The Lasting Damage of High Inequality

In my previous post, I shared the grim results of a recent OECD study that found a consistent rise in wealth and income inequality across much of the developed world, with the U.S. taking the lead among the richest countries (though comparatively less wealthy countries Chile, Mexico, and Turkey were ahead).

Reporting on the same survey, the New York Times delved further and explored the impact that this worsening inequality is already having on societies: Continue reading

Income Inequality Growing Across The World

The Organization for Economic Cooperation and Development (OECD), a group of 34 mostly wealthy countries, has published the results of a study finding that income inequality is “at its highest since records began”, with the with the United States ranking among the highest on the spectrum.

More from Al Jazeera:

The United States was near the high end of the inequality spectrum, followed by Israel, the United Kingdom and Greece. Only Turkey, Mexico and Chile were found to have higher levels of income inequality than the U.S.

Denmark was the least unequal country according to the report, as measured using the Gini index, a common measure of income distribution. Slovenia, the Slovak Republic and Norway also ranked near the low end of the spectrum.

Overall wealth is even more unevenly distributed than income, according to the report. Across all 34 countries studied, the bottom 40 percent of households were found to possess 3 percent of all wealth. In contrast, the top 10 percent laid claim to half of all wealth, and the top one percent held almost 20 percent of all wealth.

Gurría said the report’s findings demonstrate that inequality slows down economic growth. He urged OECD member countries to adopt more redistributive policies, saying that redirecting wealth flows would benefit not just low-income households but the economy as a whole.

“Well-designed, prudent redistribution does not harm growth”, he said. “In fact, it goes hand-in-hand with growth”.

In addition to tax transfers, the OECD report recommends more investment in education, policies that promote remunerative employment, and measures that “remove barriers to female employment and career progression”. Bringing more women into the workforce and narrowing the pay gap was found to have a mitigating effect on income inequality.

In recent years, global elites have become increasingly concerned about income inequality. Last November, the World Economic Forum, which hosts the annual gathering of political and economic leaders in Davos, Switzerland, put out a report identifying income inequality as the number one trend to watch in 2015.

Lessons From Mexico On Combating Poverty

Given all its present woes, Mexico would not strike most as a model to follow. But as I have mentioned before, for all its political and socioeconomic challenges, namely with respect to crime and corruption, one of the world’s largest economies has a lot going for it. As a “newly industrialized nation” with a broadening middle class, the country of 120 million is taking steps to better harness its burgeoning economic potential.

A good place to start is with the agricultural workers who make up a bulk of the country’s most impoverished people. One state is taking a simple yet profound approach to the problem, as The Atlantic reports:

In the Mexican state of Baja California, which exports huge amounts of strawberries, cucumbers, and tomatoes to the U.S., labor is taking a different tack that might take some of that pressure off of employers, for better or for worse: The local government is reportedly leaning toward paying a portion of farmworkers’ wages, bringing them up to 200 pesos (about $13.30) per day.

The terms of the agreement between farmworkers and the government have yet to be nailed down (for example, how much of the wage increase will be shouldered by government versus industry) but it is refreshing to see a government recognize that significant amounts of workers simply don’t make enough money to live comfortably, and to try to do something about it. And wages are only one part of the equation. The agreement would also have the government take pains to make sure workers are receiving the healthcare and social-security benefits they’re guaranteed by law, and hopefully would make it rarer for crew bosses to sexually harass female farmworkers.

In essence, the government is filling the gap between livable wages and what most companies offer. This might seem like an unlikely or unwarranted solution to most Americans, but it is already the reality, albeit less directly:

A recent study from UC Berkeley’s Labor Center found that nearly three-quarters of people participating in government programs such as Medicaid and food stamps are in families headed by workers. The authors, calling this a “hidden [cost] of low-wage work in America”, estimated that through these programs, taxpayers provide these families with about $150 billion in public support. Additionally, programs such as the Earned Income Tax Credit essentially subsidize the wages of workers whose income is below a certain level.

Shouldn’t companies be making up this difference instead of taxpayers? That’s how some state legislatures feel. Starting next year, California will publicly name any company that has more than 100 employees on Medicaid. And in Connecticut, state legislators are considering a bill that would require large employers to pay a penalty for each worker on their rolls earning less than $15 an hour.

Ultimately, what the government of Baja California intends to do is improve the situation that workers are in—something, one would hope, that companies start feeling the pressure to do as well.

It is very telling that the forces that most strongly oppose raising the minimum wage, or providing some sort of government support to workers, are the same ones directly responsible for underpaying their workers and shifting more and more of their companies’ profits to shareholders and top executives.

If businesses (and their supporters) do not want to do more to compensate their employees better, yet also do not want the government to help make the difference, then what exactly is the end game? A sclerotic economy where everyone is just barely getting by, and the demand for goods and services — which these same businesses claim is woefully lacking — remains low? Why should poverty — in any nation, much less the richest one — be seen as an unavoidable fact for so many working people?

The Need To Re-Think Capitalism

Hedge fund manager and philanthropist Paul Tudor Jones II challenges American businesses to incorporate “justness” and ethics into their corporate model. A self-described lover of capitalism, he believes that the economic system has lost its way and is becoming corrupted by greed and a lack of social responsibility — hardly a novel observation, but definitely an interesting one to hear from a wealthy beneficiary of said system.

His ten minute TED Talk below is highly informative and dense with charts and data showing just how much the nation’s business elites have become out of touch and self-serving.

Jones II’s message appeals to both self-interest and compassion: his contention is not only that it is more ethical to utilize vast profits to do more social good — through corporate charity, better wages, etc. — but that making capitalism fairer and more beneficial to society is the only way to prevent less desirable (to capitalists) alternative means to that end — namely higher taxes, revolution, and war (implicitly socialism or some other Leftist movement would be a threat, but it would allegedly operate through any or all of those). Continue reading

Survey Finds Majority of Americans Face Near-Poverty

CBS News reports on a recent poll that found what most us no doubt know well: that the average American is teetering on the brink of poverty and hardship:

Four out of five U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.

Survey data exclusive to The Associated Press points to an increasingly globalized U.S. economy, the widening gap between rich and poor, and the loss of good-paying manufacturing jobs as reasons for the trend.

The report classifies “economic insecurity” as a year or more of periodic joblessness, reliance on government aid such as food stamps, or income below 150 percent of the poverty line. When all races are taken into account, the risk of succumbing to one or all of these incidents rises to an incredible 79 percent.

The breakdown by race is particularly telling, as it signifies just how broad the impact of economic inequality and stagnation has been:

While racial and ethnic minorities are more likely to live in poverty, race disparities in the poverty rate have narrowed substantially since the 1970s, census data show. Economic insecurity among whites also is more pervasive than is shown in the government’s poverty data, engulfing more than 76 percent of white adults by the time they turn 60, according to a new economic gauge being published next year by the Oxford University Press.

Marriage rates are in decline across all races, and the number of white mother-headed households living in poverty has risen to the level of black ones.

Nationwide, the count of America’s poor remains stuck at a record number: 46.2 million, or 15 percent of the population, due in part to lingering high unemployment following the recession. While poverty rates for blacks and Hispanics are nearly three times higher, by absolute numbers the predominant face of the poor is white.

More than 19 million whites fall below the poverty line of $23,021 for a family of four, accounting for more than 41 percent of the nation’s destitute, nearly double the number of poor blacks.

Sometimes termed “the invisible poor” by demographers, lower-income whites generally are dispersed in suburbs as well as small rural towns, where more than 60 percent of the poor are white. Concentrated in Appalachia in the East, they are numerous in the industrial Midwest and spread across America’s heartland, from Missouri, Arkansas and Oklahoma up through the Great Plains.

Buchanan County, in southwest Virginia, is among the nation’s most destitute based on median income, with poverty hovering at 24 percent. The county is mostly white, as are 99 percent of its poor.

There is no ignoring the racial dimension to poverty, and the roles played by both social and institutionalized racism. But class is increasingly becoming a determining factor, as those lacking the resources and connections needed to advance in the post-industrial economy — the vast majority of Americans — enjoy less of the country’s vast economic potential.

The U.S. remains the richest country in the world by a significant margin, and its economy has continued to grow rather healthily by global standards. There is no reason why so much of its population remains immiserated or, at best, hanging on by a thread. The capital and resources are there, but they are not being allocated and invested properly.

More corporate profits are going to shareholders and upper management, rather than in workers’ pay and benefits. More public revenue is being siphoned off by the military or through tax breaks and subsidies for the wealthy and big business. The political economy is woefully inefficient and tapping into the potential of the American public, whether through the provision of affordable education and job training, or by rewarding hard work through reasonable, liveable wages.

How we fix that is a whole different conversation for another day.

How Baltimore Became What It Is Today

From The Washington Post comes an in-depth look at the historic socioeconomic and political roots of the city’s current inequities and strife. It is a sadly familiar and common story, one that accounts for the depths of despair and angst being unleashed :

These shocks happened, at least 80 years of them, to the same communities in Baltimore, as they did in cities across the country. Neighborhoods weakened by mass incarceration were the same ones divided by highways. Families cornered into subprime loans descended from the same families who’d been denied homeownership — and the chance to build wealth — two generations earlier. People displaced today by new development come from the same communities that were scattered before in the name of “slum clearance” and the progress brought by Interstate highways.

And the really terrible irony — which brings us back to Baltimore today — is that each of these shocks further diminished the capacity of low-income urban black communities to recover from the one that came next. It’s an irony, a fundamental urban inequality, created over the years by active decisions and government policies that have undermined the same people and sapped them of their ability to rebuild, that have again and again dismantled the same communities, each time making them socially, economically, and politically weaker.

“We keep moving the baseline down,” says Mindy Fullilove, a social psychiatrist at Columbia University who has studied the “root shock”people experience when their communities are repeatedly destabilized, dispersed and abandoned by anyone with resources. “People who are losing their homes to gentrification also got injured by deindustrialization and mass incarceration and urban renewal.

“They’re not separate — they’re inextricably linked. And it’s the cumulative downward force of this on social organization that’s the stunning thing to be accounted for.”

It’s the thing that created the deeply and racially unequal Baltimore we have today — and that lies behind the protests rising there now.

In Fullilove’s research on urban renewal, 67 percent of people displaced by such demolition projects nationwide were black. Those people who moved lost their social networks as well as their homes. Over time, de-industrialization took their decent blue-collar jobs, too. And because we never invested in the kind of education low-income urban communities would need to find work in a post-industrial world, low-skilled workers today are left with worse prospects today than they had two generations ago.

And although the focus on many people’s mind is of the incident that sparked this unrest, the bigger picture shows that a lot more deeply rooted factors are at work.

We don’t acknowledge that we created slums and perpetuated poverty. We don’t acknowledge that people who are poor were denied the chance to build wealth. And we don’t acknowledge that the problems we attribute to poor neighborhoods reflect generations of decisions made by people who have never lived there.

The historic scale of these forces also helps to explain why even a city with a black mayor and a black police chief isn’t immune to racial unrest. Several minority elected officials in 2015 can’t be a corrective to decades of compounding policy. Nor can a few pilot projects and fleeting government grants.

Yes, the outright racism that motivated many of these historic policies has eroded with time. “But we have to understand,” Fullilove says, “the machine can work without the operator.”

The protesters in Baltimore, she says, are expressing their rage against that machine, which is a thing much larger than the death of one man, or even the singular issue of police-community relations. To call the unrest this week a “riot,” the people behind it “thugs” — as Baltimore Mayor Stephanie Rawlings-Blake did this week — misses all of these interrelated pieces that Baltimore gives us a chance to reconsider.

Nine Charts That Explain Taxes In America

While taxes remain on many Americans’ minds, click here to view nine charts from Vox.com that explain the vagaries and little-known facts about the U.S. tax system.

For an even more extensive guide to taxes — such as how federal income taxes work and why payroll taxes differ from taxes on investment — click here.

How Machines Will Conquer The Economy

From Zeynep Tufecki over at the New York Times:

But computers do not just replace humans in the workplace. They shift the balance of power even more in favor of employers. Our normal response to technological innovation that threatens jobs is to encourage workers to acquire more skills, or to trust that the nuances of the human mind or human attention will always be superior in crucial ways. But when machines of this capacity enter the equation, employers have even more leverage, and our standard response is not sufficient for the looming crisis.

Machines aren’t used because they perform some tasks that much better than humans, but because, in many cases, they do a “good enough” job while also being cheaper, more predictable and easier to control than quirky, pesky humans. Technology in the workplace is as much about power and control as it is about productivity and efficiency.

This is the way technology is being used in many workplaces: to reduce the power of humans, and employers’ dependency on them, whether by replacing, displacing or surveilling them. Many technological developments contribute to this shift in power: advanced diagnostic systems that can do medical or legal analysis; the ability to outsource labor to the lowest-paid workers, measure employee tasks to the minute and “optimize” worker schedules in a way that devastates ordinary lives. Indeed, regardless of whether unemployment has gone up or down, real wages have been stagnant or declining in the United States for decades. Most people no longer have the leverage to bargain.

I can think of no better a justification for implementing a guaranteed basic income than this trend. How much longer until we run out of sustainable employment to support our population? Already, in the United States and elsewhere, most fast-growing sectors are low paying service jobs like fast-food and retail; even the professions that should ostensibly pay well, such as those requiring degrees or experience, increasingly do not.

Most people are already running out of alternatives for liveable, meaningful work — and now mechanization and automation threaten to undermine what comparatively little remains. I think this says a lot more about the social, economic, and moral failings of our society than it does about technology.

Why should everything be hyper-efficient at the expense of workers — who are also consumers and thus drivers of the economy? Why should we have a business culture, or indeed an economic and social structure, whereby those at the top must ruthlessly undercut the leverage and well-being of everyone else, whom they nonetheless depend on? If we want to optimize production and cost-effectiveness, which are of course not bad aims, then why not do so while providing some alternative means of survival for those who get displaced?

How we respond to this trend will speak volumes about our values, priorities, and moral grounding.

A Vivid Visualization of Inequality in America

The rise of wealth and income inequality is a (thankfully) widespread topic in media and public discourse, so by now most readers will no doubt be familiar with the various charts, videos, and graphs that translate it for our viewing pleasure.

But the Washington Post, citing an NPR column, presents an even more dramatic approach to showing the growth of inequality in the United States:

Source: Quoctrung Bui/NPR

Columnist Matt O’Brien breaks down what the data mean and the context of this sobering development:

It compares how much, in inflation-adjusted 2012 dollars, average households in the bottom 90 and top 1 percent have made each year. Now, it’s hard to tell because everyone was making less back then, but inequality really was high during the 1920s. The bottom 90 didn’t make much progress then, while the top 1 rode the, well, roaring stock market to even higher highs. All that was erased, though, during the Great Depression. The top 1 got wiped out when stocks fell almost 90 percent, and the bottom 90 did too when unemployment shot up to 25 percent. It was a bad time to be rich or poor, but mostly poor.

But the New Deal set the stage for a new society. FDR made it easier for workers to unionize, and started taxing the rich at confiscatory levels. It didn’t hurt that first the war and later the baby boom put everyone back to work. The result, as you can see above, was the creation of the American middle class. Between 1940 and 1970, the bottom 90 percent went from making, on average, $12,000 to $33,000. The top 1 percent, meanwhile, were stuck making “only” $300,000 this whole time. It’s what economists call the “Great Compression,” and it was a story about workers having the bargaining power to ask for higher wages and the rich not having much reason to ask for higher wages themselves. That’s because top marginal tax rates were so high—at their peak, 94 percent—that it wasn’t worth it for CEOs to pay themselves that much more. Besides, that was just something executives didn’t do back then. George Romney, for example, turned down a $100,000 bonus in 1960—and those are unadjusted dollars—because he didn’t think anyone needed to make that much more.

This didn’t last. It all started to unravel in the 1970s. Inflation ate up everyone’s pay, so that incomes for the top 1 and bottom 90 percent both stagnated. But it wasn’t just a monetary problem. It was an educational one, too. Starting in the 1930s, America had led the way with universal high school, but by the 1970s this progress had petered out. Making matters worse was that the rest of the world was already catching up—especially Germany and Japan—and forcing our workers to compete against theirs.

Ronald Reagan’s answer to all this was to cut taxes for the rich and deregulate the economy. The idea was to give the top 1 percent the freedom and incentive to work more and invest more, which was supposed to make the economy grow more—and, yes, trickle down to everybody else. It didn’t. Now part of that was because U.S. workers had to compete against even more low-wage workers overseas after the Berlin Wall came down and billions of people joined the global economy. Another was that new technologies like the internet helped the people at the top more than those at the bottom by creating winner-take-all markets. But a big part of it, like we said, was policy. Wall Street, in particular, went from being a relatively sleepy sector to a wheeling-and-dealing one where a couple of good bonuses could make you set for life. Indeed, more than 60 percent of the increasing share of income going to the top 1 percent came from CEOs and financiers who make most of their money in the markets.

It turns out, though, that even if a rising tide lifts all boats, most people can’t afford a boat. The bottom 90 percent, in other words, haven’t done much better the last 30 years, even as the top 1 percent have created a second Gilded Age. The only exception was the late 1990s—highlighted in yellow—when a tight labor market gave workers the bargaining power that unions used to. But other than that, it’s been a tale of two economies. There’s the financial one, where the top 1 percent have tied their fortunes to the booming stock market, and the real one, where everyone else is struggling not to fall behind. Now it’s true that the picture isn’t as bleak if you account for the fact that, as people marry later and have fewer kids, households aren’t as big as they used to be. And it’s also true that government benefits from Social Security to Medicare to food stamps and unemployment insurance help out the bottom 90 percent too. But it’s also true that even with these caveats, a growing economy hasn’t really translated into growing incomes for median households the last 15 years.

The change in fortunes between the bulk of society and a relative handful of families could not be more stark.

U.S. Leads Developed World in Child Poverty

Over the past six years, America’s wealth expanded by over $30 billion — a growth rate of 60 percent — despite the weak recovery. During the same span of time, another metric grew by that percentage: the number of homeless and food insecure children.

As Raw Story reports, despite its vast and ever-growing wealth, the world’s richest country by a considerable margin lags behind most other developed nations in measurements of child poverty.

America is a ‘Leader’ in Child Poverty

The U.S. has one of the highest relative child poverty rates in the developed world. As UNICEF reports, “[Children’s] material well-being is highest in the Netherlands and in the four Nordic countries and lowest in Latvia, Lithuania, Romania and the United States.”

Over half of public school students are poor enough to qualify for lunch subsidies, and almost half of black children under the age of six are living in poverty.

$5 a Day for Food, But Congress Thought it was Too Much.

Nearly half of all food stamp recipients are children, and they averaged about $5 a day for their meals before the 2014 farm bill cut $8.6 billion (over the next ten years) from the food stamp program.

In 2007 about 12 of every 100 kids were on food stamps. Today it’s 20 of every 100.

For Every 2 Homeless Children in 2006, There Are Now 3

On a typical frigid night in January, 138,000 children, according to the U.S. Department of Housing, were without a place to call home.

That’s about the same number of households that have each increased their wealth by $10 million per year since the recession.

The US: Near the Bottom in Education, and Sinking

The U.S. ranks near the bottom of the developed world in the percentage of 4-year-olds in early childhood education. Early education should be a primary goal for the future, as numerous studies have shown that pre-school helps all children to achieve more and earn more through adulthood, with the most disadvantaged benefiting the most. But we’re going in the opposite direction. Head Start was recently hit with the worst cutbacks in its history.

Children’s Rights? Not in the U.S.

It’s hard to comprehend the thinking of people who cut funding for homeless and hungry children. It may be delusion about trickle-down, it may be indifference to poverty, it may be resentment toward people unable to “make it on their own”.

The indifference and resentment and disdain for society reach around the globe. Only two nations still refuse to ratify the UN Convention on the Rights of the Child: South Sudan and the United States.

Aside from the obvious immorality of allowing so many millions of children to suffer during their most formative years, this abysmal performance in child well-being will leave a lasting legacy of social ills, poor children are increasingly more likely to remain poor for the rest of their lives (especially given the declining social mobility for which the U.S. was once famous).