Star tax credit. Thank you very much, Timmay-bucks.


I'm leaning towards the Rob Dawg conclusion.

I too have reduced a number of "fixed costs" myself, mainly in the insurance, finance, telecom and household services sectors and plan more. It turns out that many fixed costs really are not that fixed.

An interesting read on the real economy is railroad car loadings – chart over at CR. Both total loadings and inter-modal loadings are about 85% of 2007 levels. This indicates to me that the real economy, even with the artificial stimulus measures, is about 85% of what it once was. And once the artificial stuff goes away?????

Transor Z:

First of all, retail ex groceries is moronic.

A lot of what Bianco wants to characterize as non-discretionary are household expenses that are scaled to income. True, consumption of things like oxygen, water, food calories, shelter and heat are non-negotiable below a certain threshold. But that's stupid disingenuous analysis.

As Rosie shorthands it, food scales between Kraft Easy Mac and veal cutlets. Housing choices scale between steam heat-included/ absentee-slumlord/firetrap family of four crammed into 1 BR and less than 1000 sq feet to nicer digs. Energy costs are closely associated with housing choice.

As Manny notes, health care choices are scalable and indeed most large employers offer different choices, scaling from VPI Pet Insurance to blue chip PPO.

Household sundries, same thing: generic vs name-brand. Clothing? Same.

I am so sick and tired of these motherfucking snakes on this motherfucking plane bad-faith analyses that never start with a model household budget.


I grew up across the street from the PJs, so I know that location and square footage are discretionary, I know the type of shit you buy at the supermarket- to say nothing of whether you choose to clip coupons and pack one of those club cards- is discretionary, and what type of coverage you get, unless mandated, is surely discretionary…to say nothing of whether you rock Canali or Karako suits; True Religion or Levi jeans.

Bianco must have had someone sit in for him in Sociology 101…you know, where they took all those things you thought were natural and showed that they are choices you make based on your indoctrination (I don't know what was said after that because I was in the quad playing soccer for most of the rest of the semester). For that matter, it looks like Bianco was doing the same during his Economics classes. Granted, the way they teach it renders it junk science. But, as Carlito explained, if you can't see the angles no more, you're in trouble.

That said, I've always thought that the average wage slave (not unlike myself…I wasn't just ditching Soc; I was at the track during Poli Sci) is hemmed into about 90% (hence, the slavery) of his expenditures. In my own defense, I save 30% of my take-home (excludes the non-Roth portion of my 401k); I'd overshoot on the other side. But, I am an expense manager, not your average wage slave.


Even if consumer discretionary spending is just 25% of the total expenditure pie (and hence 17.5% of GDP), that would still make it the largest cyclical component of the economy - almost double capital spending and exports, just as an example, and almost eight times larger than housing and commercial construction.

By factoring in the relative importance instead of the absolute number, we hereby declare this round a win for Rosie.

J'ai dit!


I would add the personal spending habits are sticky. People won't change their habits until reality is FORCED upon them (generally), but it's quite surprising to find out just how much one can "do without" or trade down when they really take a good look at one's expenses. Bye bye cable TV, home phone (have a cell now, who needs a home phone), expensive wine and beer, eating out, ballgames, those extras at the grocery store, that new winter coat (the ones in the closet look just fine, thanks), new boots, hats, gloves, scarves, sneakers, yada, yada, yada, the list goes on and on and one.

[Sep 05, 2010] "Making Social Security Less Generous Isn't the Answer"

An increase in life expectancy does not necessarily imply that people are healthier at age 65 or 70 than before.
Economist's View

Ezra Klein:

Making Social Security less generous isn't the answer, by Ezra Klein, Commentary, Washington Post: ...Raising the Social Security retirement age has become as close to a consensus position as exists in American politics. ... And for a while, I agreed... People live longer today, and so they should work later into life. But as I've looked at the issue, I've decided that I was wrong. ... We should leave the retirement age alone. In fact, we should leave Social Security alone...

Start with the basic rationale for raising the retirement age. As Rep. Paul D. Ryan (R-Wis.) has argued, when Social Security was signed into law, the retirement age was 65 and life expectancy was 63. "The numbers added up pretty well back then," he said on Fox News. But that's misleading. That figure was driven by high infant mortality. ...

Moreover,... averages conceal a lot of inequality. In 1972, a 60-year-old male worker who made less than the median income had a life expectancy of 78 years. By 2001, he had a life expectancy of 80 years. Meanwhile, workers in the top half of the income distribution shot to 85 years from 79. ...

Lurking beneath this conversation is an unquestioned assumption: We live longer, so we should work longer. That's pretty intuitive to members of Congress, who seem to like their jobs and don't seem to like the idea of retiring. It's also pretty intuitive to blogger/columnists, who spend their time in air-conditioned rooms opining about pension programs. But most people don't work in Congress or in the media. They work on their feet. They strain their backs. They're bored silly at the end of the day. By the time they're in their 60s, they want to retire.

You see that reflected in Social Security. Age 66 is when you get full benefits. But most people begin taking Social Security at age 62. They get less, but they can retire earlier. To them, the trade-off is worth it. ...

An August survey ... tested reactions to a variety of Social Security fixes. One of the options was raising the retirement age to 70. Two-thirds of respondents opposed it. Another option was eliminating the cap on payroll taxes so that well-off workers pay the tax on their full income, just as middle-income workers do now. A solid 61 percent supported it.

That's almost the reverse of the conversation in Washington, where affluent people who like their jobs propose cutting benefits for the poor (which is, after all, what raising the retirement age would do) rather than lowering benefits or increasing the payroll tax on, well, themselves. ...

The universally unpleasant options for reform are a testament to Social Security's efficiency. It's a simple transfer program, with administrative costs that amount to less than 0.9 percent of total spending. There's not much fat to cut.

That can't be said for much else in American public policy. Our health-care system costs twice as much as the German system and doesn't deliver better results. Our defense sector is wasteful and bloated. Our tax code could raise more money and do less to harm growth if we cleaned it out. Our home prices are driven upward by the mortgage interest tax deduction. Our health insurance premiums are goosed by the exclusion of employer-sponsored insurance from taxable income.

Reforming any of those sectors ... would be politically difficult, but would mean better policy. Reforming Social Security will be politically difficult and result in worse policy. ...

Here's what I argued in May of 2005:

  1. An increase in life expectancy does not necessarily imply that people are healthier at age 65 or 70 than before. Suppose, for example, that medical advances are discovered that extend the end of life by several years, but have no effect on health prior to the last few years of life. In such a case there would be an increase in life expectancy, but no increase in the health of workers at the age of retirement. If people aren't healthier, then increasing the retirement age imposes a hardship over and above that faced by current retirees.
  2. It's already difficult for elderly workers to find employment, and when they do they are often underemployed relative to their skill levels. Raising the retirement age will make this worse.
  3. What about workers employed in physically demanding occupations? Is it reasonable to ask them to work until, say, age 72? If not, how equitable is it to have some workers work until 72, and others allowed to retire at a younger age depending on their occupation?
  4. Will this distort occupational choice decisions? ... How will we decide when a worker is unable to work due to reasons associated with age?
  5. The life expectancy of some groups of workers is lower than for others. If poorer workers die younger than richer workers on average, then raising the retirement age will have a larger impact on low income workers and thus, in essence, be regressive.

[Sep 04, 2010] Millionaire - Wikipedia, the free encyclopedia

There is a wide disparity in the estimates of the number of millionaires residing currently in the United States. A quarterly report prepared by the Economist Intelligence Unit on behalf of Barclays Wealth in 2007 estimated that there were 16,600,000 dollar millionaires in the USA.(page 7)

According to TNS Financial Services, as reported by CNN money, 2 million households in the US alone had a net worth of at least $1 million excluding primary residences in 2005.[12] According to TNS, as of mid-2006 the number of millionaire US households was 9.3 million, with an increase of half a million since 2005.[13] Millionaire households thus constituted roughly seven percent of all American households.[original research?] The study also found that half of all millionaire households in the US were headed by retirees. In 2004 the United States saw a "33 percent increase over the 6.2 million households that met that criteria in 2003," fueled largely by the country's real estate boom.[14]

A report by Capgemini[15] for Merrill Lynch on the other hand stated that as of 2007 there are approximately 3,028,000 households in the United States who hold at least US$1 million in financial assets, excluding collectibles, consumables, consumer durables and primary residences (p. 35).

According to TNS Financial Services, Los Angeles County has the highest number of millionaires,[16] totalling over 262,800 households as of mid-2006.[13] Los Angeles County is also the largest single jurisdiction of any kind in the United States.

Top 5 states by HNWIs (more than $1 million, in 2009)[17]
State Percentage of millionaire households Number of millionaire households
Hawaii 6.41% 28,363
Maryland 6.26% 133,299
New Jersey 6.22% 197,694
Connecticut 6.15% 82,837
Virginia 5.51% 166,596

[Sep 03, 2010] Wealth and Income Inequality in the USA

According to TNS, as of mid-2006 the number of millionaire US households was 9.3 million,
MM: What portion of the wealth is owned by the upper groups?
The top 5 percent own more than half of all wealth.

In 1998, they owned 59 percent of all wealth. Or to put it another way, the top 5 percent had more wealth than the remaining 95 percent of the population, collectively.

The top 20 percent owns over 80 percent of all wealth. In 1998, it owned 83 percent of all wealth.

This is a very concentrated distribution.

MM: Where does that leave the bottom tiers?
The bottom 20 percent basically have zero wealth. They either have no assets, or their debt equals or exceeds their assets. The bottom 20 percent has typically accumulated no savings.

A household in the middle - the median household - has wealth of about $62,000. $62,000 is not insignificant, but if you consider that the top 1 percent of households' average wealth is $12.5 million, you can see what a difference there is in the distribution.

MM: What kind of distribution of wealth is there for the different asset components?
Things are even more concentrated if you exclude owner-occupied housing. It is nice to own a house and it provides all kinds of benefits, but it is not very liquid. You can't really dispose of it, because you need some place to live.

The top 1 percent of families hold half of all non-home wealth.

The middle class's major assets are their home, liquid assets like checking and savings accounts, CDs and money market funds, and pension accounts. For the average family, these assets make up 84 percent of their total wealth.

The richest 10 percent of families own about 85 percent of all outstanding stocks. They own about 85 percent of all financial securities, 90 percent of all business assets. These financial assets and business equity are even more concentrated than total wealth.

MM: What happens when you disaggregate the data by race?
There you find something very striking. Most people are aware that African-American families don't earn as much as white families. The average African-American family has about 60 percent of the income as the average white family. But the disparity of wealth is a lot greater. The average African-American family has only 18 percent of the wealth of the average white family.

MM: Are you able to do a comparable analysis by gender?
It is hard to separate out husbands and wives. Most assets are jointly held, so it is not really possible to separate which assets are owned by husband and which by wife. Even when things are specifically owned by one spouse or another, the other spouse usually has some residual lien on the assets, as we know from various divorce proceedings. If a pension account is owned by the husband and the family splits up, the wife typically gets some ownership of the pension assets. The same thing is true for an unincorporated business owned by the husband. It really is not that easy to separate out gender ownership in the family.

What we do know is that single women, or single women with children, have much lower levels of wealth than married couples.

MM: How does the U.S. wealth profile compare to other countries?
We are much more unequal than any other advanced industrial country.

Perhaps our closest rival in terms of inequality is Great Britain. But where the top percent in this country own 38 percent of all wealth, in Great Britain it is more like 22 or 23 percent.

What is remarkable is that this was not always the case. Up until the early 1970s, the U.S. actually had lower wealth inequality than Great Britain, and even than a country like Sweden. But things have really turned around over the last 25 or 30 years. In fact, a lot of countries have experienced lessening wealth inequality over time. The U.S. is atypical in that inequality has risen so sharply over the last 25 or 30 years.

MM: To what extent is the wealth inequality trend simply reflective of the rising level of income inequality?
Part of it reflects underlying increases in income inequality, but the other significant factor is what has happened to the ratio between stock prices and housing prices. The major asset of the middle class is their home. The major assets of the rich are stocks and small business equity. If stock prices increase more quickly than housing prices, then the share of wealth owned by the richest households goes up. This turns out to be almost as important as underlying changes in income inequality. For the last 25 or 30 years, despite the bear market we've had over the last two years, stock prices have gone up quite a bit faster than housing prices.

MM: A couple years ago there was a great deal of talk of the democratization of the stock market. Is that reflected in these figures, or was it an illusion?
I would say it was more of an illusion. What did happen is that the percentage of households with some ownership of stocks, including mutual funds and pension accounts like 401(k)s, did go up very dramatically over the last 20 years. In 1983, only 32 percent of households had some ownership of stock.

By 2001, the share was 51 percent. So there has been much more widespread stock ownership, in terms of number of families.

But a lot of these families have very small stakes in the stock market. In 2001, only 32 percent of households owned more than $10,000 of stock, and only 25 percent of households owned more than $25,000 worth of stock.

So a lot of these new stock owners have had relatively small holdings of stock. There hasn't been much dilution in the share of stock owned by the richest 1 or 10 percent. Stock ownership is still heavily concentrated among rich families. The richest 10 percent own 85 percent of all stock.

As a result, the stock market boom of the 1990s disproportionately benefited rich families. There were some gains by middle class families, but their average stock holdings were too small to make much difference in their overall wealth.

MM: Apart from the absolute level of wealth of people at the bottom of the spectrum, why should inequality itself be a matter of concern?
I think there are two rationales. The first is basically a moral or ethical position. A lot of people think it is morally bad for there to be wide gaps, wide disparities in well being in a society.

If that is not convincing to a person, the second reason is that inequality is actually harmful to the well-being of a society. There is now a lot of evidence, based on cross-national comparisons of inequality and economic growth, that more unequal societies actually have lower rates of economic growth. The divisiveness that comes out of large disparities in income and wealth, is actually reflected in poorer economic performance of a country.

Typically when countries are more equal, educational achievement and benefits are more equally distributed in the country. In a country like the United States, there are still huge disparities in resources going to education, so quality of schooling and schooling performance are unequal. If you have a society with large concentrations of poor families, average school achievement is usually a lot lower than where you have a much more homogenous middle class population, as you find in most Western European countries. So schooling suffers in this country, and, as a result, you get a labor force that is less well educated on average than in a country like the Netherlands, Germany or even France. So the high level of inequality results in less human capital being developed in this country, which ultimately affects economic performance.

MM: To what extent is inequality addressed through tax policy?
One reason we have such high levels of inequality, compared to other advanced industrial countries, is because of our tax and, I would add, our social expenditure system. We have much lower taxes than almost every Western European country. And we have a less progressive tax system than almost every Western European country. As a result, the rich in this country manage to retain a much higher share of their income than they do in other countries, and this enables them to accumulate a much higher amount of wealth than the rich in other countries.

Certainly our tax system has helped to stimulate the rise of inequality in this country.

We have a much lower level of income support for poor families than do Western European countries or Canada. Social policy in Europe, Canada and Japan does a lot more to reduce economic disparities created by the marketplace than we do in this country. We have much higher poverty rates than do other advanced industrialized countries.

MM: Do you favor a wealth tax?
I've proposed a separate tax on wealth, which actually exists in a dozen European countries. This has helped to lessen inequality in European countries. It is also, I think, a fairer tax. If you think about taxes that reflect a family's ability to pay, a family's ability to pay is a reflection of their income, but also of their wealth holdings. A broader kind of tax of this nature, would not only produce more tax revenue, which we desperately need, but it would be a fairer tax, and also help to reduce the level of inequality in this country.

MM: In broad outlines, how would you structure such a tax?
I would model it after the Swiss system, which I think is a pretty fair system. It would be a progressive tax. In the United States, the first $250,000 of wealth would be exempt from the tax. That would exclude 80 percent of all families. The tax would increase at increments, starting out at .2 percent from about $250,000 to $500,000. The marginal rate would go up to .4 percent from $500,000 to $1 million, and then to .6 percent from a $1 million to $5 million, and then to .8 thereafter.

It would not be a very severe tax. In fact, the loading charges on most mutual funds are typically of the order of 1 or 2 percent. It would not be an onerous tax, but it could raise about $60 billion annually. Eighty percent of families would pay nothing, and 95 percent of families would pay less than $1,000. It would really only affect very rich families.

MM: Do you recommend non-tax approaches to deal with inequality as well?
I think we have to provide a much broader safety net in this country.

There are lots of things that we should do to strengthen our income support system. We can expand the Earned Income Tax Credit, which is now a fairly substantial aid to poor families, but which can be improved.

The minimum wage has fallen by about 35 percent in real terms since its peak in 1968. We should think about restoring the minimum wage to where it used to be. That would help a lot of low-income families.

The unemployment insurance system is in a real mess; only about one third of unemployed persons actually get unemployment benefits, either because they don't qualify or because they exhaust their benefits after six months. Typically the replacement rate is about 35 or 40 percent. In the Netherlands, the replacement rate is 80 percent. Our unemployment insurance system is much less generous than in other industrialized countries and can certainly be shored up.

Of course, the welfare system is in a total state of disrepair, since it provides very restrictive coverage. Even before the switchover from AFDC to TANF with the 1996 welfare reform bill, real welfare payments had declined by about 50 percent between 1975 and 1996. So we had already experienced an enormous erosion in welfare benefits, even before we adopted this new system.

[August 12, 2010]Why Won't "Fiscal Hawks" Discuss The Real Issues " The Baseline Scenario

  1. Oh, for heaven's sake. Removing the wage cap on Social Security will make that program financially robust for 75 years. Improving Medicare and extending it to all Americans is the ONLY way to control health care costs AND quality.

    Withdraw from Iraq and Afghanistan, slash the military budget, design and build a decent power grid for the 21st century.

    This country now works just fine for the wealthiest 5 percent of the population, who have grabbed 95 percent of the money, land and resources. Not satisfied with that, they're now going after the 5 percent now shared by the rest of us. Let's hang on like hell to our 5 percent.

    For longer-term planning, check out


    • who are these 5% of people? is interesting.
      I agree that endless growth is probably not realistic. I think all the worlds growth in the 1900′s was due to industrial revolution and fossil fuels. 65,000 man hours of labor in a barrel. more and more use of fossil fuels provided LOTS of wealth. since then growth has been smoke an mirrors driven by boom bust of vaporware .COM and then financial/ housing with all their "innovation." it's all perpetual machines!!! no signifcant wealth actually being created, except for using more fossil fuels.


  2. All this just obfuscates the criminal war upon the people the elites are furiously waging. It's becoming ever more untenable to have such "analysis".

    Was it common during WWII in countries invaded by Germany to analyze the economic factors which affected Hitler's pace and mode of warfare?

    That's what's happening when any analysis says anything about "austerity" other than:

    "Austerity" is a program of plunder, of robbery. It's the next step wherever the Bailout no longer provides sufficient plunder returns. All those who advocate it are conscious malevolent criminals, plain and simple. They're waging criminal war upon the people. They should be fought accordingly and dealt with accordingly, in exactly the same way as any violent foreign invader. They ARE such a foreign aggressor, a cancer from within which must be cut out of us with all necessary rigor.


    • And they are, at least in one instance, quite literally foreign – Israel – with American lobbies threatening and bullying on their behalf. Where the peoples' interest is decidedly in lasting peace, these scum shill endlessly for war with Iran and anyone else that might stand in the way of Israel's expansionist designs. They are indeed foreign bodies like cancer awaiting the people's scalpel. I say prepare the operating room.

      Lavrenti Beria

    • I was thinking about the lead content in children's "bounce houses" and whatever in the drywall and maybe even in our imported china-ware. Have we become victims of our greed for cheap? A society's values are reflected in it's economy. The deficit hawks are driving it into the ground.


      August 12, 2010 at 12:25 pm

      • Back in the 70′s I questioned an entrepreneur on her spending. Her reply, "You have to spend money to make money". Has that changed?


    • During World War II I do not think that there was much thought devoted to the federal budget and debt in the face of an enemy devoted to crushing the USA. If survival is paramount, the debt and deficit are meaningless.


      • Exactly. That's what we the people face.


  3. Onubre Einz, who follows the American economy for the French 'Le Monde" ( )
    looks at the problem from a different angle, not to be forgotten: US'GDP grew Q2 by $ 151 billion,
    At the same time, the American federal debt grew by USD 486 billion and the fiscal deficit by USD 286 billion.In order to produce one dollar growth contribution, the Government thus had to 'make use'of USD 2,83 of financial deficit and USD 1,89 of fiscal deficit


    August 12, 2010 at 9:20 am

  4. I agree with your larger point, but I wish people would stop talking about "Social Security, Medicare and Medicaid" in the same breath as though their problems are the same. Projected growth in Social Security spending is miniscule compared to the growth of Medicare and Medicaid. Yet every attempt at controlling costs has been met with cries of "death panels." That's where the hawks' lack of seriousness is most apparent, in my oppinion.


    August 12, 2010 at 9:22 am

    • "The Beltway priority on cutting Social Security benefits before Medicare simply reflects that Social Security is paid to the beneficiaries (retirees, survivors, etc.) themselves, whereas the "beneficiary" of Medicare payments is really the health care industry, about whom the DC establishment must think twice before challenging."


[Aug 08, 2010] What collapsing empire looks like by Glenn Greenwald

Kevin de Bruxelles:

I'm surprised a thoughtful guy like Glenn Greenwald would make such an unsubstantiated link between collapsing public services for American peasants and a collapse of America's global (indirect) imperial realm. Is there really a historic link between the quality of a nation's services to its citizens and its global power? If so the Scandinavian countries would have been ruling the world for the past fifty years. If anything there is probably a reverse correlation. None of the great historic imperial powers, such as the British, Roman, Spanish, Russian, Ottoman, Mongolian, Chinese, Islamic, or Persian, were associated with egalitarian living conditions for anyone outside of the elite. So from a historic point of view, the ability to divert resources away from the peasants and towards the national security state is a sign of elite power and should be seen as a sign increased American imperial potential.

Now if America's global power was still based on economic production then an argument could be made that closing libraries and cancelling the 12th grade would lower America's power potential. But as we all know that is no longer the case and now America's power is as the global consumer of excess production. Will a dumber peasantry consume even more? I think there is a good chance that the answer is yes.

Now a limit could be reached to how far the elite can lower their peasant's standard of living if these changes actually resulted in civil disorder that demanded much energy for American elites to quell. But so far that is far from the case. Even a facile gesture such as voting for any other political party except the ruling Republicrats seems like a bridge too far for 95% of the peasants to attempt. No, the sad truth is that American elites, thanks to their exceptional ability to deliver an ever increasing amount of diverting bread and circuses, have plenty of room to further cut standards of living and are nowhere near reaching any limits.

What the reductions in economic and educational options will result in are higher quality volunteers into America's security machinery, which again obviously raise America's global power potential. This, along with an increasingly ruthless elite, should assure that into the medium term America's powerful position will remain unchallenged. If one colors in blue on a world map all the countries under de facto indirect US control then one will start to realize the extent of US power. The only major countries outside of US control are Iran, North Korea, Syria, Cuba, and Venezuela. Iraq and Afghanistan are recent converts to the blue column but it far from certain whether they will stay that way. American elites will resist to the bitter end any country falling from the blue category. But this colored world map is the best metric for judging US global power.

In the end it's just wishful thinking to link the declining of the American peasant's standard of living with a declining of the American elite's global power. I wouldn't be surprised to see this proven in an attack on Iran in the near future.

Ina Deaver:

But the elite can really only project power to the extent that the peasantry are compliant, right? Surely you don't dispute that. Fodder are needed for the cannons, and rioting and unrest at home distract from international aspirations. I think that the Soviets proved conclusively that, if you focus exclusively on power at the expense of social stability, even a peasantry used to being brutalized will tolerate you only so far. Indeed, the Russians have proved that a number of times.

If he's pointing out that the situation for normal people is getting ridiculous, I agree. If he's pointing out that projecting force into Afghanistan while we shut own libraries and schools is incredibly short-sighted and stupid, I agree. If he's pointing out that it looked a whole lot like this when Rome started going south, I agree. If he's pointing out that a strong power an manage to keep its people provisioned while projecting force – again, I have a hard time disagreeing. Just because the Scandanavians don't (this century) spend a lot of time on empire doesn't make him wrong.

kevin de bruxelles:

But the elite can really only project power to the extent that the peasantry are compliant, right?

I addressed that in the third paragraph: "Now a limit could be reached to how far the elite can lower their peasant's standard of living if these changes actually resulted in civil disorder that demanded much energy for American elites to quell."

In my opinion one cannot start to talk about imperial decline until at least some instability on the part of the US peasantry is shown. So far there is none.

Fodder are needed for the cannons, and rioting and unrest at home distract from international aspirations

Again I addressed this by stating: "What the reductions in economic and educational options will result in are higher quality volunteers into America's security machinery, which again obviously raise America's global power potential."

My point is that so far the reductions to the standard of living have had no negative impact at all on America's global situation. And given the realities of American life and the ability of elites to control the conversation, the cuts will need to go much deeper before any impact is felt. So it is way too early for anyone to start declaring mission accomplished on the end of American global power. Things are not going to change until the day change is forced upon the elite from below. And from what I see we are unfortunately decades away from that point.


Kevin… I agree with many of your comments but I think a closer look is needed at why 'the American peasants' are unlikely to react violently to government actions; ie, closing libraries, canceling 12th grade, etc.

Political and public relations (advertising) pollsters learned long ago that how people respond to polls is not necessarily how they will vote with their ballot or with their pocketbook. Since 51 million Americans receive Social Security benefits, over 40 million Americans receive food stamps, 2,949,130 are employed directly by the fed gov (as of 2008 and including Homeland Security), state and local governments employ 14,857,827 full time employees and 4,834,978 part time employees (as of Dec 2009).

How many more Americans are employed by the US Military, direct contractors, defense contractors, ad infinum? I don't know…but it's a big number.

All these government employed Americans, and Americans on the dole, are not likely to vote to have their rice bowl broken. Many millions more Americans depend on the spending of the direct government employees, and subsidized Americans, for their livelyhood and they are unlikely to vote to have their rice bowls broken.

Would it be outside the realm of possibility to say half of the American population is directly or indirectly dependent on government employment or subsidy?

Who is left to rock the boat? The medical industry? The financial industry…including insurance? The real estate industry (lol about that one)? The auto industry? Big agriculture? Just about any business you can name is in some way influenced by government payrolls either directly or indirectly or by government subsidies.

In US elections 51% of the vote will carry the day for the winner. Are the 'American peasants' going to vote for their 'core beliefs', for a return to strict Constitutional Government and sound money, or for the continuation of their dole?

One last point. I noticed that you left France off the list of empires past although France was at various times a powerful empire. The lesson taught by the peasants of France was so brutal, and so frightening to the remaining aristocracies of the world, that it is not forgotten to this day…Do not forget to deliver the bread!


Yours is the lament of the elite, a fear of democracy, and a constant refrain we've heard from the rich ever since the days of the American Revolution. Here's how the historian Lance Banning put it:

Much of the American elite shared Madison's alarm with the "abuses of republican liberty practised in the states." Many, maybe most, defined the problem as a classic crisis of relationships between the many and the few, creditor and debtors, rich and poor: a crisis generated by what Elbridge Gerry called "an excess of democracy."
–Lance Banning, "Madison, the Statute, and Republic Convictions"

But the truth is that the alarms sounded by the rich have never materialized, have they? In fact, if anything, wresting power from the plutocrats, even in a democracy, has always been an uphill struggle.

Many have theorized as to why this is so. "The stupidity of the average man will permit the oligarch, whether economic or political, to hide his real purposes from the scrutiny of his fellows and to withdraw his activities from effective control," Reinhold Niebuhr suggested.

But perhaps it was Madison who best articulated why your fear of the majority, or the "51% of the vote" as you put it, is unfounded. Madison observed that the body of the people do not naturally divide into two polar points, such as the many and the few, but into a plurality of groups whose multiplex variety can pose a stubborn obstacle to the success of any partial interest. The "only defense against the inconveniences of democracy consistent with the democratic form of government," Madison argued, was to

divide the community into so great a number of interests and parties that, in the first place, a majority will not be likely at the same moment to have a common interest separate from that of the whole or of the minority, and in the second place, that in case they should have such an interest, they may not be apt to unite in the pursuit of it.
–James Madison, speech of June 6, 1787

Have you not noticed how well the oligarchy plays this game? It labors constantly to pit black against white, public union against private union, black and white against brown, union against non-union, Jew against Gentile, middle-class against working-class, and so forth.

And I find it confusing why you put forth the argument you do at a time when the oligarchy is enjoying almost unprecedented power.


Just over a week ago I wrote something on this dubious (at best) aspect of Madison's ideology.

An excerpt:

This is a recipe for disaster, as they should've known even in 1787-8. A clue to the federalist pathology is how they're constantly saying it's the peasant majority who threatens the minority of their economic and alleged social betters; how the real threat of tyranny is from the bottom up. But even then it was the fact that throughout history tyranny had almost always come from the top down, the power elites oppressing the majority.

And so it has been though American history. Whatever Madison's intent, we can read this only one way today. Since at least the latter 19th century, the whole trend of US history, radically accelerating over the last 40 years, has been a double assault according to Madison's prescription in #51, but inverting his proclaimed intent.

1. The elites have constructed the corporate will outside society, as a predator against it, as the vehicle of class war upon it.

2. At the same time they've sought to atomize the people, to dissolve all social, economic, and political bonds so that each individual stands naked, confused, demoralized, and alone before the awesome corporate power.

This puts the "anarchy" passage in perspective. Here Madison drops the misdirection of playing off the terms "majority" and "minority" against one another and substitutes the more ecumenical "stronger" vs. "weaker". Now when we read this it becomes clear that the predator minority is "the strong", while the vast majority of the people are expected to be the weak.


DownSouth… I agree with you that 'divide and conquer (or rule)' is at work in America and elsewhere. However, you seem to disregard that the number of Americans on the dole is an obstacle for the 'American peasants' to take some affirmative action to bring to heel the worst offenders in the criminal conspiracy consisting of Wall St, DC and the central banks of the West (and some in the East). It is obvious that divide and rule is at work but in addition there is the fact that a large portion of Americans are on the dole. There is nothing to stop the elite from using a variety of tactics and that is precisely what they are are about when they use 'divide and rule' and 'co-option by dole'.

BTW, 'lament' is not an apt description of my post. It is your word and does not convey the same meaning as 'observations', which is exactly what my comments were. To lament is to grieve or protest loudly and bitterly. I notice that you often add words or entire sentences to other's posts when responding to them. This is a cheap trick and discredits your own comments and posts.

"But perhaps it was Madison who best articulated why your fear of the majority, or the "51% of the vote" as you put it, is unfounded."

Once again you drift off into fantasy land. I have no 'fear of the majority'. My observation was that so many Americans are on the dole that it is unlikely that they will vote against their self interests and in favor of restoration of strict constitutional government and sound money. Perhaps Madison had a fear of the majority…Hey, just because he was paranoid did not mean that the majority was not out to get him. Of course people are not rational and people act irrationally often…so, it is not impossible that they will vote (or take action) against their own self interest.

"Have you not noticed how well the oligarchy plays this game? It labors constantly to pit black against white, public union against private union, black and white against brown, union against non-union, Jew against Gentile, middle-class against working-class, and so forth."

Yes, I have noticed divide and rule. Have you failed to notice that ~ one half of all Americans in some manner feeding at the trough of American governments is also a stumbling block to 'American peasants' taking action toward reform?

"And I find it confusing why you put forth the argument you do at a time when the oligarchy is enjoying almost unprecedented power."

Oh, I don't think you are confused. I think that you do not want 'American peasantry' to realize how much they rely on American governments for their daily bread. Or, as Shakespeare said… 'Methinks thou dost protest too much".


Well said… props to you and Kevin dB for your thoughtful contributions to the conversation. That is why I read this blog. I enjoy learning about the world. I do not enjoy political opinionating much, even when I agree with it. As far as I am concerned, most political opinionating (left and right) is just whining that the world is not how you want it to be and blaming the other team for current misfortunes… and cheap digs is a big part of that. To use sports language, most political types, IMO, are "poor sports."

It's alot of work to study history, anthropology, sociological trends and related subjects in order to try and understand why the world is the way it is. It's much easier to parrot the memes of your political belief group and emotionally and self-righteously ride on the shared agreements and disagreements that brings.

Kevin de Bruxelles:


I think you articulate well the reasons Americans are still loath to turn on the system. And from the elite point of view the strategy will be to turn up the propaganda emphasis in order to leverage the people's perceived dependency on the system while paradoxically cutting this dependency by hacking away at America's welfare state and transferring this wealth to among other things the national security state.

Groups seen as potential threats to stability will probably suffer fewer cuts than those groups seen as less of a civil threat, such as the elderly. Of course I'm not cheerleading this process but one cannot fight something that one doesn't understand.

I'm not sure why I left France off that list. While France's imperial failures in the 18th century may have played a very minor role in creating the situation that triggered their revolution, less than 15 years later there was a French Emperor ruling over a very impressive European empire. Later after this empire was lost on the retreat from Moscow; the French again built up their colonial empire in Indochine, North Africa, and eventually sub-Saharan Africa as well. What is interesting is that France lost this empire during the "Trente Glorieuses" (1947-1974) during which time the French saw explosive economic growth and a huge increase in their standard of living. While this doesn't prove anything it is another example of how global power does not necessarily follow the direction of internal economic events.


I think you have a point. Unfortunately one should never underestimate the stupidity of the populace.

The most depressing of all: we have this belief that education makes us better, but what I've noticed is that a college degree even from a reputedly good university doesn't give you more critical sense. Most, in fact all the college educated people I know still believe there's a profound difference between republicans and democrats and that voting for a 3rd party is useless. I stopped arguing with them. They only look at me as if I were some conspiracy theory parrot.


Kevin, surely that is not the real problem? The argument is not, or should not be, that to survive and prosper, empires have to provide either equality or services. The argument ought to be that in the end, imperial power is only supportable by economic productivity. When this declines, when economies become uncompetitive, often because of imperial overstretch, then the empire declines.

We saw this in modern times in Spain during the eighty years war. We saw it in the case of the UK in the early 20C. We saw it in Russia in the late 20C. We may be seeing it now in the US. The US may simply not have enough money to spend on the weapons that are required, may not be able to keep up with the growing economies that will be its rivals.

If this is happening, then one of the first signs might be that the living standards and employment levels of working Americans fall. Recall the twenties. This was a period in which the British Empire was still imperial, but in which the standard of living in the UK was falling behind, and in which other economies had passed it in productivity. Flash back to WWI. Then a large part of the success of the UK was its ability to out produce Germany. Go forward to WWII, and that edge had vanished.

It may be that the same thing is happening to the US. If so, critical as you all are of the US Government, its direction and state, this is really disturbing news for the West. The US is the only real power in the West. If the US is in imperial decline, then we are all in trouble. And if we do not like the US, just look at the alternatives. The US is awful, until you look at the alternatives….


A balance of power is pretty much impossible in a capitalist world-system, because of the struggle for markets, etc. The system works 'best' when there is a hegemon keeping order. The problem is the US no longer can afford to keep order; it can't sustain reserve currency status because of collapsing competitiveness in production and failed military occupations are bleeding the country dry.


"The argument is not, or should not be, that to survive and prosper, empires have to provide either equality or services. The argument ought to be that in the end, imperial power is only supportable by economic productivity. When this declines, when economies become uncompetitive, often because of imperial overstretch, then the empire declines."

Can we please keep in mind that first and foremost an empire is a business model?

In days of yore empires were in your face businesses. IOWs they did not attempt to obscure the fact that they were an empire…in fact, they gloried in being empires. Remember, 'The sun never sets on the British empire', was spoken with pride!

Let's take the British empire for an example. The brits sent out their navy and army to conquer foreign lands and then sent in well trained bureaucrats to set up very efficient systems to milk the conquered lands. A simple example: cotton from India was shipped to GB to be spun into cloth and sometimes made into finished goods…which was then sold back to India and other countries for a value added profit for GB. Little thought was given to the sweat shops and their laborers in the mills of GB and even less to the Indians that grew and picked the cotton in India. The labor in both countries worked in miserable and dangerous conditions and lived in squalid conditions. But, GB was a money making empire for some time. This is one example of an empire that did not care what the laborers thought or offer any safety net for the injured, old or ill.

Rome had a similar model to GB and once the gold and other treasure was taken back to Rome the populace of the conquered were allowed to lead somewhat normal lives as long as they paid a tax (grain, etc) to Rome each year.

Think about the business model of GB's empire or Rome's empire compared to the US empire of today… The US spends an enormous amount of dollars maintaining military outposts around the world and fighting wars in several countries. Where is the profit in the US model? Is it in the embedded in the 12 million barrels of oil the US imports each day? Is it embedded in world dollar hegemony? Is it embedded in the US financial sector that has global reach? Or, from other sources that are obscure…like printing large quantities of treasury paper that other countries accept for their products in exchange for protection offered by the US Military? I am curious about what other posters have to say about US profits from empire.

[Jul 24, 2010] Trickle Down Meanness - Maxine Udall (girl economist)

There is more at stake here than our economy. We must, as a nation, decide whether we want to continue on the path we have been on since roughly 1980.

Linda Beale over at ataxingmatter had a really excellent post a few days ago about a study by Sreedhari Desai, Arthur Brief, and Jennifer George that examines

...a heretofore ignored consequence of rising executive compensation. Specifically, we claim that higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers. We present findings from two studies - an archival study and a laboratory experiment – that show that increasing executive compensation results in executives behaving meanly toward those lower down the hierarchy.

The study conclusions are consistent with my own conjectures that there are ethical as well as economic consequences that result from dysfunctional financial markets and the dysfunctional labor markets they induce. The economic consequences include gross misallocations of financial, physical and human capital, away from activities that would promote long run economic growth and well being and to activities that will promote rising income inequality. The ethical consequences are erosion of trust and compassion, both prerequisites to fairness in rewarding contributions to long run growth and prosperity. If the above study is right, we can add frank meanness to the list of ethical consequences.

Adam Smith wrote about the influence of prevailing custom and fashion on moral sentiments in Theory of Moral Sentiments.

The different situations of different ages and countries are apt, in the same manner, to give different characters to the generality of those who live in them, and their sentiments concerning the particular degree of each quality, that is either blamable or praise-worthy, vary, according to tns-serif" size="2;"> Nowadays, most of us would object to what appears to be cultural or ethnic stereotyping in some of what Smith wrote. I am unable to say to what extent Smith's views reflected then existing national and cultural heterogeneity that will have no doubt been rendered by economic development more homogeneous over time. Smith was a sound thinker and critical observer, which causes me to attribute his generalizations about different nationalities somewhat to Scots-Anglo ethnocentrism and somewhat to possible real national differences. Nevertheless, his main point seems valid: that what is "either blamable or praiseworthy" varies "according to that degree which is usual" in our own country and own times, that our moral sentiments and behavior are shaped to some extent by the culture in which we dwell.

Smith goes on to discuss "customary characters" of professions and stages of life, conjecturing that they are shaped by the moral sentiments that accompany and promote the duties of a given profession or of a specific stage in the life cycle. Thus, some professions and life stages are more reticent or staid than others. But, while Smith sees custom in the form of social and professional norms reinforcing good moral sentiments and behavior, he also sees it as something that can erode the same.

It is not therefore in the general style of conduct or behaviour that custom authorises the widest departure from what is the natural propriety of action. With regard to particular usages, its influence is often much more destructive of good morals, and it is capable of establishing, as lawful and blameless, particular actions, which shock the plainest principles of right and wrong.

His point being that just as self-interest can prevent us seeing impropriety and injustice, so too can culture and custom. A slave holder in the antebellum US South had self-interested reasons for believing slavery to be morally acceptable. A poor white worker whose wages were depressed by the availability of slave labor might still find slavery acceptable and worth fighting to preserve because the norms and customs of his culture find no impropriety in slavery.

If the US norm becomes extreme income inequality and the custom becomes meanness trickled down from those who reap rewards disproportionate to their product, will it ultimately lead to establishment "as lawful and blameless, particular actions, which shock the plainest principles of right and wrong?"

Causal relationships are always difficult to establish in non-experimental settings. Desai, Brief and George provide results from a small experiment that lend support to their conclusion that increased wage disparity engenders meanness or as Smith might call it "lack of sympathy" among those at the top for those at the middle and bottom of the wage pyramid. Nevertheless, it remains difficult at the societal level to determine to what extent economics shapes ethics and to what extent ethics shapes economics and economic systems.

I would be willing to bet that just as disparity between worker and CEO pay has produced "meanness," so has growing US income inequality produced similar disruption of fellow feeling in the population generally. As the "distance" between the wage rates at the top of the US income distribution and the middle and bottom of the distribution has increased, so has grown the "distance" in sympathy one for the other.

This is not an argument for income equality. There is every reason to believe that most people in the US approve of income differences based on rewards for greater productivity or other merit. I happen to share those views. However, the current disproportionate increase in the percent of national output going to the top 1% of the population, despite increasing productivity among those of us still employed and those who were employed up until 2 years ago, suggests that merit is no longer the trait that is being rewarded.

The conclusion seems self-evident. There is more at stake here than our economy. We must, as a nation, decide whether we want to continue on the path we have been on since roughly 1980. Do we want to continue to reward disproportionately a small fraction of the population that (based on recent performance) seems better at misallocating financial, physical, and human capital through speculative endeavors? Do we want to continue the trickle down of meanness? Shall we live in a society in which trust and fellow feeling are lost, replaced by mindless (not rational, not productive) winner-take-all competition that favors one group disproportionately? If the answers to these questions are all "yes," then the social fabric may already be torn beyond repair and I fear we are about to learn firsthand how empires crumble.

[Jul 21, 2010] BS explanation for rising inequality by Chris Bertram

July 21, 2010 | Crooked Timber

Chicago economist Raghuram Rajan offers the following explanation for the long-term stagnant real incomes of Americans at the 50th percentile of the income distribution (compared to their compatriots at the 90th):

A number of factors are responsible for the growth in the 90/50 differential. Perhaps the most important is that technological progress in the US requires the labor force to have ever greater skills. A high school diploma was sufficient for office workers 40 years ago, whereas an undergraduate degree is barely sufficient today. But the education system has been unable to provide enough of the labor force with the necessary education. The reasons range from indifferent nutrition, socialization, and early-childhood learning to dysfunctional primary and secondary schools that leave too many Americans unprepared for college.

I really find this difficult to believe. My guess is that, in terms of the real skills objectively needed to do the job, a high school diploma is more than adequate for most office work. Of course, it may be that, because of competition for those jobs, you need a higher level of qualification to get one. But that's a different story.


"Who's not working and why : employment, cognitive skills, wages, and the changing U.S. labor market" by Frederic L. Pryor and David L. Schaffe (CUP, 1999) provide a wealth of evidence to support CB's scepticism – graduates increasingly going into jobs previously done by high school leavers without any clear evidence that graduate level skills are actually required for this.

There's also an extensive literature on over-education, particulalrly graduates doing jobs that don't really require their skills, in the UK and elsewhere in Europe.


And part of the "companies are hiring college graduates to do what only needs a high-school diploma" thing can probably be attributed to the presence of "Human Resources" departments at most companies, who have the task of filtering through resumes for job openings. Naturally, they are going to be credentials-based, since they really don't know the work, and have to pore through hundreds or thousands of resumes. It's just easier to assume that a higher-degree is a better predictor of results than a lower one – not correct, mind you, but easier.


This has been the (inner-)Party line for some time. Alan Greenspan is fond of this excuse and uses it in his "Age of Turbulence". He claims it is because the U.S. public school system is "broken" and wage stagnation will be solved by its dismantlement into private entities, access to which will be harshly rationed by wealth.

Nevermind most office jobs don't need more than a high school diploma. Nevermind that education has NEVER CEASED EXPANDING to the point where the industrialized world is facing a massive GRADUATE GLUT. Grade and diploma inflation is the norm now.


It's just going like clockwork, isn't it? Destroy industry by shipping it overseas and engineer the collapse of the economy, reducing the opportunities for both highly-trained university graduates and skilled and unskilled labour, forcing the more highly-educated to seek employment downscale, artificially inflating the 'requirements', forcing the lower classes even further out of the running, and down and down and down it goes….

It was such a great joke: socialism was never the road serfdom, capitalism is. Maybe someday people will get it.


Just a couple of thoughts. First, it's interesting that this explanation is attractive to the same people who attack higher education in the US. Second, the unemployment numbers by educational attainment are interesting in this connection. Even now those with a BA have an unemployment rate below 5% (and during the previous upswing in employment a few years back it was essentially full employment (2.3% or so). Finally, I think the frustration with the lack of preparation for college among incoming freshmen should be considered. At most non-elite schools a significant portion of the incoming student body has (a) no real grasp of how to study for anything other than memorization (b) can barely write a coherent sentence© can barely read a short op-ed piece for example and identify thesis and argument (d) has atrocious oral communicative skills. This, I suspect, is the real skill set that a college degree now provides, some reasonable likelihood that a person can function in a collaborative, knowledge based, highly communicative social environment. But, one reason to doubt the explanation is that it seems unlikely that income stagnation hasn't affected a significant portion of these college educated workers as well, which it seems this fellows hypothesis would need to explain-though I'm not an economist so perhaps I'm wrong.

[Jul 21, 2010] Merle Hazard Greek Debt Song


How the rich are winning Brett Arends' ROI - MarketWatch

These are not isolated incidents. According to consultants Cap Gemini, the wealthy saw their net worth bounce back sharply last year. And while those with $1 million or more did pretty well, the real story was the boom among the ultra rich: Those with more than $30 million to invest. "Ultra-HNWIs (High Net Worth Individuals)increased their wealth by a striking 21.5% in 2009, far more than the average in the HNWI segment as a whole," Cap Gemini reported, adding: "A disproportionate amount of wealth remained concentrated in the hands of Ultra-HNWIs."


There are fewer than 100,000 ultras around the world. A third of those are here in the U.S. Ultras make up 1% of the high net worth, according to Cap Gemini, but held 36% of the high net worth's wealth.


A recent study by the Congressional Budget Office found that the top 1% of Americans paid an average federal income tax rate of just 19% in 2007, the last year when data were available. The top 5% of earners paid an average rate of less than 18% There are ways and means to minimize tax -- like calling your income "capital gains." That's what private equity honchos do, where possible. In many cases, it means people making tens of millions a year are paying lower tax rates than their chauffeurs and receptionists. (There are proposals to change that, with predictable screaming).


The average Fortune 500 chief executive pocketed $10.5 million in 2008, the last year for which data are yet available. That's more than 300 times the average worker's pay. Back in the Dark Ages -- the 1940s through 1980 -- the ratio was typically about 40 times. From 1979 through 2007, says the CBO, the top 1% saw their average household income skyrocket from $346,000 to $1.3 million in constant, 2007 dollars. That's after taxes. Meanwhile the average middle-class family saw their income rise from $44,000 to $55,000.

And according to an analysis by the Central Intelligence Agency, the U.S. has one of the most unequal income distributions in the world. In this field, most of the developed world is pretty much in line -- Japan, Italy, Australia, Canada, Norway, Great Britain. Some are more unequal than others, but all are comparable. In each case, of course, the rich make more than the middle class, sometimes a lot more. But they generally occupy the same economy.

The U.S.? Our income distribution is more in line with Zimbabwe, Argentina, and El Salvador. We think of Russia as the land of oligarchs, but America's inequality is actually slightly greater than Russia's.

[Jun 28, 2010] World's rich got richer amid '09 recession report - Yahoo! News

NEW YORK (Reuters) – The rich grew richer last year, even as the world endured the worst recession in decades.

A stock market rebound helped the world's ranks of millionaires climb 17 percent to 10 million, while their collective wealth surged 19 percent to $39 trillion, nearly recouping losses from the financial crisis, according to the latest Merrill Lynch-Capgemini world wealth report.

Stock values rose by half, while hedge funds recovered most of their 2008 losses, in a year marked by government stimulus spending and central bank easing.

"We are already seeing distinct signs of recovery and, in some areas, a complete return to 2007 levels of wealth and growth," Bank of America Corp wealth management chief Sallie Krawcheck said.

The fastest growth in wealth took place in India, China and Brazil, some of the hardest hit markets in 2008. Wealth in Latin America and the Asia-Pacific soared to record highs.

Asia's millionaire ranks rose to 3 million, matching Europe for the first time, paced by a 4.5 percent economic expansion.

Asian millionaires' combined wealth surged 31 percent to $9.7 trillion, surpassing Europe's $9.5 trillion.

In North America, the ranks of the rich rose 17 percent and their wealth grew 18 percent to $10.7 trillion.

The United States was home to the most millionaires in 2009 -- 2.87 million -- followed by Japan with 1.65 million, Germany with 861,000, and China with 477,000.

Switzerland had the highest concentration of millionaires: nearly 35 for every 1,000 adults.

Yet as portfolios bounced back, investors remained wary after a collapse that erased a decade of stock gains, fueled a contraction in the global economy and sent unemployment soaring.

The report, based on surveys with more than 1,100 wealthy investors with 23 firms, found that the rich were well served by holding a broad range of investments, including commodities and real estate.

"The wealthy allocated, as opposed to concentrated, their investments," Merrill Lynch head of U.S. wealth management Lyle LaMothe said in an interview.

Millionaires poured more of their money into fixed-income investments seeking predictable returns and cash flow. The challenge ahead for brokers is convincing clients to move off the sidelines and pursue riskier, more fruitful investments.

"There is still a hesitancy," LaMothe said. "Liquidity is incredibly important and people need cash flow to preserve their lifestyle -- but they want to replace that cash flow in a way that does not increase their risk profile."

The report found that investor confidence in advisers and regulators remains shaken. The rich are actively managing their investments, seeking customized advice and demanding full disclosure about the securities they buy.

There were signs that investors were shaking off their concerns. Families that kept money closer to home during the crisis began shifting money to foreign markets, particularly the developing nations.

North American and European investors are expected to increase their exposure to Asian markets, which are projected to lead the world in economic expansion. Europe's wealthy are seen increasing their U.S. and Canadian holdings.

More wealthy clients also are taking a harder look at large companies that pay healthy dividends, as an alternative to bonds and their razor-thin yields.

"Investors are open to areas they hadn't thought about before as they try to preserve their ability to be philanthropic, to preserve their lifestyle," LaMothe said. "To me, the report underscored clients are involved and they're not inclined to stay in 1 percent savings accounts."

(Reporting by Joseph A. Giannone; editing by John Wallace)

Mr. Cold Water Of Reality:

  • They voted for Reagan.
  • They voted for Bush.
  • They voted for the dimmer Bush, twice (sort of).

They're getting what they asked for, and what they deserve.


As usual we have the defenders of the wealthy voting for their own oppression. How clueless are Americans? The Social Security tax should apply to 100% of all earnings from dividends and wages. The rich haven't paid their fair share since Reagan tilted the financial wheels toward their cause in the 80s. Funny how undereducated members of the middle and working class step up to defend the wealthy even when it hurts them?


For starters remove the cap on the Social Security payroll withholding and let them pay past the current $106,800 of earnings. If they bring in 1 million a year, as many CEOs do, that's $893,200 in income that is exempt from Social Security contributions. Most of us never get past that ceiling, why should they get to take a free ride while Social Security faces an uncertain future?


There is certainly a lot of antagonism out there, and the "little people" can hardly be blamed for their frustration. Ever since Reagan, the rich have been getting richer and paying less taxes, while some poor fool who makes $30,000 a year still has to pay! Not fair.

We need to tax the rich at a higher rate. It doesn't need to be 99% like in the Elvis Presley days, but surely they could pay more than they do. How can you spend a billion dollars? And these people get it every year, not just once like in the lottery. I also wonder how many are sending American money to Switzerland (or Singapore) and making those countries rich, denying that money to the American economy.

[Jun 15, 2010] Kyl continues working for the ultra wealthy

Why can't Congresspeople act like grown-ups. They bawl about deficits and say we absolutely have to cut Social Security benefits, even though we know that a very small tax increase (or even a very small difference from the conservative trustee estimates) can solve that problem (if there is one). But we can't do any further stimulus, they say, even though we have millions out of work and ordinary people are hurting while bankers and shadow bankers continue to make millions off the cheaper cost of funds handed them because of the governmental bailout--because it would cost too much.

Yet at the same time that they whine about the deficit, cry crocodile tears over the cuts they so regrettably find themselves forced to make in Social Security, they can contemplate another giveaway entitlement package for the ultra wealthy -- one that will cost $15 billion a year.

[Jun 12, 2010] Inequality back at record highs by Ezra Klein

June 11, 2010 |

In 2005 and 2006 and 2007, I wrote a lot about inequality, which had reached highs not seen since the run-up to the Great Depression. After the financial crisis, I largely stopped, as I figured that the sharp crash would pretty much wipe out the build-up in wealth. And I was right, for a time. But now it's come back.

The basic story here is that assets have recovered so much more quickly than the broader economy that in 2009, "the millionaire class held a larger percentage of the country's wealth than it did in 2007." In other words, inequality has actually gotten worse. If you want to see why that's unexpected, check out the chart I cadged from the Center for Budget and Policy Priorities:

In part, that's attributable to the fact that this didn't turn out to be as bad as the Great Depression. But it also says something about the policies we used to respond to this crisis. In the 1930s, we did a lot to reshape the economy so it was more balanced, and so its gains were more broadly shared. That's not been a major part of our response to this crash


@WD:I think it would look somewhat less evil if it tracked After-Tax income because those who make more money pay a much larger percentage of income.

actually it doesn't change the picture that much. from 1979-2006 the top 1% saw a 256% increase in income while the bottom quintile saw about a 10% increase.

lowest quintile 10% increase
next quintile 18% increase
next quintile 21% increase
next quintile 32% increase
highest quintile 87% increase
top 1% 256% increase.


So the top quintile had after tax incomes increase by about 3 times as much as the next highest quintile and 9 times what the lowest quintile increased.

[May 25, 2010] Extend and Pretend Reaches A New Level " naked capitalism

"Fantasy accounting to make financial statements increasingly obtuse only means managements can pay themselves as much as they want as they can create statements that reflect what they want to game compensation."
May 25, 2010

Deux Ex Macchiato (hat tip FT Alphaville) tells of the disconcerting changes to what was formerly called FAS Rule 157, which brought us Level 1, 2, and 3 accounting. A brief recap:

Readers may recall that the Financial Standards Accounting Board implemented Statement 157, which required financial firms to identify how they arrived at the "fair value" for their assets. Level 1 are ones where there is a market price. Level 2 are those where there may not be much of a market, but they can nevertheless be priced in reference to similar assets that have a market price, or their price can be derived from "observable inputs" which are presumably from financial markets (the use of sunspots, skirt lengths, the Mayan calendar, or a model using, say, a ratio of bullish versus bearish stories on Bloomberg presumably does not qualify).

Level 3 assets are priced using "unobservable inputs," and is therefore colloquially called "mark to make believe."

Almost as soon as this regime was in place, the officialdom started giving waivers. The refinements to these valuation rules that become ever-more bank flattering.


Is there anyone who believes a thing on any financial statement from these firms? Seems that we're at credibility zero to start with.

ab initio:

Fantasy accounting to make financial statements increasingly obtuse only means managements can pay themselves as much as they want as they can create statements that reflect what they want to game compensation. Of course such statements will never reflect the actual financial condition of the firm. In any case that is never of any concern as the taxpayers are always there to hold the bag when reality catches up.

Independent Accountant:

Amen. I have long believed many large financial institutions are unauditable, the opinions of their Big 87654 firm CPAs to the contrary.


Not sure anyone had to crawl into the bowels of a financial firms to conclude they were black holes. Complexity and intentional obfuscation that brings things beyond human comprehension in an Orwellian sense. That is what bankers do when the ship is going down. Big Bonuses. That wasn't just greed – that was get some before the ship goes down.

But then again, some of the brightest minds in the game have taken enormous stakes! Like freakin FAMOUS trader GOD super genius John Paulson and his huge BofA stake.

Warren Buffet and his GS stake. The list goes on.

Know this, friends – there is a saying "Too old to laugh, too young to cry" that applies here.

[May 25, 2010] ; New SEC Regulations for CEOs

We still live in a world where only the Onion, Jon Stewart and like are the only ones telling the truth… "we're back to the royalty/feudal days where the only contribution to "GDP", if it was being measured, began and ended at the lord's castle"
The Big Picture
From (who else?) The Onion:

"Securities and Exchange Commission officials are calling it the strictest regulatory reform since the Great Depression: CEOs of major financial institutions will now be required to humbly shrug and smile sheepishly before accepting huge salary bonuses.

The new regulation, SEC rule 206(b)-7, will reportedly target Wall Street executives who accept disgustingly bloated annual payouts, forcing them to raise and then lower their shoulders in a manner that conveys a mild degree of humility or a sense of "Aw, shucks. Who? Me?"

"This sweeping new reform sends a clear message to fat-cat CEOs at firms like Goldman Sachs and AIG," SEC chair Mary Schapiro said Monday. "Never again will they be able to receive massive bonuses unless, at a minimum, they flash a gee-I-don't-think-I-should expression and say something like 'Well, all right, but only if you insist' first."

"Mark my words," she continued, "The days of greedy, out-of-touch executives pocketing outrageous $40 million bonuses without acting slightly embarrassed about it are over."

The crackdown comes on the heels of Wall Street's 2010 bonus season, during which not one executive was observed to look at the floor meekly, sink his hands into his pockets, or dig his right toe awkwardly into the ground before taking his cut of the estimated $55 billion in payouts."

-New Law Forces CEOs To Humbly Shrug Before Receiving Massive Bonuses


ACS wrote:

The hijacking of public corporations for the benefit of management will not end until mutual fund managers are forced to vote their shares with a fiduciary duty to their investors.

I'm afraid it'll take much more than that. The hijacking has spread like an epidemic to the non-profit sector too:,0,5247421.story

Two sectors that have been particularly under assault are universities and health care organizations:

To top it all, these fuckheads don't even have to know the first thing about what they manage:

[May 23, 2010] "Closing Tax Loopholes For Billionaires"

What are the chances that the deficit hawks will come out in favor of this?:

The Challenge of Closing Tax Loopholes For Billionaires, by Robert Reich: Who could be opposed to closing a tax loophole that allows hedge-fund and private equity managers to treat their earnings as capital gains – and pay a rate of only 15 percent rather than the 35 percent applied to ordinary income?

Answer: Some of the nation's most prominent and wealthiest private asset managers, such as Paul Allen and Henry Kravis, who, along with hordes of lobbyists, are determined to keep the loophole wide open.

The House has already tried three times to close it only to have the Senate cave in because of campaign donations from these and other financiers who benefit from it.

But the measure will be brought up again in the next few weeks, and this time the result could be different. Few senators want to be overtly seen as favoring Wall Street. And tax revenues are needed to help pay for extensions of popular tax cuts, such as the college tax credit that reduces college costs for tens of thousands of poor and middle class families. Closing this particular loophole would net some $20 billion.

It's not as if these investment fund managers are worth a $20 billion subsidy. Nonetheless they argue that if they have to pay at the normal rate they'll be discouraged from investing in innovative companies and startups. But if such investments are worthwhile they shouldn't need to be subsidized. ...

Nor are these fund managers especially deserving, as compared to poor and middle-class families that need a tax break to send their kids to college. ...

Several of these private investment fund managers, by the way, have taken a lead in the national drive to cut the federal budget deficit. The senior chairman and co-founder of the Blackstone Group, one of the largest private equity funds, is Peter G. Peterson... Curiously, I have not heard Peterson advocate closing this tax loophole as one way to further the cause of fiscal responsibility.

Closing tax loopholes for billionaires may seem like a no-brainer... But you can expect a huge fight.

There is also a moral issue here. Call me old fashioned but I just think it's wrong that a single hedge fund manager earns a billion dollars, when a billion dollars would pay the salaries of about 20,000 teachers.

[May 23, 2010] Maule and Pappas on progressive taxation and the decreasing burden on the rich by Linda Beale


Maule and Pappas on progressive taxation and the decreasing burden on the rich

Maule and Pappas have been engaging in a debate on progressive taxation and the decreasing burden on the rich. See Canonizing the Rich, Part 1, Part 2, and Part 3.

As Maule shows in his posts, the rich have an increasing share of the income (an even larger share of the economic income--because they benefit much more than ordinary folk from tax expenditures in the Code, from capital gains preference to charitable contribution deduciton to mortgage interest deduction to life insurance exclusion, and more of adjusted gross income, a tax concept that excludes much of economic income). But they pay a much smaller proportion of that income in taxes now than they did in the period when our country was the most prosperous shortly after WWII--a decline from about 50% of the income in taxes to less than 20% of it paid in taxes. Meanwhile, our country has slid into a deficit spiral from the combination of gigantic tax cuts under Bush that were of primary benefit to the ultrarich (the 2001 tax cuts were projected to cost about $1.6 trillion over the first decade and have cost about $700 billion so far) and the huge increase in government under Bush from militarization and his "preemptive war" policy (costs of the Iraq-Afghanistan wars in human lives greater than 5000 and in dollars running to the multiple trillions--especially when long-term health needs of Vets and replacement costs for the expensive equipment is factored in).

So why would anyone think that these disastrous policies of cutting taxes for the rich should continue? Such a policy has no good outcomes--deficits, inequality that threatens democracy with oligarchy, political instability, poverty and the disease, lack of education, despair and often violence that can come from it. I wouldn't want to live in a country where the well off live entirely within isolated islands of gated communities, surrounded by deep zones of poverty. I much prefer a country built on communities based on sustainability, where the wealthiest are merely rich and not "filthy rich." A salary for a hedge fund manager or a CEO of a million a day (not uncommon in twenty-first century America) is, simply put, obscene when it is 300 or 400 or even 500 times the salary of the average worker. No one "earns" that kind of salary--it is a corrupt gift from peers who want the same return favor when the manager sits on their salary board.

attempter :

May 11, 2010 at 3:27 am

It's been clear for months now, since he first announced this priority in latter 09, that at the core of Obama's Reagan idolatry is his nightmare of gutting Social Security and Medicare.

Obama would view it as the consummation of his presidency if he could succeed where Bush failed, to privatize Social Security for the benefit of the banks.

Here we see the ultimate example of where Democrats opposed something Bush wanted to do (one of the only times the Congressional Dems actually did fight back hard), not because they opposed it in principle, but because they wanted to reserve the accomplishment for themselves.


I'm liking this Real News channel!

As I understand it, SS runs a surplus and would not be in any difficulty IF Congress would stop raiding the surplus each year. Why is this point rarely if ever mentioned?

Here's a couple of articles on SS privatization:

Here's how it could be worse

During the Bush administration, proposals to privatize Social Security were in vogue. Here's why today's retirees can be very happy it didn't happen.

Twelve Reasons Why Privatizing Social Security is a Bad Idea
Greg Anrig, Bernard Wasow, The Century Foundation, 12/14/2004

Addressing Social Security's potential long-term financing challenges by taking the dramatic step of diverting its payroll taxes to create new personal accounts will have drastic consequences for federal finances, future retirees, and those who rely on the system the most. Learn more about twelve major reasons why less costly and less painful reforms should be considered instead.

Click on the links below to jump to different parts of the document or download in PDF format here.

* Introduction

* Reason #1: Today's insurance to protect workers and their families against death and disability would be threatened.

* Reason #2: Creating private accounts would make Social Security's financing problem worse, not better.

* Reason #3: Creating private accounts could dampen economic growth, which would further weaken Social Security's future finances.

* Reason #4: Privatization has been a disappointment elsewhere.

* Reason #5: The odds are against individuals investing successfully.

* Reason #6: What you get will depend on whether you retire when the market is up or down.

* Reason #7: Wall Street would reap windfalls from your taxes.

* Reason #8: Private accounts would require a new government bureaucracy.

* Reason #9: Young people would be worse off.

* Reason # 10: Women stand to lose the most.

* Reason #11: African Americans and Latin Americans also would become more vulnerable under privatization.

* Reason #12: Retirees will not be protected against inflation.


Glen :

May 11, 2010 at 4:21 am

The Tea Party ought to love Obama. He's slowly getting rid of Social Security, Medicare and Medicaid through a combination of forced enrollment in private health care, two unfunded wars, massive tax payer give aways to Wall St, and never ever raise taxes on Wall St bankster types, or cut back on funding military boondoggles. All this, after wiping out your home value, your pension, and your job.

He's like a smarter, smoother, Bush II.

Abhishek :

Social Security ,Medicare and Medicaid have to be reformed because of the current and past profligacy. The unfunded liabilities of these programs cannot be funded by the projected revenues of the government.


koshembos :

Not saying much new, just look at the assembly of billionaires proclaiming that the disaster is around the corner if hard working little earning people will be allowed to retire semi-comfortably after 67 (for men). They sound like unfunny comedians.

These billionaires also share another distinction. All of them made their money by speculation, gambling and government dole. None of them produces anything somebody else can buy. If the whole country will be speculating and gambling, we indeed face a disaster. Exactly what happened the last year and a half. They are scared for a country of gamblers because that the only vision they have.

Last but by no means least, look at history. Doing away with social security is the wet dream of the Republican Talibans since FDR; nothing has changed. Peterson, in particular, still carries early childhood memories of the great depression that according to his Talibanistic view happened because of FDR.


Interesting to see Robert Rubin. Despite his checkered history he's clearly very much calling the shots. What does this guy have to do to get discredited? I could say the same for Greenspan.

billwilson :


Before cutting entitlements it is time to take a serious look at cutting the massive defense budget. The US can no longer afford to spend 50% of world defense expenditures (with no obvious military enemy).

ONLY after defense has been tackled, and tax rates on the wealthy restored to previous levels should the discussion move on to entitlements.


Boeing just rolled out the Phantom Ray yesterday. They have no customers for it, but they built it anyway hoping to get the Defense Department to buy it in the future.

Impressively. Stupid.


Taking the retirement responsibility of one generation and putting it on the backs of a younger generation is a crime against humanity.

The baby boom perpetuated this crime and today's under 40's appear to lack the courage to do anything about it.

goinsouth :

Haigh :

The baby boomers have to take responsibility for voting for Democrats and Republicans who took no interest in fixing the funding model of Social Security.

And we are now confronted with Bailout Baby Boom.


Mickey Marzick in Akron, Ohio :

According to the adherents of MMT, deficit spending by the US is not the "problem" these luminaries and their political sycophants make it out to be. WHY are they even talking about "reforming" Social Security then? It certainly isn't likely to win votes or political kudos. Or is this outside the scope of MMT? It's politics – not about finance and monetary theory? Explain it to us… speculation is permitted here.

Or are the market high priests doing God's work on earth demanding additional sacrifice? God says to Abraham kill me a son… Quetzalcoatl the plumed serpent out for blood? Bless me father for I have sinned…

Or in a more secular world, is it simply that anyone retired with a pension – public or private – or hoping to retire shortly has been deemed a "looter" by the "producers" [market gods]? Legacy costs in a world that Atlas Shrugged?

Or is it simply because we can… explanations are no longer necessary. Become like us and you will understand.

Fundamentalism – religious and/or secular – when taken to its logical conclusion is TOTALITARIAN. Raw power for the sake of power… the ultimate aphrodisiac [Henry Kissinger].

Rdan :

There are several aspects to the retirement programs that take time to sort out. But to approach Social Security as a program

1.that is working as intended including currently, not part of the general budget but a program with a dedicated revenue stream (unlike many entitlement subsidies we like to call military spending and ag support since we put it on the credit card) provide a minimal floor as insurance for having an average life and savings when you get old, your younger self paying your older self,

4. and falsely accused of having problems like intergenerational fairness (define that please…my sons 401K not paying the same as mine?) and worker to retired ratio (never heard of productivity?)

5. the money you deposit in a bank is lent out as loans, correct, the ious to be repaid with interest…or is it not your money anymore (oops…banks go bankrupt)

Most of what you think you know about Social Security is wrong.

[May 09, 2010] Food for Thought: A Graphical Peek at Income Inequality in the United States

Daniel Little returns to the topic of social mobility:

Urban inequalities and social mobility, by Daniel Little: Most American cities commonly look a lot like this poverty map of Cleveland when it comes to the spatial distribution of poverty and affluence. There is a high-poverty core, in which residents have low income, poor health, poor education, and poor quality of life; there are rings of moderate income; and there are outer suburbs of affluent people with high quality of life.

We can ask two different kinds of sociological questions about these facts: What factors cause the reproduction of disadvantage over multiple generations? And what policy interventions have some effect on enhancing upward social mobility within disadvantaged groups? How can we change this cycle of disadvantage?

The persistence of inequalities in urban America was addressed in a special 2008 issue of the Boston Review in a forum on "ending urban poverty." Particularly interesting is Patrick Sharkey's article "The Inherited Ghetto." Sharkey begins with a crucial and familiar point: that racial inequality has changed only very slightly since the passage of the Fair Housing Act in 1968. The concentration of black poverty in central cities has not substantially improved over that period of time, and the inequalities of health, education, and employment associated with this segregation have continued. And the association between neighborhood, degree of segregation, and income and quality of life is very strong: children born into a poor and segregated neighborhood are likely to live as adults -- in a poor and segregated neighborhood.

Sharkey documents these statements on the basis of his analysis of the data provided the University of Michigan Panel Study of Income Dynamics, the first major statistical study of several generations of families in terms of residence, income, occupation, health, and other important variables. Using a computer simulation based on the two-generation data provided by the Panel Study, Sharkey indicates that it would take five generations for the descendants of a family from a poor, black neighborhood to have a normal expectation of living in a typical American neighborhood. (That's one hundred years in round numbers.) In other words: the progress towards racial equality in urban America is so slow as to be virtually undetectable.

Particular frustrating is the persistence of segregation in the forty years since the passage of the Fair Housing Act. Sharkey argues that this fact is partially explained by the fact that the policy choices made by federal and local authorities concerning housing patterns have more or less deliberately favored segregation by race. Beginning with the initial Fair Housing legislation -- which was enacted without giving the Federal agencies the power of enforcement -- both federal and state policies have reinforced segregation in housing. Sharkey notes that federal housing programs have subsidized the growth of largely white suburbs, while redlining and other credit-related restrictions have impeded the ability of black families to follow into these new suburban communities. The continuation of informal discrimination in the housing market (as evidenced by "testers" from fair housing agencies) further reinforces continuing segregation between inner-city black population and the suburban, mostly white population.

So racial segregation is one important mechanism that maintains the economic and social inequalities that our society continues to embody.

How about policies that would work to speed up social progress? It is commonly agreed that improving access to higher education for disadvantaged people is the best way to speed their economic advancement. The theory is that individuals within the group will benefit from higher education by enhancing their skills and knowledge; this will give them new economic opportunities and access to higher-wage jobs; the individuals will do better economically, and their children will begin life with more economic support and a set of values that encourage education. So access to higher education ought to prove to be a virtuous circle or a positive feedback loop, leading to substantial social mobility in currently disadvantaged groups.

This theory appears to be substantially true: when it is possible to prepare poor children for admission to college, their performance in college and subsequent careers is good and lays a foundation for a substantial change in quality of life for themselves and their families (link).

However, most of our cities are failing abysmally in the task of preparing poor children for college. High school graduation rates are extremely low in many inner-city schools -- 25-50%, and performance on verbal and math assessment tests are very low. So a very substantial number of inner-city, high-poverty children are not being given the opportunity to develop their inherent abilities in order to move ahead in our society. This is true in Detroit (link), and much the same is true in Cleveland, Oakland, Miami, Houston, New Orleans, and dozens of other cities. (Here is a survey of the issues by Charles Payne in So Much Reform, So Little Change: The Persistence of Failure in Urban Schools And here is a striking report from 1970 prepared by the HEW Urban Education Taskforce.) High poverty and poor education go hand in hand in American cities.

One important research question is whether there are behavioral or structural factors that predict or cause low performance by groups of students. Here is a fascinating graph of high school graduation rates broken down by freshman-year absenteeism (MDRC report). Important research is being done at the Center for the Social Organization of Schools at Johns Hopkins on the dropout crisis in urban schools (link). (Here is an earlier post on CSOS and its recommendations for improving dropout rates from urban high schools.) The topic is important because research findings like these may offer indications of the sorts of school reforms that are most likely to enhance school success and graduation.

It is clear that finding ways of dramatically increasing the effectiveness of high-poverty schools is crucial if we are to break out of the multi-generational trap that Sharkey documents for inner-city America. Here is a specific and promising strategy that is being pursued in Detroit by the Skillman Foundation and its partners (link), based on small schools, greater contact with caring adults, and challenging academic curricula. This turn-around plan is based on a specific set of strategies for improving inner-city schools developed by the Institute for Student Achievement, and ISA provides assessment data that support the effectiveness of the plan in other cities. With support from the United Way of Southeast Michigan, several large high schools are being restructured along the design principles of the ISA model.

But the reality is that this problem is immense, and a few successful experiments in school reform are unlikely to move the dial. Somehow it seems unavoidable that only a Marshall Plan for addressing urban poverty would allow us to have any real confidence in the possibility of reversing the inequalities our cities reveal. And none of our political leaders -- and few of our taxpayers -- seem to perceive the urgency of the problem.

Posted by Mark Thoma on Sunday, May 9, 2010


You can talk about higher education, but the battleground is middle school. That is where children begin to be consigned to underclass status. Why do you think they skip class in the 9th grade?

Daniel Little: "And none of our political leaders -- and few of our taxpayers -- seem to perceive the urgency of the problem."

How many even perceive it to be a problem? "We are in danger of producing an educated proletariat." -- Roger Freeman, educational advisor to Nixon.


May 3, 2010

Students of the Great Recession

The Great Depression did not have too many silver linings, but it did change the way Americans thought about education, clearly for the better. In 1930, only 30 percent of teenagers graduated from high school. By 1940, after a decade in which there often was nothing better to do than stay in school, the number had jumped to 50 percent. The Depression didn't just make Americans tougher. It made them smarter.

In the years that followed, these newly skilled workers helped create an economic colossus. They were the factory workers, office clerks and managers who built up General Motors, U.S. Steel, R.C.A. and I.B.M. So when our own Great Recession began more than two years ago, it was reasonable to hope that something similar, if less extreme, might take place.

In a historical echo, the share of young adults in recent years who graduated from college happened to be about 30 percent. By any serious reckoning, that number was too low. The gap between the pay of college graduates and everyone else has grown sharply over the last three decades, reaching a new all-time high last year, which suggests that workers with a degree are too scarce a resource. There may indeed be a natural ceiling on how many college graduates a society should produce, but the United States does not appear close to it.

A deep recession has the potential to change that. It can keep people in school, or drive them back to school, in two main ways. First, it reduces the opportunity cost - to use the technical term - of attending college. When times are tough, you are less likely to be missing out on a good $20-an-hour job by being in class. Second, a recession can serve as a wake-up, as Cecilia Rouse, a Princeton economist on leave to work in the White House, puts it. Because job losses and reductions in hours tend to fall disproportionately on less-educated workers, a downturn reminds people of a degree's value.

The good news is that this dynamic seems to be playing out once again. The Bureau of Labor Statistics recently reported that the share of new high-school graduates enrolled in college rose to 70.1 percent last fall. That was up from 67.2 percent in 2007 and a new record. And an analysis by the Pew Research Center has found the increase happening overwhelmingly at community colleges, which tend to educate working-class and poor students, the very groups that have been left behind. Northampton Community College in Bethlehem, Pa., has dealt with the crush by holding classes in empty mall stores and church basements, according to the publication Community College Week. Fresno City College, in California, now has an enrollment of more than 25,000 students but just 3,000 parking spaces.

Yet this overcrowding also highlights the main reason to be skeptical that the current college surge will have anywhere near the impact of the Depression's high-school surge: it is not at all clear that colleges will, or even can, do right by their new students.

Over the last few decades, the number of teenagers who enroll in college has actually been rising fairly steadily. But graduation rates have fallen. Less than a third of all students who enroll in community colleges with the intention of getting a two-year degree - a degree leading to jobs in nursing, auto repair, preschool education - ever do so at any college, statistics suggest. The United States still leads the world in getting students to start college, notes Lawrence Katz, co-author of a recent history of education. But we no longer lead in what really matters: educational attainment.

This problem - the college-dropout boom - has started to receive more attention lately. The Obama administration has announced that it considers college completion to be as important as college access. The education bill that was attached to health care reform included $2 billion for community colleges with promising pilot programs. It was much less money than the White House initially wanted, but it is still enough to make a difference. The Gates Foundation, meanwhile, has begun to consider two-year colleges as the linchpin to improving higher education. "We have to accept the fact that completion rates are far too low," Melinda Gates told a gathering of community-college presidents last month. Gates implored them to be more innovative, and the foundation is spending $400 million to encourage such efforts.

College administrators and researchers admit they do not yet know exactly what works. The most important factor appears to be student preparation, which is mostly beyond a college's control. But intensive remedial programs seem to make a difference. So does financial aid linked to academic performance. In Louisiana and West Virginia, students whose scholarships were tied to remaining on track for graduation have done better than their peers. Such programs have the added benefit - especially during a time of shrinking government budgets - of focusing aid on students with a good chance of becoming graduates. Finally, of course, there is the overall cost of college. The higher the cost, the fewer the students who graduate, research has shown.

One advantage for Depression-era teenagers was the tuition at their local high school: zero. College, on the other hand, will probably never be free in this country. If anything, the recent state budget cuts are making it more expensive. Yet college is no less important to the country's economic future than high school was in 1930. So what is to be done? ...


Hi Anne:

"One advantage for Depression-era teenagers was the tuition at their local high school: zero. College, on the other hand, will probably never be free in this country."

Lets expand upon this a bit. Taxes paid for kindergarten through 12th grade 100%. Today, what has supplanted a high school education is a college degree and pre-school as the ticket to the middle class if job creation has kept up with the Civilian Labor Force (it hasn't for a decade now). Both College and pre-school education have a cost beyond tax paid k-12. Warren discusses this in "The Coming Collapse of the Middle Class" and Tom Hertz discusses the issue in "Understanding Mobility in America."

In any case the need for educational subsidy similar to what was experiened in the seventies is great, as great as the the need for job creation in the US.


Well, I suppose educational attainment (or lack thereof) and the various results of researching education access (or lack thereof) are statistical facts.

But where are the job categories that go wanting for lack of education? The allusion that people with low educational attainment cannot get the better jobs. Where are those jobs? There is credible evidence that even people with education and job experience are pushed down the career ladder or into unemployment or "secondary careers" (would-be real estate agent etc.) because there are not enough jobs matching their (maximal) skill level.

I have to get the facts straight in my head.
First, poor people and rich people do not live together, true by the definition of poverty.
Second, black and whites tend to segregate, an observation I can accept.
Do we mind segregation as long as parties have income mobility, or we just don't accept segregation at all or we demand integration even if some races suffer? Dunno here, have no clue.

But, as to the issue of parents, of any race, creed or color, getting valuable information into the heads of young kids, I don't worry. We live in the information age. We can use information technology to teach any animal, from the monkey to Albert Einstein. And we can do it cheaply with existing web resources.


"First, poor people and rich people do not live together, true by the definition of poverty."

Well, they don't "live together" in the same household for sure. But segregation e.g. into "good" and "bad" neighborhoods is more pronounced in the US than e.g. in Europe where neighborhoods tend to be more "mixed", as is the gap between "poor" and "rich" in the US. Rich elites exist everywhere, and more or less wall themselves off everywhere. But the gap, as well as residential segregation, between the so called "middle class" and the blue collars and the unemployed is not as extreme though of course a similar concept of "location" exists. Perhaps not unrelated to this, (parts of?) Europe have a lower home "ownership" rate.


An interesting article in the LA Times today discussed trying to build a battery factory in the U.S. for a new technology battery. It was impossible in 2006 to get funding for a domestic plant, so the jobs and expertise went to China. Now there is funding for a plant in Michigan, but the technology has already been exported to offshore competitors.

Without domestic factory jobs like this as the bottom rung of the ladder the middle class will continue to shrink, and there will be few middle class jobs for persons with only a high school education.

Bruce Wilder

LA Times has a potentially relevant story, today:

"Second-grader Emariye Louden would debate just about anything with his mother from the time he could talk. At 4, he knew his letters, spelled his name and memorized birthdays and phone numbers.

"His mother figured he was smart, but odds are that until recently no one at his school would have singled him out for special attention.

"Few students were being recognized as academically gifted at 99th Street Elementary in South Los Angeles, a common scenario at campuses that enroll low-income minority students in the Los Angeles Unified School District.

"That's beginning to change.

"Last year, Emariye's school and three others began testing nearly all second-graders to see who qualified as gifted. And they're finding many students like Emariye.

" . . .

Newspaper articles like this one are always optimistic. I'm not optimistic.

But, it is a potentially useful reminder of what's being wasted, as we convert the U.S. to an hereditary aristocracy of overly-credentialed, incompetent twits, ruling over a mass populace of oppressed peons.


This incompetence is in the end self limiting, but history has shown over and over that the eventual collapse of the elite does not compensate for the long general deterioration and widespread suffering that predates it.


I wonder how often the gifted are ignored because of disincentives caused by loss of funding due to "no child left behind". A handful of gifted students could make or break federal funding if test scores are already on the bubble.

Reply May 10, 2010 at 08:13 AM

save_the_rustbelt said...

Some observations.

Both Cleveland and Detroit have been hammered by the decline of light, medium and automotive manufacturing. The loss has cut across most classes and all races, with minorities taking it worse.

The black middle class fled both Cleveland and Detroit, although later than the white middle class.

Both Detroit and Cleveland are in the midst of numerous indictments of public officials for wide spread and long term corruption. Detroit Public Schools may have seen up $500M stolen or wasted over a decade.

Lots of factors here.

Reply May 09, 2010 at 04:46 PM

cm said in reply to save_the_rustbelt...

In this case let's be thankful that Detroit school officials have not been running the Iraq and Afghanistan campaigns.

Reply May 09, 2010 at 06:03 PM

save_the_rustbelt said in reply to cm...

For sure.

I see Obama just gave KBR another $500M no bid contract.

Change we can believe in?

cm said in reply to save_the_rustbelt...

My attempted sarcasm probably didn't come across.

On the other matter, inheriting a military adventure that had best be avoided altogether is always fraught with problems and moral hazard.

Cerita Memek said...

I like this article, that is about "High school graduation rates are extremely low in many inner-city schools -- 25-50%, and performance on verbal and math assessment tests are very low. So a very substantial number of inner-city, high-poverty children are not being given the opportunity to develop their inherent abilities in order to move ahead in our society."

I am very interested about this topic...

ken melvin said...

Do I think that education will solve the problem of the current transition? No. Best guess is that we will muddle through; accepting whatever comes out the other end. Education will help ours do the best they can coping with this new reality, and it'll help them in their search for understanding. That we owe to every American child. To our nation.

It's not going to be easy. Not with the cultural, parental, economic, … problems faced. But we must. Dong nothing as the in house idiot proposes is not an option. Unbelievably, 'twas tried in the Reagan '80s, leaving us with overflowing prisons and forty something man and woman childs without the skills to cope.

The article is another form of blaming the victim. Sure they have problems, but most of these are those that could have and should have been addressed long long ago. Instead, 'it was they could do better'; absolving society. The current selection process is the way society deals with its redundants. To paraphrase the good Rev., each of us, in our turn, are the 'blacks' of the future. Education serves this purpose. Social background's good. Bad credit's good enough. Hair color? Why not?

save_the_rustbelt :

Huh. Times change.

"White flight? Suburbs lose young whites to cities" AP

By HOPE YEN, Associated Press Writer Hope Yen, Associated Press Writer – Sun May 9, 12:52 am ET


I was part of a community group looking at data for one of the urban school districts that formed part of the survey in the link in the article. It was an interesting investigation. While the a lot of effort was expended looking at the full set of data, a subset of us were tasked with examining the data from what the district considered to be their successes - graduates that went on to college, or full-time employment within 6 months at 250% or more of minimum wage. What was most interesting to us was the influences that we examined - things like principle, class size, experience level of teachers - broke down into distributions that were not statistically distinguishable from good results from three suburban districts (aggregated) that served as a control. The conclusion was that the school process was not so distinct from these other districts, but that "material" coming into the process was considerably different. If we only have limited resources, directing them at this school district should have a lower priority than directing them at early-life family interventions. Very hard to implement, but getting students to the door with the desire and effective support to learn looks to be way more important than do much of anything in the schools - in this district, anyway.

cm :

The allegations of lacking achievement usually focus on the "hard sciences" - math, physics, etc., possibly with a side nod to reading comprehension and written expression.

On the former, after a few decades (?) of anti-intellectualism and divestiture from large parts of research/tech, there is scarcely anything in the way of role models and career prospects to motivate interest in the sciences (perhaps with the exception of a narrow segment of "computer stuff"). Likewise for reading/writing (anti-intellectualism), and especially reading wise, books are no longer the primary vehicle of entertainment and intellectual stimulation.

But quite possibly achievement has not really dropped that much. Were students really better or smarter back in our days? Not in my world. (Back in my days we didn't have pocket calculators and had to do things on paper, and we had to read books for indoors entertainment as TV was more limited and we had neither video games nor internet. But most kids didn't read that much, and most didn't shine in school too.)

The major difference to back then is that many of the jobs for the non-Einsteins have disappeared.


In shorter words, it is not clear to me that "the problem" is predominantly in the schools. Many (most?) kids have been struggling at all times and in all societies. When and where I went to universtity (not US), the student body allegedly represented somewhat of an elite of the high schools, but how to put this, there was a "spectrum" too.

15 Mind-Blowing Facts About Wealth And Inequality In America"

Ever since my post on the the unemployment situation in the U.S. last Sunday, I have been trying to get up to speed on what is known about income equality. My starting point was "15 Mind-Blowing Facts About Wealth And Inequality In America" comprising 15 graphs, the most impressive of which I reproduce below in a slightly modified form to make the comments at the top and bottom legible.

Because the fine print in this figure could scarcely be read even in its web-published version, I reproduce those comments in the quotes below, which refer to the three vertical green bars in the top graph and then the two red bars in the lower graph.

The greater the gap between the rich and everyone else, the more dangerous economics becomes.
In 1928, a year before the U.S. economy nose-dived into depression, the top one-hundreth of 1 percent of U.S. families averaged 892 times more income than families in the bottom 90 percent.
In 1980, the last pre-Reagan year, families in the bottom 90 percent averaged $30,446 in income, after adjusting for inflation, $72 more than the the $30,374 comparable families earned in 2006. The top 0.01 percent in 1980 took home an average $5.4 million, less than one-fifth the $29.6 million average income of the super-rich in 2006.
In 2006 the top 0.01 percent averaged 976 times more income than America's bottom 90 percent.
In 1944 the top marginal tax rate -- the rate on income in the highest tax bracket -- hit 94 percent. In that year, taxpayers making more than $1 million, in 2005 inflation-adjusted dollars, paid Uncle Sam 65 percent of their total income in tax.
In 2005 taxpayers making more than $1 million faced a top marginal rate of 35 percent. These deep pockets paid just 23 percent of their income in federal tax.
Still, this nicely colored and annotated visual is a second-hand product. So I searched the web to find the authors of the two graphs. It turned out that the bottom graph was relatively well known (here for example), whereas the upper one was exclusively the result of relatively recent research by Professor Emmanuel Saez and his coworkers. The main publication on the subject authored by Thomas Piketty and Saez is entitled Income Inequality in the United States 1913--1998 and was published in the February 2003 issue of The Quarterly Journal of Economics. It has since been updated to 2006. These papers are based on study of individual income-tax returns that have been published by the IRS ever since 1913. The authors have carefully studied these returns in order to separate the shares of each source of income, such as wages, business income, and capital income. Their plotted data are for "tax units" defined as a married couple living together or a single adult, including dependents if any. Because of the much larger exemptions prior to 1944, uniting these data with the more recent data restricted them to studying only the top decile. However, they innovatively broke out the top decile into progressively smaller fractiles (see table below), where income is defined as gross income excluding capital gains and before individual taxes.

Inspired, I decided to search for recent tax data covering all deciles. The best I was able to find in the short time I spent looking were published by the U.S. Census Bureau as their Current Population Survery (CPS), and the latest CPS data available were for tax year 2008. These data are based a sampling of 117,181 households, sorted into bins incremented by $2,500 up to $99,999, with all of the higher earners (those studied in great detail by Saez) being binned simply as " $100,000 and over." Columns of data were presented for each of 15 definitions of income (plus 3 variants of Definition 1 and one variant of Definition 14) and were broken out only as quintiles.

I played around with graphing the CPS data and finally settled on a comparison of two of my plots, representing the "Definition 3" pre-tax data (where the rich pocketed all their capital gains while the poor were yet to receive government aid) and "Definition 15" (where the capital gains had been taxed and low-income households had become the benefactors of government transfers).

Note in my graphs below that the tall "spike" on the right (centered at $125,000) represents the percentage of households earning $100,000 OR MORE, rather then the percentage earning between $100,000 and $250,000, which would have been consistent with this style of graph. That is, to have been correct, the data for each $2,500-wide bin should have been plotted all the way out to Bill Gates. But this would have required a graph 10 times as long as those shown merely to pick up the first millionaire and 10,000 times as long to pick up the first billionaire on the present linear scale -- thought it could have been done on the same page by use of a logarithmic scale, had all those data been available (in this case they were not).

However, the left-hand "spike" centered on $1,250 is real and indicates that 12.7% of U.S. households were acutely stressed in 2008. Who can live on $100 a month? And what has become of those who became homeless? Have they been taken away to FEMA internment camps?

The top 2008 CPS quintiles (top 20%) are 96% and 87% comprised of the greater-than-$99,999 share for the Definition-3 and Definition 15 cases, respectively, and as listed in my graphs above they account respectively for 51.9% and 40% of the pre-tax and after-tax household incomes. The 2006 study by Saez found the top decile (top 10%) to include all households earning at least $104,700, and thus was 100% comprised of the greater-than-$99,999 share. Saez found this top decile to equal 49.7% of the total U.S. before-tax household income in 2006, a level higher than any other year since 1917.

In the figure below, Saez has decomposed this top decile income share into 3 progressively smaller, yet richer groups using data from 1913 through 2006.

Although less instructive, the two CPS-based bar graphs for 2008 that I've shown above do give a good impression of the results of progressive taxation in combination with government cash transfers to the impoverished.

So maybe the U.S. government is truly altruistic after all? Well, not exactly ...although in the graph below the U.S. is seen to beat out Italy, Greece, and Turkey.

Posted by éminence grise at 6:49 PM

Labels: current population survey, income inequality, progressive taxation, rich getting richer, U.S. economy, unemployment benefits

[Apr 15, 2010] Top 400 Taxpayers By Barry Ritholtz

The IRS puts out an interesting tax document each year, looking at the returns of the nations wealthiest 400 people. The most recent year of complete data is 2007, when 143 million individuals filed tax returns.

Some of the data is quite astonishing:

• The top 400 U.S. individual taxpayers got 1.59% of the nation's household income in 2007 - 3X the p% they got in the 1990s.

• The top 400 paid 2.05% of all individual income taxes in 2007.

• Only 220 of the top 400 were in the top marginal tax bracket.

Average tax rate of the 400 = 16.6% - the lowest since the IRS began tracking the 400 in 1992.

• Minimum annual income to make the top 400 = $138.8 million.

• Top 400 reported $137.9 billion in income; they paid $22.9 billion in federal income taxes.

• 81.3% of income was from capital gains, dividends or interest. Salaries and wages? Just 6.5%.

• The top 400 list changes from year to year: 1992-2007, it contained 3,472 different taxpayers (out of a maximum 6400).

Happy tax day to you to!

[Apr 15, 2010] Economist's View

Taxes over Time

As the deficit hawks begin to make noise, this is worth remembering:

Taxing the Rich, Over Time, by David Leonhardt, Economix: My column this week notes that tax rates on the affluent have fallen more in recent decades than tax rates on other groups. Here are the details...

This chart, which goes through 2004, tells the story in graphical terms. ...

Shifting the Tax Burden Graphic

If we had good numbers on the distribution of state and local taxes, the picture would be even more pronounced. These taxes tend to be less progressive than federal taxes, in part because sales taxes are a larger part of state and local revenue. ...

With all this being said, it is also true - as you often hear - that the wealthy are paying more in taxes than they used to. ... So what's the full story? In brief, tax rates for the wealthy have fallen more than for other income groups. Tax rates for the very wealthy have fallen more than they have for the merely wealthy. Incomes at the top have also increased much more quickly than incomes have for other groups.

Add it all up, and you can see why the wealthy are paying a greater share of federal taxes even though they are paying less tax on each dollar they earn. They're simply making many more dollars than they used to.

Stephen Kriz:

Conservatives like to point out that the wealthy pay most of the federal income taxes that are collected. There is a reason for that - they have most of the income!

Check out this website for an exquisitely simple way to view the problem:

On a percentage basis - in other words, what percentage of their gross income do the wealthy pay in federal income tax - it is far lower than almost any but the poorest Americans. The income curve is so steeply tilted in favor of the very very wealthy (those that make over $1 million per year), that they should pay significantly more in taxes, just for equity sake.

Look at the most recent news about hedge fund managers, many of whom made over a BILLION (yes, with a "b") dollars in income last year. If they were to all pay a flat 10% excise tax on their earnings, that is $100 million each and our deficit would be quickly whittled down. That, and cutting military spending by 50-75%, which wouldn't make us one iota less safe, would reduce the debt significantly without much pain at all to anyone (except a few billionaires, but screw 'em!).


True deficit hawks focus on deficit reduction. This includes putting BOTH spending cuts AND additional revenues on the table. The arguments we are getting are strictly about spending. These arguments are being made by wealthy special interests that don't want to pay their fair share of the taxes. They are not deficit hawks. They are only for low taxes on the wealthy. However, the "Low taxes on the wealthy, high taxes on everyone else" argument does not sell. Thus, we get the arguments for "deficit reduction and reduced spending on programs that benefit the middle class at the same time the lobbyists for the wealthy are getting no bid contracts and other perks for the wealthy.

Republicans have been running this game since Ronald Reagan cut taxes on the wealthy and increased payroll taxes by 50%. Ronald Reagan exploded the deficit. It is all about running a government for the benefit of wealthy special interests.


There are many statements made that the US has the lowest marginal tax rates - but if you include Social Security, Medicare, and State taxes this does not seem to be true (for example, the tax rates in Australia with its universal healthcare coverage are now lower than the US for most middle income earners)...

Here is a link. This is the only income tax (add in medicare levy of 1.5%). No additional taxes


There are a few things that complicate the relationship between taxes and income. Besides encouraging more work effort for higher-income people (the Reagan story), lowering the tax rate on the wealthy also resulted in a greater portion of true income being reported on tax returns. Even without tax dodges (which are more profitable at higher rates and so elicit the obvious response), there are other ways this could happen.

For example, capital gains (a substantial part of the income of the wealthy) are not taxed until realized. Higher tax rates on this income discourage realization of the accrued gains. The upshot is, the increase in reported income of the rich on income tax returns is largely due to causes other than the rich actually getting richer.

And as for including the burden of the corporate income tax, this is a real mare's nest. First, it is unlikely that much of the burden of this tax is borne by the investors - much is shifted to customers of the business or its factor inputs. It depends on the elasticity of capital supply.

In the best-known economic models (e.g., Roger Gordon's work), the burden of the corporate income tax is borne by labor. This result is almost a certainty for the tax at the state level.

[Apr 14, 2010] Yes, 47% of Households Owe No Taxes. Look Closer. - Yahoo! Finance

the modifiers here - federal and income - are important. Income taxes aren't the only kind of federal taxes that people pay. There are also payroll taxes and capital gains taxes, among others. And, of course, people pay state and local taxes, too. If anything, the government numbers I'm using here exaggerate how much of the tax burden falls on the wealthy. These numbers fail to account for the income that is hidden from tax collectors - a practice, research shows, that is more common among affluent families. State and local taxes, meanwhile, may actually be regressive. That is, middle-class and poor families may face higher tax rates than the wealthy.
April 13, 2010

Forty-seven percent.

That's the portion of American households that owe no income tax for 2009. The number is up from 38 percent in 2007, and it has become a popular talking point on cable television and talk radio. With Tax Day coming on Thursday, 47 percent has become shorthand for the notion that the wealthy face a much higher tax burden than they once did while growing numbers of Americans are effectively on the dole.

Neither one of those ideas is true. They rely on a cleverly selective reading of the facts. So does the 47 percent number.

Given that taxes are likely to be one of the big political issues of the next few years - and maybe the biggest one - it's worth understanding who really pays what in taxes. Once you do, you can get a sense for our country's fiscal options. How, in other words, will we be able to close the huge looming gap between the taxes we are scheduled to pay and the services we are scheduled to receive?

The answer is that tax rates almost certainly have to rise more on the affluent than on other groups. Over the last 30 years, rates have fallen more for the wealthy, and especially the very wealthy, than for any other group. At the same time, their incomes have soared, and the incomes of most workers have grown only moderately faster than inflation.

So a much greater share of income is now concentrated at the top of distribution, while each dollar there is taxed less than it once was. It's true that raising taxes on the rich alone can't come close to solving the long-term budget problem. The deficit is simply too big. But if taxes are not increased for the wealthy, the country will be left with two options.

It will have to raise taxes even more than it otherwise would on everybody else. Or it will have to find deep cuts in Medicare, Social Security, military spending and the other large (generally popular) federal programs.

All the attention being showered on "47 percent" is ultimately a distraction from that reality.

The 47 percent number is not wrong. The stimulus programs of the last two years - the first one signed by President George W. Bush, the second and larger one by President Obama - have increased the number of households that receive enough of a tax credit to wipe out their federal income tax liability.

But the modifiers here - federal and income - are important. Income taxes aren't the only kind of federal taxes that people pay. There are also payroll taxes and capital gains taxes, among others. And, of course, people pay state and local taxes, too.

Even if the discussion is restricted to federal taxes (for which the statistics are better), a vast majority of households end up paying federal taxes. Congressional Budget Office data suggests that, at most, about 10 percent of all households pay no net federal taxes. The number 10 is obviously a lot smaller than 47.

The reason is that poor families generally pay more in payroll taxes than they receive through benefits like the Earned Income Tax Credit. It's not just poor families for whom the payroll tax is a big deal, either. About three-quarters of all American households pay more in payroll taxes, which go toward Medicare and Social Security, than in income taxes.

Focusing on the statistical middle class - the middle 20 percent of households, as ranked by income - underlines this point. Households in this group made $35,400 to $52,100 in 2006, the last year for which the Congressional Budget Office has released data. That would describe a household with one full-time worker earning about $17 to $25 an hour. Such hourly pay is typical for firefighters, preschool teachers, computer support specialists, farmers, members of the clergy, mail carriers, secretaries and truck drivers, according to the Bureau of Labor Statistics.

Taking into account both taxes and tax credits, the average household in this group paid a total income tax rate of just 3 percent. A good number of people, in fact, paid no net income taxes. They are among the alleged free riders.

But the picture starts to change when you look not just at income taxes but at all taxes. This average household would have paid 0.8 percent of its income in corporate taxes (through the stocks it owned), 0.9 percent in gas and other federal excise taxes, and 9.5 percent in payroll taxes. Add these up, and the family's total federal tax rate was 14.2 percent.

I realize that it's possible to argue that payroll taxes should be excluded from the discussion because they pay for benefits - Social Security and Medicare - that people receive on the back end. But that argument doesn't seem very persuasive.

Why? People do not receive benefits equal to the payroll taxes they paid. Those who die at age 70 will receive much less in Social Security and Medicare than they paid in taxes. Those who die at 95 will probably get much more.

The different kinds of federal taxes are really just accounting categories. At the end of the day, the government has to cover the cost of all its operations with revenue from all its taxes. We can't wish our deficit away by saying that it's mostly a Medicare and Social Security deficit.

If anything, the government numbers I'm using here exaggerate how much of the tax burden falls on the wealthy. These numbers fail to account for the income that is hidden from tax collectors - a practice, research shows, that is more common among affluent families. "Because higher-income people are understating their income," Joel Slemrod, a tax scholar at the University of Michigan, says, "We've been overstating their average tax rates."

State and local taxes, meanwhile, may actually be regressive. That is, middle-class and poor families may face higher tax rates than the wealthy. As Kim Rueben of the Tax Policy Center notes, state and local income taxes and property taxes are less progressive than federal taxes, while sales taxes end up being regressive. The typical family pays a lot of state and local taxes, too - almost half as much as in federal taxes.

There is no question that the wealthy pay a higher overall tax rate than any other group. That is an American tradition. But there is also no question that their tax rates have fallen more than any other group's over the last three decades. The only reason they are paying more taxes than in the past is that their pretax incomes have risen so rapidly - which hardly seems a great rationale for a further tax cut.

So why are those radio and television talk show hosts spending so much time arguing that today's wealthy are unfairly burdened? Well, it's hard not to notice that the talk show hosts themselves tend to be among the very wealthy.

No doubt, like the rest of us, they don't particularly enjoy paying taxes. They are happy with the tax cuts they have received lately. They would prefer if other people had to pick up the bill for Medicare, Social Security and the military - people like, say, firefighters, preschool teachers, computer support specialists, farmers, members of the clergy, mail carriers, secretaries and truck drivers.

High Income Disparity Leads to Low Savings Rates

Consumer Balance Sheet and Consumer Spending in Perspective

Here is an interesting chart on Consumer Balance Sheet, Savings Rate, and Debt Service Ratio posted by Barry Ritholtz.

Ritholtz also notes Consumers Climb Out of Their Bunkers

From the "It-Aint-That-Bad" file comes the most recent reports of consumer spending.

  • Luxury sales rose 22.7% (Mastercard SpendingPulse)
  • Furniture sales rose 13.8% and appliance sales rose 6.9%
  • Auto sales gained 24% from year ago levels (AutoTalk)
  • March was the 7th consecutive month of increasing retail sales growth
  • Cargo volume at major ports imports is trending towards an 8% increase in April
  • Commerce Department's personal consumption expenditures was $34.7 billion in February, an increase of 0.3% over January - the fifth monthly gain in a row.
  • Gasoline demand continues to rise - +1.2% - before the summer driving season.
Ritholtz comments "It will be some time before we return to the peak levels of 2006-07, when Houses were used more as equity structures than shelter. But that does not mean we won't see marked improvements over the coming quarters."

Fair enough. Here is an equally true and arguably more realistic way of saying the same thing: The anemic bounce to date "does not mean we will see marked improvements over the coming quarters."

State Sales Tax Revenues

State tax collections are a far better measure of spending than same store sales. Please consider Retail Sales Rise: Where? Let's Take a Look; Expect Nothing Less Than Panic

That report is from February 28, 2010, arguably a bit out of date. Nonetheless, state tax collections are horrid.

Moreover, same store sales are invalid because of store closings. Finally, improvements over horrendous numbers from a year ago are hardly unexpected.

Finally, please note that it took cash for clunkers, $8,000 tax credits, a $trillion in various Fed swap-o-rama programs, and the Fed monetizing a $trillion in mortgages to achieve this bounce in GDP.

What's next?

Consumer Balance Sheet Chart Brutally Misleading

In isolation, the balance sheet chart at the top of this post seems to indicate the problem with consumer debt is overstated.

For a different perspective, please consider Wealth, Income, and Power by Professor G. William Domhoff at the University of California at Santa Cruz.

In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.7%. Table 1 and Figure 1 present further details drawn from the careful work of economist Edward N. Wolff at New York University (2009).

Financial Wealth Distribution

Housing, Liquid Assets Distribution

Income and Wealth by Race

Besides illustrating the significance of home ownership as a measure of wealth, the graph also shows that Black and Latino households are faring significantly worse overall, whether we are talking about income or net worth. In 2007, the average white household had 15 times as much total wealth as the average African-American or Latino household. If we exclude home equity from the calculations and consider only financial wealth, the ratios are in the neighborhood of 100:1.
Extrapolating from these figures, we see that 70% of white families' wealth is in the form of their principal residence; for Blacks and Hispanics, the figures are 95% and 96%, respectively.

Table 5a: Concentration of stock ownership in the United States, 2001-2007

Table 5b: Amount of stock owned by various wealth classes in the U.S., 2007

Just as wealth can lead to power, so too can power lead to wealth. Those who control a government can use their position to feather their own nests, whether that means a favorable land deal for relatives at the local level or a huge federal government contract for a new corporation run by friends who will hire you when you leave government. If we take a larger historical sweep and look cross-nationally, we are well aware that the leaders of conquering armies often grab enormous wealth, and that some religious leaders use their positions to acquire wealth.

If the top 20% have 84% of the wealth (and recall that 10% have 85% to 90% of the stocks, bonds, trust funds, and business equity), that means that the United States is a power pyramid. It's tough for the bottom 80% -- maybe even the bottom 90% -- to get organized and exercise much power.

Summary of Key Points
Economic Implications

That was an extremely well written article by Domhoff. Inquiring minds will want to give it a closer look.

The facts do not point to a robust recovery in spending. Indeed they do not point to any recovery in spending beyond the massive government intervention that we have seen to date.

This is not 2006. Homeowners cannot tap their houses for home equity spending. Moreover, some of the data for that report was from 2007. There have been millions more bankruptcies since then.

Millions of households are underwater in their mortgages. Banks are stuck with massive numbers of REOs via foreclosure.

The unemployment rate is hugely understated at 9.7%. Alternative measures show unemployment at 16.9% and even that number does not count Realtors and self employed persons on commission who have not had reportable income for months.

There is no driver for jobs except government stimulus.

A Record 39 Million Receive Food Stamps, the 14th Consecutive Monthly Increase.

Consumer credit does not give any hints of sustainable increases in spending or lending. Please consider Consumer Credit Drops $11.5 Billion, 5.6% annualized, 12th drop in 13 Months. The Increase In January was a Mirage related to Student Loans.

Also note that millions of boomers are headed into retirement severely underfunded. That fact alone shows how wrong it is to expect a huge bounce in consumer spending.

It is important to factor in the effects of increased cutbacks by cities and states in response to numerous fiscal crises. For example ....

That is just a small sampling of problems facing cities and states. Layoffs are coming. Those layoffs need to be factored into to consumer spending. So does the rise in mortgage rates now that the Fed has stopped monetizing treasuries.

Finally, consumer and bank attitudes play a key role.Consumer attitudes towards spending and consumption have changed for good. So have bank attitudes towards lending. Bernanke can cajole all he wants, but $1 trillion in excess reserves tells part of the story. Undercapitalization of banks tells much of the rest.

All thing considered, it is a mistake to extrapolate forward a continued recovery in spending from the depressed levels of 2009. It is far more likely, this is about all we get.

Mike "Mish" Shedlock
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[Feb 04, 2010] Inequality and guard labor

Feb 04, 2010 | Economist's View

"The founders of the discipline of economics, almost to a man-and they were only men-thought that the problem of distribution between classes-they used the word classes-was the key to understanding why nations grew or not," Bowles says. What Bowles sees as the essence of his profession [is] problems of wealth distribution...

Isn't inequality merely the price of America being No. 1?

"That's almost certainly false," Bowles tells SFR. "Prior to about 20 years ago, most economists thought that inequality just greased the wheels of progress. Overwhelmingly now, people who study it empirically think that it's sand in the wheels." ... Bowles offers a key reason why this is so. "Inequality breeds conflict, and conflict breeds wasted resources," he says.

In short, in a very unequal society, the people at the top have to spend a lot of time and energy keeping the lower classes obedient and productive.

Inequality leads to an excess of what Bowles calls "guard labor." In a 2007 paper on the subject, he and co-author Arjun Jayadev, an assistant professor at the University of Massachusetts, make an astonishing claim: Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.

The job descriptions of guard labor range from "imposing work discipline"-think of the corporate IT spies who keep desk jockeys from slacking off online-to enforcing laws... The greater the inequalities in a society, the more guard labor it requires, Bowles finds. ...

The problem, Bowles argues, is that too much guard labor sustains "illegitimate inequalities," creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time-perhaps starting their own businesses...

Liberals tend to think of inequality as a matter of class and race-and that's true, he says. But individual success hinges on a big X factor: "There's a lot of luck involved," Bowles says.

No politician's promise can remove that element of unpredictability. Which means the smart policy, in Bowles' view, is for the government to care for people who suffer misfortune through no fault of their own. ... "The whole idea of social security," Bowles says, "is to insure the unlucky by having the lucky pay a little extra."

Anonymous said...

An easier justification for more progressive tax rates is that much of the guard labor is funded by Congress.


in reply to Anonymous...

nicely put

Klaus Artturi Björk:

"With progressive taxes the lucky do pay a little extra, and that allows society to provide social insurance to the unlucky."

Well this would be obviously ok, if it was the same people who got paid if they get unlucky who are paying when they are lucky. Is there any evidence that this is so?

For example if the EV for a persons yearly income is let's say 800k and he falls short by 75% due to bad luck he will probably not get compensated. On contrast if there is a person who's EV for year is 10k and he gets lucky and gets 150% he will still get paid even tho he got lucky.

This is a way that trying to even out luck results in smaller incentives to be successful.

The study implies that there is a causal link between inequality and the proportion of Guarding labor.
If so, this cost should be weighted against the gain from bigger incentives to succeed. Not just assuming that it is a waste and that we should get rid of it by progressive taxation.

There most certainly is a point where the waste in guarding labor becomes so large that resources are better spent by giving aid to the poor. What evidence do we have that we have reached this point now?

What evidence do we have that civil society would not do these transfers on its own without the government?

ken melvin

said in reply to Klaus Artturi Björk...

Attila the Hun? Genghis Khan?


In reply to ken melvin...

Genghis Khan used clear economic incentives. Join us and become a part of our trading empire and you receive improved access to trade goods and markets for your products. Opposing the Great Khan resulted in the death of the leadership, death and misery for a substantial part of the peasant population and the death or dispersal of the learned men and women to the Mongol homeland to work for the empire. Join us or die. Genghis Khan had the resources to deliver on his ultimatums.

The Mongol Empire was based on sharing the rewards of free trade. The Mongol Empire collapsed when the plague collapsed their trade routes. They could no longer reward parts of the empire with the benefits of trade so the empire broke apart.


The Roman empire collapsed in part because of wealth inequality. A few Romans were very wealthy and everyone else was dirt poor. When Attila and his Huns arrived, there were too few wealthy people to protect the empire and the poor had no incentive to maintain the status quo. The poor certainly were not going to fight to protect the wealthy from plunder. The incentive for many was to join the other side.

The rapid spread of Islam across North Africa was in large part to the more egalitarian rules that accompanied it. By making the poor better off, it was easier for Islam to displace the wealthy plutocracy.


in reply to Klaus Artturi Björk...

The Biggest protector of family wealth for those moderately well off is Medicare. Without Medicare, a LOT of families would exhaust all their potential inheritance. Plus Medicare means that elderly health care is on a large enough scale to be efficient. Without Medicare, many elderly just would not go to the doctor or refuse expensive treatment. This would make the procedures for those who chose them even more expensive because the costs would be spread over many fewer people.

All economies operate by rules. Those who get rich take advantage of the rules to make more money than others. In a meritocracy, those who contribute to improve the economy are rewarded. In our dysfunctional plutocracy, banksters who game the system are rewarded for selfish behavior that harms the broader economy.

What should the rules governing labor be? How much is it worth to society to have someone work the night shift at the local pharmacy so you can run out at night and purchase medicine? What are the rules that govern how those people are paid? Are they paid what they are worth? Is there a good mechanism in place to govern the wage negotiation process? Or is the process skewed in the favor of Big Business? Should you have to be a legal immigrant to hold a job There are all kinds of rules governing the labor market. Without rules the labor market is a race to the bottom with wealthy special interests calling all the shots. Are labor market rules better than the rampant violence in the first half of the 20th Century? The history books gloss over the mine wars, the violence in the auto industry, etc. etc.


In reply to Klaus Artturi Björk...


I believe we had an experiment the last 8 years where we cut taxation and gave it back to taxpayers. 31% of the 2001/2003 tax cuts were skewed to the upper 1% in income.

While all of this was taking place; we saw poverty levels rise, Median Household income remain relatively stagnate and drop to a level lower in 2008 as compared to 2001, job creation drop, more people drop out of the Civilian Labor Force and into Not In Labor (Particpation Rate has plauteaued at a level ~1.8% below what it was after the 2001 recession).

Perhaps I missed it; but, I didn't see "civil society" step to the plate creating more jobs, increase labor wages as oppose to siphoning it off at a greater rate to capital, etc. I would say quite the opposite happened in this experiment of whether taxcuts given to the upper income strata will trickle downward. So "civil society" didn't come to the party.

Klaus Artturi Björk:

You assume that we went past the point, where it would be optimal to solve some of the guarding labour costs by income transfers. What evidence do you have of this?

If civil society does not increase its income transfers this could be that the civil society is incapable of doing so or it could mean that it is capable, but there is no reason to increase them. (= the cost of guard labor is smaller than the cost of smaller incentives due to income transfers)

keddaw :

"With progressive taxes the lucky do pay a little extra, and that allows society to provide social insurance to the unlucky."

Nothing in this article in any way justifies progressive taxes.

Flat rate taxes mean that the lucky (or hard working) pay more than those less fortunate.



unless you got a bulging portfolio

get a clue


"Flat rate taxes mean that the lucky (or hard working) pay more than those less fortunate."

"Hard working."

Do Wall Street CEOs "work harder" than coal miners?

Does Alex Rodriguez "work harder" than tomato pickers?

Do back-stabbing and marketing yourself count as working hard?


There was a gentleman in my home town who was considered to be the local wise man. One of Mr. Vick's favorite sayings was: "Money has nothing to do with intelligence or hard work; look how many rich idiots there are."

I worked hard for 30 years, worked my way through college, started my own business, became a pillar of my profession, lived an upped middle class lifestyle but not beyond my means; then got sick and lost everything of financial value even with excellent insurance.

Now that I'm down and out I see clearly how the deck is stacked against the poor and middle class. Only government can correct the inequalities of the free markets. The idiots with money will never believe that I worked hard enough to succeed.

ken melvin:

"In 'Chesapeake' Michener wrote of how the market for wild goose and duck led to the development of huge guns which in turn led to empty skies over the famous flyway. Bill Gates never earned $50 billion dollars, now did he? Be far more accurate that he stole it via infringement, buying senators for H1Bs, buying of the Bush Administration's Justice Department, ….No, Gates didn't earn 1,000 time as much as a highly paid CEO of a large industrial. He used a bigger gun to sweep the skies, or a special lure to catch more than a fair share of the fish in the lake. Likewise, Michael Jordan never earned $10 k/min playing basketball though he did get paid that much. Michael may have been the lure that brought in the fish's money. Assigning takings to earnings is a quantum leap.

Whose waterfowl in whose sky? Whose fish in whose lake? Historically, America has let the Kennedys, Rockefellers, Soroses, …., keep most of their ill gotten gains, but, if the fish belonged to god, or to everyone, then there has to be a way to share. Taxing the piss out of them seems in order.


The article states guard labor of 1 in 4. The data plot shows guard labor of 1-3%.


Yes, I noticed that - so 1 in 40 seems consistent with the graph. My guess is that 1 in 40 is too low though. If he counts the military and people who make weapons (or people who work in the infrastructure to support people who do), my guess is way too low.

Get real:

It's always interesting to see what different people's standards of "hard work" are. CEOs do not do hard work. They do their work mainly in physical comfort - never having to stand on their feet for 8 hours a day, never going hungry (lots of catered lunches and coffee prepared for them any time they want it), and never having to dodge dangerous machinery or power lines. Give me a break: you don't "work hard." Maybe sucking up to people feels stressful to you, and traveling first-class seems inconvenient, but you don't do "hard work" by any stretch of the imagination. That's a fiction you tell yourself to make your oversized pay seem worth it. Also, unlike the majority actual hard workers, you get ample vacation and sick days (and probably always have for the majority of your working life). Give me a break.

chuck roast:

Yeah, in those golden-olden urpe days, the new lefties beefed to high heaven about the "value-free" Marshall/Keynes paradigm. Discussions of distribution were verboten in econ and left to the tender mercies of the political scientists – guys who couldn't find their ass with both hands. Meanwhile, the putsch was underway up in Cambridge and Bowles and is buds got blown

up - couldn't have any serious analysis of under-class dynamics in the uber-capitalist class institution. Well, at least Leontief, Galbraith and a few others fell on the right side.

And as long as we are thanking people, let's thank old Karl himself, that denizen of the British library. Without him, Political Economy might not exist.

Instead we are left with a few guys like Bowles out in Santa Fe diligently burrowing into the entrails of the swine-class while the dilettanti econ genius-boys appear on NPR ever so accurately counting the angels on pin-heads.

save_the_rustbelt :

"Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods."

Incredible nonsense. No one who knows anything about the US labor force could actually believe this.

Progressives ruin their own credibility by being goofy and extreme.

There are plenty of facts that point to problems. Why make up stuff?

Walter :

The assertion seems to be that inequality requires (creates?) the need for the "policing" to protect the assets of the rich (including accountants, managers, lawyers, and so on). However, the largest police states, with the most bureaucrats and militia, have been communist societies where there is greater equality. But this may not be a contradiction as there is a greater inequality in power in these totalitarian societies. An interesting thesis


Labor needs to be returned its rightful chair at the table(s) where revenues are distributed.

It needs the scalability provided by unions. That's the only way progressive taxation and labor laws and protections can be strengthened.

Unions. National contracts. Trade policies that explicitly protect American incomes and jobs. The idea that we cannot have strong economies while limiting imports, and strengthening trade relations with like minded and capable countries, is nonsense.

Hell, at 1.3 billion citizens, China doesn't really need to trade with anyone to grow a strong economy.

Inequality and "Guard Labor"

"That's almost certainly false," Bowles tells SFR. "Prior to about 20 years ago, most economists thought that inequality just greased the wheels of progress. Overwhelmingly now, people who study it empirically think that it's sand in the wheels." ... Bowles offers a key reason why this is so. "Inequality breeds conflict, and conflict breeds wasted resources," he says.

This is from a profile of Samuel Bowles:

Born Poor?, by: Corey Pein: ...Bowles' most recent paper ... examines how wealth is transferred from parents to children in hunter-gatherer societies versus agricultural societies. That might seem distant... But everyone can relate to his chosen subject: inequality. ...

Bowles' course was set in 1968, when he was an assistant professor at Harvard, and the Rev. Dr. Martin Luther King Jr. came to his department looking for advice on the next stage of his social justice campaign.

"We were just elated that we could use economics, which we had so painstakingly learned, to answer questions that Dr. King thought were important," Bowles tells SFR. "We were also extremely angry that we were totally unable to answer the questions on the basis of having gotten a PhD at Harvard."

King's assassination that year cut short the equality movement. ...

Most economists in 1968 thought of inequality as "somebody else's problem," Bowles tells SFR. "I actually was denied the right to teach a graduate course in inequality because it was said not to be economics." It wasn't always thus.

"The founders of the discipline of economics, almost to a man-and they were only men-thought that the problem of distribution between classes-they used the word classes-was the key to understanding why nations grew or not," Bowles says. What Bowles sees as the essence of his profession [is] problems of wealth distribution...

Isn't inequality merely the price of America being No. 1?

"That's almost certainly false," Bowles tells SFR. "Prior to about 20 years ago, most economists thought that inequality just greased the wheels of progress. Overwhelmingly now, people who study it empirically think that it's sand in the wheels." ... Bowles offers a key reason why this is so. "Inequality breeds conflict, and conflict breeds wasted resources," he says.

In short, in a very unequal society, the people at the top have to spend a lot of time and energy keeping the lower classes obedient and productive.

Inequality leads to an excess of what Bowles calls "guard labor." In a 2007 paper on the subject, he and co-author Arjun Jayadev, an assistant professor at the University of Massachusetts, make an astonishing claim: Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.

Guard Labor versus Inequaltiy (Gini) across States

The job descriptions of guard labor range from "imposing work discipline"-think of the corporate IT spies who keep desk jockeys from slacking off online-to enforcing laws... The greater the inequalities in a society, the more guard labor it requires, Bowles finds. ...

The problem, Bowles argues, is that too much guard labor sustains "illegitimate inequalities," creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time-perhaps starting their own businesses...

Liberals tend to think of inequality as a matter of class and race-and that's true, he says. But individual success hinges on a big X factor: "There's a lot of luck involved," Bowles says.

No politician's promise can remove that element of unpredictability. Which means the smart policy, in Bowles' view, is for the government to care for people who suffer misfortune through no fault of their own. ... "The whole idea of social security," Bowles says, "is to insure the unlucky by having the lucky pay a little extra." ... [more here]

With progressive taxes the lucky do pay a little extra, and that allows society to provide social insurance to the unlucky.

There are many additional ways to justify progressive taxation, e.g. the principle of equal marginal sacrifice, and if the guard labor hypothesis is correct, it provides yet another rationale for a progressive tax code.


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