"Feast of the Wingnuts"

Jonathan Chait (This piece is adapted from Jonathan Chait's book, The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics, which will be published on September 12 by Houghton Mifflin): 

American politics has been hijacked by a tiny coterie of right-wing economic extremists, some of them ideological zealots, others merely greedy, a few of them possibly insane. The scope of their triumph is breathtaking. Over the course of the last three decades, they have moved from the right-wing fringe to the commanding heights of the national agenda. Notions that would have been laughed at a generation ago--that cutting taxes for the very rich is the best response to any and every economic circumstance or that it is perfectly appropriate to turn the most rapacious and self-interested elements of the business lobby into essentially an arm of the federal government--are now so pervasive, they barely attract any notice.

The result has been a slowmotion disaster. Income inequality has approached levels normally associated with Third World oligarchies, not healthy Western democracies. The federal government has grown so encrusted with business lobbyists that it can no longer meet the great public challenges of our time. Not even many conservative voters or intellectuals find the result congenial. Government is no smaller--it is simply more debt-ridden and more beholden to wealthy elites.

It was not always this way. A generation ago, Republican economics was relentlessly sober. Republicans concerned themselves with such ills as deficits, inflation, and excessive spending. They did not care very much about cutting taxes, and (as in the case of such GOP presidents as Herbert Hoover and Gerald Ford) they were quite willing to raise taxes in order to balance the budget. While many of them were wealthy and close to business, the leaders of business themselves had a strong sense of social responsibility that transcended their class interests. By temperament, such men were cautious rather than utopian.

Over the last three decades, however, such Republicans have passed almost completely

from the scene, at least in Washington, to be replaced by, essentially, a cult.

All sects have their founding myths, many of them involving circumstances quite mundane. The cult in question generally traces its political origins to a meeting in Washington in late 1974 between Arthur Laffer, an economist; Jude Wanniski, an editorial page writer for The Wall Street Journal; and Dick Cheney, then-deputy assistant to President Ford. Wanniski, an eccentric and highly excitable man, had until the previous few years no training in economics whatsoever, but he had taken Laffer's tutelage...

Read the rest HERE

"Legal" corporate crime

 Krugman @ NYTs:

In recent decisions, the conservative majority on the Supreme Court has made clear its view that corporations are people, with all the attendant rights. They are entitled to free speech, which in their case means spending lots of money to bend the political process to their ends. They are entitled to religious beliefs, including those that mean denying benefits to their workers...

There is, however, one big difference between corporate persons and the likes of

you and me: On current trends, we’re heading toward a world in which only the human people pay taxes.

The federal government still gets a tenth of its revenue from corporate  profits. But it used to get a lot more — a third of revenue came from profits taxes in the early 1950s, a quarter or more well into the 1960s.... Part of the decline since then reflects a fall in the tax rate, but mainly it reflects ever-more-aggressive corporate tax avoidance — avoidance that politicians have done little to prevent.

Which brings us to the tax-avoidance strategy du jour: “inversion.” This refers to a legal maneuver in which a company declares that its U.S. operations are owned by its foreign subsidiary, not the other way around, and uses this role reversal to shift reported profits out of American jurisdiction to someplace with a lower tax rate...

The Great Economic Devolution: Median wealth dropped 20% in 30 years

CEPR:

A NYT article reported on a study from Russell Sage reporting that median household the study is that median wealth is down by around 20 percent from 1984.

wealth was 36 percent lower in 2013 than 2003. While this is disturbing, an even more striking finding from

This is noteworthy because this cannot be explained as largely the result of the collapse of house prices that triggered the Great Recession. This indicates that we have gone thirty years, during which time output per worker has more than doubled, but real wealth has actually fallen for the typical family. It is also important to realize that the drop in wealth reported in the study understates the true drop since a typical household in 1984 would have been able to count on a defined benefit pension. This is not true at present, so the effective drop in wealth is even larger than reported by the study. (Defined benefit pensions are not included in its measure of wealth.)

"Inequality Is Not Inevitable"

Joseph Stiglitz @ NYT:

AN insidious trend has developed over this past third of a century. A country that experienced shared growth after World War II began to tear apart, so much so that when the Great Recession hit in late 2007, one could no longer ignore the fissures that had come to define the American economic landscape. How did this “shining city on a hill” become the advanced country with the greatest level of inequality?

One stream of the extraordinary discussion set in motion by Thomas Piketty’s timely, important book, “Capital in the Twenty-First Century,” has settled on the idea that violent extremes of wealth and income are inherent to capitalism. In this scheme, we should view the decades after World War II — a period of rapidly falling inequality — as an aberration.

This is actually a superficial reading of Mr. Piketty’s work, which provides an institutional context for understanding the deepening of inequality over time. Unfortunately, that part of his analysis received somewhat less attention than the more fatalistic-seeming aspects.

Over the past year and a half, The Great Divide, a series in The New York Times for which I have

served as moderator, has also presented a wide range of examples that undermine the notion that thereare any truly fundamental laws of capitalism. The dynamics of the imperial capitalism of the 19th century needn’t apply in the democracies of the 21st. We don’t need to have this much inequality in America.

Our current brand of capitalism is an ersatz capitalism. For proof of this go back to our response to the Great Recession, where we socialized losses, even as we privatized gains. Perfect competition should drive profits to zero, at least theoretically, but we have monopolies and oligopolies making persistently high profits. C.E.O.s enjoy incomes that are on average 295 times that of the typical worker, a much higher ratio than in the past, without any evidence of a proportionate increase in productivity.

If it is not the inexorable laws of economics that have led to America’s great divide, what is it? The straightforward answer: our policies and our politics. People get tired of hearing about Scandinavian success stories, but the fact of the matter is that Sweden, Finland and Norway have all succeeded in having about as much or faster growth in per capita incomes than the United States and with far greater equality.

Source: The Atlantic

So why has America chosen these inequality-enhancing policies? Part of the answer is that as World War II faded into memory, so too did the solidarity it had engendered. As America triumphed in the Cold War, there didn’t seem to be a viable competitor to our economic model. Without this international competition, we no longer had to show that our system could deliver for most of our citizens.

Ideology and interests combined nefariously. Some drew the wrong lesson from the collapse of the Soviet system. The pendulum swung from much too much government there to much too little here. Corporate interests argued for getting rid of regulations, even when those regulations had done so much to protect and improve our environment, our safety, our health and the economy itself.

But this ideology was hypocritical. The bankers, among the strongest advocates of laissez-faire economics, were only too willing to accept hundreds of billions of dollars from the government in the bailouts that have been a recurring feature of the global economy since the beginning of the Thatcher-Reagan era of “free” markets and deregulation.

The American political system is overrun by money. Economic inequality translates into political inequality, and political inequality yields increasing economic inequality. In fact, as he recognizes, Mr. Piketty’s argument rests on the ability of wealth-holders to keep their after-tax rate of return high relative to economic growth. How do they do this? By designing the rules of the game to ensure this outcome; that is, through politics.

"The Pitchforks Are Coming!""

From Politico:

Memo: From Nick Hanauer

To: My Fellow Zillionaires

You probably don’t know me, but like you I am one of those .01%ers, a proud and unapologetic capitalist. I have founded, co-founded and funded more than 30 companies across a range of industries—from itsy-bitsy ones like the night club I started in my 20s to giant ones like Amazon.com, for which I was the first nonfamily investor. Then I founded aQuantive, an Internet advertising company that was sold to Microsoft in 2007 for $6.4 billion. In cash. My friends and I own a bank. I tell you all this to demonstrate that in many ways I’m no different from you. Like you, I have a broad perspective on business and capitalism. And also like you, I have been rewarded obscenely for my success, with a life that the other 99.99 percent of Americans can’t even imagine. Multiple homes, my own plane, etc., etc. 

You know what I’m talking about. In 1992, I was selling pillows made by my family’s business,

Pacific Coast Feather Co., to retail stores across the country, and the Internet was a clunky novelty to which one hooked up with a loud squawk at 300 baud. But I saw pretty quickly, even back then, that many of my customers, the big department store chains, were already doomed. I knew that as soon as the Internet became fast and trustworthy enough—and that time wasn’t far off—people were going to shop online like crazy. Goodbye, Caldor. And Filene’s. And Borders. And on and on.

Realizing that, seeing over the horizon a little faster than the next guy, was the strategic part of my success. The lucky part was that I had two friends, both immensely talented, who also saw a lot of potential in the web. One was a guy you’ve probably never heard of named Jeff Tauber, and the other was a fellow named Jeff Bezos. I was so excited by the potential of the web that I told both Jeffs that I wanted to invest in whatever they launched, big time. It just happened that the second Jeff—Bezos—called me back first to take up my investment offer. So I helped underwrite his tiny start-up bookseller. The other Jeff started a web department store called Cybershop, but at a time when trust in Internet sales was still low, it was too early for his high-end online idea; people just weren’t yet ready to buy expensive goods without personally checking them out (unlike a basic commodity like books, which don’t vary in quality—Bezos’ great insight). Cybershop didn’t make it, just another dot-com bust. Amazon did somewhat better. Now I own a very large yacht.

But let’s speak frankly to each other. I’m not the smartest guy you’ve ever met, or the hardest-working. I was a mediocre student. I’m not technical at all—I can’t write a word of code. What sets me apart, I think, is a tolerance for risk and an intuition about what will happen in the future. Seeing where things are headed is the essence of entrepreneurship. And what do I see in our future now?

I see pitchforks.

At the same time that people like you and me are thriving beyond the dreams of any plutocrats in history, the rest of the country—the 99.99 percent—is lagging far behind. The divide between the haves and have-nots is getting worse really, really fast. In 1980, the top 1 percent controlled about 8 percent of U.S. national income. The bottom 50 percent shared about 18 percent. Today the top 1 percent share about 20 percent; the bottom 50 percent, just 12 percent.

But the problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.

And so I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.

Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones

Annie Lowrey @ NYT:

WASHINGTON — The deep recession wiped out primarily high-wage and middle-wage jobs. Yet the strongest employment growth during the sluggish recovery has been in low-wage work, at places like strip malls and fast-food restaurants.

In essence, the poor economy has replaced good jobs with bad ones. That is the

conclusion of a new report from the National Employment Law Project, a research and advocacy group, analyzing employment trends four years into the recovery.

“Fast food is driving the bulk of the job growth at the low end — the job gains there are absolutely phenomenal,” said Michael Evangelist, the report’s author. “If this is the reality — if these jobs are here to stay and are going to be making up a considerable part of the economy — the question is, how do we make them better?”

The report shows that total employment has finally surpassed its pre-recession level. “The good news is we’re back to zero,” Mr. Evangelist said.

But job losses and gains have been skewed. Higher-wage industries — like accounting and legal work — shed 3.6 million positions during the recession and have added only 2.6 million positions during the recovery. But lower-wage industries lost two million jobs, then added 3.8 million.

Most of the jobs added during the recovery have been in lower-wage industries...

U.S. is a world leader in class conflict over government spending

Political science Prof. Larry Bartels at WaPo:

(Data from International Social Survey Programme; tabulation by Larry Bartels)

The United States does less to redistribute income than virtually any other economically “advanced” democracy. So why does class conflict loom so much larger in U.S. public opinion about government spending than in other affluent democracies? The answer may have something to do with our peculiar system of taxation.

The claim that America is riven by class conflict may come as a surprise to people who like to think that “There are no classes in America,” as Rick Santorum put it during his 2012 presidential campaign. But the fact is that rich and poor Americans disagree about government spending to an extent virtually unmatched elsewhere in the world.

Paul Krugman talks Piketty's "Capital In The 21st Century" with Bill Moyers

The rich got richer

In what is beginning to sound like a "Dog Bites Man" story from the WSJ:

The rich got richer, the poor got poorer.

A recent article by Labor Department senior economist Aaron Cobet highlights the sharp disparity between the wealthiest and poorest Americans in the aftermath of the 2007-2009 recession.

“While average income has returned to pre-recession levels, income gains have been distributed unevenly,” Mr. Cobet said.

The economist mined Labor Department data to show that the top 20% of earners accounted for more than 80% of the rise in household income from 2008-2012. Income fell for the bottom 20%.

More "Capital in the 21st Century"

Martin Wolff reviews Thomas PIketty's opus @ The Financial Times. Read at link or below:

French economist Thomas Piketty has written an extraordinarily important book. Open-minded readers will surely find themselves unable to ignore the evidence and arguments he has brought to bear.

The Single Mother, Child Poverty Myth

This is an essential insight, given the dominant narrative about marriage, single-parenthood and poverty rampant not just among the usual suspects of the right but among many liberals.

Matt Breuning @ Demos:

I see it often claimed that the high rate of child poverty in the US is a function of family composition. According to this view, the reason childhood poverty is so high is that there are too many unmarried parents and single mothers, and those kinds of families face higher rates of poverty. The usual upshot of this claim is that we can't really do much about high rates of childhood poverty, at least insofar as we can't force people to marry and cohabitate and such.

One big problem with this claim is that family composition in the US is not that much different from family compositions in the famed low-poverty social democracies of Northern Europe, but they don't have anywhere near the rates of child poverty we have.

A number of studies have tested this family composition theory using cross-country income data and found, again and again, that family composition differences account for very little of the child poverty differences between the US and other countries...

More here.

"Capital in the Twenty-first Century"

John Cassidy @ The New Yorker reviews the definitive new book on income inequality:

In the stately world of academic presses, it isn’t often that advance orders and

publicity for a book prompt a publisher to push forward its publication date. But that’s what Belknap, an imprint of Harvard University Press, did for “Capital in the Twenty-first Century,” a sweeping account of rising inequality by the French economist Thomas Piketty. Reviewing the French edition of Piketty’s book, which came out last year, Branko Milanovic, a former senior economist at the World Bank, called it “one of the watershed books in economic thinking.” The Economist said that it could change the way we think about the past two centuries of economic history. Certainly, no economics book in recent years has received this sort of attention... 

Piketty, who teaches at the Paris School of Economics, has spent nearly two decades studying inequality… The main task he set himself was exploring the hills and valleys of income and wealth, a subject that economics had largely neglected. At first, Piketty concentrated on getting the facts down, rather than interpreting them. Using tax records and other data, he studied how income inequality in France had evolved during the twentieth century, and published his findings in a 2001 book. A 2003 paper that he wrote with Emmanuel Saez, a French-born economist at Berkeley, examined income inequality in the United States between 1913 and 1998. It detailed how the share of U.S. national income taken by households at the top of the income distribution had risen sharply during the early decades of the twentieth century, then fallen back during and after the Second World War, only to soar again in the nineteen-eighties and nineties.

The widening productivity and income gap

Atif Mian and Amir Sufi @ House of Debt:

If you must know only one fact about the U.S. economy, it should be this chart:

The chart shows that productivity, or output per hour of work, has quadrupled since 1947 in the United States. This is a spectacular achievement by an advanced economy.

The gains in productivity were quite widely shared from 1947 to 1980. Real income for the median U.S. family doubled during this time just as output per hour of work performed doubled. The rising tide was lifting all boats.

(But there has been a) remarkable separation in productivity and median real income since 1980. While the United States is producing twice as much per hour of work today compared to 1980, a small part of the gain in real income has gone to the bottom half of the income distribution. The gap between productivity and median real income is at an historic all-time high today.

The Crime of 2010

Professor Krugman blogs this indictment of the Beltway, Business and Media Elites @ NYT. Millions of lives have been ruined by the cruelty of the Deficit Hawks, the willful ignorance or appalling timidity of insider DC elites - including many top Democrats - and the flaming idiocy of the TeaBaggers, who converged to force the country into an austerity discourse when the economy quite clearly needed a robust injection of federal spending:

(W)hat we’re learning from a number of sources: it’s really hard to get employers to look at people who have been out of work for an extended period, so any sustained increase in long-term unemployment tends to become permanent.

The best way to avoid this outcome, then, is to avoid prolonged periods of high unemployment.

So let me make the obvious point, just in case anyone missed it: the “pivot” of

From the Annals of Deadly Expert Advice

2010 — when all the Very Serious People decided that the danger from debt trumped any and all concern for job creation — was an utter disaster, economic and human. It was even a disaster in fiscal terms, because a permanently depressed economy will cost far more in revenue than was saved by slashing the deficit by a few percent of GDP in the short term.

Now, you might think that this post should be titled The Mistake of 2010 — but that would only be appropriate if it were truly an honest error. It wasn’t. Some of the austerians were self-consciously exploiting deficit panic to promote a conservative agenda; some were slipping into deficit-scolding rather than dealing with our actual problems because it felt comfortable; some were just going along for the ride, saying what everyone else was saying. Hardly anyone in the deficit-scold camp engaged in hard thinking and careful assessment of the evidence.

The Tea Party "populists" are pushing Wall Streets's agenda

Mike Konczal @ TNR:

"Our problem today was not caused by a lack of business and banking

regulations,” argued Ron Paul in his 2009 manifesto End the Fed, which outlined a theory of the financial crisis that only implicated government policy and the Federal Reserve, while mocking the idea that Wall Street’s financial engineering and derivatives played any role. "The only regulations lacking were the ones that should have been placed on the government officials who ran roughshod over the people and the Constitution.” …

The Tea Party's theory of the financial crisis has absolved Wall Street completely. Instead, the crisis is interpreted according to two pillars of reactionary thought: that the government is a fundamentally corrupt enterprise trying to give undeserving people free stuff, and that hard money should rule the day. This will have major consequences for the future of reform, should the GOP take the Senate this fall.

On the Hill, it’s hard to find where the Tea Party and Wall Street disagree. Tea Party senators like Mike Lee, Rand Paul, and Ted Cruz, plus conservative senators like David Vitter, have rallied around a one-line bill repealing the entirety of Dodd-Frank and replacing it with nothing. In the House, Republicans are attacking new derivatives regulations, all the activities of the Consumer Financial Protection Bureau, the existence of the Volcker Rule, and the ability of the FDIC to wind down a major financial institution, while relentlessly attacking strong regulators and cutting regulatory funding. This is Wall Street’s wet dream of a policy agenda.

Dooming the long-term unemployed via inflation hysteria

Matthew O'Brian @ The Atlantic:

Are the long-term unemployed just doomed today or doomed forever?

That's the question people are really asking when they ask if labor markets are

starting to get "tight." Now, it's hard to believe that this is even a debate when unemployment is still at 6.7 percent and core inflation is just 1.1 percent. But it is. The new inflation hawks argue that these headline numbers overstate how much slack is left in the economy. That the labor force is smaller than it sounds, because firms won't even consider hiring the long-term unemployed. That our productive capacity is lower than it sounds, because we haven't invested in new factories for too long. And that wages and prices will start rising as companies pay more for the workers and work that they want.

In other words, they think that the financial crisis has made us permanently poorer. That the economy can't grow as fast as it used to, so inflation will pick up sooner than it used to—and we need to get ready to raise rates. (Notice how that's always the answer no matter the question).

There are only two problems with this story: There's not much evidence for it, and we should ignore it even if there is. It's pretty simple. If tighter labor markets were causing wage inflation, they'd have caused wage inflation. But they haven't, not really. Now, it's true that average hourly earnings ticked up in February, but, as Paul Krugman points out, that was probably a weather-related blip. All the snow kept 6.8 million people from working full-time like they normally do, and, historically-speaking, that tends to affect hourly workers more than salaried ones. So higher-paid people probably made up a bigger share of the workforce last month—and voilà, it looked like wages rose. But that was just statistical noise, and if you look at the bigger picture, wage growth is still far below its pre-Lehman levels.

The racial elephant in the wealth inequality room

Ned Resnikoff @ MSNBC:

In 1967, with the Civil Rights movement still in full swing and Jim Crow still looming in the rearview mirror, median household income was 43% higher for white, non-Hispanic households than for black households. But things changed dramatically over the next half century, as legal segregation faded into history. By 2011, median white household income was 72% higher than median black household income, according to a Census report from that year [PDF].

To say that economic inequality is still a heavily racialized phenomenon, even a generation after the end of the Civil Rights era, would be an understatement. Yet both major parties continue to discuss inequality in largely color-blind terms, only hinting at the role played by race.

The trend is even more startling when one looks at median household wealth instead of yearly income. In 1984, the white-to-black wealth ratio was 12-to-1, according to Pew Research Center. By 1995, the chasm had narrowed until median white income had only a 5-to-1 advantage over black income. But over the next 14 years the wealth gap began to grow once again, until it had skyrocketed up to 19-to-1 in 2009. 

 

Yet even a recent 204-page analysis of the federal War on Poverty, spearheaded by Rep. Paul Ryan, R-Wis., gives only passing mentions to racial disparity. In the first section of the report, which purports to explain the causes of modern poverty, Ryan and his co-authors bring up race only twice: Once to identify “the breakdown of the familiy as a key cause of poverty within the black community,” citing Daniel Patrick Moynihan, and again to applaud the narrowing of the “achievement gap” between white and black schoolchildren. Weeks later, during a radio appearance, Ryan said poverty is in part to blame on the fact that “inner cities” have a culture of “men not working.”

President Obama went a step forward in December’s major address on inequality, when he noted that “the painful legacy of discrimination means that African Americans, Latinos, Native Americans are far more likely to suffer from a lack of opportunity—higher unemployment, higher poverty rates.” Yet that amounted to a footnote in a speech that also included the line, “The opportunity gap in America is now as much about class as it is about race.”

“I think it doesn’t make for good politics,” said Color of Change executive director Rashad Robinson of the racial wealth gap. “It’s messy and requires us to be deep and think about much bigger and more long-term solutions than Washington’s oftentimes willing to deal with.”

Yet in a serious discussion about American inequality, the subject of race is essentially unavoidable. That’s because most of the pipelines to a higher economic class—such as employment and homeownership—are “oftentimes not equally accessible to black folks,” said Robinson.

Disparities in homeownership are a major driver of the racial wealth gap, according to a recent study from Brandeis University. According to the authors of the report, “redlining [a form of discrimination in banking or insurance practices], discriminatory mortgage-lending practices, lack of access to credit, and lower incomes have blocked the homeownership path for African-Americans while creating and reinforcing communities segregated by race.”

Many of the black families that have successfully battled their way to homeownership over the past few decades saw their nest eggs get pulverized by the 2008 financial collapse. The Brandeis researchers found that “half the collective wealth of African-American families was stripped away during the Great Recession,” in large part due to the collapse of the housing market and the subsequent explosion in the nationwide foreclosure rate.

Similarly, employment discrimination has done its part to ensure that black unemployment remains twice as high as white unemployment—a ratio that has stayed largely consistent since the mid-1950s. National Bureau of Economy Research fellows have found that resumes are significantly less likely to get a positive response from potential employers if the applicants have names that are more common in the black community. And an arrest for even a non-violent drug offense can haunt a job applicant for the rest of his life; combined with the fact that black people are nearly four times more likely to be arrested for marijuana possession than whites, despite using the drug at roughly the same rate, criminal background checks have helped to fuel racial inequity in job hiring...

"America's Long and Productive History of Class Warfare"

Harvard Business Review executive editor & author of  "The Myth of the Rational Market," Justin Fox @ HBR:

Six days before the election, the Republican nominee for president attended a fund-raising dinner at a posh New York restaurant. Two-hundred of the country’s richest and most powerful men were on hand. The next day, they were confronted with this atop the front page of one of the city’s leading newspapers:

This particular scan is from the historical-cartoon site HarpWeek, but the drawing has long been in the public domain — it ran in the now-defunct New York World on Oct. 30, 1884. The candidate was James G. Blaine (the droopy-eyed fellow in the center of the picture who is about to dig in to some Lobby Pudding), and the man who subjected him to this harsh treatment was Joseph Pulitzer, who had bought the World the previous year and was rapidly building it into the most popular and powerful newspaper the nation had ever seen.

Increasing the minimum wage saves taxpayers food stamps expenditures

Paul Krugman and Bill Maher on craziness & paranoia among the clueless 1%

The comedian's version:




The economist's version:

Suddenly, or so it seems, inequality has surged into public consciousness — and neither the one percent nor its reliable defenders seems to know how to cope.

Some of the reactions are crazy — it’s Kristallnacht, they’re coming to kill us — with the craziness quite widespread; notice how many billionaires, plus of course the Wall Street Journal, rallied around Tom Perkins. But even the saner-sounding voices evidently have a hard time wrapping their minds around the notion that anyone might find 21st-century finance capitalism a bit, well, unfair.