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Inequality Bulletin, 2012

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Social Inequality and the New Elite - by Alexander Stille

Alexander Stille is a professor of international journalism at Columbia.
October 22, 2011 | NYTimes.com
IT’S a puzzle: one dispossessed group after another — blacks, women, Hispanics and gays — has been gradually accepted in the United States, granted equal rights and brought into the mainstream.

At the same time, in economic terms, the United States has gone from being a comparatively egalitarian society to one of the most unequal democracies in the world.

The two shifts are each huge and hugely important: one shows a steady march toward democratic inclusion, the other toward a tolerance of economic stratification that would have been unthinkable a generation ago.

The United States prides itself on the belief that “anyone can be president,” and what better example than Barack Obama, son of a black Kenyan immigrant and a white American mother — neither of them rich.

And yet more than half the presidents over the past 110 years attended Harvard, Yale or Princeton and graduates of Harvard and Yale have had a lock on the White House for the last 23 years, across four presidencies. Thus we have become both more inclusive and more elitist.

It’s a surprising contradiction. Is the confluence of these two movements a mere historical accident? Or are the two trends related?

Other nations seem to face the same challenge: either inclusive, or economically just. Europe has maintained much more economic equality but is struggling greatly with inclusiveness and discrimination, and is far less open to minorities than is the United States.

European countries have done a better job of protecting workers’ salaries and rights but have been reluctant to extend the benefits of their generous welfare state to new immigrants who look and act differently from them. Could America’s lost enthusiasm for income redistribution and progressive taxation be in part a reaction to sharing resources with traditionally excluded groups?

“I do think there is a trade-off between inclusion and equality,” said Gary Becker, a professor of economics at the University of Chicago and a Nobel laureate. “I think if you are a German worker you are better off than your American equivalent, but if you are an immigrant, you are better off in the U.S.”

PROFESSOR Becker, a celebrated free-market conservative, wrote his Ph.D. dissertation (and first book, “The Economics of Discrimination”) to demonstrate that racial discrimination was economically inefficient. American business leaders seem to have learned that there is no money to be made in exclusion: bringing in each new group has simply created new consumers to court. If you can capture nearly three-quarters of the economy’s growth — as the top 1 percent did between 2002 and 2006 — it may not be worth worrying about gay marriage or skin color.

“I think we have become more meritocratic — educational attainment has become increasingly predictive of economic success,” Professor Becker said. But with educational attainment going increasingly to the children of the affluent and educated, we appear to be developing a self-perpetuating elite that reaps a greater and greater share of financial rewards. It is a hard-working elite, and more diverse than the old white male Anglo-Saxon establishment — but nonetheless claims a larger share of the national income than was the case 50 years ago, when blacks, Jews and women were largely shut out of powerful institutions.

Inequality and inclusion are both as American as apple pie, says Jerome Karabel, a professor of sociology at the University of California, Berkeley, and author of “The Chosen,” about the history of admission to Harvard, Yale and Princeton. “I don’t think any advanced democracy is as obsessed with equality of opportunity or as relatively unconcerned with equality of condition,” he says. “As long as everyone has a chance to compete, we shouldn’t worry about equality. Equality of condition is seen as undesirable, even un-American.”

The long history of racial discrimination represented an embarrassing contradiction — and a serious threat — to our national story of equal opportunity. With Jim Crow laws firmly in place it was hard to seriously argue that everyone had an equal chance. Civil rights leaders like the Rev. Dr. Martin Luther King Jr. were able to use this tradition to draw support to their causes. “Given our culture of equality of opportunity, these kinds of rights-based arguments are almost impossible to refute,” Professor Karabel said. “Even in today’s conservative political climate, opponents of gay rights are losing ground.”

The removal of traditional barriers opened up the American system. In 1951 blacks made up less than 1 percent of the students at America’s Ivy League colleges. Today they make up about 8 percent. At the same time, America’s elite universities are increasingly the provinces of the well-to-do. “Looking at the data, you see that the freshman class of our top colleges are more and more made up of the children of upper- and upper-middle-class families,” said Thomas J. Espenshade of Princeton, a sociologist.

Even the minority students are more affluent, he noted; many of them are of mixed race, or the children of immigrants or those who benefited from affirmative action.

Shamus Khan, a sociologist at Columbia and the author of “Privilege,” a book about St. Paul’s, the prep school, agreed that there had been a change in the composition of the elite. “Who is at elite schools seems to have shifted,” he said. “But the elite seem to have a firmer and firmer hold on our nation’s wealth and power.”

Still the relatively painless movement toward greater diversity should not be dismissed as mere window dressing.

“After the immigration reform of 1965, this country went from being the United States of Europe to being the United States of the World. All with virtually no violence and comparatively little trauma,” Professor Karabel said. This is no small thing, particularly when you compare it to the trauma experienced by many European societies in absorbing much lower percentages of foreign-born citizens, few of whom have penetrated their countries’ elites.

Moreover, inequality has grown partly for reasons that have little or nothing to do with inclusion. Almost all advanced industrial societies — even Sweden — have become more unequal. But the United States has become considerably more unequal. In Europe, the rights of labor have remained more central, while the United States has seen the rise of identity politics.

“There is much less class-based organization in the U.S,” said Professor Karabel. “Race, gender and sexual orientation became the salient cleavages of American political life. And if you look at it — blacks, Hispanics and women have gained somewhat relative to the population as a whole, but labor as a category has lost ground. The groups that mobilized — blacks, Hispanics, women — made gains. But white male workers, who demobilized politically, lost ground.”

One of the groups to become mobilized in response to the protest movements of the 1960s and early 1970s was the rich. Think tanks dedicated to defending the free-enterprise system — such as the Cato Institute and the Heritage Foundation — were born in this period. And it is not an accident that the right-wing advocate Glenn Beck held a national rally on the anniversary of King’s “I Have a Dream” speech in front of the Lincoln Memorial. Republicans now defend tax cuts for the richest 2 percent using arguments and language from the civil rights movements: insisting that excluding the richest earners is unfair.

Removing the most blatant forms of discrimination, ironically, made it easier to justify keeping whatever rewards you could obtain through the new, supposedly more meritocratic system. “Greater inclusiveness was a precondition for greater economic stratification,” said Professor Karabel. “It strengthened the system, reinvigorated its ideology — it is much easier to defend gains that appear to be earned through merit. In a meritocracy, inequality becomes much more acceptable.”

THE term “meritocracy” — now almost universally used as a term of praise — was actually coined as a pejorative term, appearing for the first time in 1958, in the title of a satirical dystopian novel, “The Rise of the Meritocracy,” by the British Labour Party leader Michael Young. He warned against the creation of a new technocratic elite in which the selection of the few would lead to the abandonment of the many, a new elite whose privileges were even more crushing and fiercely defended because they appeared to be entirely merited.

Of the European countries, Britain’s politics of inequality and inclusion most resemble those of the United States. Even as inequality has grown considerably, the British sense of economic class has diminished. As recently as 1988, some 67 percent of British citizens proudly identified themselves as working class. Now only 24 percent do. Almost everybody below the Queen and above the poverty line considers himself or herself “middle class.”

Germany still has robust protections for its workers and one of the healthiest economies in Europe. Children at age 10 are placed on different tracks, some leading to university and others to vocational school — a closing off of opportunity that Americans would find intolerable. But it is uncontroversial because those attending vocational school often earn as much as those who attend university.

In France, it is illegal for the government to collect information on people on the basis of race. And yet millions of immigrants — and the children and grandchildren of immigrants — fester in slums.

In the United States, the stratification of wealth followed several decades where economic equality was strong. The stock market crash of 1929 and the Great Depression that followed underscored the excesses of the roaring ’20s and ushered in an era in which the political climate favored labor unions, progressive taxation and social programs aimed at reducing poverty.

From the 1930s to the 1960s, the income of the less affluent Americans grew more quickly than that of their wealthier neighbors, and the richest 1 percent saw its share of the national income shrink to 8.9 percent in the mid-1970s, from 23.9 percent in 1928. That share is now back up to more than 20 percent, its level before the Depression.

Inequality has traditionally been acceptable to Americans if accompanied by mobility. But most recent studies of economic mobility indicate that it is getting even harder for people to jump from one economic class to another in the United States, harder to join the elite. While Americans are used to considering equal opportunity and equality of condition as separate issues, they may need to reconsider. In an era in which money translates into political power, there is a growing feeling, on both left and right, that special interests have their way in Washington.

There is growing anger, from the Tea Party to Occupy Wall Street, that the current system is stacked against ordinary citizens. Suddenly, as in the 1930s, the issue of economic equality is back in play. 

 


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[Oct 8, 2012] Middle Class — Whatever It Is — Targeted by Candidates by Allison Linn

Questionable approach, this one is from CNBC. Typically includes households with incomes above $46,326 (all households) or $67,348 (dual; earners households) per year. In order for two earners family to qualify each earner should get approximately $34K a year or more. While it is true that for politicians middle class are people who are voting for him/her, a pretty realistic definition is "above average" with the average family income for the region as cut off on one side and, say, 20% the richest on the other. So those are people who have per family income between average and income of 20% percentile.
Oct 8, 2012 | CNN

What is the middle class, anyway? There's no official definition, but Americans and their leaders seem to know it when they see it.

Westend61 | Getty Images --------------------------------------------------------------------------------

And after five tough years of a recession and slow economy, there's plenty of evidence that fewer people see a middle-class life when they look in the mirror.

“You can’t define middle class, but you can ask people, ‘Do you still feel middle class?’ And more and more people don’t,” said Tim Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin.

Still, as election season heats up, that’s not stopping many politicians from promising to help the middle class, whoever they may be.

"The whole attraction of middle class … is it doesn’t mean anything," said Dennis Gilbert, a sociology professor at Hamilton College who studies class issues. "Middle class means anybody who might vote for you."

The focus on the middle class starts at the top of the ticket, where President Barack Obama and Republican challenger Mitt Romney have both repeatedly invoked the middle class in their quest to win the presidency next month.

Obama told voters during last week's debate that he cut taxes for middle-class families “because I believe that we do best when the middle class is doing well.”

Then he questioned whether Romney had the same dedication to the middle class.

“And at some point, I think the American people have to ask themselves, is the reason that Governor Romney is keeping all these plans to replace secret because they're too good? Is it -- is it because that somehow middle-class families are going to benefit too much from them?” Obama said, according to a transcript provided by the Commission on Presidential Debates.

Romney argued that Obama’s policies have hurt the middle class and would continue to do so.

“There's no question in my mind that if the president were to be re-elected you'll continue to see a middle-class squeeze with incomes going down and prices going up,” he said during the debate. “I'll get incomes up again.”

The traditional political focus on the middle class comes as fewer people feel like they’re still part of it. A Pew Research Center report this year found that 49 percent of people define themselves as middle class, down from 53 percent from four years ago.

“Statistically, that’s a significant shift, but beyond statistics it feels right,” said Rich Morin, a senior editor with Pew Research Center. “It’s been a tough four years.”

In fact, Morin said, Americans’ sense of how the middle part of the economic spectrum is doing is surprisingly accurate. The polling data on whether Americans feel like they are still part of the middle class matches well with the researchers’ economic data on median income in the United States, which has fallen in recent years after adjusting for inflation.

Still, experts say the term middle class has a cultural connotation that goes beyond the number on your paycheck or tax stub.

Kevin Leicht, director of the Iowa Social Science Research Center at the University of Iowa, said many Americans think of a middle-class life as being one in which you have a stable job, own your own home and occasionally buy something substantial like a new car. You also either went to college or have the aspiration of sending your children to college. Beyond that, he said, the term middle class invokes the type of person who gets married and has kids, pays their bills on time, doesn’t get in trouble with the law and maybe goes to church. “In the United States, it’s probably more of a cultural category than an economic one,” he said.

He thinks Americans’ affinity for the middle class also comes partly from a natural suspicion for both the richest and the poorest Americans. Audacious wealth has traditionally been frowned upon in this country, he said, while there’s also often a fear-based bias against people who are poor.

“Because a lot of us are two missed paychecks away from being in exactly the same position, we have to act like there’s something systematically wrong with people who are in that position,” Leicht said.

The sense of a shrinking middle class also comes amid evidence that the rich are getting richer and the poor are getting poorer, discouraging many Americans.

“They are aware that economic inequality is growing. And a majority — a substantial majority — say it’s a bad thing,” Morin said. “Everyone aspires to be upper class, but people are aware that as more Americans move up into the upper class, more Americans are moving down, and that’s not a good thing.”

The big question now is whether Americans’ discouraged attitudes about the middle class will change if the economic recovery starts to pick up.

In general, experts say that history would show that Americans will grow more optimistic about the middle class, and the American dream, as economic conditions improve. But, they note, this recession and weak recovery has been different from any other we’ve experienced in recent decades, and the future remains uncertain.

“I’m sure a strong recovery would help, but that’s a ways off,” Smeeding said. “Our standard of living is lower now than it was in 2006.”

Social Inequality and the New Elite - by Alexander Stille

Alexander Stille is a professor of international journalism at Columbia.
October 22, 2011 | NYTimes.com
IT’S a puzzle: one dispossessed group after another — blacks, women, Hispanics and gays — has been gradually accepted in the United States, granted equal rights and brought into the mainstream.

At the same time, in economic terms, the United States has gone from being a comparatively egalitarian society to one of the most unequal democracies in the world.

The two shifts are each huge and hugely important: one shows a steady march toward democratic inclusion, the other toward a tolerance of economic stratification that would have been unthinkable a generation ago.

The United States prides itself on the belief that “anyone can be president,” and what better example than Barack Obama, son of a black Kenyan immigrant and a white American mother — neither of them rich.

And yet more than half the presidents over the past 110 years attended Harvard, Yale or Princeton and graduates of Harvard and Yale have had a lock on the White House for the last 23 years, across four presidencies. Thus we have become both more inclusive and more elitist.

It’s a surprising contradiction. Is the confluence of these two movements a mere historical accident? Or are the two trends related?

Other nations seem to face the same challenge: either inclusive, or economically just. Europe has maintained much more economic equality but is struggling greatly with inclusiveness and discrimination, and is far less open to minorities than is the United States.

European countries have done a better job of protecting workers’ salaries and rights but have been reluctant to extend the benefits of their generous welfare state to new immigrants who look and act differently from them. Could America’s lost enthusiasm for income redistribution and progressive taxation be in part a reaction to sharing resources with traditionally excluded groups?

“I do think there is a trade-off between inclusion and equality,” said Gary Becker, a professor of economics at the University of Chicago and a Nobel laureate. “I think if you are a German worker you are better off than your American equivalent, but if you are an immigrant, you are better off in the U.S.”

PROFESSOR Becker, a celebrated free-market conservative, wrote his Ph.D. dissertation (and first book, “The Economics of Discrimination”) to demonstrate that racial discrimination was economically inefficient. American business leaders seem to have learned that there is no money to be made in exclusion: bringing in each new group has simply created new consumers to court. If you can capture nearly three-quarters of the economy’s growth — as the top 1 percent did between 2002 and 2006 — it may not be worth worrying about gay marriage or skin color.

“I think we have become more meritocratic — educational attainment has become increasingly predictive of economic success,” Professor Becker said. But with educational attainment going increasingly to the children of the affluent and educated, we appear to be developing a self-perpetuating elite that reaps a greater and greater share of financial rewards. It is a hard-working elite, and more diverse than the old white male Anglo-Saxon establishment — but nonetheless claims a larger share of the national income than was the case 50 years ago, when blacks, Jews and women were largely shut out of powerful institutions.

Inequality and inclusion are both as American as apple pie, says Jerome Karabel, a professor of sociology at the University of California, Berkeley, and author of “The Chosen,” about the history of admission to Harvard, Yale and Princeton. “I don’t think any advanced democracy is as obsessed with equality of opportunity or as relatively unconcerned with equality of condition,” he says. “As long as everyone has a chance to compete, we shouldn’t worry about equality. Equality of condition is seen as undesirable, even un-American.”

The long history of racial discrimination represented an embarrassing contradiction — and a serious threat — to our national story of equal opportunity. With Jim Crow laws firmly in place it was hard to seriously argue that everyone had an equal chance. Civil rights leaders like the Rev. Dr. Martin Luther King Jr. were able to use this tradition to draw support to their causes. “Given our culture of equality of opportunity, these kinds of rights-based arguments are almost impossible to refute,” Professor Karabel said. “Even in today’s conservative political climate, opponents of gay rights are losing ground.”

The removal of traditional barriers opened up the American system. In 1951 blacks made up less than 1 percent of the students at America’s Ivy League colleges. Today they make up about 8 percent. At the same time, America’s elite universities are increasingly the provinces of the well-to-do. “Looking at the data, you see that the freshman class of our top colleges are more and more made up of the children of upper- and upper-middle-class families,” said Thomas J. Espenshade of Princeton, a sociologist.

Even the minority students are more affluent, he noted; many of them are of mixed race, or the children of immigrants or those who benefited from affirmative action.

Shamus Khan, a sociologist at Columbia and the author of “Privilege,” a book about St. Paul’s, the prep school, agreed that there had been a change in the composition of the elite. “Who is at elite schools seems to have shifted,” he said. “But the elite seem to have a firmer and firmer hold on our nation’s wealth and power.”

Still the relatively painless movement toward greater diversity should not be dismissed as mere window dressing.

“After the immigration reform of 1965, this country went from being the United States of Europe to being the United States of the World. All with virtually no violence and comparatively little trauma,” Professor Karabel said. This is no small thing, particularly when you compare it to the trauma experienced by many European societies in absorbing much lower percentages of foreign-born citizens, few of whom have penetrated their countries’ elites.

Moreover, inequality has grown partly for reasons that have little or nothing to do with inclusion. Almost all advanced industrial societies — even Sweden — have become more unequal. But the United States has become considerably more unequal. In Europe, the rights of labor have remained more central, while the United States has seen the rise of identity politics.

“There is much less class-based organization in the U.S,” said Professor Karabel. “Race, gender and sexual orientation became the salient cleavages of American political life. And if you look at it — blacks, Hispanics and women have gained somewhat relative to the population as a whole, but labor as a category has lost ground. The groups that mobilized — blacks, Hispanics, women — made gains. But white male workers, who demobilized politically, lost ground.”

One of the groups to become mobilized in response to the protest movements of the 1960s and early 1970s was the rich. Think tanks dedicated to defending the free-enterprise system — such as the Cato Institute and the Heritage Foundation — were born in this period. And it is not an accident that the right-wing advocate Glenn Beck held a national rally on the anniversary of King’s “I Have a Dream” speech in front of the Lincoln Memorial. Republicans now defend tax cuts for the richest 2 percent using arguments and language from the civil rights movements: insisting that excluding the richest earners is unfair.

Removing the most blatant forms of discrimination, ironically, made it easier to justify keeping whatever rewards you could obtain through the new, supposedly more meritocratic system. “Greater inclusiveness was a precondition for greater economic stratification,” said Professor Karabel. “It strengthened the system, reinvigorated its ideology — it is much easier to defend gains that appear to be earned through merit. In a meritocracy, inequality becomes much more acceptable.”

THE term “meritocracy” — now almost universally used as a term of praise — was actually coined as a pejorative term, appearing for the first time in 1958, in the title of a satirical dystopian novel, “The Rise of the Meritocracy,” by the British Labour Party leader Michael Young. He warned against the creation of a new technocratic elite in which the selection of the few would lead to the abandonment of the many, a new elite whose privileges were even more crushing and fiercely defended because they appeared to be entirely merited.

Of the European countries, Britain’s politics of inequality and inclusion most resemble those of the United States. Even as inequality has grown considerably, the British sense of economic class has diminished. As recently as 1988, some 67 percent of British citizens proudly identified themselves as working class. Now only 24 percent do. Almost everybody below the Queen and above the poverty line considers himself or herself “middle class.”

Germany still has robust protections for its workers and one of the healthiest economies in Europe. Children at age 10 are placed on different tracks, some leading to university and others to vocational school — a closing off of opportunity that Americans would find intolerable. But it is uncontroversial because those attending vocational school often earn as much as those who attend university.

In France, it is illegal for the government to collect information on people on the basis of race. And yet millions of immigrants — and the children and grandchildren of immigrants — fester in slums.

In the United States, the stratification of wealth followed several decades where economic equality was strong. The stock market crash of 1929 and the Great Depression that followed underscored the excesses of the roaring ’20s and ushered in an era in which the political climate favored labor unions, progressive taxation and social programs aimed at reducing poverty.

From the 1930s to the 1960s, the income of the less affluent Americans grew more quickly than that of their wealthier neighbors, and the richest 1 percent saw its share of the national income shrink to 8.9 percent in the mid-1970s, from 23.9 percent in 1928. That share is now back up to more than 20 percent, its level before the Depression.

Inequality has traditionally been acceptable to Americans if accompanied by mobility. But most recent studies of economic mobility indicate that it is getting even harder for people to jump from one economic class to another in the United States, harder to join the elite. While Americans are used to considering equal opportunity and equality of condition as separate issues, they may need to reconsider. In an era in which money translates into political power, there is a growing feeling, on both left and right, that special interests have their way in Washington.

There is growing anger, from the Tea Party to Occupy Wall Street, that the current system is stacked against ordinary citizens. Suddenly, as in the 1930s, the issue of economic equality is back in play.

[Oct 06, 2012] Thomas Frank On The Plight Of Those Poor, Poor Plutocrats by Susie Madrak

October 06, 2012

Thomas Frank, author of "What's The Matter With Kansas?" and "The Wrecking Crew" writes about the poor, poor plutocrats who are so very sad that no one appreciates them:

Rhetoric like this makes the very rich feel very sad. It has sent them on a crusade to restore matters to their rightful place. And in the process they have developed one of the distinctive literary forms of our time: the plutocrat’s j’accuse.

The most famous example is the open letter to the president written last year by the hedge fund manager Leon Cooperman and dissected at length in this week’s New Yorker magazine. In it, Mr. Cooperman blames Mr. Obama (and his “minions”) for “setting the tenor of the rancorous debate now roiling us that smacks of what so many have characterized as ‘class warfare.’ ” This is serious, this roiling and this tenor-setting, but it is not the only damage the president’s words have done. The “divisive, polarizing tone of your rhetoric is cleaving a widening gulf,” Mr. Cooperman continued, “between the downtrodden and those best positioned to help them” — meaning, apparently, hedge fund managers like himself.

Other princelings who have made noteworthy contributions to the genre include Ted Leonsis, the owner of several Washington sports teams, who feels that “anyone who has achieved success in terms of rank or fiscal success is being cast as a bad guy in a black hat,” and the casino magnate Steve Wynn, who griped in a famous conference call that the president “keeps making speeches about redistribution.” He said, “We haven’t heard that kind of talk except from pure socialists.”

Reports have even reached us, via The Wall Street Journal, of a tragic incident last year on the streets of New York in which an unnamed “panhandler” rejected a handout with a spiteful, “You Wall Street fat cats!” Thankfully, the man at whom this imprecation was directed, the chief executive of a venture capital firm, knew whom to blame: President Obama, whose “incendiary message has now reached the streets.”

Nobody likes to be criticized, but one would expect captains of industry, Darwinian tough guys that they are, to have thicker skins. Were Mr. Obama a true incendiary, he might have found a way on Wednesday to mention his opponent’s millions; his work for Bain Capital; or his dismissal, captured on video, of those layabouts who make up 47 percent of the country. Mr. Obama called for ending the tax break for corporate jets, sure, but that’s about it.

In the broad scheme of things, these are excellent times to be a billionaire. Labor is powerless. Taxes are low. The banks that survived the crisis are bigger than ever. So why do the well-to-do whine so? Why do they wring their hands?

For one thing, their criticisms reveal a contemptuous view of their fellow citizens. That all the books and articles on the financial crisis and the recession might have had an effect — that people might see the economic downturn as a reflection on the individuals who were, a few years back, lionized as the economy’s leaders — is inconceivable to the class-war complainers. The public’s attitude, they seem to believe, can have arisen only as a result of propagandizing by Mr. Obama. No American would ever stop respecting his betters unless he was brainwashed into it.

It is also a play for legitimacy. In good times, the very rich compare themselves to the Almighty; in hard times they convince themselves that Huey P. Long lurks just around the corner. History, they fear, will repeat its most sordid chapters unless it is stopped right now, and that’s why they act as if a few mean words wound as hurtfully as any program of, say, antitrust enforcement.

They whine because whining works. One only wishes that if he wins a second term, Barack Obama will give them something to really cry about.

[Sep 22, 2012] God Bless You, Mr. Rosewater

"Noah and his brother George inherited from their pioneer father six hundred acres of farmland, land as dark and rich as chocolate cake, and a small saw factory that was nearly bankrupt. War came.

George raised a rifle company, marched away at its head.

Noah hired a village idiot to fight in his place, converted the saw factory to the manufacture of swords and bayonets, converted the farm to the raising of hogs. Abraham Lincoln declared that no amount of money was too much to pay for the restoration of the Union, so Noah priced his merchandise in scale with the national tragedy. And he made this discovery: Government objections to the price or quality of his wares could be vaporized with bribes that were pitifully small.

He married Cleota Herrick, the ugliest woman in Indiana, because she had four hundred thousand dollars. With her money he expanded the factory and bought more farms, all in Rosewater County. He became the largest individual hog farmer in the North. And, in order not to be victimized by meat packers, he bought controlling interest in an Indianapolis slaughterhouse. In order not to be victimized by steel suppliers, he bought controlling interest in a steel company in Pittsburgh. In order not to be victimized by coal suppliers, he bought controlling interest in several mines. In order not to be victimized by money lenders, he founded a bank.

And his paranoid reluctance to be a victim caused him to deal more and more in valuable papers, in stocks and bonds, and less and less in swords and pork. Small experiments with worthless papers convinced him that such papers could be sold effortlessly. While he continued to bribe persons in government to hand over treasuries and national resources, his first enthusiasm became the peddling of watered stock...

Noah and a few like him perceived that the continent was in fact finite, and that venal office-holders, legislators in particular, could be persuaded to toss up great hunks of it for grabs, and to toss them in such a way as to have them land where Noah and his kind were standing.

Thus did a handful of rapacious citizens come to control all that was worth controlling in America. Thus was the savage and stupid and entirely inappropriate and unnecessary and humorless American class system created. Honest, industrious, peaceful citizens were classed as bloodsuckers, if they asked to be paid a living wage.

And they saw that praise was reserved henceforth for those who devised means of getting paid enormously for committing crimes against which no laws had been passed. Thus the American dream turned belly up, turned green, bobbed to the scummy surface of cupidity unlimited, filled with gas, went bang in the noonday sun.

E pluribus unum is surely an ironic motto to inscribe on the currency of this Utopia gone bust, for every grotesquely rich American represents property, privileges, and pleasures that have been denied the many. An even more instructive motto, in the light of history made by the Noah Rosewaters, might be: Grab much too much, or you'll get nothing at all.

And Noah begat Samuel, who married Geraldine Ames Rockefeller. Samuel became even more interested in politics than his father had been, served the Republican Party tirelessly as a kingmaker, caused that party to nominate men who would whirl like dervishes, bawl fluent Babylonian, and order the militia to fire into crowds whenever a poor man seemed on the point of suggesting that he and a Rosewater were equal in the eyes of the law.

And Samuel bought newspapers, and preachers, too. He gave them this simple lesson to teach, and they taught it well: Anybody who thought that the United States of America was supposed to be a Utopia was a piggy, lazy, God-damned fool. Samuel thundered that no American factory hand was worth more than eighty cents a day. And yet he could be thankful for the opportunity to pay a hundred thousand dollars or more for a painting by an Italian three centuries dead. And he capped this insult by giving paintings to museums for the spiritual elevation of the poor. The museums were closed on Sundays...”

Kurt Vonnegut, God Bless You, Mr. Rosewater

[Sep 06, 2012] Bad Jobs on the Rise By John Schmitt and Janelle Jones

September, 2012


Executive Summary

We define a bad job as one that pays less than $37,000 per year (in inflation-adjusted 2010 dollars); lacks employer-provided health insurance; and has no employer-sponsored retirement plan.

By our calculations, about 24 percent of U.S. workers were in a bad job in 2010 (the most recently available data). The share of bad jobs in the economy is substantially higher than it was in 1979, when 18 percent of workers were in a bad job by the same definition.

The problems we identify here are long-term and largely unrelated to the Great Recession. Most of the increase in bad jobs – to 22 percent in 2007 – occurred before the recession and subsequent weak recovery.

Of the three criteria we use, workers did best with respect to earnings. Overall, in 2010, about 53 percent of workers were in jobs that paid less than $37,000 per year, down from 59 percent in 1979.

A decline in health-insurance coverage, however, was a major driver of the increase in bad jobs. About 47 percent of workers did not have employer-provided health insurance in 2010, up from 30 percent in 1979.

A deterioration in retirement-plan coverage also contributed to the rise in bad jobs. In 2010, about 55 percent of workers did not participate in a retirement plan at work, up from 48 percent in 1979.

The increase in bad jobs took place despite a substantial increase in the productive capacity of the U.S. economy over the same period. The typical worker in 2010 was seven years older than in 1979. In 2010, over one-third of US workers had a four-year college degree or more, up from just one-fifth in 1979. On average, workers today also work with more physical capital (plants, machinery, equipment, etc.) and much more sophisticated technology.

Given that older and better-educated workers generally receive higher pay and better benefits, we would have expected the share of bad jobs to have declined over the last three decades in step with these improvements in the quality of the workforce.

Between 1979 and 2010, the share of workers with bad jobs, increased for workers at every education level. Workers with less than a high school degree, only a high school degree, and even those with some college (including associates degrees) were substantially more likely to be in a bad job in 2010 than they were in 1979. Even among workers with a four-year college degree or more, the share of workers in a bad job was slightly higher in 2010 than it had been three decades earlier.

The decline in the economy’s ability to create good jobs is related to deterioration in the bargaining power of workers, especially those at the middle and the bottom of the pay scale. The restructuring of the U.S. labor market – including the decline in the inflation-adjusted value of the minimum wage, the fall in unionization, privatization, deregulation, pro-corporate trade agreements, a dysfunctional immigration system, and macroeconomic policy that has with few exceptions kept unemployment well above the full employment level – has substantially reduced the bargaining power of U.S. workers, effectively pulling the bottom out of the labor market and increasing the share of bad jobs in the economy....

[Sep 05, 2012] The Myth of Upward Mobility

...parental wealth plays an important role in whether children move up or down the socioeconomic ladder in adulthood. And that parental wealth has an influence above and beyond the three factors that sociologists and economists have traditionally considered in research on social mobility—parental education, income, and occupation. "Wealth not only fulfills a purchasing function, allowing families to buy homes in good neighborhoods and send their children to costly schools and colleges, for example, but it also has an insurance function, offering a sort of private safety net that gives children a very different set of choices as they enter the adult world," Pfeffer said.
Economist's View
The statement "wealth plays an important role in whether children move up or down the socioeconomic ladder in adulthood" made me think of people like Mitt Romney who think they made it all on their own:
Exceptional upward mobility in the US is a myth, EurekAlert: The rhetoric is relentless: America is a place of unparalleled opportunity, where hard work and determination can propel a child out of humble beginnings into the White House, or at least a mansion on a hill.
But the reality is very different, according to a University of Michigan researcher who is studying inequality across generations around the world.
"Especially in the United States, people underestimate the extent to which your destiny is linked to your background. Research shows that it's really a myth that the U.S. is a land of exceptional social mobility," said Fabian Pfeffer, a sociologist at the U-M Institute for Social Research and the organizer of an international conference on inequality across multiple generations being held ... in Ann Arbor.
Pfeffer's own research illustrates this point based on data on two generations of families in the U.S. and a comparison of his findings to similar data from Germany and Sweden. ... He found that parental wealth plays an important role in whether children move up or down the socioeconomic ladder in adulthood. And that parental wealth has an influence above and beyond the three factors that sociologists and economists have traditionally considered in research on social mobility—parental education, income, and occupation.
"Wealth not only fulfills a purchasing function, allowing families to buy homes in good neighborhoods and send their children to costly schools and colleges, for example, but it also has an insurance function, offering a sort of private safety net that gives children a very different set of choices as they enter the adult world," Pfeffer said.
"Despite the widespread belief that the U.S. provides exceptional opportunities for upward mobility, these data show that parental wealth has an important role in shielding offspring from downward mobility and sustaining their upward mobility in the U.S..." ...

Noni Mausa:

Keep in mind that "wealth" is essentially the ability to mobilize and direct the effort of other people.

What you can build or harvest unaided is really very limited, and what you can set aside for later of what you build unaided is limited in amount and always at risk (say, from bears or fungus or the vagaries of weather.) Things loosen up a lot as the population of workers and builders rises, with surpluses in production becoming the norm and storage of excess becoming much easier.

What the fabulously wealthy have, and why we should be annoyed at them, is the ability to muster our efforts towards their well-being, at the expense of our own.

Edward Lambert:

The other side of this coin... People at the bottom are decreasing in "social" value... because their pay is stagnating. They are losing wealth and economic power in their communities.

Yes, they are not going up, but they are being slid downward too.

mrrunangun said in reply to Edward Lambert...

This entirely correct.

In the sixties the country was rich. Many working class men and women put themselves thru college on a combination of scholarships, after school and summer earnings, and federal grant programs of the Great Society. And college was cheap enough that those funds generally sufficed. Loan programs were comparatively modest, and if you took out a loan its burden was further lightened by the inflation of the 70s.

The country no longer bestrides the world as it did then. College is much more expensive and manual labor, restaurant work, and types of work we worked our way thru school with, are much less available to today's students and even for those able to work them, those jobs do not pay nearly enough to cover undergrad costs.

In the late 1960s tuition at Northwestern worked its way up to $2200/year by '69 if memory serves right. A construction unskilled labor job or a vacation replacement job in the steel mills could give you 500 hours at $4/hr. Some jobs better, some a little worse. No way a student today can earn $50,000 working an unskilled labor job in the summer.

The rich could always provide opportunities for their own. The barriers to advancement thru education for ambitious bright children of today's lower middle class are far higher and continue to grow.

Today's college professors live in much better style than the threadbare gentility of my professors and the colleges are far better appointed and more richly administered than in the sixties. Part of the cost has been opportunity for the ambitious working class boy or girl.

Federal grants seem harder to get. Financially unsophisticated people are sold costly student loans as the best available deal. These indenture the students to the banks. Since the banks run the country regardless of who is in office in DC, this exploitation of the poor by the rich is unlikely to change anytime soon.

[Sep 04, 2012] http://www.psc.isr.umich.edu/pubs/pdf/rr12-766.pdf

Mobility Regimes and Parental Wealth: The United States, Germany, and Sweden in Comparison
Pfeffer, Fabian T., and Martin Hällsten
July 2012

Abstract
"We study the role of parental wealth for children's educational and occupational outcomes across three types of welfare states and outline a theoretical model that assumes parental wealth to impact offspring's attainment through two mechanisms, wealth's purchasing function and its insurance function. We argue that welfare states can limit the purchasing function of wealth, for instance by providing free education and generous social benefits, yet none of the welfare states examined here provides a functional equivalent to the insurance against adverse outcomes afforded by parental wealth. Our empirical evidence of substantial associations between parental wealth and children's educational success and social mobility in three nations that are marked by large institutional differences is in line with this interpretation and helps us re-examine and extend existing typologies of mobility regimes."

[Sep 03, 2012] 'The Decline of the Middle Class'

Barry Ritholtz presents several graphs showing "critical evidence on the decline of the middle class" in recent years, and then remarks:

One final note: Despite the overwhelming data, some people dispute that the middle class has been struggling or that they have suffered any sort of set back in income or purchasing power.

The Brookings Institution’s Scott Winship maintains that “conventional accounts of how the broad middle is doing systematically overstate economic insecurity.” If one wants to argue exactly how far the Middle Class has fallen behind, and make the claim that the MSM has overstated it, well, that is a legitimate debate. I think its a losing argument, but, hey, its hardly incredible to say conventional wisdom overstates something.

On the other hand, the American Enterprise Institute fallaciously makes the less than credible or honest claim that there has been “considerable improvement in material well-being for both the middle class and the poor … over the past three decades.”

This is the sort of statement that you expect from a group that has given up any pretense towards reality. The AEI has moved from intellectually bankrupt to utterly dishonest, and I assume anything I read from them, on any subject, are willful lies, misinformation and propaganda.

As an asset manager, I cannot risk falling into an alternative universe that diverges form reality. That is the sand box AEI plays in. As such, I have been forced to SEQUESTER their nonsense, as their detachment from the real world is an expensive and potentially dangerous money loser for anyone who reads their foolishness. I mostly ignore their idiocy, and suggest you do the same.

DrDick said in reply to R...

WTF?! Dude, we warned you about that brown acid. As numerous economists have pointed out, the decline of the middle classes in the US is a direct consequence of increasing rent seeking by the rich, who are also paying a record low level of taxes.

http://blogs.lclark.edu/hart-landsberg/files/2011/07/change-since-1979-300.gif

Kaleberg said in reply to R...

In the 19th century and early 20th century, most Americans were what they then called working class, just getting by on a paycheck, renting, owning little and with few prospects for their children. The middle class existed as the "business class", but this was a small group of business owners and better paid, better educated employees. The middle class started to grow under FDR, but it didn't become central until after WWII when the government made a concerted effort of education, bonuses, guaranteed loans, grants, pro-union policies and so on, backed by extremely high progressive tax rates.

If you go back to 1912, there was only a tiny middle class. If you go back to the 1930s, there was a growing middle class. If you go back to the 1950s through 1970s, most Americans were middle class. The middle class was created by the government, as it has been in every society to date.

R

Sorry I thought it was a funny analogy for saying exactly what you've posted statistics to show... The middle class have picked up the slack for funding government expansion. I'll refrain from vague analogies in the future..

Xylix said in reply to R...

The middle class 'picked up the slack' because the wealthy dropped it.

DrDick

to R... Again, it is not taxes that have caused this decline, it is wages remaining flat or declining as the rentiers (management and investors) have seized an ever increasing portion the value of workers' labor. The fact that the rich have defaulted on their patriotic and civic duty to pay their share just compounds the injury.
revelo
to DrDick... You shouldn't abuse the term rentier. Rent is income not due to labor or capital (which is stored labor). Mere savers/investors are not normally rentiers, though they are currently to the extent they profited from the bailouts. Had the right thing been done during the crisis (let the bondholders of Citibank et al take a haircut) all the financial system rent profits for the past 2 decades would have been vaporized instantly.

Rent are either natural (land, telecom spectrum) or artificial (created by government policy). Examples of artificial rents:

Want to cut rents? Cut government involvement with the economy in favor of simple income redistribution (high progressive taxes on the rich, negative taxes on the poor)

DrDick
to revelo...

Very few of those you list (none except intellectual property owners, and not necessarily all of them) are actual rentiers. A rentier, in the original Marxist sense, is someone who gains a living through ownership of property rather than labor. Interest, profits, and other capital gains are indeed rents, as all unearned income. Wages, except those for executives who largely set their own compensation and the like, are by definition not rents.

Xylix
to DrDick...

Yes, rent originates from the concept of receiving pay due to ownership rather than labour (e.g I get paid even if I don't do anything).

Revelo attempts to excuse this by claiming that capital is a lump of 'owed' labour.

His absurd argument is instantly revealed by the existence of 'inheritance'.

cm
to revelo...

All rents are artificial. Your so-called "natural" rents can only be extracted because the government enforces property rights and contracts. As your blinders seem to allow you only to see overpaid workers, you overlooked a primary form of rent extraction, charging rent on money, which is the privilege of those owning and/or minting the money (banks). That in turn is also all based on government license, property/contract enforcement, and policies allowing a small sector of business to control most flows of money.

Xylix
to cm... [["As your blinders seem to allow you only to see overpaid workers"]]

And 'overpaid' as according to a selective version of Lord God Market at that. Revelo doesn't even show the prudence to invoke the always incalculable 'Marginal Utility'.

cm
to revelo...

Even most "entrepreneurs" who have to loan the seed money for their business, are essentially working for the man, i.e. their creditor, who extracts a good part of the fruits of their labor, and often requires being given a say in business decisions, sometimes to a dominating extent.

That's a common experience of tech startup founders. Many are walking away with what amounts to a more or less generous salary for a few years of hard work, unless the business becomes spectacularly successful and they have negotiated terms that leave them with a good chunk of the gains.

Kaleberg
to revelo...

Land ownership is not natural. It is a government service. Telecom spectrum is not natural. The exclusive right to use a frequency range is a government service. In fact, private property is a government service.

There's no point in being mystical. This isn't Star Wars with "the force".

Maybe that was natural.

[Jul 26, 2012] This game is rigged by Mark Adomanis

See Russian translation at Подтасованная игра ИноСМИ - Все, что достойно перевода
Earlier I mentioned this in passing, but now again. In my humble opinion, the series «The Wire» (Wire) - this is the best source of information for those who want to get an idea of the reality of urban life in America, the beginning of XXI century. For those who have not heard about this film, "The Wire" - is an epic television series cable network HBO, telling about the drug trade in Baltimore and all the people who are involved in it (and it is - the police, prosecutors, hired killers, lawyers as well as street vendors). The idea of the series, its characters and the storyline is so detailed and confusing, it looks more like a novel, rather than on a standard TV show. In it one little whiny and cloying sentimentality that has spread throughout the American television. Although insight into this series makes it impossible to clearly sort through what is what, his general idea is that large bureaucratic institutions inevitably suffer from the dysfunction and corruption. It is particularly appropriate quote from a movie. In explaining why he intended to testify against a particularly cruel sadist-gangster, a long-term drug mafia soldier said to the police investigator: "This game is rigged, man."

A special expressiveness and style, this phrase is no different, but it is - an extremely informative and concise summary of the problems faced by industrialized countries, and America - in particular. In the end, what a scandal with LIBOR, if not rigged game? After all, rich and powerful play it on a completely different set of rules to be materially different from the rules of a small and simple man. List of news showing that the "rigged game" is increasing every day, but the last two events deserve special comment.

First news - a new study that shows that the global super-elite (it is a percentage of the top 1 percent of the company) put by $ 20 trillion in offshore tax havens, from where this money can not be deleted. Yes, you read correctly. Twenty trillion dollars, more than the combined GDP of the United States and Japan. The author of this shocking study, James Henry (James Henry) - this is not some fire-breathing radical or a disgruntled resident of the teaching departments. No, he - a former chief economist at McKinsey (well known for its links and a very successful consulting firm of Management). Considering how well employees are McKinsey, Henry, for sure, and he enters this world-wide 1 percent. In his study, he said that the yawning gap between rich and poor - much wider than indicated in even the most pessimistic estimates. Investigation of the author shows that at least 100,000 people own assets worth about 10 trillion dollars. To submit to the absurdity of this situation, imagine that the population of Scranton in Pennsylvania, owns all the wealth of the countries of Central and South America.

Other news - the recent publication of the book of the former federal prosecutor Neil Barofski (Neil Barofsky), which is responsible for the supervision and control over the government's program to rescue troubled assets. Under this program, at the height of the financial crisis, the government bought the assets of troubled U.S. banks.

The book was Barofski cause huge scandal because it is an endless list of corruption that swept the regulatory system in the country. It should be noted that Barofski does not detail the actual facts of violation of the law, but his story is much more alarming. The problem is not that the system applies the rules selectively and imperfectly, and that these rules and the system itself completely ineffective and frankly immoral. The invasion of foreign banks in the ownership and poaching in the leadership ranks of such regulatory bodies should be considered illegal. But do not count. It is also illegal to be enriched at the expense of federal officials a good knowledge of the process of enforcement. But it is not. Thus, there is - the constant movement to and fro in the upper echelons of Wall Street and the state. And the only noticeable effect of this movement - is further weakening the already feeble enforcement mechanisms. Sam Barofski not directly quoted, "The Wire," but he comes very close to this when he says: "The suspicion is justified that the system is rigged for the benefit of the largest banks and the elite, so that they operate under their own rules at the expense of taxpayers that finance provided by banks such assistance. " Like the author I mentioned study Barofski - is not some effete left-wing community organizer or a disgruntled radical. No, he is a graduate of the University of the Ivy League, a former federal prosecutor, has earned its reputation for professional presentation of the prosecution and sentencing for the largest narcotic case in U.S. history.

I'm smart enough to realize how incredibly (almost indescribable) I was lucky: my parents gave me the best education he could have imagined. I was happy with an order that a very early age socialized with offspring of the rich and powerful. But even in a place like Harvard, who fancies himself as one of the most meritocratic institutions in the world, and (supposly) take students only based thier talents and abilities, it is impossible not to notice that the game is rigged beyond measure. Almost everyone was admitted by the university in the end lives a quite comfortable and financially prosperous life. I am not in any case not beg for sympathy and not trying to appear in the image of a martyr. But those who succeeds, who gets the best jobs, best graduate school in the fall, becomes the owner of the largest houses -- is largely not hard-working and highly mobile members of the middle or lower class. No, this is - the offspring of the elite. There is a deep sense of disappointment when you see the fallacy and the fallacy of a typical American sermons on the remuneration of hard work and perseverance.

But facts are facts, but reality is reality. I personally have seen endless examples of how careless and apathetic rich kids (got to college, thanks to their parents, and for four years of study are not distinguished by special achievements) can easily fall on the well-paid positions, while their fellow students with a much more impressive summary of the level of training and worried endlessly about their student loans for school and medical bills (even though these concerns seem strange and bourgeois to those who can not find a job, buy an apartment or even a medical insurance policy).

When people like Neil Barofski and James Henry, who by virtue of their education and jobs, it would seem, have staunchly defend the system, begin to criticize it severely, you realize that something is fundamentally wrong. Over time, a more or less reasonable balance is achieved, and I honestly do not see how the status quo can be preserved for a long time.

But the shocking disparities of wealth and power between the different people that are now characteristic of Western democracies must be a sobering example for those Russians who want their country to become more representative and transparent. This is a very tough fight, and the elite have always relied on the cynicism and indifference of the majority.

[Jul 20, 2012] How the Elites Built America's Economic Wall - By Virginia Postrel

Jul 20, 2012 | Bloomberg via Yahoo! Finance

For a century, incomes became increasingly equal across the U.S., as poor states such as Alabama caught up to rich places like California.

Economists have long taught this history to their undergraduates as an illustration of the growth theory for which Robert Solow won his Nobel Prize in economics: Poor places are short on the capital that would make local labor more productive. Investors move capital to those poor places, hoping to capture some of the increased productivity as higher returns. Productivity gradually equalizes across the country, and wages follow. When capital can move freely, the poorer a place is to start with, the faster it grows.

"That's one of the central relationships in macroeconomics," says Daniel Shoag, an economist at Harvard University's Kennedy School of Government. "It's an extremely strong one, and we teach it in introductory macro because it's one of the few macro facts that are predicted by a model that isn't a tautology and that holds extremely well."

Or at least it used to. Over the past 30 years, the convergence has largely stopped. Incomes in the poorer states are no longer catching up to incomes in rich states.

Mobile Labor

In a new working paper, Shoag and Peter Ganong, a doctoral student in economics at Harvard, offer an explanation: The key to convergence was never just mobile capital. It was also mobile labor. But the promise of a better life that once drew people of all backgrounds to rich places such as New York and California now applies only to an educated elite -- because rich places have made housing prohibitively expensive. (Shoag and Ganong visualized these changes in a series of excellent animated graphics.)

The states with the highest incomes also used to have the fastest-growing populations, as Americans moved to the places where they could earn the most money. Over time, that movement narrowed geographic income differences. In 1940, per-capita income in Connecticut was more than four times that in Mississippi. By 1980, Connecticut was still much richer, but the difference was only 76 percent. In the two decades after World War II, Shoag and Ganong find, migration explains about a third of the convergence of average incomes across states.

But migration patterns changed after 1980. "Instead of moving to rich places, like San Francisco or New York or Boston, the population growth is happening in mid-range places like Phoenix or Florida," Shoag says. Lower-skilled people, defined as those with less than 16 years of education, are actually moving away from high-income states.

The problem isn't that they can't find "good-paying" jobs. Even people without college degrees still make more in high- income states. But that money buys less than it would elsewhere. The high cost of housing more than eats up the extra earnings a mechanic, medical-billing clerk or hairdresser can make in a place such as New York or Los Angeles. More-educated people also pay more to live in such cities, but their higher salaries mean that housing costs consume a smaller percentage of their income. They still come out ahead.

"My brother-in-law is a waiter," Shoag says, "and he could earn a lot more money being a waiter in Boston than he could in Ohio. But it's so expensive here that it doesn't make sense to move to Boston if you're going to do a job that doesn't require a degree."

Land Use

Housing prices have always been steeper in high-income places, but the difference is much greater than it used to be. In their paper, the economists set out to measure the cause of the change. They create an index of regulation based on how often the phrase "land use" occurs in state appellate court cases over time. This proxy turns out to predict housing prices well. It also closely matches results from surveys of regulation from 1975 and 2005, suggesting that it's picking up real changes in the legal environment, not merely word choice.

The news isn't all bad. Less-educated workers may not have the opportunities they once had in places such as California and New York, but they can still raise their real incomes, factoring in housing costs, by migrating to states like Nevada, Florida and Texas. "Places that didn't have this increase in regulation still have the old process that worked," Shoag says, "where people move to the richer areas, human capital levels converge, incomes converge -- the whole chain that used to exist for the whole country is still true if you focus just on the areas that haven't had as large an increase in regulation."

As I have argued elsewhere, there are two competing models of successful American cities.

The first model spurs income convergence, the second spurs economic segregation. Both create cities that people find desirable to live in, but they attract different sorts of residents.

This segregation has social and political consequences, as it shapes perceptions -- and misperceptions -- of one's fellow citizens and "normal" American life. It also has direct and indirect economic effects. "It's a definite productivity loss," Shoag says. "If there weren't restrictions and you could build everywhere, it would be productive for people to move. You do make more as a waiter in LA than you do in Ohio. Preventing people from having that opportunity to move to these high-income places, making it so expensive to live there, is a loss." That's true not only for less-educated workers but for lower earners of all sorts, including the artists and writers who traditionally made places like New York, Los Angeles and Santa Fe cultural centers.

Lost Landscape

In their paper, Shoag and Ganong don't look at why high-income states tightened their regulations, thereby increasing segregation by education level. One possible explanation is that as people get richer and cities get more crowded, the tradeoffs between cheaper housing for newcomers and a pleasant (or at least stable) environment for current residents look different. When postwar developers were turning California orange orchards into suburbs, residents focused on the new houses rather than the lost landscape. Now opposition to new construction is not only common but institutionalized. Well-organized residents fear losing the amenities that attracted them in the first place.

Another consideration is the difference between housing as consumption -- a nice place to live -- and housing as an investment, promising high returns over time. Making it hard to build new housing in a place people want to live drives up the price of the existing housing stock. Old-timers reap capital gains. Regulation, Shoag notes, "takes what should be the gain for the worker who wants to move in and turns it into the gain for the owner of the house."

Finally, there's the never-mentioned possibility: that the best-educated, most-affluent, most politically influential Americans like this result. They may wring their hands over inequality, but in everyday life they see segregation as a feature, not a bug. It keeps out fat people with bad taste. Paul Krugman may wax nostalgic about a childhood spent in the suburbs where plumbers and middle managers lived side by side. But I doubt that many of his fervent fans would really want to live there. If so, they might try Texas.

(Virginia Postrel is a Bloomberg View columnist. She is the author of "The Future and Its Enemies" and "The Substance of Style," and is writing a book on glamour. The opinions expressed are her own.)

[July 15, 2012] Summers: Changing Focus to Inequalities in Opportunity

July 15, 2012 | Economistsview

Larry Summers argues that the key to solving the inequality problem is to equalize opportunity, and that "By far the most important step that can be taken to enhance opportunity is strengthening public education." I agree we should try to improve public education, but it will take much more than that to solve the inequality problem (the kinds of things he mentions elsewhere in his argument are a start). We've been trying to improve education for decades and it hasn't solved the inequality problem yet, and it's folly to think some magic education bullet is just around the corner:

Changing focus to inequalities in opportunity, by Lawrence Summers, Commentary, Washington Post: Even if the process proves protracted, the U.S. economy will eventually recover. When it does, issues relating to inequality are likely to replace cyclical issues at the forefront of our economic conversation. ...

The global track record of populist policies motivated by inequality concerns is hardly encouraging. However, passivity in the face of dramatic economic change is equally unlikely to be viable. Perhaps the debate and policy focus needs to shift from inequality in outcomes, where attitudes divide sharply and there are limits to what can be done, to inequalities in opportunity. ...

By far the most important step that can be taken to enhance opportunity is strengthening public education. ... Over the past 40 years, with the strong support of the federal government, the nation’s leading universities have made a major effort to recruit, admit, support and graduate minority students. These efforts will and should continue.

But as things stand, a minority youth with strong test scores is considerably more likely to apply and be admitted to a top school than a low-income student. The leading U.S. institutions must make the kind of focused commitment to economic diversity that they have long mounted toward racial diversity. It is unrealistic to expect that schools that depend on charitable contributions will not be attentive to offspring of their supporters. Perhaps though, the custom could be established that for each “legacy slot” room would be made for one “opportunity slot.”

What about the perpetuation of privilege? Parents always seek to help their children. But there is no reason the estate tax should decrease relative to the economy at a time when great fortunes are increasingly dominant. Nor should we continue to permit tax-planning techniques that are de facto tax cuts only for those with millions of dollars of income and tens of millions in wealth.

These are just a few ideas for advancing equality of opportunity. There are many more. It is an aspiration those of every political stripe should share.

Mark A. Sadowski said...

"Both sides make good points. While I support moves to make the tax system more progressive, the reality is that inequality is likely to continue to rise, even with all that can responsibly be done to increase tax burdens on those with high incomes and redistribute the proceeds. Measures such as allowing unions to organize without undue reprisals and enhancing shareholders’ role in setting executive pay are desirable. But they are unlikely to even hold at bay the trend toward increasing inequality."

Typical VSP rhetoric. The other side has no points, good or otherwise. And there is no reason to think that more progressive taxation, stronger unions and higher minimum wages could not make a dent in inequality, as it has proven track record of success.

"Where does this leave the public policy agenda? The global track record of populist policies motivated by inequality concerns is hardly encouraging. However, passivity in the face of dramatic economic change is equally unlikely to be viable. Perhaps the debate and policy focus needs to shift from inequality in outcomes, where attitudes divide sharply and there are limits to what can be done, to inequalities in opportunity. It is hard to see who could disagree with the aspiration to equalize opportunity, or fail to recognize the manifest inequalities in opportunity today."

Again, unsubstantiated nonsense. Policies designed to address inequality work. There is no need to change our focus, and it is in fact possible to focus on more than one thing at a time (are we addled?)

And in the case of inequality it is essential. We need both more equality of outcomes and equality of opportunity as they are certainly interrelated. Most of the inequality in the US today relates to the maldistribution of income and wealth towards the 1% and that is certainly not due to their vastly superior education. So improved educational quality hardly even begins to address its main cause.

Who could disagree with it? The Republicans of course. haven't they been pushing for cuts to Pell grants ever since they regained control of the House? Don't be naive.

Reply Sunday, at 05:32 PM

fgbouman said in reply to Mark A. Sadowski...

Outlawing the intergenerational transfer of wealth and redistribution of the confiscated wealth to a single age-cohort each year, say at the age of 21, coupled with free eduction to the level that a person is able to take advantage of it would be perhaps the most rapid way to turn the U.S. into a meritocracy and to ensure that any wealth gap is based on achievement and luck and not on inheritance of advantages.

Reply Sunday, July 15, 2012 at 07:43 PM

Mark A. Sadowski said in reply to fgbouman...

Well, if you want to go that route, you might as will throw in free unicorns all round. However, raising estate, gift and wealth taxes is not a bad idea. After all, it's been done before.

Reply Sunday, July 15, 2012 at 08:01 PM

EC said in reply to fgbouman...

@fgbouman: "the most rapid way to turn the U.S. into a meritocracy"

"Meritocracy" is by now, at least in the US, a BS term, and the elites call for "education" to serve as a counter to inequality is another line of BS. At this point "education" is largely serving to perpetuate inequality. Educational outcomes are largely determined by socioeconomic factors, not school, a fact that has been true at least since CHristopher Jencks's 1972 book about the topic. And your suggestion about outlawing inheritance is absurd.

Reply Monday, July 16, 2012 at 05:09 AM

Michael said...

What utter nonsense. Summers is concerned with being admitted to a top school. Sheesh..... Only 1/3 of 26 yr old population gets a bachelor's degree or better. This rate has been pretty flat since the mid-70s. And, it one of the highest rates in the world (i.e. Germany is about 18%).

Focusing on making college somewhat more available (maybe we get to 40% in a non-watered down curriculum?)is rearranging the deck chairs. Pontificating, negligently ignorant ......

Reply Sunday, July 15, 2012 at 05:32 PM

anne said in reply to Michael...

http://www.oecd.org/dataoecd/61/47/48630299.pdf

August, 2011

Organisation for Economic Co-operation and Development Education Data

College or university degree attainment by age group, 2009

(Percent of population 25-34)

OECD average ( 36.99)

Korea ( 63.10)
Canada ( 56.10)
Japan ( 55.67)
Ireland ( 47.56)
Norway ( 46.83)

New Zealand ( 46.74)
Luxembourg ( 45.08)
United Kingdom ( 44.86)
Australia ( 44.78)
Denmark ( 44.75)

France ( 43.17)
Israel ( 42.92)
Belgium ( 42.48)
Sweden ( 42.32)
United States ( 41.06)

Netherlands ( 40.12)
Switzerland ( 39.98)
Finland ( 39.39)
Spain ( 38.22)
Iceland ( 35.84)

Poland ( 35.45)
Chile ( 34.94)
Greece ( 29.40)
Germany ( 25.66)
Hungary ( 25.07)

Portugal ( 23.34)
Austria ( 21.06)
Slovak Republic ( 20.59)
Czech Republic ( 20.24)
Mexico ( 20.17)

Italy ( 20.16)
Turkey ( 16.64)
Brazil ( 11.58)

Reply Sunday, July 15, 2012 at 05:38 PM

anne said in reply to Michael...

http://www.oecd.org/dataoecd/61/47/48630299.pdf

August, 2011

Organisation for Economic Co-operation and Development Education Data

College or university degree attainment, 2009

(Percent of population 25-64)

OECD average ( 30)

Canada ( 50)
Israel ( 45)
Japan ( 44)
United States ( 41)
New Zealand ( 40)

Korea ( 39)
Australia ( 37)
Finland ( 37)
Norway ( 37)
United Kingdom ( 37)

Ireland ( 36)
Luxembourg ( 35)
Switzerland ( 35)
Denmark ( 34)
Belgium ( 33)

Iceland ( 33)
Netherlands ( 33)
Sweden ( 33)
Spain ( 30)
France ( 29)

Germany ( 26)
Chile ( 24)
Greece ( 24)
Poland ( 21)
Hungary ( 20)

Austria ( 19)
Czech Republic ( 16)
Mexico ( 16)
Slovak Republic ( 16)
Italy ( 15)

Portugal ( 15)
Turkey ( 13)

Reply Sunday, July 15, 2012 at 05:39 PM

jonathan said...

We need to figure a way to identify poor people so they stand out in public. That way the schools that admit them can get the benefits of visibly supporting opportunity. They have no incentive to do that if you can't tell a poor kid from a rich kid. Maybe armbands. Yellow armbands with some identifying marker. Maybe a star would work. Yeah, that's it: a yellow armband with a star on it so the schools can show the world they're behind opportunity.

Reply Sunday, July 15, 2012 at 05:55 PM

cfaman said...

Golly, it's pretty darn easy to find something more salient than education. "By far the most important step that can be taken to enhance opportunity" is, for instance, to define a real living/minimum wage.

Think of the freedom in that: business can hire anyone they want for any job they want but they must pay at least the living wage. Minimal job-killing regulation, all you have to do is meet the pay hurdle.

People who are well-fed, well clothed, well-housed, happy about their lives and their country, will find lots of opportunity.

The guys who promote education are really saying you're in trouble because it's you own fault you're not smart enough.

End that. Define all jobs to be good jobs.

Reply Sunday, July 15, 2012 at 06:10 PM

Edward Lambert said in reply to cfaman...

I second your thoughts... I read the thing by Summers, and I thought... how boring... how hopeless real changes in the economy are if people point to education as the priority...

You hit it on the nail with living wages...

Reply Sunday, July 15, 2012 at 06:23 PM

save_the_rustbelt said in reply to cfaman...

Letting bureaucrats define the job market is a really really bad idea.

Reply Sunday, July 15, 2012 at 06:40 PM

Edward Lambert said in reply to save_the_rustbelt...

Would you leave it to the corporations?

The problem is that labor's power is weak. Unions need to come back. The living wage efforts need support...

Labor and better wages need support and that support could effectively come from the govt... in an ideal world, but alas, we live in the US, not an ideal place for labor.

Reply Sunday, July 15, 2012 at 07:00 PM

Rob said in reply to cfaman...

Yes, I think we should pass a law requires everyone to be happy. Then they will work hard, be self-motivated, and become contributing members to society! Golly gee, why didn't I think of that, Mr. Folksy?

What business is going to hire a guy with little or no skills for $15 an hour for a job where their marginal production is only at $8 an hour? Because the government is going to subsidize them? How long can that situation possibly continue?

There actually are a lot of people that really aren't smart enough. 50% of people are still dumber than average.

Reply Sunday, July 15, 2012 at 07:39 PM

EMichael said in reply to Rob...

Umm, see the thing is you take their "marginal production is only at $8 an hour" and make it $15 an hour. Then every business has to raise thier prices to account for that minimum standard.

So competition is not hurt, and the priice increases are minimal for the public, and they receive in turn a society that is not rapidly developing a serf class.

Proof of the price rises due to such follows. Of course, not every business is the same, but most are.

http://laborcenter.berkeley.edu/retail/bigbox_livingwage_policies11.pdf

Reply Sunday, July 15, 2012 at 08:24 PM

Edward Lambert said in reply to Rob...

You have to think a little deeper... Think about a job that has a marginal product of $8. It is a job that pays below what anyone's time is worth to cover private and social costs for living... and in Hawaii, if the job goes over 20 hours per week, you have to pay health insurance for the employee.

I have a neighbor who cleans houses. She charges about $40/hour and pays her help $12/hour. So if she charges the customer $80 for 2 hours of work, and pays out $12 for her employee (cash by the way), she just earned $68/hour for hour of work.

She pays out $12/hour because she thinks she is being generous by paying over the minimum of $8/hour. She has no clue what her marginal product is or that the employee has private and social costs. She just pays what help is paid by society.

Pay has dropped that low by standard because labor has no power to negotiate up the low wages. If you find a job with a marginal product of $8, I bet that the employer is driving down their labor costs to $8/hour, just to pay that amount, but that actually the marginal product is higher.

If you look deeper still, if the govt raises the minimum wage above $10/hour, that job of $8 marginal product will be unprofitable. What happens over time? Jobs are developed that have higher marginal rates of labor. This is healthier for society to cover social costs through wages instead of govt transfers.

Also, make an analogy to cheap investments in China. For years, money has been cheap and subsidized there. They over invested and now many of those investments are leading to high social costs for society. Society will end up paying for bad investments.

The same happens with jobs that have a marginal product of $8/hour. That wage is simply too low to be profitable for society. The wage has to end up being subsidized by govt transfers, or prices to the consumer that are too low to be socially optimal....

Just have to look a little deeper...

Reply Sunday, July 15, 2012 at 08:49 PM

EC said in reply to cfaman...

"The guys who promote education are really saying you're in trouble because it's you own fault you're not smart enough."

EXACTLY!

ken melvin said...

'We' have no intention of furthering opportunity, by education or any other means. 'We' would like to privatize education so that only the swells could afford one (doing pretty well with this one, we are). Privatizing student loans with taxpayer backing was another coup. Gotta love the blaming of teachers for the problem of culture, politics, and economics; ah, sweet, sweet diversion. Getting lots of people to believe that if everyone had a good education they would somehow all find good jobs is one of my personal favorites.

Any hope of lifting the veil and taking a peek at the new reality? This nostalgia for a time that may or may not have ever been is going to kill us all.

save_the_rustbelt said...

Looking back at my parents' generation, the real leveler was job opportunity. Not everyone had equal outcomes, but anyone who wanted a job could find one.

We need to fix this dysfunctional economy. More than stimulus or tax cuts. Suggestions anyone?

Edward Lambert said in reply to save_the_rustbelt...

Ask yourself who is marginalized in the economy... it is those with low real wages by historical standards.

The goal is to widen the margin to widen your room for growth... Thus, wages have to start rising in the lower incomes. > Living wages.

and according to the employment-led model, raising wages now would lead to more employment, and more aggregate demand.

Second Best said...

Summers is apparently using this as a safe political toehold in order to get something on the record about inequality until the election is over.

It's safe for three reasons. It applies only for the long run, it functions entirely from the supply side and it sends the message that education for the privileged need not necessarily be superior than public education is for anyone (including the privileged) to equalize opportunity.

That's plenty to fuel the political media cycles and duck the real reason, that equalizing opportunities can't work until unequal outcomes are based on performance, not the specialized occupations of economic rent recovery that it has become.

Summers ignores the huge Catch-22 in the equation. No amount of pumping up qualifications on the supply side is going to change the number of slots on the demand side nor their distribution of unequal outcomes not based on performance.

For example there will still be only one Citigroup and only one slot held by his former boss Robert Rubin to rake in tens of millions of unearned compensation regardless of how many better educated candidates are available to "compete" for such positions based on "performance".

Reply Sunday, July 15, 2012 at 07:14 PM

Lafayette said in reply to Second Best...

{Summers ignores the huge Catch-22 in the equation. No amount of pumping up qualifications on the supply side is going to change the number of slots on the demand side nor their distribution of unequal outcomes not based on performance.}

Yes and no.

You are right that we need to pump up Demand. But Demand is also dependent, in a way, upon education.

It takes some pretty smart engineers to think up and create an iPad and a just as smart a consumer to want to buy one.

Education can indeed bring an enhancement in Demand in terms of value-added in the US - despite the fact that most of these "gadgets" are manufactured in the Far East.

It is entirely possible that development and distribution costs account for far more of the retail value than the components and manufacturing. Both development and distribution are highly head-count dependent. And the personnel involved are not numskulls.

Besides, America is a nation with quick uptake of new technologies. Even if they are rudimentary "gadgets" or "games".

cfaman said...

Golly, it's pretty darn easy to find something more salient than education. "By far the most important step that can be taken to enhance opportunity" is, for instance, to define a real living/minimum wage.

Think of the freedom in that: business can hire anyone they want for any job they want but they must pay at least the living wage. Minimal job-killing regulation, all you have to do is meet the pay hurdle.

People who are well-fed, well clothed, well-housed, happy about their lives and their country, will find lots of opportunity.

The guys who promote education are really saying you're in trouble because it's you own fault you're not smart enough.

End that. Define all jobs to be good jobs.

Rob said in reply to cfaman...

Yes, I think we should pass a law requires everyone to be happy. Then they will work hard, be self-motivated, and become contributing members to society! Golly gee, why didn't I think of that, Mr. Folksy?

What business is going to hire a guy with little or no skills for $15 an hour for a job where their marginal production is only at $8 an hour? Because the government is going to subsidize them? How long can that situation possibly continue?

There actually are a lot of people that really aren't smart enough. 50% of people are still dumber than average.

Edward Lambert said in reply to Rob...

You have to think a little deeper... Think about a job that has a marginal product of $8. It is a job that pays below what anyone's time is worth to cover private and social costs for living... and in Hawaii, if the job goes over 20 hours per week, you have to pay health insurance for the employee.

I have a neighbor who cleans houses. She charges about $40/hour and pays her help $12/hour. So if she charges the customer $80 for 2 hours of work, and pays out $12 for her employee (cash by the way), she just earned $68/hour for hour of work.

She pays out $12/hour because she thinks she is being generous by paying over the minimum of $8/hour. She has no clue what her marginal product is or that the employee has private and social costs. She just pays what help is paid by society.

Pay has dropped that low by standard because labor has no power to negotiate up the low wages. If you find a job with a marginal product of $8, I bet that the employer is driving down their labor costs to $8/hour, just to pay that amount, but that actually the marginal product is higher.

If you look deeper still, if the govt raises the minimum wage above $10/hour, that job of $8 marginal product will be unprofitable. What happens over time? Jobs are developed that have higher marginal rates of labor. This is healthier for society to cover social costs through wages instead of govt transfers.

Also, make an analogy to cheap investments in China. For years, money has been cheap and subsidized there. They over invested and now many of those investments are leading to high social costs for society. Society will end up paying for bad investments.

The same happens with jobs that have a marginal product of $8/hour. That wage is simply too low to be profitable for society. The wage has to end up being subsidized by govt transfers, or prices to the consumer that are too low to be socially optimal....

Just have to look a little deeper...

ken melvin said...

'We' have no intention of furthering opportunity, by education or any other means. 'We' would like to privatize education so that only the swells could afford one (doing pretty well with this one, we are). Privatizing student loans with taxpayer backing was another coup. Gotta love the blaming of teachers for the problem of culture, politics, and economics; ah, sweet, sweet diversion. Getting lots of people to believe that if everyone had a good education they would somehow all find good jobs is one of my personal favorites.

Any hope of lifting the veil and taking a peek at the new reality? This nostalgia for a time that may or may not have ever been is going to kill us all.

[Jul 07, 2012] Bigger is Not Always Better

Robert Reich is pleased to see the Justice Department crackdown on "Big Pharma," but doesn't think think the government is doing anywhere near enough to solve the problem:

How Not to Get Big Pharma to Change Its Ways, by Robert Reich: Earlier this week the Justice Department announced a $3 billion settlement of criminal and civil charges against pharma giant GlaxoSmithKline — the largest pharmaceutical settlement in history — for improper marketing prescription drugs in the late 1990s to the mid-2000s.

The charges are deadly serious. Among other things, Glaxo was charged with promoting to kids under 18 an antidepressant approved only for adults; pushing two other antidepressants for unapproved purposes,... and, to further boost sales of prescription drugs, showering doctors with gifts, consulting contracts, speaking fees, even tickets to sporting events.

$3 billion may sound like a lot of money, but during these years Glaxo made $27.5 billion on these three antidepressants alone,... so the penalty could almost be considered a cost of doing business.

Besides, to the extent the penalty affects Glaxo’s profits and its share price, the wrong people will be feeling the financial pain. ... Not a single executive has been charged — even though some charges against the company are criminal. ...

The Glaxo case is the latest and biggest in a series of Justice Department prosecutions of Big Pharma for illegal marketing prescription drugs. ... The Department says the prosecutions are well worth the effort. By one estimate it’s recovered more than $15 for every $1 it’s spent.

But what’s the point if the fines are small relative to the profits, if the wrong people are feeling the financial pinch, and if no executive is held accountable?

The only way to get big companies like these to change their behavior is to make the individuals responsible feel the heat.

An even more basic issue is why the advertising and marketing of prescription drugs is allowed at all, when consumers can’t buy them and shouldn’t be influencing doctor’s decisio good reason why doctors should be allowed to accept any perks at all from [drug] companies... It’s an inherent conflict of interest. Codes of ethics that are supposed to limit such gifts obviously don’t work. All perks should be banned, and doctors that accept them should be subject to potential loss of their license to practice.

Simon Johnson, summarizing Dennis Kelleher of the blog Better Markets, says banks have the same problem:

... Global megabanks have an incentive to deceive customers, including both individuals and nonfinancial corporations. Their size confers both market power and the political power needed to conceal the extent to which they engage in economic fraud. The lack of transparency in derivatives markets provides them with an opportunity to cheat, but the abuses are much wider – as the Libor scandal demonstrates. The ripoff is not just of retail investors. ...

This has motivated Samuel Brittan of the Financial Times to rethink his view of competitive markets. Sort of:

As one of the few commentators to have always favored competitive market capitalism I have had to ask myself a few questions. Apart from scandals such as the Libor rate fixing, we have had the behavior of banks before the great recession; a trend to much greater concentration of income and wealth, squeezing the living standards of ordinary citizens; and one could go on.

So, after asking himself these questions, what does he propose?:

Yet if anyone expects me to issue a clarion call for more state ownership and control, they will be disappointed. ... What then has gone wrong? ... Few of us like competition; and the tendency to form closely knit groups to keep outsiders at bay is probably as old as the human race. For pre-capitalist examples one has only to think of the medieval guilds, whether of craftsmen or Master Singers. More subtle are the practices of bankers, as they come disguised as services for customers. In summary, success has depended more on whom you know than what you know. Hence the catchphrase “crony capitalism”. ...

The biggest obstacle to reform is that insiders can devote time and energy to maintaining their position. For ordinary citizens, political reform is a sideshow that hardly repays such efforts. The protests in financial canters are a well-meant but ill-focused attempt to offset this bias.

Yet nil desperandum. The UK corn laws were repealed and the US antitrust acts were passed; and in time both the financiers and the Eurocrats will be brought down.

So, no cause for despair? Not so sure about that (the changes he describes did not come easily). It feels a bit like the Libor scandal has produced a turning point, but the power hold on politicians is still as strong as ever. We've seen how some Democrats react if Obama so much as points a finger in the direction of the financial industry, and if Romney is elected does anyone think the government will get tougher with big banks, big pharma, or big anything else?

[Jul 07, 2012] Private In-Equity: How Outsourcing affected Wage Standards

This is from Arin Dube:

Private In-Equity: How Outsourcing affected Wage Standards

Arindrajit Dube
Assistant Professor
Dept. of Economics
University of Massachusetts Amherst

There is renewed interest in the issue of onshore outsourcing or subcontracting as we evaluate the societal implications of the private equity model exemplified by Bain Capital. Yes, that would be the Bain Capital that is the main source of earned income for candidate Romney. Writing on this topic, Paul Krugman recently reported some relevant findings from my research in his blog as well as his column. I thought it would be useful to share some more details from that research that was jointly conducted with Ethan Kaplan.

Over the past 3 decades, a rising share of work that used to be done “in-house” has been outsourced to outside contractors. Sometimes, the exact same work is being done at the same physical location—but by someone with a different employer of record. So what is the point of re-labeling people as outsourced workers as opposed to in-house employees? After all, a janitor cleaning the floor of your building after work hours is doing the same job whether they wear a uniform with a contractor logo or that of your company. Yet, we have seen companies spin off work that is outside of their “core competencies” to such outside contractors. While the idea of “core competency” makes us think of knowledge and efficiency, it is also plausible that the primary motivation for companies is to spin off low-wage work to contractors who could—and would—pay lower wages and benefits.

In our research, we specifically considered two occupations where the contracting status was easy to identify using the data: security guards and janitors. These two occupations also saw extensive contracting out during the 1980s and 1990s. We found that subcontracted employees earned lower compensation than their in-house counterparts (between 7 and 12 percent for janitors and 13 and 26 percent for security guards depending on the specification). The evidence for wage reduction held even as we considered individuals within the same occupation switching jobs between in-house and outsourced varieties.

Interestingly, we found that the main impact of outsourcing was to reduce “good jobs” within these occupations: janitors and security guards in the upper half of their respective wage distributions saw substantial reduction in wages due to outsourcing. The pictures below shows the actual occupational wage distributions in 1983 and 2000, as well as “counterfactual” ones had the level of outsourcing remained constant. The story that these pictures tell is one where good in-house janitorial and security jobs were replaced with worse subcontracted jobs: the top quartile of these service jobs saw the greatest reduction in wages (typically above 15%) due to the growth in outsourcing.

Dube-orig
[click on figure for larger version]

Finally, we found that industries and areas that were outsourcing tended to be those who historically paid better wages and benefits. This is exactly the pattern you would expect if companies outsourced primarily to cut pay for these workers—for instance to break previous implicit contracts without upsetting their “core” workforce or changing company wages and benefit norms.

There were many factors behind the fall in the wages of low-credentialed workers during the 1980s and 1990s. Our research suggests that one of those factors was change in institutional arrangements—such as outsourcing—which further reduced the bargaining position of workers in low-wage occupations. To the extent that companies were rescued—and profits restored—by breaking implicit contracts on wages and benefits, we should rightfully be wary of the societal value of such practices.

[Jun 27, 2012] Stiglitz: America is No Longer a Land of Opportunity

The inequality problem won't solve itself:

America is no longer a land of opportunity, by By Joseph Stiglitz, Commentary, FT: US inequality is at its highest point for nearly a century. ... One might feel better about inequality if there were a grain of truth in trickle-down economics. But the median income of Americans today is lower than it was a decade and a half ago... Meanwhile, those at the top have never had it so good. ...

Markets are shaped by the rules of the game. Our political system has written rules that benefit the rich at the expense of others. ... There is good news in this: by reducing rent-seeking ... and the distortions that give rise to so much of America’s inequality we can achieve a fairer society and a better-performing economy. ...

America used to be thought of as the land of opportunity. Today, a child’s life chances are more dependent on the income of his or her parents than in Europe, or any other of the advanced industrial countries for which there are data. ...

We can once again become a land of opportunity but it will not happen on its own... The country will have to make a choice: if it continues as it has in recent decades, the lack of opportunity will mean a more divided society, marked by lower growth and higher social, political and economic instability. Or it can recognize that the economy has lost its balance. The gilded age led to the progressive era, the excesses of the Roaring Twenties led to the Depression, which in turn led to the New Deal. Each time, the country saw the extremes to which it was going and pulled back. The question is, will it do so once again?

[Jun 24, 2012] $100,000 Income No Big Deal Anymore By Craig Guillot

Bankrate.com

Highlights

One hundred thousand dollars. Since the 1980s, the magical "six-figure" salary has been a benchmark for financial success. Not too long ago, that income often meant two nice cars in the garage of a large house, fun family vacations and plenty of money left over to save for retirement and college tuition.

But times have changed. Not only has standard inflation steadily eroded the real value of a $100,000 income, but the cost, of housing, health insurance and college tuition have risen dramatically in recent years. Consider the rising costs of food, energy and the necessities of a middle class life, and that six-figure luxury quickly turns to six-figure mediocrity.

Less than 20 percent of American households even break the six figures. But many who earn incomes near the mark find that their prized incomes don't take them as far as the hype. Many say that while breaking the $100,000 annual income mark may still be an impressive milestone, it doesn't exactly roll out the red carpet.

Costs eat away at benchmark

According to the U.S. Census Bureau, only 6.03 percent of individual over 18 and only 19.9 percent of households had incomes of $100,000 or more in 2010. In fact, the median annual household income for 2010 was $50,046, just more than half of the six-figure benchmark. The overwhelming majority of Americans still look up to a $100,000 income, but the expectations of what comes with that income are rapidly slumping.

According to Labor Department statistics, the average inflation rate for 2011 was the worst since 2008, with consumer prices rising 3.1 percent, compared to an average of 1.6 percent in 2010. Much of this was fueled by energy costs (up 15.2 percent for the year) and food costs (up 3.7 percent for the year). Just to keep up with standard inflation, a $100,000 salary in 1990 would have to be $172,103.29 in 2011.

"What would have cost you $100,000 in 1976 would cost you $381,000 today. That's just the inflation, and there are so many other things that have grown very expensive," says Mari Adam, Certified Financial Planner and president of Adam Financial Associates in Boca Raton, Fla.

[Jun 24, 2012] In suburban America, middle class begins to confront poverty

Inside Dateline

The small communities that dot the picturesque mountain landscape outside Boulder, Colo., conjure up an image from long before the great recession. Here the manicured lawns and expensive cars are a testament to the achievements of a fiercely independent and educated middle class; a 21st century version of suburban bliss. But often these days, the closed doors of well-kept houses hide a decidedly different reality: hushed conversation about food stamps and Medicaid, depleted bank accounts and 401K’s, kitchen shelves stocked with groceries from food pantries.

[May 19, 2012] Equal Rights Spurred Productivity

May 18, 2012

Chrystia Freeland highlights research showing that reduced discrimination over the last 50 years gave the economy a substantial boost -- increased fairness gave us increased efficiency. Unfortunately, however, it appears that new barriers may be emerging:

Equal rights and the U.S. economy, by Chrystia Freeland: Are equal rights good for the economy? ... A draft paper by four U.S. economists makes the strong empirical case... Fairness, they contend, has made the economy more productive. Chang-Tai Hsieh, Erik Hurst, Charles Jones and Peter Klenow argue that as much as 20 percent of the growth in productivity in the United States over the past 50 years can be attributed to expanded opportunities for women and blacks. ...

Few women or blacks would describe the United States today as a perfectly color- or gender-neutral economy. But ... female and black workers have felt the change directly in their paychecks. According to the paper, the reduction in frictions since 1960 increased real wages for white women 39 percent; those of black women, who suffered double discrimination and therefore got a double boost, 57 percent; and those of black men 44 percent.

But while the economy as a whole benefited, there was one group that lost out. The paper calculates that the “reduced friction” for women and blacks meant that the real wages of white men were 4.3 percent lower than they would have been without the increased competition. That result explains a political reality that we often don’t like to admit: Gains for women and blacks have come at a price for white men, and that is surely why some of them still resist the rights revolution. ...

The story in their draft paper on women and blacks is positive... But the four economists suspect that for one category of Americans, the poor, the external barriers to professional success have actually increased. ...

Hurst made sure I understood that this final point was just a hypothesis. The economists plan to run it through their model over the next few months and report on their results later this year. But if their theory pans out, their work will tell a story about America over the past 50 years that many of us intuitively will feel to be true – a country that discriminates less and less on the basis of gender, race and now sexual orientation, but where the class divide is becoming so stark as to constitute a new form of discrimination.

Increased inequality and the associated decrease in mobility are usually presented as as issues of fairness, but when barriers prevent people from realizing their potential that has implications for efficiency as well. It hurts both individuals and the economy as a whole when some groups of people face "external barriers."

A Nation of Spoiled Brats - Interview by David Rothkopf

Foreign Policy

FP: What evidence is there that inequality in the U.S. has gotten worse?

EL: There's a lot of evidence, and there's a shrinking school of people denying this evidence. The most powerful piece is also the most recent, and that is the distribution of growth since 2009. The paper by Saez and Piketty from Berkeley University that came out in early March is particularly instructive. It shows not only that 93 percent of the gains in the 3 percent growth America got that year went to the top 1 percent, but also that the top 0.01 percent, namely the top 15,600 families, took 37 percent of the growth. That's the top one in 10,000 people. Even in 2002-2007 inequality was getting much worse. But in this recovery it is an order of magnitude worse.

FP: Hasn't social mobility also declined?

EL: It's a triple cocktail. As America's inequality is growing to Latin American levels, social mobility has fallen to sub-European levels. And of course, median wage stagnation and the whole skills globalization problem is deeply entrenched. Far more important than whatever this month's consumer sentiment number is or last month's was -- these are the numbers we should be looking at.

FP: So historically we are declining relative to other powers. Clearly something big is changing the global economy. Domestically inequality is growing, social mobility is declining, median wages are falling, and core industries like manufacturing are shrinking. And yet, when you listen to politicians, the response is first, in the wake of crisis, we need a stimulus that'll make things go back to the way they were. Then politicians argue that we should go back to manufacturing as it was in the past and somehow wave a magic wand that will make it 1955 again with Cadillacs with big fins rolling out of factories. In the course of your reporting, did you find anybody who's coming up with a new approach? Or is the reason for your pessimism due to the fact that we are oblivious and inclined to apply old formulas to address new problems?

EL: I think it is inevitable in life that the No. 1 country, having been number one for so long, will be the most complacent. In addition, America has so many examples to draw upon of being in a tough spot and pulling out of it, so it's understandable that it has been the slowest to adapt intellectually to the challenges posed by the changing global economy. America is adapting even slower than Britain, in some respects, which might be doing the wrong thing but is at least in a panic and knows it's got to find new answers.

FP: Has that been turned around on its head?

EL: Yeah. Britain, which is the least socially mobile portion of Europe, has the same level of social mobility as the United States. Some countries like Germany have more than twice America's social mobility.

Tocqueville would have looked at statistics -- and how accepted this reality is now becoming among America's elites. Among economists, it's all about returns and skills. And apparently, if you make X million on Wall Street, this is because you're worth it. This is how valuable you are. Now I can understand it with Steve Jobs. I can understand it with plenty of entrepreneurs. But it's hard though in the financial sector to extend that logic.

Having said that, I think if you took a poll you would find great approval of Steve Jobs and great disapproval of the Wall Street bonuses. Public sensibility does make a very clear division on that. I do understand that distinction, because Steve Jobs was a genuine innovator. And I agree with Paul Volcker that the ATM is about the only innovation you can cite from Wall Street. It was a good innovation, but let's not classify derivatives and various pieces of financial engineering as innovations.

FP: The other point is pragmatism. Do the Americans today have the spirit necessary to tackle these problems?

EL: I think there's demand for it. Americans might be ignorant about the Middle East or Europe, but they're certainly aware of their own situation. They are certainly aware of the problems here. And I think, as [GE CEO] Jeff Immelt said, if globalization were put to a referendum in America, it would lose -- which is troubling, and it's one measure of the degree of alarm and distemper felt out there, which I come across the whole time whenever I'm outside of the Beltway.

The question of whether that pragmatic instinct that Tocqueville best described is now missing is more a question about whether the market signals are working in American politics anymore. Because the consumers want some kind of change; they want some kind of recognition of the degree of pain and strain they feel nowadays in their lives, to which they are not accustomed. The system seems unable to respond. Democracy is a market as well, and it doesn't seem to be working.

So the question is what stops democracy from being a market in America? To answer that we go back to the world of money in politics; we go back to the world of Latin Americanization of American society; we go back to some of the institutional factors like gerrymandering. But we also go back again to the American people, to the consumers.

[Apr 18, 2012] Stop Coddling the Super-Rich - By WARREN E. BUFFETT

August 14, 2011 NYTimes.com

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

[Feb 28, 2012] Poor America - P a n o r a m a [B B C] - Broadcast Date 13th February 2012 - YouTube

With one and a half million (1.5 million) American children now homeless, reporter Hilary Andersson meets the school pupils who go hungry in the richest country on Earth. From those living in the storm drains under Las Vegas to the tent cities now springing up around the United States, P a n o r a m a finds out how the poor are surviving in America and asks whatever happened to the supposed 'government' and the Real People in charge - those who you 'don't see' pulling on the strings; and their vision and welfare for the country.

Could this be a form of 'Social cleansing' without the need of war or disease inflicted by the orchestrators - simply a controlled bout of poverty? Or is this the forced education that only condition children to know only a certain amount of knowledge that can only ever see them progress in working environments such as confined offices within the 'Human Zoo' qualities within the desperately overcrowded cities.

Why are our children not educated properly - to be able to survive communally with real craft and building skills? Is the social mobility (as in other 'rich countries' such as the UK) only fairing the rich; the wealthy and the 'clever elite'; the white collar criminal, as per usual?

Broadcast Date: 13th February 2012

[Feb 28, 2012] Matt Stoller: Towards a Creditor State – One in Seven Americans Pursued by Debt Collectors

By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller.

I went through the Federal Reserve’s Quarterly Release on Household Debt and Credit released today, and there were two notable trends. One is that the amount of consumer debt is declining, but that delinquency rates are stabilizing above what they were before the crisis. And the second is in this graph, which is that the number of people subject to third party collections has doubled since 2000, from a little less than 7% to a little over 14% of consumers. Ten years ago, one in fourteen American consumers were pursued by debt collectors. Today it’s one in seven.

The experience of debt collection can be chilling, as this 2007 ABC News report suggests.

Consumers around the country have taped threatening phone calls from collectors who have called in the middle of the night, used abusive language and have threatened to have people fired from work or thrown in jail. All of these tactics are illegal under federal law.

One of the characteristics of the new social contract ushered in by both George W. Bush and Barack Obama is the increasing power of creditors to govern outright, from tax farming by banks to the use of credit checks to access employment opportunities.

There are now thousands of people legally jailed because they aren’t paying their bills, ie. debtor’s prisons have returned. Occasionally elites let it slip that this is not an accident, but is their goal – former Comptroller General David Walker has wistfully pined for debtor’s prisons overtly (on CNBC, no less).

This may be somewhat mediated by government action, as the CFPB is beginning to make noise around debt collection and credit ratings, and Illinois Attorney General Lisa Madigan is working to stop debt-related arrest warrants. But only somewhat, only where the government can protect you and only when there is the political will to do so. Increasingly, creditors are coming to set up the institutional structures for financial surveillance, state-sponsored enforcement of their claims through tightened bankruptcy laws and the selective use of jail, and the denial of economic opportunity based on one’s interaction with the financial system.

This is part of the new social contract. The sheer percentage of consumers with third party collections in pursuit is striking. Additionally, the uptrend through both Bush boom and Obama bust years of the percentage of people being tracked down by third party collection agencies suggests we live in a different country than we did just ten years ago.

Again, ten years ago, one in fourteen Americans were pursued by debt collectors. Today it’s one in seven. I suspect this number will keep going up. And though debt collection is a highly competitive field, it’s also a growth industry.

[Feb 12, 2012] "Mean-Spirited, Bad Economics"

Simon Johnson wonders why we are so stingy when people are having trouble through no fault of their own:

Mean-Spirited, Bad Economics, by Simon Johnson, The Baseline Scenario: The principle behind unemployment insurance is simple. Since the 1930s, employers ... have paid insurance premiums ... to the government. If people are laid off through no fault of their own, they can claim this insurance – just like you file a claim on your homeowner’s or renter’s policy if your home burns down.

Fire insurance is mostly sold by the private sector; unemployment insurance is “sold” by the government – because the private sector never performed this role adequately. The original legislative intent, reaffirmed over the years, is clear: Help people to help themselves in the face of shocks beyond their control.

But the severity and depth of our current recession raise an issue on a scale that we have literally not had to confront since the 1930s. What should we do when large numbers of people run out of standard unemployment benefits ... but still cannot find a job? At the moment, the federal government steps in to provide extended benefits.

In negotiations currently under way, House Republicans propose to cut back dramatically on these benefits, asserting that this will push people back to work and speed the recovery. Does this make sense, or is it bad economics, as well as being mean-spirited? ...

Why would anyone now seek to punish these people when they seek work but cannot get it? ... Extended unemployment benefit provides on average about $300 a week – ...only about 70 percent of the poverty level for a family of four. If you strip even this money from people who remain out of work through no fault of their own, you will push more individuals and families onto the streets and into shelters. The cost of providing those fall-back services is very high – and much higher than providing unemployment benefits.

How does it help any economic recovery when the people who lose jobs cannot even afford to buy basic goods and services – enough to keep their family afloat? ...

The recent attempt to portray the unemployed as lazy, TV watching, video game playing, frauds living off the benevolence of the government when they could be working is part of the effort of those who have managed to do well even though we've had a recession to avoid paying to help those who have been less fortunate. We will always be able to find people doing their best to take advantage of just about any program that helps people, but making a big deal out of those exceptions does not change the fact that the vast majority of the unemployed are just like the rest of us, just not quite as lucky. Whre's our compassion?

[Dec 19, 2011] U.S. Income Inequality Higher Than Roman Empire's Levels: Study

12/19/11

"Many tout the U.S. as the Roman empire of the modern world. But as it turns out, that comparison may not be all good.

Income inequality in America is at levels even higher than those in ancient Rome, according to a recent study from two historians, Walter Schiedel and Steven Friesen, cited by Per Square Mile. After analyzing papyri ledgers, biblical passages and other previous scholarly estimates, the researchers found that the top one percent of earners in Ancient Rome controlled 16 percent of the society's wealth. By comparison, the top one percent of American earners control 40 percent of the country's wealth, according to Vanity Fair. (h/t ThinkProgress)

The findings add to the growing chorus of studies and criticisms indicating that the wealth gap is hitting truly remarkable levels. The top one percent saw their incomes rise by 275 percent between 1979 and 2007, according to the Congressional Budget Office, while the bottom fifth of earners only saw their incomes grow by 20 percent during that same period.

In addition, the total net worth of the bottom 60 percent of Americans is less than that of the Forbes 400 richest Americans. Perhaps even more shocking, the six heirs to the retail giant Walmart had the same net worth in 2007 as the bottom 30 percent of Americans..."

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