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Mother Jones: “It’s the inequality, Stupid!”

June 25th, 2011 · 7 Comments

Dave Gilson and Carolyn Perot, “Eleven charts that explain everything that’s wrong with America.”

This should really be on everyone’s reading list. If you’ve been wondering why your world view is a bit different than that of those in the economic/political elite, this series of graphs will give you a pretty decent answer. They live in a different world.

This led me to another article with data on income inequality over time (“Wealth concentration, recession, and depression“).

There’s a factoid in it that says a lot about the experience of those born during the “baby boom” that began right after WWII.

According to this article, there was a dramatic move towards leveling of wealth and income from the 1929 stock market crash through the war, with 1949 marking the most equitable distribution of wealth. From then on, the rich have gotten richer while the rest of us have seen our share of the nation’s financial resources decline.

The figures show that in 1929 before the Great Crash, 36.3% of the wealth was held by 1% of the population compared with only 31.6% in 1922. This is a considerable increase and we discuss below why the increase occurred. This concentration created fundamental instability in the economy. Firstly the top 1% put their money into the stock market. These stock market investments were further used as security for loans to buy even more stock, which was also highly leveraged by the use of investment trusts (as mentioned by Galbraith in his book The Great Crash 1929), increasing the leverage still further.

The figures also show that after 1929 there was a trend towards greater wealth equality, reaching a peak in 1949. This leveling parallels also the ‘revolutionary’ income leveling over the same period.” In 1929, the average income of the richest 20% was 15.5 times that of the poorest 20%. By 1951 this ratio had dropped to 9.0…. In no other extended period of US history did the available indicators swing so sharply towards equality”, write Williamson & Lindert.

It appears that for most Americans, our entire lives have been played out against this background of increasing inequality and the concentration of wealth in a tiny sliver of the population.

The interesting political aspect of this is how the powerful have managed to turn the anger and frustration of the majority back against itself through the Tea Party movement, which somehow has been conned into attacking any attempts to slow the flow of wealth to the very top.

Tags: Business · Politics

7 responses so far ↓

  • 1 Richard Gozinya // Jun 25, 2011 at 9:23 am

    “I believe and I say it is true Democratic feeling, that all the measures of the government are directed to the purpose of making the rich richer and the poor poorer.”
    –William Henry Harrison

    Yup.

  • 2 maunawilimac // Jun 25, 2011 at 10:02 am

    Following WWI federal income taxation took hold. In the New Deal era of the ’30′s, there was a consensus supporting “progressive taxation” — that is, the more you make the more you should pay. Needless to say, that consensus has eroded since then..

  • 3 BigBraddah // Jun 25, 2011 at 9:03 pm

    “It’s the insulting epithets, stupid!” geez. I hate that phrase. Someone says any version of that to my face, they will not forget the moment. I would punch them.

  • 4 Kali // Jun 26, 2011 at 1:27 am

    In 2005, both the Wall Street Journal and the New York Times wrote a series of articles on the class structure of the United States.

    http://www.nytimes.com/packages/html/national/20050515_CLASS_GRAPHIC/index_01.html

    http://online.wsj.com/article/0,,SB111595026421432611,00.html?mod=home_page_one_us

    One of the significant changes noted in one of the articles is how the barrier between the upper middle classes and the upper class has eroded. The son or daughter of a dentist or lawyer, especially with an elite university credential, can rise to the very top of society. For someone in the middle class, that still would be a much more daunting task.

    However, there is a new firm boundary in American society, that between the working classes and the middle class. A college degree in particular is no longer an assurance of success or even of a job, but it seems to be a requisite to move into the middle class — a necessary but insufficient requirement. There was a time when much of the working class was considered middle class, but the fortunes of the working class are now much less stable than the middle class.

    One of the resulting tragedies of the working class is that although a working class family can earn a six-figure salary, they are constantly trying to play up their status out of increasing insecurity, so they live in debt, buying McMansions and boats and SUVs. This is a big part of the economic mess the US has gotten into, and not only is there no way easy way out — it seems unrealistic to just send everybody to college and pretend that is a cure all — but now the working class is even worse off.

    There is also now a kind of huge ‘underclass’ of people who won’t even be able to move into the working class. In fact, a couple of months ago there was an article on the state of the family in small-town America. The good jobs just have not existed in the heartland for some time, so the social norms have altered. The percentage of white teenage girls in small towns in the US who become unwed mothers is the same today as it was in the inner city among black girls in the 1970s: one out of three. There is simply no incentive to wait to get married if the men in your life just cannot find steady work. Is the white working class going to be assimilated into the underclass eventually? Will this spread to the educated middle classes eventually?

    But the upper class is also not invulnerable. An article in the WSJ about a year ago pointed out that the richest citizens of the US are now completely detached from the US economy. They now no longer own factories or movie studios or newspapers or coal mines. Their fortunes have become digitized and flow around the world chasing profits. These profits can be astounding, but this adds a huge dose of instability into both the lives of the upper classes and the world economy, with these tidal waves of money simply flowing all over the planet, sometimes destroying economies as the funds flee low returns or economic crises, and sometimes evaporating as the funds become victim of the latest speculative bubble.

    Newspapers are dinosaurs and journalism is a somewhat superficial profession. Ironically, however, such commentary on the class structure in the US has largely disappeared from a supposedly left-wing academia and only makes the odd appearance in newspapers. Scholars today are generally obsessed with issues of identity and culture, not as much with the economic issues that inform culture and identity.

    One theory of class structure that does relate to identity and culture is that the perceived markers of class membership vary according to the class of those who perceives those traits. For instance, working class folks conceive ‘class’ as based on money; for the middle class, class is based on education; and for the upper class, class is seen as a matter of values (tastefulness, politeness, generosity). This helps to explain why the working class desperately engage in more and more conspicuous consumption even as their prospects dwindle, and why the middle class desperately puts their hopes into private schools and good colleges — schools that themselves compete for rank and for students in a kind of expensive arms race — despite diminishing returns. But this influential theory was formulated by a journalist! (Don’t ask me who….)

  • 5 Bill // Jun 26, 2011 at 7:03 am

    money manager Bill Gross has never been know to shy away from the bigger structural issues in his monthly commentaries — this month’s commentary is again on point and related to this discussion — http://www.pimco.com/EN/insights/pages/school-daze-school-daze-good-old-golden-rule-days.aspx

  • 6 Kali // Jun 27, 2011 at 2:32 pm

    That was an interesting entry by Bill Gross. He basically argues that in a consumer society like the US that has turned its back on industrial production, the only growth industries are the financial sector and the housing market, and both are doomed to collapse when their profits are founded on the indebtedness of the population.

    (A quick illustration of how the two types of economies differ is provided by local blogger Charles Hugh Smith: http://www.oftwominds.com/blogjune11/eurozone-doomed6-11.html)

    For Gross, society needs some sort of serious productive (manufacturing) capacity, but with wage gaps between countries like the US and someplace like China (and other societies, as China’s wages continue to climb), the only solution is to upgrade the skills of the workforce. That means an emphasis on education, but it would be a practical, vocational education, similar to Germany’s.

    This might seem unrealistic. Once a society becomes completely consumer-oriented, it’s a bit like becoming an alcoholic: it is a permanent condition that needs to be confronted constantly, if it is confronted. A consumer society would tend to be very self-absorbed, narcissistic, self-indulgent, money-obsessed and a bit lazy. People would want a high material standard of living, but they would not want to become engineers or pursue a strong background in the natural sciences or in math. If they go to college, they tend to major in business or in the social sciences or humanities; subsequently, those disciplines tend to get dumbed down, and that even affects the kind of research that professors in those fields tend to engage in (their research takes on a modish, facile quality).

    In fact, the humanities and social sciences should really be the elite disciplines, and the disciplines that students avoid — say, management information science or computer science — should be the default vocational programs that most students should go into.

    One can see how this dumbing down affects a political culture by a quick glance at the UHM jounalism department, which raised its standards quite dramatically in the early 2000s. The journalism graduates prior to the 2000s would dabble in journalism for a while — that is, television journalism — then go to work for the government as PR people, then sometimes become politicians. The irony it that those who became politicians are the least capable of the journalists, confirming the adage that people are promoted to their level of incompetence. But it’s worse than that, because people get promoted based on merit until they reach an office that they cannot handle; but these UHM journalism majors were always inept in whatever they engaged in, and this constant failure is what compelled them to move up the ladder (a bit the way terms limits force politicians to move up the ladder). But if one looks at the UHM journalism graduates since the journalism department reforms of early 2000s, if they go into journalism, they stay there — and their articles sometimes win awards.

    It could be that upgrading liberal arts programs is not entirely in the self-interest of those departments. In order to sustain their budgets, professors need to fill seats with warm bodies. If they really want to protect their budgets, professors in a department will push for a graduate program, and then make sure that their grad program has at least one hundred students who will lobby passionately for the department. Raising standards and necessarily lowering the number of students majoring in one’s department goes against the economic logic governing a department.

    There are also good principled reasons for supporting the liberal arts and resisting a wholesale shift to vocational training in universities. The German model is really quite rigid and narrow. But the liberal arts emphasis in the American model is really assured through the core curricula, not through having most students major in the liberal arts. That is, if students become well-rounded thanks to an American university education, it is not because they majored in sociology or anthropology or literature, but because they were compelled to take a few intro-level classes in those disciplines.

    Unfortunately, because of the economics of American universities, those classes tend to be taught by graduate students and (adjunct) lecturers who have little teaching experience, who are relatively poorly compensated, who get by on a few hours of sleep every night, and who have a dark future awaiting them. Just what are the professors teaching? They are primarily teaching graduate students.

    So there is no reason to believe that things will change. Change is not in anyone’s self-interest. Moreover, in a consumer society, the notion of collective self-interest — that is, enlightened self-interest — atrophies dramatically. So there is less chance of a “Sputnik moment”, where a collective threat is a stimulus to reform. The Chines could colonize the moon with 10 million people, and the US response would be to buy more stock in Chinese companies. The best thing now days is to be the son of a Chinese billionaire. For the rest of us, we take Mandarin lessons or have our kids do so.

    As an example of this “privatization” of aspirations — that is, a collapse of collective identification — as well as the myopic self-interestedness of the academic world, South Korea produces just as many engineers as the US does because the kind of people who went into engineering in the past in the US went to work on Wall Street as “quants”, or quantitative analysts (basically, computer program modelers who helped to bring down Wall Street by substituting a deeper understanding of the market dynamics with pattern recognition). Then main reason these students shifted to finance from the sciences is that they simply could not afford tuition because universities are engaged in an arms race of sorts with one another for national ranking.

  • 7 BigBraddah // Jun 28, 2011 at 12:12 am

    ” they are constantly trying to play up their status out of increasing insecurity, so they live in debt, buying McMansions and boats and SUVs. This is a big part of the economic mess the US has gotten into, and there no way easy way out —”
    yes there is: grow a pair, be a man and drop the insecurities, live within your means. and be more frugal.

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