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“Too Much Capital In Too Few Hands”: Populist Backlash Will Keep Increasing As Inequality Continues To Rise

Listen to a typical center-left Democrat, and you’ll hear rosy things about the economy. GDP growth is solid, unemployment is low, and even wages are starting to rise. The Clinton campaign and the Democratic Party generally will be touting these achievements even as they focus on issues of structural racism and sexism while offering government support in areas like childcare.

But there’s a big problem: overall, inequality is still rising at an astonishing rate to unprecedented levels:

Financial inequality became even wider in the United States last year, with average income for the top 1% of households surging 7.7% to $1.36 million.

Income for the richest sliver rose twice as fast as it did for the remaining 99% of households, according to an updated analysis of tax data by Emmanuel Saez, an economics professor at the University of California, Berkeley.

It’s true that the 99% is doing better than it has since the 1990s, but the gains are relatively modest. Furthermore, basic cost of living has gone way up, particularly in the areas of tuition and housing. Housing in particular is a major problem driven by inequality itself: with accumulation of capital comes the need for places to store it, and real estate is a popular piggybank for wealthy investors. This in turn drives up the cost of housing, making it more difficult to afford housing in the urban areas where most jobs are located.

The bigger problem is that America already tried the 1990s approach to prosperity, assuming that rising inequality isn’t a problem as long as everyone is doing OK. What does it matter if the rich are getting much much richer, if the fortunes of the poor and the middle class are also improving even if at a slower rate?

The answer is that it’s unsustainable in both the short and long term. Over the long term high rates of inequality shrink the middle class and increase political instability. In the short term, too much capital in too few hands leads to speculative bubbles, that in turn lead to big recessions. Recessions tend to wipe out the wealth of the middle class in a much more devastating way than that of the wealthy who have more ways to protect their money. More importantly, the wealthy recover their position much more quickly as asset values balloon back, but the jobs that sustain the middle class and the poor return more slowly–often at permanently lower wage levels when adjusted for inflation.

Automation and globalization are likely to inexorably drive the trend toward rampant inequality, exacerbated by tax policy designed to protect the wealthy and overgrown financial sector. Merely tackling structural racist and sexist inequalities will do good in their own ways for women and minorities, but they will do little to address the overall problem. Targeted government programs to help citizens with childcare and other needs will help somewhat but won’t do much to fix what’s fundamentally wrong.

Only much more aggressive policies that give workers a greater say in how companies are run to “pre-distribute” wealth, as well as much more progressive graduated tax policies that distribute uneven gains more equitably, will ultimately tilt the balance back toward the middle class where it belongs. Until then, expect to see increasingly virulent strains of populist backlash from both the right and the left until something changes. Incrementalism may be all that is possible politically, but it’s not an answer for the problems that beset us and give rise to anxious backlash. As long as inequality rises, Donald Trump, Brexit and ISIS will be just the beginning of the world’s back-to-basics nativist woes.

People don’t just want the 99% to do better. As the 1% continues to outpace everyone else, a great many people in America and the world actively want the 1% to do worse. And it’s hard to blame them for that sentiment.

 

By: David Atkins, Political Animal Blog, The Washington Monthly, July 4, 2016

July 6, 2016 Posted by | Economic Inequality, Middle East, Populism, The 1% | , , , , , , , , | Leave a comment

“Francis Prods Congress’ Conscience”: We Can Find No Social Or Moral Justification, No Justification Whatsoever, For Lack Of Housing

Wouldn’t it be grand if Pope Francis could be a recurring visitor to the U.S. Congress, a sort of spiritual superintendent who occasionally drops in to chide, cajole, and mostly just remind our legislators when their actions don’t promote the common good? What kind of country would we become?

Watching as the pontiff stepped away from the podium after his electrifying speech to Congress, I wanted the effect to stick. I wanted to see Democrats and Republicans get off their high horses and cooperate on restoring the health and prosperity of the nation. I wanted our elected officials to stop acting merely as the “political class” and instead legislate as men and women of conscience.

I know I’m not alone. A lot of reasonable people in this country wish the pope’s short visit would usher in such an era.

But with his visit to Capitol Hill complete, the pope drove off in his little Fiat, en route to greet the people nearest his heart: the poor and homeless. At St. Patrick’s Catholic Church in Washington, he spoke to and looked in the faces of the least among us at a Catholic Charities free lunch for more than 200. It was a sharp contrast to his prior errand. And yet there is a role for government at this table, too.

“Why are we homeless?” Francis asked. “Why don’t we have housing? These are questions which many of you may ask daily.”

Then, he added, “We can find no social or moral justification, no justification whatsoever, for lack of housing.”

Is that clear enough for you? There is no justification whatsoever, and yet homelessness persists — thrives, actually — in this rich and powerful nation. Why?

Unwind the life of virtually any homeless man, woman or child and you may see personal failure or family failure. More likely you will see challenges that people can’t handle by themselves: mental illness, domestic violence, catastrophic job loss, poverty. No one sets out in life wanting to be homeless. No one should be trapped in homelessness, even as a consequence of poor choices.

That they continue to be is an indictment of a society that sanctions discarding — a word Francis often uses — those it finds inconvenient.

It’s also a failure of government. Just as you can track the problems along a person’s road to homelessness, you can track policy maker’s failure — or is it refusal? — to respond. The story of homelessness is a story of policy failure: shortfalls in vision and funding of public education, investment in neighborhoods, job training, access to healthcare (especially mental), affordable treatment for addictions of alcohol and drugs, and treatment for PTSD-afflicted veterans after they fight our wars.

Those are all issues that Congress has an impact on, for better or worse.

The pope’s arrival in the U.S. overshadowed a national headline on homelessness out of Los Angeles. City leaders declared a “state of emergency” because the number of homeless people setting up encampments has grown to an estimated 26,000.

In other words, the homeless have become too numerous to ignore.

So an announcement was made that $100 million would be shoveled at programs, which not surprisingly have yet to be FULLY outlined. That’s because there are no easy answers.

The skyrocketing costs of housing, and the lack of affordable options, are significant factors in why homelessness has grown by 12 percent in Los Angeles in the past two years. But affordable housing is an issue in virtually every American city.

The uneven way the economy is recovering from the recession is another complicating factor. Congress and the president approved bailouts and other deals for some, but that didn’t benefit everyone in the long run. How the U.S. rebuilds its economy will determine who and how many land on our streets in the future.

A central moral teaching of virtually every faith is the responsibility to feed the poor. Yet charity alone is not a solution. We have an obligation as a society, through the policies of our governments, to create the conditions and opportunities for all to house, feed and clothe themselves and their families.

Any honest assessment of homelessness apportions blame and responsibility in many directions. Like the stalemates of Congress, homelessness didn’t begin recently, and it continues through inaction or misdirected action from many, many quarters.

Day by day, struggle by struggle, people fall into being homeless through their own faults and from circumstances they did not create.

There but for the grace of God goes each of us.

 

By: Mary Sanchez, Opinion-Page Columnist for The Kansas City Star; The National Memo, September 26, 2015

September 28, 2015 Posted by | Congress, Government, Homeless, Pope Francis | , , , , , , | 1 Comment

“MLK’s Prophetic Call For Economic Justice”: This Country Has Socialism For The Rich, Rugged Individualism For The Poor

The Rev. Martin Luther King Jr.’s economic message was fiery and radical. To our society’s great shame, it has also proved timeless.

As we celebrate King’s great achievement and sacrifice, it is wrong to round off the sharp edges of his legacy. He saw inequality as a fundamental and tragic flaw in this society, and he made clear in the weeks leading up to his assassination that economic issues were becoming the central focus of his advocacy.

Nearly five decades later, King’s words on the subject still ring true. On March 10, 1968, just weeks before his death, he spoke to a union group in New York about what he called “the other America.” He was preparing to launch a Poor People’s Campaign whose premise was that issues of jobs and issues of justice were inextricably intertwined.

“One America is flowing with the milk of prosperity and the honey of equality,” King said. “That America is the habitat of millions of people who have food and material necessities for their bodies, culture and education for their minds, freedom and human dignity for their spirits. . . . But as we assemble here tonight, I’m sure that each of us is painfully aware of the fact that there is another America, and that other America has a daily ugliness about it that transforms the buoyancy of hope into the fatigue of despair.”

Those who lived in the other America, King said, were plagued by “inadequate, substandard and often dilapidated housing conditions,” by “substandard, inferior, quality-less schools,” by having to choose between unemployment and low-wage jobs that didn’t even pay enough to put food on the table.

The problem was structural, King said: “This country has socialism for the rich, rugged individualism for the poor.”

Eight days later, speaking in Memphis, King continued the theme. “Do you know that most of the poor people in our country are working every day?” he asked striking sanitation workers. “And they are making wages so low that they cannot begin to function in the mainstream of the economic life of our nation. These are facts which must be seen, and it is criminal to have people working on a full-time basis and a full-time job getting part-time income.”

King explained the shift in his focus: “Now our struggle is for genuine equality, which means economic equality. For we know that it isn’t enough to integrate lunch counters. What does it profit a man to be able to eat at an integrated lunch counter if he doesn’t earn enough money to buy a hamburger and a cup of coffee?”

Obviously, much has changed for African Americans since that time; anyone who says otherwise is plainly wrong. There is no longer any question of who gets served at lunch counters. Mississippi, where African Americans were once disenfranchised at the barrel of a gun, has more black elected officials than any other state. An African American family lives in the White House.

But what King saw in 1968 — and what we all should recognize today — is that it is useless to try to address race without also taking on the larger issue of inequality. He was planning a poor people’s march on Washington that would include not only African Americans but also Latinos, Native Americans and poor Appalachian whites. He envisioned a rainbow of the dispossessed, assembled to demand not just an end to discrimination but a change in the way the economy doles out its spoils.

King did not live to lead that demonstration, which ended up becoming the “Resurrection City” tent encampment on the Mall. Protesters never won passage of the “economic bill of rights” they had sought.

Today, our society is much more affluent overall — and much more unequal. Since King’s death, the share of total U.S. income earned by the top 1 percent has more than doubled. Studies indicate there is less economic mobility in the United States than in most other developed countries. The American dream is in danger of becoming a distant memory.

This column is not about policy prescriptions or partisan politics. King was a prophet. His role was to see clearly what others could not or would not recognize, and to challenge our consciences.

Paying homage to King as one of our nation’s greatest leaders means remembering not just his soaring oratory about racial justice but his pointed words about economic justice as well. Inequality, he told us, threatens the well-being of the nation. Extending a hand to those in need makes us stronger.

 

By: Eugene Robinson, Opinion Writer, The Washington Post, January 16, 2015

January 18, 2015 Posted by | Discrimination, Economic Inequality, Martin Luther King Jr | , , , , , , , | 1 Comment

Texas Ranks Dead Last In Total Job Creation, Accounting For Labor Force Growth

Gov. Rick Perry (R-TX), since he launched his presidential campaign on Saturday, has paraded around the stat that “since June of 2009, Texas is responsible for more than 40 percent of all of the new jobs created in America.” “Now think about that. We’re home to less than 10 percent of the population in America, but 40 percent of all the new jobs were created in that state,” Perry says.

This stat leaves out a lot of the story. The Federal Reserve Bank of Dallas has promoted the number, but “it acknowledges that the number comes out different depending on whether one compares Texas to all states or just to states that are adding jobs.” Between 2008 and 2010, jobs actually grew at a faster pace in Massachusetts than in Texas.

In fact, “Texas has done worse than the rest of the country since the peak of national unemployment in October 2009.” The unemployment rate in Texas has been steadily increasing throughout the recession, and went from 7.7 to 8.2 percent while the state was supposedly creating 40 percent of all the new jobs in the U.S.

How is this possible, since Texas has created over 126,000 jobs since the depths of the recession in February 2009? The fact of the matter is that looking purely at job creation misses a key point, namely that Texas has also experienced incredibly rapid population and labor force growth (due to a series of factors, including that Texas weathered the housing bubble reasonably well due to strict mortgage lending regulations). When this is taken into account, Texas’ job creation looks decidedly less impressive:

Clearly, there is no miracle for Texas here. While over 126,000 net jobs were created in Texas over the last two and a half years, the labor force expanded by over 437,000, meaning that overall Texas has added unemployed workers at a rate much faster than it has created jobs. And although states like Michigan have lost jobs (29,200 since February 2009), the state’s labor force has shrunk by over 185,000 since then. As a result, while there are fewer jobs, there are significantly less workers looking for them.

As Paul Krugman put it, “several factors underlie [Texas’] rapid population growth: a high birth rate, immigration from Mexico, and inward migration of Americans from other states, who are attracted to Texas by its warm weather and low cost of living, low housing costs in particular.” But they have little to do with Perry’s policies.

Now that certainly doesn’t make the situation in Michigan a good one, as contraction of the labor force is one side effect of the prolonged recession and unemployment there is still 10.6 percent. However if there is a real “miracle” here, it is North Dakota, which has seen over 27,000 new jobs and a labor force expansion of only 3,700, resulting in about 24,000 new jobs for workers who previously had none. But no one is proclaiming the “North Dakota miracle” and saying that Gov. Jack Dalrymple (R-ND) should be running for President.

By: Think Progress, August 17, 2011. Data for this post was compiled by Matt Separa, Research Assistant with the Economic Policy Team at the Center for American Progress Action Fund

August 18, 2011 Posted by | Class Warfare, Conservatives, Economic Recovery, Economy, GOP, Government, Governors, Ideologues, Ideology, Immigrants, Income Gap, Jobs, Labor, Middle Class, Politics, Republicans, Right Wing, States, Teaparty, Unemployed, Unemployment, Unions | , , , , , , , , , , , , , , , | Leave a comment

How Default Would Harm Homeowners, Cities, Businesses And Everyone Else

It’s easy to understand why the government will have more trouble borrowing if it fails to pay its debts, or even has a difficult time paying its debts. It’s a bit harder to see why ordinary Americans, the city of Pittsburgh, hospitals in Iowa, and medium-sized corporations will have more trouble borrowing. But they will. And their trouble borrowing is the main channels through which a default, or even something too close to it for the market’s comfort, could deal a body blow to the economy.

On Wednesday, Moody’s warned that it was putting the U.S. government credit rating on review for a downgrade. But they didn’t stop there. Another 7,000 debt products that are “directly linked to the U.S. government or are otherwise vulnerable to sovereign risk” were also put on review for a possible downgrade. That’s about $130 billion worth of debt. If America tumbles, so do they. But Moody’s still wasn’t done. An unknown amount of “indirectly linked” debt is also getting reviewed.

If America’s credit rating falls, it’s taking a lot more than just Treasury securities with it. It’s going to take the whole credit market with it. Which, as you’ll remember, is exactly how the subprime housing sector took the economy down in 2008.

The first to fall will be “directly linked” debt. These are bonds that rely on payments from the federal government. Naomi Richman, a managing director in Moody’s Public Finance division, puts it bluntly: “There are certain kinds of municipal bonds that are directly reliant on Treasury paying or some other direct payment,” she says. “If those bonds don’t receive their payment, they have no other source of revenue.” So down they go.

Then there’s the “indirectly linked” debt. That’s debt from state government, local governments, hospitals, universities and other institutions that rely, in some way or another, on payments from the federal government. If Medicaid stops paying its bills, all the hospitals that rely on Medicaid’s payments become less creditworthy. If we stop funding Pell grants, then all the universities that enroll students who pay using financial aid become less creditworthy. And since the federal government passes one-fifth of its revenues through to the states, and the states pass those revenues through to cities, if the federal government stops paying its bills, all states and all cities are suddenly in worse financial shape, which will make it harder for them to get loans.

And then there’s everything else. Mortgages. Credit cards. Loans that businesses take out to expand. Much of the debt in the American economy, and in fact globally, is “benchmarked” to Treasury debt. When your bank quotes you a mortgage rate, the calculation begins with the rate on 10-year treasuries and then adds premiums for various types of risk specific to you and your area on top of that. “There’s a whole credit structure,” says Pete Davis, president of Davis Capital Investment Ideas. “Think of it as roads and bridges, but it’s finance, it’s all connected, and it’s all on top of treasuries. Your CD at a bank, your credit card interest rates, your car loans, your mortgages — that’s all built on Treasury rates. So when you shake the basis of it, everything on top of it shakes, too.”

The 2008 economic crisis wasn’t started by a nuclear bomb detonating in New York, or a campaign to sabotage the country’s factories, or a plague that struck our able-bodied young males. Rather, investors bought a lot of debt based on subprime mortgages. They performed some tricky financial wizardry that they thought made the debt low-risk. They found out they were wrong. And then, because the players in the financial system no longer knew how much money anyone had, the credit markets froze and the economy crashed.

Now imagine that happening, not with the housing market, but with the government of the United States of America. The cornerstone of the global financial economy is the idea that Treasuries are risk-free. If they’re not, then like in the financial crisis, no one knows how much money anyone who holds treasuries has. But they also don’t know how much money anyone who depends on the federal government — be they businesses or individuals — holds.

This is how a default gets into the rest of the economy: It takes everything the financial markets thought they could know and rely on and upends it. It then shuts off credit, or makes it prohibitively expensive, for nearly every participant in the economy, from states and cities to hospitals and universities to homebuyers and credit-card applicants. That, in turn, freezes all of their activity, which destabilizes everyone who relies on them, which then destabilizes financial markets further, and so on.

It was one thing to have forgotten that this sort of thing could happen in 2006, when America hadn’t seen it for 70 years. But we just went through it. And if we go through it again, the Federal Reserve, which has pushed interest rates as low as they can go, and Congress, which has vastly expanded the deficit, have a lot less ammunition left for a response.

Are we likely to get to that point? No, of course not. But between here and there are worlds where the economy doesn’t crash, but because the federal government panics the market, interest rates rise and the economy slows. In a recovery this weak, that would be a disaster. And it would be entirely of our own making.

By: Ezra Klein, The Washington Post, July 15, 2011

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July 17, 2011 Posted by | Banks, Budget, Businesses, Congress, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Financial Institutions, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Medicaid, Middle Class, Politics, Public, Republicans, Right Wing, States | , , , , , , , , , , , , , , , , | Leave a comment

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