“Inequality Is Natural”: The Big, Long, 30-Year Conservative Lie
First came Occupy Wall Street, and its pitch-perfect slogan on inequality: “We are the 99 percent.” After that movement fizzled, Thomas Piketty, the handsomely ruffled French professor, released a 685-page book explaining that we really were living in a new Gilded Age in which the wealth gap was as wide as it had ever been. Finally, in June, one of the plutocrats sitting atop the piles of money he made in the digital revolution, Nick Hanauer, wrote an article in Politico magazine—it’s the most-shared story ever on Politico’s Facebook page—warning that the pitchforks were coming, and rich people like him should advocate for a healthier middle class and a higher minimum wage.
The debate over inequality is now raging, and most Americans are unhappy about the widening divide between the haves and have-nots. Hanauer has been making the same case for years, drawing heaps of both praise and scorn. Forbes magazine has alternately called Hanauer insane and ignorant. His TED University presentation calling for a $15-minimum wage was left off the organization’s website because it was deemed too “political.” That’s nothing next to Piketty’s detractors, who at their most extreme accused him of twisting his data.
Hanauer and Piketty inspire these broadsides because they are challenging, in a far more aggressive way than plutocrats and economists usually do, the conservative economic orthodoxy that has reigned since at least the 1980s. Under Ronald Reagan, we called it trickle-down economics, the idea that the men who can afford their own private jets—they’re usually men—deserve gobs of money because they provide some special entrepreneurial or innovative talent that drives the American economy.
That’s well known. Far less often discussed is the flipside of this belief: that helping the less well off will dampen the American money-generating engine—that it will hurt growth, because the only thing that inspires the “job creators” to work so hard is the promise of insanely vast financial rewards. Poverty is a necessary evil in this worldview, and helping the less well off creates a “culture of dependency,” which discourages work. “The United States thrives because of a culture of opportunity that encourages work and disdains relying on handouts,” Matthew Spalding of The Heritage Foundation wrote in 2012, neatly summing up the conservative ethos.
Conservatives have dominated discussions of poverty for a generation with arguments like this one. It’s completely wrong. It’s more than that—it’s just a lie, concocted as cover for policies that overwhelmingly favored the rich. But it took the worst economic crisis since the Great Depression for many economists, liberal or not, to finally say publicly what many had long argued: Inequality is bad for the economy.
The latest to say so is the rating agency Standard and Poor’s, not exactly a bastion of lefty propaganda. An S&P report released August 5 says that rising inequality—gaps in both income and wealth—between the very rich and the rest of us is hurting economic growth. The agency downgraded its forecast for the economy in the coming years because of the record level of inequality and the lack of policy changes to correct for it. The report’s authors argue against the notion that caring about equality necessarily involves a trade-off with “efficiency”—that is, a well-functioning economy.
To be sure, they’re not making a case for a massive government intervention to help low-income Americans. They discuss the benefits of current policy proposals—like raising the federal minimum wage to $10.10 per hour—with the caveats that such changes could have potential negative consequences—like dampening job growth. (Most economists agree that such a small hike wouldn’t have that impact.)
At its core, though, the S&P report does argue that pulling people out of poverty and closing the gap between the 1 percent and the 99 percent will increase economic growth. The authors argue for some redistributive policies, like increased financial aid for post-secondary education. “The challenge now is to find a path toward more sustainable growth, an essential part of which, in our view, is pulling more Americans out of poverty and bolstering the purchasing power of the middle class,” the authors write. “A rising tide lifts all boats…but a lifeboat carrying a few, surrounded by many treading water, risks capsizing.”
It’s an important moment for such a debate. The Great Recession was a great equalizer, a crisis in which many in the middle class, and even upper-middle class, fell all the way to the bottom and relied on the government safety net. They learned what anyone who cared to look at the data already knew: The vast majority of people relying on government benefits are suffering a temporary setback that they will recover from, as long as they have a helping hand. The holes in the safety net also became more apparent. Even Paul Ryan, the Republican congressman from Wisconsin who has set his blue eyes on higher office, adequately diagnosed many of the problems with anti-poverty programs when he introduced a new plan last month. (Whether he would actually want to pay for the changes he calls for is debatable.)
Closing the gap by lifting low-income families out of poverty could do more to help the economy than any number of tax credits for “job creators” might, which is what Hanauer argued in Politico. And the S&P report puts more support in his corner.
On the question of what to do, there is widespread agreement on boosting educational attainment and increasing salaries at the bottom end. Policymakers have had a lot of time to think about how to help the middle class, since real wages began declining in the mid-1970s. Many of the problems of inequality have policy solutions ready to go, spelled out in a white paper stuffed in someone’s desk drawer. Why has it taken so long to think about addressing it? Was the political might of the right so overwhelming that they couldn’t speak up until people like Hanauer saw, as he warned in his essay, that the pitchforks would be coming for them?
By: Monica Potts, The Daily Beast, August 8, 2014
“Inequality Is A Drag”: There’s No Evidence That Making The Rich Richer Enriches The Nation
For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth.
Liberals have generally viewed this as a trade-off worth making, arguing that it’s worth accepting some price in the form of lower G.D.P. to help fellow citizens in need. Conservatives, on the other hand, have advocated trickle-down economics, insisting that the best policy is to cut taxes on the rich, slash aid to the poor and count on a rising tide to raise all boats.
But there’s now growing evidence for a new view — namely, that the whole premise of this debate is wrong, that there isn’t actually any trade-off between equity and inefficiency. Why? It’s true that market economies need a certain amount of inequality to function. But American inequality has become so extreme that it’s inflicting a lot of economic damage. And this, in turn, implies that redistribution — that is, taxing the rich and helping the poor — may well raise, not lower, the economy’s growth rate.
You might be tempted to dismiss this notion as wishful thinking, a sort of liberal equivalent of the right-wing fantasy that cutting taxes on the rich actually increases revenue. In fact, however, there is solid evidence, coming from places like the International Monetary Fund, that high inequality is a drag on growth, and that redistribution can be good for the economy.
Earlier this week, the new view about inequality and growth got a boost from Standard & Poor’s, the rating agency, which put out a report supporting the view that high inequality is a drag on growth. The agency was summarizing other people’s work, not doing research of its own, and you don’t need to take its judgment as gospel (remember its ludicrous downgrade of United States debt). What S.& P.’s imprimatur shows, however, is just how mainstream the new view of inequality has become. There is, at this point, no reason to believe that comforting the comfortable and afflicting the afflicted is good for growth, and good reason to believe the opposite.
Specifically, if you look systematically at the international evidence on inequality, redistribution, and growth — which is what researchers at the I.M.F. did — you find that lower levels of inequality are associated with faster, not slower, growth. Furthermore, income redistribution at the levels typical of advanced countries (with the United States doing much less than average) is “robustly associated with higher and more durable growth.” That is, there’s no evidence that making the rich richer enriches the nation as a whole, but there’s strong evidence of benefits from making the poor less poor.
But how is that possible? Doesn’t taxing the rich and helping the poor reduce the incentive to make money? Well, yes, but incentives aren’t the only thing that matters for economic growth. Opportunity is also crucial. And extreme inequality deprives many people of the opportunity to fulfill their potential.
Think about it. Do talented children in low-income American families have the same chance to make use of their talent — to get the right education, to pursue the right career path — as those born higher up the ladder? Of course not. Moreover, this isn’t just unfair, it’s expensive. Extreme inequality means a waste of human resources.
And government programs that reduce inequality can make the nation as a whole richer, by reducing that waste.
Consider, for example, what we know about food stamps, perennially targeted by conservatives who claim that they reduce the incentive to work. The historical evidence does indeed suggest that making food stamps available somewhat reduces work effort, especially by single mothers. But it also suggests that Americans who had access to food stamps when they were children grew up to be healthier and more productive than those who didn’t, which means that they made a bigger economic contribution. The purpose of the food stamp program was to reduce misery, but it’s a good guess that the program was also good for American economic growth.
The same thing, I’d argue, will end up being true of Obamacare. Subsidized insurance will induce some people to reduce the number of hours they work, but it will also mean higher productivity from Americans who are finally getting the health care they need, not to mention making better use of their skills because they can change jobs without the fear of losing coverage. Over all, health reform will probably make us richer as well as more secure.
Will the new view of inequality change our political debate? It should. Being nice to the wealthy and cruel to the poor is not, it turns out, the key to economic growth. On the contrary, making our economy fairer would also make it richer. Goodbye, trickle-down; hello, trickle-up.
By: Paul Krugman, Op-Ed Columnist, The New York Times, August 7, 2014
“The Poor Door”: A Symbol Of A Truth We All Know
A few words about the “poor door.”
Maybe you already know about this. Maybe you read on Slate, saw on Colbert or heard on NPR how a developer qualified for tax benefits under New York City’s Inclusionary Housing Program by agreeing to add to its new luxury building on the Upper West Side a set number of “affordable” apartments. How the company won permission to build that building with two entrances, one in front for the exclusive use of upper-income residents, another, reportedly in the alley, for residents of more modest means.
Hence, the “poor door,” though the term is something of a misnomer. While the premium units with the Hudson River views would probably strain the average budget at a reported sale price of $2,000 a square foot, the 55 “affordable” apartments overlooking the street are not exactly priced for the family from Good Times. We are told they are expected to draw small families earning up to $51,000 a year — not enough to contemplate putting in a bid for the Knicks, but more than enough to ensure you don’t have to squeegee windshields for pocket change.
Anyway, Extell Development apparently thinks it too much to ask the well-heeled to use the same door as such relative paupers. Observers have responded with outrage. A New York Times pundit called it “odious.” CNN called it “income segregation.” The Christian Science Monitor called it “Dickensian.”
The door is all those things, yes, but it is also the pointed symbol of a truth we all know but pretend not to, so as to preserve the fiction of an egalitarian society. Namely, that rich and poor already have different doors. The rich enter the halls of justice, finance, education, health and politics through portals of advantage from which the rest of us are barred.
Politicians who send you form letters line up to kiss Sheldon Adelson’s pinky finger because he has access to that door. O.J. Simpson got away with murder because he had access to that door.
Over the years, I’ve met a number of wealthy people. I have envied exactly one: Tom Cousins, the Atlanta developer who founded the East Lake Foundation, a combination social experiment and real estate development that transfigured a blighted and impoverished community, raising test scores, banishing crime, lifting incomes, changing lives.
I envied him not his money, but the privilege he has had of using that money in the service of other people. What joy and satisfaction it must give to know your wealth has made a difference in the world.
The “poor door” reflects a different ideal. Unfortunately, this is the same ideal one too frequently sees reflected in the nation at large. In our elevation of the do-nothing-of-value, contribute-nothing-of-value, say-nothing-of-value likes of Paris Hilton and Donald Trump to the highest station our culture offers — celebrity — we betray not simply a worship of wealth for its own sake, but an implicit belief that net worth equals human worth. And it does not.
It’s only money. Money is neutral. It’s what one does with money that defines character.
I begrudge no one whatever luxuries fortune makes possible. Enjoy the French chalet if it makes you feel good and the wallet allows. But the poor door seems to me a bridge too far. Were I as rich as Bill Gates plus the Koch brothers multiplied by Oprah Winfrey, I don’t think I’d want to live in a building of separate but unequal access, a building built on the tacit assumption that I would be — or should be — mortally affronted at sharing a lobby with someone just because he had fewer material trinkets than I.
The very idea offends our common and interconnected humanity. In the final analysis, we all entered this life through the same door. And we’ll leave it that way, too.
By: Leonard Pitts, Jr., Columnist, The Miami Herald; The National Memo, August 4, 2014
“Work And Worth”: What Someone Is Paid Has Little Or No Relationship To What Their Work Is Worth To Society
What someone is paid has little or no relationship to what their work is worth to society.
Does anyone seriously believe hedge-fund mogul Steven A. Cohen is worth the $2.3 billion he raked in last year, despite being slapped with a $1.8 billion fine after his firm pleaded guilty to insider trading?
On the other hand, what’s the worth to society of social workers who put in long and difficult hours dealing with patients suffering from mental illness or substance abuse? Probably higher than their average pay of $18.14 an hour, which translates into less than $38,000 a year.
How much does society gain from personal-care aides who assist the elderly, convalescents, and persons with disabilities? Likely more than their average pay of $9.67 an hour, or just over $20,000 a year.
What’s the social worth of hospital orderlies who feed, bathe, dress, and move patients, and empty their ben pans? Surely higher than their median wage of $11.63 an hour, or $24,190 a year.
Or of child care workers, who get $10.33 an hour, $21.490 a year? And preschool teachers, who earn $13.26 an hour, $27,570 a year?
Yet what would the rest of us do without these dedicated people?
Or consider kindergarten teachers, who make an average of $53,590 a year.
That may sound generous but a good kindergarten teacher is worth his or her weight in gold, almost.
One study found that children with outstanding kindergarten teachers are more likely to go to college and less likely to become single parents than a random set of children similar to them in every way other than being assigned a superb teacher.
And what of writers, actors, painters, and poets? Only a tiny fraction ever become rich and famous. Most barely make enough to live on (many don’t, and are forced to take paying jobs to pursue their art). But society is surely all the richer for their efforts.
At the other extreme are hedge-fund and private-equity managers, investment bankers, corporate lawyers, management consultants, high-frequency traders, and top Washington lobbyists.
They’re getting paid vast sums for their labors. Yet it seems doubtful that society is really that much better off because of what they do.
I don’t mean to sound unduly harsh, but I’ve never heard of a hedge-fund manager whose jobs entails attending to basic human needs (unless you consider having more money as basic human need) or enriching our culture (except through the myriad novels, exposes, and movies made about greedy hedge-fund managers and investment bankers).
They don’t even build the economy.
Most financiers, corporate lawyers, lobbyists, and management consultants are competing with other financiers, lawyers, lobbyists, and management consultants in zero-sum games that take money out of one set of pockets and put it into another.
They’re paid gigantic amounts because winning these games can generate far bigger sums, while losing them can be extremely costly.
It’s said that by moving money to where it can make more money, these games make the economy more efficient.
In fact, the games amount to a mammoth waste of societal resources.
They demand ever more cunning innovations but they create no social value. High-frequency traders who win by a thousandth of a second can reap a fortune, but society as a whole is no better off.
Meanwhile, the games consume the energies of loads of talented people who might otherwise be making real contributions to society — if not by tending to human needs or enriching our culture then by curing diseases or devising new technological breakthroughs, or helping solve some of our most intractable social problems.
In 2010 (the most recent date for which we have data) close to 36 percent of Princeton graduates went into finance (down from the pre-financial crisis high of 46 percent in 2006). Add in management consulting, and it was close to 60 percent.
Graduates of Harvard and other Ivy League universities are also more likely to enter finance and consulting than any other career.
The hefty endowments of such elite institutions are swollen with tax-subsidized donations from wealthy alumni, many of whom are seeking to guarantee their own kids’ admissions so they too can become enormously rich financiers and management consultants.
But I can think of a better way for taxpayers to subsidize occupations with more social merit: Forgive the student debts of graduates who choose social work, child care, elder care, nursing, and teaching.
By: Robert Reich, The Robert Reich Blog, August 2, 2014
“Being Rich In America Is Tough”: The Continuing Agonies Of The Super-Rich
As we well know by now, being rich in America is tough. Imagine driving your Porsche out the Goldman Sachs garage, intent on a relaxing weekend at your Hamptons retreat, only to find some wretched Occupy sympathizer giving you a dirty look through the haze of patchouli and resentment that surrounds him. Who could endure it? No wonder they keep comparing their fearful existence to that of the Jews of late-1930s Germany.
But now, according to the Washington Examiner, America’s plutocrats have a new worry:
Democratic super PACs have outraised their Republican counterparts by millions, a factor attributed in part to GOP donors’ fear of being targeted by the Internal Revenue Service—or “getting Koch’ed.”
Republican political operatives concede that there are multiple reasons for the Democrats’ advantage in super PAC money raised.
Among them: Labor unions have become among their largest and most consistent donors. But this election cycle, two new challenges have chilled GOP super PACs’ effort to raise cash from wealthy individuals and corporate donors: anxiety that they could get slapped with an IRS audit and unease that donating could lead to public demonization.
Not to let facts intrude on their paranoid fantasies, but let’s not forget what the IRS scandalette actually involved. There’s never been any credible allegation that anyone was audited because of their political beliefs. There’s never been any allegation that the IRS “targeted” donors to Republican super PACs. The worst thing that happened was that some Tea Party groups that had applied for 501(c)(4) status—claiming, utterly falsely, that they were charitable, non-political organizations, I might add—had to wait longer than they should have to get approval on their applications. (And, I have to repeat, when you’re waiting for your approval, you’re permitted under the law to act as though you’ve gotten your approval. You can raise and spend money, which they did.)
On the second point, I suppose one might be concerned that Harry Reid would go to the Senate floor and denounce you for undermining our democracy with your donations, even if those donations are perfectly legal. But in order for that to happen, you’re really going to have to get into the first rank of donors. A couple hundred thousand dollars isn’t going to do it; in order to be “demonized,” your contributions are going to have to reach at least eight figures.
Nevertheless, I’m sure it’s unpleasant for the Kochs to get criticized by politicians. But being criticized—even vigorously, and even sometimes unfairly—is the price you pay for certain choices you make. If you decide to do anything that puts your efforts in front of the public—running for office, becoming an actor, or being a writer, among other things—people who don’t like that work are going to tell you so. They may even say rude things, like “You’re an idiot” or “You suck,” or whatever other insults their limited creativity can produce. People track me down to tell me things like that all the time. It certainly isn’t fun to hear, but since I’ve chosen a profession where my work is public, it’s just part of the deal.
Spending large amounts of money on politics is both a right and a privilege. Some rights, like the right to practice your religion, are available to everyone. The right to spend significant political money is technically available to everyone, but in practice is only open to those who have large amounts of money to spend. In the same way, Lebron James and I are both free to dunk basketballs, but because the cruel genetic lottery left me a couple of ticks under six feet, I can’t actually exercise that freedom.
Obviously, the IRS shouldn’t audit anyone because of their political beliefs, and fortunately, we have no reason to think it does. Part of me suspects that a lot of conservative donors are using the fear of “demonization” and audits as an excuse to brush off requests for contributions, since once you become a big donor, you’re going to get besieged by candidates and organizations asking you for money. But if super-rich conservatives are sincerely afraid of the fallout from giving, they have two choices: they can make contributions that don’t put them quite on par with the Kochs, and thereby be ignored, or they can just decide to suffer the slings and arrows bravely in the cause of liberty. It’s up to them.
By: Paul Waldman, Contributing Editor, The American Prospect, July 16, 2014
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