“Real Vs. Republican Populism”: How To Win The War On Inequality
So Republicans are going populist, or at least two of them are, reports The Daily Beast’s Patricia Murphy. And perhaps it’s only in the sense that unlike Mitt Romney and many in the House GOP, they’re not speaking of working people with contempt. Well, it’s a start. But I wish they’d pick up copies of Thomas Piketty’s Capital in the Twenty-First Century. Oh, of course Ted Cruz and Rand Paul would find ways to pooh-pooh the book’s findings and conclusions, but it’s nice to think of them merely having to immerse themselves in empirical reality for a few hours instead of the magical economic fairy tales that undoubtedly constitute their usual diet.
If you’ve not heard of Piketty or Capital, it’s certainly the economic book of the year, and probably of the decade so far. (You can read Paul Krugman’s rave in The New York Review of Books here.) I admit I’ve only waded into it so far, but I went to see the author, a French economist, speak at the Economic Policy Institute in Washington to a room full of people who braved a hideous, monsoon-ish rain Tuesday morning. (The video of the event is here.) What Piketty has done, my economist friends tell me, is nothing short of revolutionary and deserves to change the way we think about wealth and inequality. Much more important, it also deserves to alter what we do about them.
Here’s the story in a ridiculously small nutshell. Thirty scholars collected data from 20 countries over about 100 years. Piketty pored over the data trying to pinpoint salient reasons for our insane levels pf income inequality, which is worse in the United States, where the richest 1 percent own nearly 40 percent of the wealth, than in most other advanced countries but hardly endemic to America.
The one key: In all times and places under study, the rate of return on capital increases at a faster rate than general economic growth. Growth averages 1, 1.5 percent. Rate of return averages 4 or 5 percent. So presto, the people with the capital—money and assets of all kinds, land and equipment and what have you—are getting richer a lot faster than the rest of us. And as Nobel Prize-winning economist Robert Solow, a panelist at the event, pointed out: “Note that this is not a market failure.” This disparity (r > g, in wonk-speak) is a feature, not a bug, as they say, and it’s just our fate, and on and on it shall go, as the rivers roll to the sea.
And is there anything we can do to mitigate this? Three things, said panelist Josh Bivens of the Economic Policy Institute: 1) Make sure more people enjoy more access to r; 2) raise g; 3) lower r.
Now, if you are reasonably conversant in our economic debates, you already have some idea of what all this means. It means what Cruz and Paul would call “socialism” and what I would call “the kinds of reasonable, worker-focused economic policies this country had for about 40 years that were, on balance, the best years this country ever had.” We had large-scale public investment, near full employment at times, a more heavily unionized work force, a minimum wage that until 1968 kept pace with productivity, a more progressive tax system, a much more heavily regulated financial sector in which banks couldn’t gamble against themselves, and all the rest. Even with all these measures in place, r still grew faster than g, but not the way it does in today’s America.
In other words, Piketty makes the case that inequality will just grow and grow unless societies take affirmative steps to reduce the gap between the rate of return on capital and overall economic growth. The problem is the old one: In our present political climate, there’s not a chance of that happening.
As I sat there Tuesday morning, I kept wondering to myself: Is there any way a politician, a presidential candidate, can turn these concepts into plain English, something that can capture people’s imaginations—an answer to the right’s vacuous “a rising tide lifts all boats,” but which happens to have the benefit of being true? We now have ample evidence that the “rising tide” of the better part of the last 30 years has not lifted all boats. The ocean liners are getting farther and farther away from the pack.
I think there must be a way, but before we ponder that question, we first have to wonder whether the presidential candidate I have in mind (it’s not Cruz or Paul) even believes all this. I think she does, or most of it. But this is class politics—not “class warfare,” just class politics—and that hasn’t exactly been Hillary Clinton’s game over the years. The great question looming over her expected campaign is the extent to which she’ll address the inequality crisis head on.
Given the 1 percent’s ownership of our political system these days, we’re probably stuck with living out this crisis for a very long time, until even the 1 percenters are finally forced to agree that something has to be done. We seem a long way away from that. But things do change sometimes. “In 1910 in America, everybody would have said a progressive income tax was impossible,” Piketty said Tuesday. “It could not be permissible under the Constitution, and so forth. But, you know, things happen.” Three years later, we had one. So it’s not impossible. And if trickle-down could start on a dinner napkin, surely the process of reversing its malignant effects can start with a book.
By: Michael Tomasky, The Daily Beast, April 16, 2014
“Three Expensive Milliseconds”: Society Is Devoting An Ever-Growing Share Of Its Resources To Financial Wheeling And Dealing
Four years ago Chris Christie, the governor of New Jersey, abruptly canceled America’s biggest and arguably most important infrastructure project, a desperately needed new rail tunnel under the Hudson River. Count me among those who blame his presidential ambitions, and believe that he was trying to curry favor with the government- and public-transit-hating Republican base.
Even as one tunnel was being canceled, however, another was nearing completion, as Spread Networks finished boring its way through the Allegheny Mountains of Pennsylvania. Spread’s tunnel was not, however, intended to carry passengers, or even freight; it was for a fiber-optic cable that would shave three milliseconds — three-thousandths of a second — off communication time between the futures markets of Chicago and the stock markets of New York. And the fact that this tunnel was built while the rail tunnel wasn’t tells you a lot about what’s wrong with America today.
Who cares about three milliseconds? The answer is, high-frequency traders, who make money by buying or selling stock a tiny fraction of a second faster than other players. Not surprisingly, Michael Lewis starts his best-selling new book “Flash Boys,” a polemic against high-frequency trading, with the story of the Spread Networks tunnel. But the real moral of the tunnel tale is independent of Mr. Lewis’s polemic.
Think about it. You may or may not buy Mr. Lewis’s depiction of the high-frequency types as villains and those trying to thwart them as heroes. (If you ask me, there are no good guys in this story.) But either way, spending hundreds of millions of dollars to save three milliseconds looks like a huge waste. And that’s part of a much broader picture, in which society is devoting an ever-growing share of its resources to financial wheeling and dealing, while getting little or nothing in return.
How much waste are we talking about? A paper by Thomas Philippon of New York University puts it at several hundred billion dollars a year.
Mr. Philippon starts with the familiar observation that finance has grown much faster than the economy as a whole. Specifically, the share of G.D.P. accruing to bankers, traders, and so on has nearly doubled since 1980, when we started dismantling the system of financial regulation created as a response to the Great Depression.
What are we getting in return for all that money? Not much, as far as anyone can tell. Mr. Philippon shows that the financial industry has grown much faster than either the flow of savings it channels or the assets it manages. Defenders of modern finance like to argue that it does the economy a great service by allocating capital to its most productive uses — but that’s a hard argument to sustain after a decade in which Wall Street’s crowning achievement involved directing hundreds of billions of dollars into subprime mortgages.
Wall Street’s friends also used to claim that the proliferation of complex financial instruments was reducing risk and increasing the system’s stability, so that financial crises were a thing of the past. No, really.
But if our supersized financial sector isn’t making us either safer or more productive, what is it doing? One answer is that it’s playing small investors for suckers, causing them to waste huge sums in a vain effort to beat the market. Don’t take my word for it — that’s what the president of the American Finance Association declared in 2008. Another answer is that a lot of money is going to speculative activities that are privately profitable but socially unproductive.
You may object that this can’t be right, that the invisible hand of the market ensures that private returns and social returns coincide. Economists have, however, known for a long time that when it comes to speculation, that proposition just isn’t true. Back in 1815 Baron Rothschild made a killing because he knew the outcome of the Battle of Waterloo a few hours before everyone else; it’s hard to see how that knowledge made Britain as a whole richer. It’s even harder to see how the three-millisecond advantage conveyed by the Spread Networks tunnel makes modern America richer; yet that advantage was clearly worth it to the speculators.
In short, we’re giving huge sums to the financial industry while receiving little or nothing — maybe less than nothing — in return. Mr. Philippon puts the waste at 2 percent of G.D.P. Yet even that figure, I’d argue, understates the true cost of our bloated financial industry. For there is a clear correlation between the rise of modern finance and America’s return to Gilded Age levels of inequality.
So never mind the debate about exactly how much damage high-frequency trading does. It’s the whole financial industry, not just that piece, that’s undermining our economy and our society.
By: Paul Krugman, Op-Ed Columnist, The New York Times, April 13, 2014
“How Conservatives Are Destroying Capitalism”: The GOP Is Working Nonstop To Exacerbate The System’s Worst Excesses
I’ve written before about how Thomas Piketty’s great new book Capital in the Twenty-First Century has made free-market conservatives distinctly uneasy. Perhaps for the first time in the post-war era, a genuine American socialist movement might be on the horizon, thanks to growing awareness both of rising income inequality and of a system that is flagrantly rigged in favor of the financial elite.
Paradoxically, conservatives are more responsible for this socialist resurgence than anyone. By fanatically opposing the kind of mild — and yes, socialist-tinged — reforms that would make capitalism more tolerable for the most vulnerable in society, conservatives are stoking a leftist bonfire.
Some conservatives, like the reformist Michael Strain, seem to grasp the problem. But most appear to exist in a kind of time warp in which the Soviet Union still exists and leftist ideas are obviously self-discrediting. Jim Pethokoukis gave us an example of this at National Review:
Thanks to Piketty, the Left is now having a Galaxy Quest moment. All that stuff their Marxist economics professors taught them about the “inherent contradictions” of capitalism and about history’s being on the side of the planners — all the theories that the apparent victory of market capitalism in the last decades of the 20th century seemed to invalidate — well, it’s all true after all. In their progressive hearts, they always knew it, knew it, knew it! The era of big government is back! Let the redistribution commence! [National Review]
Sorry, Jim, jeering just isn’t going to cut it anymore.
Take it from someone who had no stake in the intellectual arguments that dominated the postwar era. When I graduated from college in 2008, the American economy was hemorrhaging 600,000 jobs per month. The country was undergoing a crash course in subprime mortgage-backed securities, collateralized debt obligations, and credit default swaps. Aggregate demand was collapsing, and liquidity was freezing up. The appropriate response would have been to spend like a drunken sailor until unemployment was restored, then cut back slowly and start paying down accrued debt. Thank God we were about to elect this Obama fellow, because he knew what he was doing, right?
Wrong. We did pass the (badly underrated) stimulus, but the likes of Paul Krugman were howling themselves hoarse that it wouldn’t be enough to restore full employment. He was, of course, completely right.
Unemployment rose steadily, peaking at over 10 percent before coming down with agonizing slowness. Meanwhile, the vast bulk of newly created wealth went straight to the rich. If all of this isn’t indicative of an enormous failure of capitalism, then I don’t know what is.
Then the Left watched with increasing horror as the entire United States political mainstream turned from stimulus to austerity, abandoning a job that was not even half-done.
Then the Republican Party — which not even two years before had proposed its own $713 billion stimulus — won a sweeping victory in the 2010 midterms, and with a crazed messianic fervor dedicated itself to making everything worse as fast as possible. They demanded Herbert Hoover–style austerity and repeatedly held the government’s credit rating hostage to get it, which they succeeded in doing (abetted by Democratic “moderates,” to be fair). As a result, we’re well past the halfway point of our first lost decade with no end in sight.
Current political debates, while not quite so mind-blowingly bizarre as those in 2010–11, are still striking in that even political moderates are willing to toss millions of the most vulnerable people overboard for very poorly defined reasons. Unemployment isn’t even close to low, and yet repeatedly discredited inflation paranoiacs are, again, cooking up highly suspect new reasons to crush wage growth.
In short, political elites have been doing all they can to convince lefties that Marx was pretty close to the mark on that whole rich-exploiting-the-poor thing. Republicans in power are against even the mildest moderating structures to keep the middle class and poor from being left behind by galloping inequality; instead, they are for obliterating what inadequate protection we do have and for savage austerity that would increase the population of desperate jobless.
Every new Paul Ryan budget — all of which openly gut safety net programs — is another bundle of kindling on a potential leftist bonfire.
By: Ryan Cooper, The Week, April 10, 2014
“We Need To Be More Ambitious”: Why The Minimum Wage Should Really Be Raised To $15 An Hour
Momentum is building to raise the minimum wage. Several states have already taken action — Connecticut has boosted it to $10.10 by 2017, the Maryland legislature just approved a similar measure, Minnesota lawmakers just reached a deal to hike it to $9.50. A few cities have been more ambitious — Washington, D.C. and its surrounding counties raised it to $11.50, Seattle is considering $15.00
Senate Democrats will soon introduce legislation raising it nationally to $10.10, from the current $7.25 an hour.
All this is fine as far as it goes. But we need to be more ambitious. We should be raising the federal minimum to $15 an hour.
Here are seven reasons why:
1. Had the minimum wage of 1968 simply stayed even with inflation, it would be more than $10 an hour today. But the typical worker is also about twice as productive as then. Some of those productivity gains should go to workers at the bottom.
2. $10.10 isn’t enough to lift all workers and their families out of poverty. Most low-wage workers aren’t young teenagers; they’re major breadwinners for their families, and many are women. And they and their families need a higher minimum.
3. For this reason, a $10.10 minimum would also still require the rest of us to pay Medicaid, food-stamps, and other programs necessary to get poor families out of poverty — thereby indirectly subsidizing employers who refuse to pay more. Bloomberg View describes McDonalds and Walmart as “America’s biggest welfare queens” because their employees receive so much public assistance. (Some, like McDonalds, even advise their employees to use public programs because their pay is so low.)
4. A $15/hour minimum won’t result in major job losses because it would put money in the pockets of millions of low-wage workers who will spend it — thereby giving working families and the overall economy a boost, and creating jobs. (When I was Labor Secretary in 1996 and we raised the minimum wage, business predicted millions of job losses; in fact, we had more job gains over the next four years than in any comparable period in American history.)
5. A $15/hour minimum is unlikely to result in higher prices because most businesses directly affected by it are in intense competition for consumers, and will take the raise out of profits rather than raise their prices. But because the higher minimum will also attract more workers into the job market, employers will have more choice of whom to hire, and thereby have more reliable employees — resulting in lower turnover costs and higher productivity.
6. Since Republicans will push Democrats to go even lower than $10.10, it’s doubly important to be clear about what’s right in the first place. Democrats should be going for a higher minimum rather than listening to Republican demands for a smaller one.
7. At a time in our history when 95 percent of all economic gains are going to the top 1 percent, raising the minimum wage to $15 an hour isn’t just smart economics and good politics. It’s also the morally right thing to do.
Call your senators and members of congress today to tell them $15 an hour is the least American workers deserve. You can reach them at 202-224-3121.
By: Robert Reich, The Robert Reich Blog, April 9, 2014
“The ‘Toil And Trouble’ Of The Bush Dynasty”: The Resurrection Of A Dangerous Political Family
Here’s how I picture Jeb Bush, with his father George and his big brother George, huddled around a boiling cauldron: “When shall we three meet again?/in Florida, Texas or in Maine?”
Any resemblance to the Macbeth witches in thunder, lightning or rain is, of course, intentional. The Washington buzz that Jeb Bush will follow in his brother’s and his father’s footsteps in running for president is a bit scary for democracy. They are not done with us yet. Good and bad things come in threes.
Beware the current wave of nostalgia for Bush rule. They are not the brightest dynasty under the sun, but the House of Bush has staying power. If genial Jeb Bush, the former governor of Florida runs, then we the people will be in for another pounding by an Eastern elitist family. They masquerade their cultural origins as south by southwest. But it all started with Prescott Bush, a Connecticut senator.
As the faithful gathered this past weekend in Texas to mark the 25th anniversary of the first Bush presidency, the Bush men are also re-engineering the family story with help from friends like Jim Baker and conservative cheerleaders in the national media. Even columnist George Will, who scorned the elder Bush, is on-message for Jeb as a moderate man of substance. He practically invented school choice. The rest of the story line goes something like this.
Apparently, the one-term president George H.W. Bush, aka “Poppy,” was a seasoned foreign policy hand who conducted the end of the Cold War with magisterial ease. Skeptics like me think it just happened to happen on his watch. His son, George W. Bush, upset a lot of China with wars of choice that proved feckless. But wait, we now know he has the perceptive sensibility of an artist. We know he could see into the soul of Vladimir Putin, the Russian president, after Putin “dissed” Bush’s dog Barney. The 43rd president told this tale as he explained his portrait of Putin – which is rather good, actually.
A pity that W. missed his calling. He never should have been president of the United States, and not only for his military misadventures. He never lost sleep over commandeering civil liberties. The “war president” did not write home much to a beleaguered, rattled public in the years after 9/11, though his visit to the site of the fallen towers is seen as a high point. While Washington slept, New Orleans wept as Hurricane Katrina raged past the broken levees of the beguiling city. The lame presidential response was the domestic analogue of the haphazard way the wars were being waged abroad. And then came the economy’s pitch downward.
The Bushes set great store by winning, any which way. The fury of the Clarence Thomas Supreme Court hearing back in 1991 went down the way it did because H.W. Bush would not back down on a divisive nominee who made many women’s blood boil. If you remember the Willie Horton political ads against Michael Dukakis in 1988, that was also Poppy’s way of doing business. He has said he’ll do whatever it takes to win, though vision was never his thing.
The family penchant for winning at all costs came to a head in Florida in the Bush v. Gore showdown in 2000. Shakespeare could not have set the scene or the stakes better, with the fate of the nation hanging on a state governed by a brother Bush. All family human resources rushed down there, with Baker leading the way and strategy. If the fight seemed fierce, the outcome felt preordained. The Supreme Court stopped the vote count cold. It was all over, by a 5-4 vote. Indeed Thomas was “the best man for the job,” as Poppy put it in 1991.
Let it not be forgot, this is how the Bush dynasty defines “one man, one vote.”
By: Jamie Stiehm, U. S. News and World Report, April 7, 2014
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