The historian Plutarch warned us long ago of what happens when there is no brake on the power of great wealth to subvert the electorate. “The abuse of buying and selling votes,” he wrote of Rome, “crept in and money began to play an important part in determining elections. Later on, this process of corruption spread in the law courts and to the army, and finally, when even the sword became enslaved by the power of gold, the republic was subjected to the rule of emperors.”
We don’t have emperors yet, but we do have the Roberts Court that consistently privileges the donor class.
We don’t have emperors yet, but we do have a Senate in which, as a study by the political scientist Larry Bartels reveals, “Senators appear to be considerably more responsive to the opinions of affluent constituents than to the opinions of middle-class constituents, while the opinions of constituents in the bottom third of the income distribution have no apparent statistical effect on their senators’ roll call votes.”
Here's the fancy chart:
There are a number of key arguments in Piketty’s book. One is that the six-decade period of growing equality in western nations – starting roughly with the onset of World War I and extending into the early 1970s – was unique and highly unlikely to be repeated. That period, Piketty suggests, represented an exception to the more deeply rooted pattern of growing inequality.
According to Piketty, those halcyon six decades were the result of two world wars and the Great Depression. The owners of capital – those at the top of the pyramid of wealth and income – absorbed a series of devastating blows. These included the loss of credibility and authority as markets crashed; physical destruction of capital throughout Europe in both World War I and World War II; the raising of tax rates, especially on high incomes, to finance the wars; high rates of inflation that eroded the assets of creditors; the nationalization of major industries in both England and France; and the appropriation of industries and property in post-colonial countries.
At the same time, the Great Depression produced the New Deal coalition in the United States, which empowered an insurgent labor movement. The postwar period saw huge gains in growth and productivity, the benefits of which were shared with workers who had strong backing from the trade union movement and from the dominant Democratic Party. Widespread support for liberal social and economic policy was so strong that even a Republican president who won easily twice, Dwight D. Eisenhower, recognized that an assault on the New Deal would be futile. In Eisenhower’s words, “Should any political party attempt to abolish Social Security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear from that party again in our political history.”
The six decades between 1914 and 1973 stand out from the past and future, according to Piketty, because the rate of economic growth exceeded the after-tax rate of return on capital. Since then, the rate of growth of the economy has declined, while the return on capital is rising to its pre-World War I levels.
Obama will almost certainly touch on inequality in his State of the Union address on Jan. 28. This will certainly resonate in a general sense with the majority of Americans who are dissatisfied with income and wealth distribution in the U.S. today. Members of the president's party agree most strongly with the president that this is an issue, but majorities of Republicans and independents are at least somewhat dissatisfied as well.
Although Americans are more likely to be satisfied with the opportunity for people to get ahead through hard work, their satisfaction is well below where it was before the economic downturn. Accordingly, improvement in the U.S. economy could bring Americans' views back to pre-recession levels.
In developed and developing countries alike we are increasingly living in a world where the lowest tax rates, the best health and education and the opportunity to influence are being given not just to the rich but also to their children.
"Without a concerted effort to tackle inequality, the cascade of privilege and of disadvantage will continue down the generations. We will soon live in a world where equality of opportunity is just a dream. In too many countries economic growth already amounts to little more than a 'winner takes all' windfall for the richest."
Why has a traditionally “core subject”, which was ranked in the same academic hierarchy as English, science, and math for decades, been sidelined in thousands of American classrooms?
The shift in curriculum began in the early years of the Cold War. While U.S. military and technological innovation brought World War II to a close, it was a later use of technology--the Soviet launching of Sputnik in 1957--that historian Thomas A. Bailey called the equivalent of a “psychological Pearl Harbor” for many Americans. It created deep feelings of inadequacy and a belief that the U.S. was falling behind in developing new technology and weapons, which led to the passage of the 1958 National Defense Education Act. This legislation pumped $1 billion over four years into math and science programs in both K-12 schools and universities.
Despite this extra focus on math and science, social studies managed to make it through the end of the Cold War relatively unscathed (in fact, the number of classroom hours dedicated to teaching social studies in grades 1-4 peaked in the 1993-1994 school year at 3 hours a week). But drastic change came a decade later with the passage of President George W. Bush’s No Child Left Behind legislation.
No Child Left Behind was signed into law in an attempt to address the growing achievement gap between affluent and low-income students. It was a controversial piece of legislation from the start, mainly because of its “one size fits all’” approach: It uses annual standardized tests to determine how well students are performing in reading and math and then uses those scores to determine the amounts of federal funding schools receive.
Besides the obvious criticism that low-performing schools--arguably the ones that need the most increase in funding--are disproportionally punished for their low scores, critics also believe that No Child Left Behind has narrowed the curriculum. Since the standardized tests focus exclusively on English and math, and those scores determine the bulk of a school’s federal funding, schools have been forced to increase time and resources in these subjects at the expense of all others, including social studies.
In a recent “60 Minutes” piece, Amazon founder Jeff Bezos proudly displayed his company’s next delivery vehicles: drones. It’s only a matter of time, according to Bezos, before Amazon’s faux-pelicans will be dropping packages at your door (and hopefully not on your head), speeding up deliveries and bringing instant gratification one step closer. No one thought to ask the obvious – what happens to all those redundant delivery folks?
The constant replacement of humans by machines presents policy makers with a looming crisis — not enough jobs to go around. It also destroys the easy confidence with which many on the left argue for higher minimum wages. Incomes aren’t stuck because employers are hard-hearted so-and-sos, which is the recurring accusation of those who, like Paul Krugman, have never actually had to compete in the real world. Wages are stuck because so many individuals can be replaced by competitors overseas who earn far less or by machines, which earn nothing.. . . . The retail industry is just one in which workers are at risk. It’s hard to find many jobs that are not threatened by automation, by Internet expansion or by overseas competition. That includes people working in the fast food industry — where union organizers are currently pushing for a big jump in minimum pay. They should not assume that burger joints won’t eventually automate. Last year, Momentum Machines in San Francisco previewed an apparatus that created 360 burgers an hour. Noting that the fast food industry spends $9 billion a year on wages, the company predicted a lively reception for its space- and cost-saving machine.
Companies and workers successfully competing against all these forces must rely on the right combination of productivity and price. Purposefully jeopardizing workers’ livelihoods by driving wage costs higher is risky and in the end unproductive. Add to the mix uber-low interest rates, which tilts investment towards capital and away from labor, and those urging a higher minimum wage are not on the side of workers.
This growing inequality is being exacerbated by policy failures – more specifically, by decreasingly progressive tax, transfer, regulatory, and full-employment policies in recent decades.
Financial deregulation has contributed to the rising share of national income going to investment income and compensation of financial professionals — with the latter being a significant driver of rising income share of the top 1 percent, as analyzed in a recent paper by Larry Mishel and Josh Bivens of the Economic Policy Institute.
There is also compelling evidence that reductions in top marginal tax have exacerbated the growth in market-based income inequality. Essentially, a lower top tax rate makes efforts by executives to demand greater compensation more rewarding. Successful such efforts will come out of workers’ paychecks, not shareholders’ portfolios.
Political inaction, or “political drift,” on the minimum wage — allowing the real minimum wage to be eroded by inflation — or unionization policy is certainly part of the story. Globalization and international trade have exerted downward domestic wage pressure while increasing returns to wealth, with pressures on inequality growth stemming both from irreversible market forces and certain trade policy choices.
Inequality would have risen sharply absent these influences of budget policy. But while market-based income inequality, as measured by the “Gini” index, rose 23 percent between 1979 and 2007, post-tax, post-transfer inequality rose 33 percent.
This means that roughly a third of the rise in post-tax, post-transfer inequality is attributable to erosions in the redistributive nature of tax and budget policy.
There are limits to how much redistributive policies can temper inequality (though we are far from those limits), but tax and budget policy should have been serving as a tempering influence rather than exacerbating market-based inequality growth.
Beyond these better-understood forces and policy levers, the disparate nature of the recovery from the Great Recession is both fueling inequality and is squarely in the hands of U.S. policymakers.
Until the 1970s, the economics profession was largely dominated by progressives. Almost all economists supported the idea that government spending on public works was the best policy in an economic recession, that tax policy ought to equalize incomes and reduce inequality, and that the Federal Reserve should use monetary policy to reduce unemployment. -
But in the inflationary 1970s, these progressive ideas came under fierce attack from economists associated with supply-side economics, the Chicago School and others on the right who argued that government fine-tuning made recessions worse, that tax policy should eschew redistribution and concentrate only on increasing growth, and that the Fed should stick to maintaining price stability and ignore unemployment in the conduct of monetary policy.
Eventually, this conservative view was even adopted by Democrats, who called it neoliberalism. So widespread is the neoliberal view today that even those who claim to be on the political left, such as the group Third Way, attack “economic populism” and demand cuts in Social Security benefits.
One reason for the success of neoliberalism is that progressive economic thought has lacked an effective and articulate spokesman. Bill Clinton famously declared that the era of big government was over and worked with Republicans to abolish the entitlement to welfare and slash the capital gains tax. He also reappointed Republican Alan Greenspan as chairman of the Federal Reserve. On balance, Clinton governed as an Eisenhower Republican.
Barack Obama is little better. Objective analysts have known for years that he has governed as a moderate conservative who has consistently rejected progressive demands to reduce unemployment, who adopted a health reform designed by Republicans and conservatives, and reappointed Republican Ben Bernanke as chairman of the Fed. Like Clinton, he has pursued free trade and done nothing to halt the outsourcing of American jobs to China.
Those on the left know that Clinton and Obama were not progressive presidents, but were forced to circle the wagons around them because the alternative of right-wing Republican control was worse. And conservative attacks on Clinton and Obama for being radical socialists fooled some progressives into thinking they were men of the left rather than, as was actually the case, moderate conservatives.
As a consequence, true progressivism has withered almost to the point of death, with most political debate in the U.S. taking place between moderate conservatives and those on the far right. In fact, many people have simply forgotten what a true progressive even sounds like.
Into this policy vacuum, Pope Francis has breathed new life into the progressive tradition.
American income inequality may be more severe today than it was way back in 1774 — even if you factor in slavery.
That stat's not actually as crazy (or demoralizing) as it sounds, but it might upend some of the old wisdom about our country's economic heritage. The conclusion comes to us from an newly updated study by professors Peter Lindert of the University of California - Davis and Jeffrey Williamson of Harvard. Scraping together data from an array of historical resources, the duo have written a fascinating exploration of early American incomes, arguing that, on the eve of the Revolutionary War, wealth was distributed more evenly across the 13 colonies than anywhere else in the world that we have record of.
Suffice to say, times have changed.
. . . agrarian economies started out very poor but not-so-unequal. Then as they started industrializing, inequality would explode. Because rural productivity is extremely low, early industrialists can earn enormous profits paying highly productive factory workers wages that are only barely above the subsistence-level earnings of the farmers. But the very profitability of this sweatshop industrialism ensures that people will build more and more factories. That creates excess demand for industrial labor, and . . . rising wages and falling inequality.
The top 10 percent of earners took more than half of the country’s total income in 2012, the highest level recorded since the government began collecting the relevant data a century ago, according to an updated study by the prominent economists Emmanuel Saez and Thomas Piketty.
The top 1 percent took more than one-fifth of the income earned by Americans, one of the highest levels on record since 1913, when the government instituted an income tax.
