Bridging the Income Gap

Bob Herbert's last NYT column

In his last column for The New York Times, Bob Herbert writes about "Losing Our Way." Excerpt:

There is plenty of economic activity in the U.S., and plenty of wealth. But like greedy children, the folks at the top are seizing virtually all the marbles. Income and wealth inequality in the U.S. have reached stages that would make the third world blush. As the Economic Policy Institute has reported, the richest 10 percent of Americans received an unconscionable 100 percent of the average income growth in the years 2000 to 2007, the most recent extended period of economic expansion.

Americans behave as if this is somehow normal or acceptable. It shouldn’t be, and didn’t used to be. Through much of the post-World War II era, income distribution was far more equitable, with the top 10 percent of families accounting for just a third of average income growth, and the bottom 90 percent receiving two-thirds. That seems like ancient history now.

The current maldistribution of wealth is also scandalous. In 2009, the richest 5 percent claimed 63.5 percent of the nation’s wealth. The overwhelming majority, the bottom 80 percent, collectively held just 12.8 percent.

This inequality, in which an enormous segment of the population struggles while the fortunate few ride the gravy train, is a world-class recipe for social unrest. Downward mobility is an ever-shortening fuse leading to profound consequences.

via www.nytimes.com

Malcolm Gladwell: Why income inequality is the next big issue

Via Forbes.com: Malcolm Gladwell On Why Income Inequality is the Next Big Issue Facing America. Excerpt:

Are we in a new Gilded Age? With income inequality at historic levels not seen since the early 1920s, author Malcolm Gladwell and Roger Martin, dean of the Rotman School of Management,  recently discussed how over 80% of America’s assets ended up in the hands of 20% of the population and how this affects America’s bid to “Win the Future.” 

At a gathering at the offices of Thomson Reuters, Gladwell and Martin talked about how talent compensation has run amok in America and the repercussions of what they call unmitigated greed. 

Martin, whose books include Diaminds and The Design of Business, described a revolution in talent compensation that took place in the 1970s and saw CEOs, top athletes, actors and money managers earn multiples of their previous salaries. According to a recent study, CEOs during the 1960s earned on average $42 for every $1 earned by wage workers. Today, that ratio is $344:1. 

How did the scales tip so far in favor of ‘talent’ and what effect has this compensation model had on U.S. income distribution? 

Martin and Gladwell argue that a political and psychological shift took place in the 1970s that made it all possible. Baseball’s first free agent contract was negotiated in 1974; money managers began the practice of charging 2 and 20 on assets under management; Michael Jensen’s seminal paper on agency theory contributed to the creation of the executive stock option compensation model. 

In essence, talent became aware of capital’s weakness: what they possessed was rare and what capital possessed was easily commoditized. A dollar is a dollar wherever it comes from. With the new compensation model came a shift in psychology from thinking “what’s enough” to “how much?”, says Martin. 

The problem with the current talent compensation model according to Gladwell, is greed. The system is inherently flawed. He explains, “It’s like saying to talent, you can choose to maximize your income or not. Who has self-restraint? No one does!” 

The ever-widening gulf between America’s top earners and the middle class is the result of that unmitigated greed and what they believe is politicians’ reluctance to impose restraint through taxation and regulation.

So it's all the fault of pro athletes. At least now we know.

Iowa legislators stand with Wisconsin

Via Blog for Iowa: Iowa Legislators Stand with Wisconsin. Excerpt:

At a time of historic income inequality and job losses in America, conservatives have launched a destructive ideological attack targeting the rights of workers in statehouses across the nation. 

As state legislators, we, the undersigned, stand in solidarity with our colleagues in Wisconsin who are currently fighting this effort and ensuring that their constituents’ voices are heard. Taking away the hard-won rights of nurses and bus drivers and teachers does nothing to create jobs, rebuild the economic prosperity of our states, or strengthen our families. 

As legislators representing vastly different constituencies in states across the country, we join together to voice our shared desire to work in a constructive manner with all relevant parties to advance a vision for our nation’s future that truly ensures the economic security of our communities.

This is an open letter signed by 12 Iowa legislators and 340 others in 49 states and 2 territories.

What Wisconsin is really about

Via Mother Jones, an excellent article by Kevin Drum: Plutocracy Now: What Wisconsin Is Really About. Drum explains "two crucial things about American politics":

The first is this: Income inequality has grown dramatically since the mid-'70s—far more in the US than in most advanced countries—and the gap is only partly related to college grads outperforming high-school grads. 

Rather, the bulk of our growing inequality has been a product of skyrocketing incomes among the richest 1 percent and—even more dramatically—among the top 0.1 percent. It has, in other words, been CEOs and Wall Street traders at the very tippy-top who are hoovering up vast sums of money from everyone, even those who by ordinary standards are pretty well off. 

Second, American politicians don't care much about voters with moderate incomes. Princeton political scientist Larry Bartels studied the voting behavior of US senators in the early '90s and discovered that they respond far more to the desires of high-income groups than to anyone else. 

By itself, that's not a surprise. He also found that Republicans don't respond at all to the desires of voters with modest incomes. Maybe that's not a surprise, either. 

But this should be: Bartels found that Democratic senators don't respond to the desires of these voters, either. At all. 

It doesn't take a multivariate correlation to conclude that these two things are tightly related: If politicians care almost exclusively about the concerns of the rich, it makes sense that over the past decades they've enacted policies that have ended up benefiting the rich. And if you're not rich yourself, this is a problem. 

First and foremost, it's an economic problem because it's siphoned vast sums of money from the pockets of most Americans into those of the ultrawealthy. At the same time, relentless concentration of wealth and power among the rich is deeply corrosive in a democracy, and this makes it a profoundly political problem as well.