Economic Inequality And Tax Fairness: What Newt Gingrich Doesn’t Want Us To Talk About
Over the last three decades, wealth has become increasingly concentrated at the top. The middle class is struggling with stagnant wages and a growing class gap; poverty rates are soaring; the jobs crisis seems never-ending; and a growing number of Americans are suggesting it’s time for a larger conversation about economic inequalities and tax fairness.
Newt Gingrich believes that conversation must not occur. In fact, the Republican presidential candidate questions the patriotism of those who choose to draw attention to the problem.
“I repudiate, and I call on the President to repudiate, the concept of the 99 and the 1. It is un-American, it is divisive, it is historically false…. You are not going to get job creation when you engage in class warfare because you have to attack the very people you hope will create jobs.”
Even for a candidate who says truly ridiculous things on a daily basis, this is extraordinary.
Let me get this straight. A disgraced multi-millionaire, who’s run an ethically-sketchy “business conglomerate” while spending vast amounts of money on high-priced jewelry for this third wife, feels comfortable lecturing struggling Americans about even noticing the growing class gap.
And no one finds this disqualifying for national office?
When Republicans demand the middle- and lower-classes sacrifice, while shielding millionaires and billionaires from any concessions at all, the American mainstream isn’t even supposed to talk about it? When GOP policies impose a new Gilded Age on society, it’s “un-American” to even debate the propriety of the regressive agenda?
Since when is it consistent with the American tradition to try to shut down a debate over fairness and economic justice? For that matter, since when is it an “attack” on the extremely wealthy to ask them to pay Clinton/Gingrich-era tax rates that allowed the rich to thrive in the 1990s?
What’s more, let’s also not overlook Gingrich’s selective approach to unity. Today in South Carolina, Gingrich said it’s un-American and divisive to pit a majority against a minority. But as my friend Kyle Mantyla noted today, Gingrich said the opposite at the recent “One Nation Under God” event where he told religious right activists “that they are the majority in the country who must stand up and take this nation back from the ‘minority elite’ who are ruining it.”
So to recap, when it comes to the economy, Gingrich believes we’re all one people, and we must pay no attention to the wealth that divides us. When it comes to the culture war, we’re not one people, and those who believe as Gingrich does should target and defeat those Americans who disagree.
If a right-wing voice rails against the “minority elite,” he’s speaking the truth. If an Occupy activist rails against the “minority elite,” he’s an un-American radical.
Got it.
By: Steve Benen, Contributing Writer, Washington Monthly Political Animal, November 29, 2011
Is Mitt Romney The Candidate Of The “One Percent”?
A number of people are pointing to this scorching quote from Joe McQuaid, the publisher of the New Hampshire Union Leader, explaining the paper’s decision to endorse Newt Gingrich over Mitt Romney:
“I think — and this is crazy, but so are we — that Gingrich is going to have a better time in the general election than Mitt Romney,” publisher Joe McQuaid told FOX News. “I think it’s going to be Obama’s 99% versus the 1%, and Romney sort of represents the 1%.”
Aside from the obvious humor value here, this actually gets at something serious: The possibility that Mitt Romney’s tax rates, and not just his corporate past and support for cutting taxes on the wealthy and corporations, amount to an unexplored vulnerability in a general election. Because he gets income from investments, Romney would have paid roughly 14 percent of his income in taxes in 2010, according to the Citizens for Tax Justice — lower than the rate paid by many middle class taxpayers.
Wait, there’s more. According to Bloomberg News, Romney is now benefitting from the fundraising of Stephen Schwarzman, the chairman of the world’s largest private equity firm, who is also soliciting help for Romney from colleagues. Bloomberg presents this as a sign that Romney is “closing the sale with Wall Street’s wealthiest donors.”
But there’s more to it than this. As Pat Garofalo notes, Schwarzman is also well known as a warrior against efforts to close loopholes that benefit private equity firms. Indeed, this new Romney supporter has even compared his battle against such efforts to World War Two:
“It’s a war,” Schwarzman said of the struggle with the administration over increasing taxes on private-equity firms. “It’s like when Hitler invaded Poland in 1939.”
Obviously, people like Schwarzman will back the GOP nominee, whoever he is, and Dems will likely highlight this kind of thing to paint the eventual GOP nominee, whoever he is, as in the pocket of Wall Street. But the fact that Romney himself personally benefits from aspects of the tax code that Obama wants to change makes him a less-than-ideal messenger to deliver criticism of Obama’s push for tax fairness, and will likely make Dem attacks along these lines more potent. After all, Dems can argue that not only do the Schwarzmans of the world prefer Romney’s policies, but on top of that, Romney himself is actually one of them. You can’t say that about Newt.
This general election vulnerability is being obscured right now, because for obvious reasons, it isn’t an issue in the GOP primary. But the Obama team has taken note of this weakness — and Obama surrogates are likely going to work very hard to exploit it — even if it isn’t getting much attention right now. It seems like Republicans who are evaluating Romney’s strengths and weaknesses as a general election candidate might want to consider how this will play next year, particularly if resurgent populism continues to help shape the political environment, as many expect it to do.
By: Greg Sargent, The Washington Post, The Plum Line, November 28, 2011
“Negative Equity”: Make The Banks Pay
There is $700 billion in negative equity in the U.S. housing market. That means Americans owe $700 billion more than their homes are worth. Any plan for the housing sector or the U.S. economy, that doesn’t take a serious bite out of negative equity isn’t serious.
Yet un-serious is what we continue to get from elected officials. This week the Obama Administration announced a new plan to help underwater homeowners refinance their mortgages to lower rates. The plan, really an expansion of an existing program, is the latest in a series of programs designed to deal with the moribund housing market. Each has proven a more dismal disappointment than the next.
So too with the latest version of the proposed settlement between the state Attorneys General, led by Iowa’s Tom Miller, and the mortgage servicing industry. Yes, the deal has been sweetened by the addition of some interest rate reductions for underwater homeowners who are current on their payments. But that’s small potatoes.
These approaches haven’t worked and won’t work because they fail to acknowledge that negative equity is the critical problem in the U.S. economy. We’re in a “balance sheet recession” caused by people pulling back on their spending because they’re concerned about their households’ net financial position. The central reason for this concern is that houses—historically the major asset of most households—are worth much less than they were. In many cases, they are worth less than the debt they secure.
Until households feel more confident in their balance sheets, they won’t go out and spend (and banks won’t make them loans to spend). That means less consumer demand for goods and services, which means less jobs, which means more mortgage defaults and foreclosures, which push down neighbors housing prices, triggering a vicious cycle. But addressing negative equity means that someone will have to accept a loss: the banks or the taxpayer or some combination of the two.
As between banks and taxpayers, we have to start by stating the obvious. Negative equity didn’t just appear by itself. This wasn’t a freak meteorological event. It was a man-made disaster: a housing bubble inflated by the deliberate acts of a limited number of financial institutions that profited greatly from bloating the economy with cheap and unsustainable mortgage financing. We witnessed a macro-economic crime in the inflation of the housing bubble and are living with the consequences of it.
Those who broke the economy should pay to fix it. The federal government bailed out the banks because they are indispensable to the economy as a whole, but that doesn’t mean that the banks shouldn’t have to pay now. Simply put, there needs to be accountability for blowing up the economy. (And someone needs to go to jail, but that’s another matter.)
Unfortunately, the goal of the Administration and the Attorneys General seems to be to make the housing problem go away. It won’t go away. Nearly four years of economic malaise and over five million foreclosures attest to that. The goal has to be to fix the market, not to cover it up its problems.
Since 2008, we’ve seen a long and drawn out saga in the attempt to deal with the negative equity problem. First there was a legislative attempt. This was the ill-fated “cramdown” legislation that would have permitted homeowners to slough off negative equity by filing for bankruptcy, something that it currently possible when dealing with every asset except a single-family principal residence. Cramdown would have forced lenders to recognize losses on bad mortgage loans and would have gotten the market clearing again—at least for those borrowers who were willing to endure the costs of bankruptcy.
The cramdown legislation passed the House in 2008, only to die in the Senate in 2009. In 2008 then-candidate Obama endorsed the cramdown legislation. But in 2009, President Obama made no effort to push the legislation, and the Treasury Department, fearing that the banks were too fragile to recognize losses, was just short of openly hostile to the legislation, essentially “slow-walking” the President yet again.
The Obama Administration turned its attention to its hallmark housing rescue programs: the “Home Affordable Modification Program” (HAMP) and Home Affordable Refinancing Program (HARP). HAMP is a program to modify troubled mortgages to lower interest rates, while HARP permits some underwater homeowners (a lucky subset whose loans chance to be owned or guaranteed by Fannie Mae or Freddie Mac) to refinance to lower interest rate mortgages. Neither does anything to reduce negative equity.
HAMP and HARP were kick-the-can-down-the-road programs that aimed to buy time for the economy to recover, thereby bolstering home prices. They failed because they misdiagnosed the problem: the damaged economy wasn’t dragging down home prices; home prices were dragging down the economy.
Collectively, HAMP and HARP have helped about 1.6 million homeowners, but partially because of the failure to deal with negative equity, 15 percent of the HAMP modifications have already redefaulted. And 1.6 million homeowners is only a fraction of the 11 million homeowners with negative equity.
HAMP and HARP were barraged with criticism on both sides from the get-go. HAMP was the program that sparked Rick Santelli’s rant that gave birth to the Tea Party. At the same time, HAMP and HARP were criticized by consumer advocates as too timid. The Administration didn’t want to take on the negative equity problem, which would mean imposing losses on the banks or on the taxpayers.
In the fall of 2010, the “robosigning” scandal provided an entrée for the state AGs to join the fight. It was revealed that banks were routinely submitting affidavits in court cases in which the affiant had no idea about the facts to which he would attest. Several major banks imposed voluntary foreclosure moratoria while they examined their practices. (Unfortunately the media coverage missed the real and much more serious issue of backdating of documents by the banks.) The robosigning scandal provided an entrée for state AGs, some of whom have been dealing with bank mortgage fraud issues for the better part of the last decade, only to find their efforts repeatedly frustrated by federal bank regulators. Quickly all 50 AGs announced an investigation, with Miller taking the lead. Federal bank regulators then announced their own investigation, which ensured that they had a seat at the table.
Miller began negotiating with the largest banks and the federal regulators for a settlement involving robosigning and other assorted violations relating to debt collection practices. But Miller started negotiating without having done any investigation, which meant that he didn’t have any leverage on the banks. When it leaked out that he was demanding something in the range of $20 billion for a settlement, many of the Republican AGs declared that the negotiations were a “shakedown” of the banks and walked out.
While $20 billion sounds like a lot of money, it isn’t actually that much when spread out over several banks. Bank of America, for example, would gladly spend $5 billion to make its mortgage liability disappear. The problem, however, was that the banks weren’t going to pay $20 billion to settle just robosigning. While illegal, it’s not clear that anyone was actually hurt by robosigning itself. If the banks were going to shell out billions, they wanted a very broad release from the AGs covering all of their mortgage market wrongdoings.
Miller, however, couldn’t deliver such a deal. Some AGs realized that $20 billion spread out over 50 states amounted to bupkis for their hard-pressed constituents. ($20 billion works out to less than $2,000 per homeowner for each of those 11 million underwater mortgages. The average negative equity per loan is $65,000.) On top of this, some AGs, like New York’s Eric Schneiderman and Delaware’s Beau Biden just are not willing settle on matters before an investigation is undertaken.
Frustrated by Miller’s inability to cut a deal, the federal regulators took matters into their own hands and entered into consent orders with the banks, in which the banks admitted no wrong-doing, but promised never to do it again. The federal consent orders relieved some of the pressure on the banks to cut a deal with the AGs, and Miller’s negotiations with the banks have dragged on since then. Every month, it seems, rumors emerge that a deal is on hand, only for no deal to be reached. As things stand currently, the banks’ have offered an extra $2 billion to enable refinancing of mortgages with negative equity in exchange for a release of all claims relating the mortgage origination. Miller has countered with an offer of an extra $4 billion. An extra $4 billion will result in meaningful help for perhaps 120,000 homeowners or one percent of the at-risk population.
There’s an element of the absurd in these negotiations. With a $700 billion negative equity problem, the AG’s are debating the difference between $22 billion and $24 billion. At best it’s naïve. At worst it’s an attempt to feign concern for homeowners and distract voters from a lack of engagement.
Robosigning was symptom of a much larger endeavor in reckless lending, in which cutting corners was the order of the day. When the prime borrower market was tapped out, banks simply loosened underwriting standards to keep expanding the pool of borrowers. Like a Ponzi-scheme, the rise in housing prices could only be supported by finding new people to put money in. Lower underwriting standards and exotic mortgage structures were the tools used to maximize profits that could be siphoned off before the Ponzi-scheme collapsed.
If one approaches the housing bubble as a prosecutor—as the AGs should—the major harm wasn’t the robosigning or associated servicing fraud. It was the pump-and-dump the banks did on the entire housing market. They recklessly inflated the housing prices and profited greatly from it. And the taxpayers, the government, and mortgage investors were left holding the bag. Fining the banks $20 or 24 billion for robosigning and calling it a day just misses the point.
We need accountability for the entire financial crisis, not just for mundane consumer fraud. For Miller and the AGs to contemplate waiving the mortgage origination claims that were at the center of the crisis for an extra $4 billion without having even done an investigation is a blatant abuse of the public trust. It’s another give-away to the banks.
The banks can afford to pay for writing down the mortgages from which they benefited. Negative equity is a function of mortgages being held at face, rather than market value on banks’ books. The book value of our major financial institutions is over $1.2 trillion, and that’s not counting Fannie Mae and Freddie Mac with their open-ended government support. That means there’s plenty of ability for banks to take a write-down as a means of remedying the harm they have done.
It might cost the banks a quarter to a third of their book value to get rid of negative equity (Fannie and Freddie hold the majority of negative equity mortgages, which means the federal government is on the hook for part of the cost of eliminating negative equity), but the market already understands the much of banks’ book value is bogus. Bank of America, for example, has a book value of $220 billion, but a market capitalization of merely $65 billion. Investors understand Bank of America to have $155 billion in overvalued assets or unrecognized liabilities, and a substantial portion of that spread is because of negative equity. Investors know that the $200,000 mortgage on a $150,000 house won’t yield $200,000 in most cases.
The framework for a settlement, then can’t be about settling robosigning claims a mere $20-$24 billion. Instead, the AGs should be pursuing a grand bargain—a global settlement deal structured around a broad release of the banks’ varied mortgage liability for origination, securitization, and servicing fraud in exchange for substantial write-downs of principal to whittle away the $700 billion in negative equity. Doing so will fix the economy and bring much needed accountability for the financial crisis. It’s time to press the reset button and clear the market.
By: Adam Levitin, Salon, October 27, 2011
Soaring Inequality: “It’s Time To Take The Crony Out Of Capitalism”
Whenever I write about Occupy Wall Street, some readers ask me if the protesters really are half-naked Communists aiming to bring down the American economic system when they’re not doing drugs or having sex in public.
The answer is no. That alarmist view of the movement is a credit to the (prurient) imagination of its critics, and voyeurs of Occupy Wall Street will be disappointed. More important, while alarmists seem to think that the movement is a “mob” trying to overthrow capitalism, one can make a case that, on the contrary, it highlights the need to restore basic capitalist principles like accountability.
To put it another way, this is a chance to save capitalism from crony capitalists.
I’m as passionate a believer in capitalism as anyone. My Krzysztofowicz cousins (who didn’t shorten the family name) lived in Poland, and their experience with Communism taught me that the way to raise living standards is capitalism.
But, in recent years, some financiers have chosen to live in a government-backed featherbed. Their platform seems to be socialism for tycoons and capitalism for the rest of us. They’re not evil at all. But when the system allows you more than your fair share, it’s human to grab. That’s what explains featherbedding by both unions and tycoons, and both are impediments to a well-functioning market economy.
When I lived in Asia and covered the financial crisis there in the late 1990s, American government officials spoke scathingly about “crony capitalism” in the region. As Lawrence Summers, then a deputy Treasury secretary, put it in a speech in August 1998: “In Asia, the problems related to ‘crony capitalism’ are at the heart of this crisis, and that is why structural reforms must be a major part” of the International Monetary Fund’s solution.
The American critique of the Asian crisis was correct. The countries involved were nominally capitalist but needed major reforms to create accountability and competitive markets.
Something similar is true today of the United States.
So I’d like to invite the finance ministers of Thailand, South Korea and Indonesia — whom I and other Americans deemed emblems of crony capitalism in the 1990s — to stand up and denounce American crony capitalism today.
Capitalism is so successful an economic system partly because of an internal discipline that allows for loss and even bankruptcy. It’s the possibility of failure that creates the opportunity for triumph. Yet many of America’s major banks are too big to fail, so they can privatize profits while socializing risk.
The upshot is that financial institutions boost leverage in search of supersize profits and bonuses. Banks pretend that risk is eliminated because it’s securitized. Rating agencies accept money to issue an imprimatur that turns out to be meaningless. The system teeters, and then the taxpayer rushes in to bail bankers out. Where’s the accountability?
It’s not just rabble-rousers at Occupy Wall Street who are seeking to put America’s capitalists on a more capitalist footing. “Structural change is necessary,” Paul Volcker, the former chairman of the Federal Reserve, said in an important speech last month that discussed many of these themes. He called for more curbs on big banks, possibly including trimming their size, and he warned that otherwise we’re on a path of “increasingly frequent, complex and dangerous financial breakdowns.”
Likewise, Mohamed El-Erian, another pillar of the financial world who is the chief executive of Pimco, one of the world’s largest money managers, is sympathetic to aspects of the Occupy movement. He told me that the economic system needs to move toward “inclusive capitalism” and embrace broad-based job creation while curbing excessive inequality.
“You cannot be a good house in a rapidly deteriorating neighborhood,” he told me. “The credibility and the fair functioning of the neighborhood matter a great deal. Without that, the integrity of the capitalist system will weaken further.”
Lawrence Katz, a Harvard economist, adds that some inequality is necessary to create incentives in a capitalist economy but that “too much inequality can harm the efficient operation of the economy.” In particular, he says, excessive inequality can have two perverse consequences: first, the very wealthy lobby for favors, contracts and bailouts that distort markets; and, second, growing inequality undermines the ability of the poorest to invest in their own education.
“These factors mean that high inequality can generate further high inequality and eventually poor economic growth,” Professor Katz said.
Does that ring a bell?
So, yes, we face a threat to our capitalist system. But it’s not coming from half-naked anarchists manning the barricades at Occupy Wall Street protests. Rather, it comes from pinstriped apologists for a financial system that glides along without enough of the discipline of failure and that produces soaring inequality, socialist bank bailouts and unaccountable executives.
It’s time to take the crony out of capitalism, right here at home.
By: Nicholas D. Kristof, Op-Ed Columnist, The New York Times, October 26, 2011
Social Inequality: The Paradox Of The New Elite
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.
By: Alexander Stille, The New York Times Sunday Review, October 22, 2011
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