Chronicles of Inequality—”The Sequester” & other manufactured crises [March 4, 2013]

 

Too MuchMarch 4, 2013
THIS WEEK
Some $85 billion in federal spending cuts — the dreaded “sequester” — started hitting this past weekend. These billions in cuts make no sense whatsoever, an analysis by 350 economists points out, in a nation still “marked by mass unemployment, rising poverty, and declining wages.”These cuts, the economists add, reflect an “obsessive concern with cutting deficits that has infected both parties.” And who can we thank for this obsession? We can start with billionaire Peter Peterson, the ex-private equity kingpin.Peterson has spent $500 million the last five years trying to get Americansworked up about “unsustainable” budget deficits. His dollars have bankrolled TV ads and think tanks, phony “grassroots” lobbies and official commissions. He hasplenty of help, of course. Over 125 CEOs back his “Fix the Debt” campaign.The endgame? Peterson considers Social Security a “publicly subsidized vacation.” He and his friends want it cut. They want taxes on the rich cut, too. And so do the lawmakers they subsidize. The result: sequestration, plutocracy’s latest revenge on the rest of us. More on our plutocrats in this week’s Too Much.About Too Much,
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GREED AT A GLANCE
The Titanic is coming back — and bringing old-style inequality along for the ride! Australian mining mogul Clive Palmer announced last week that he’s going to have built, in a Chinese shipyard, a replica of the doomed 1912 ocean liner. HisTitanic II won’t just feature exact knockoffs of the original ship’s iconic grand staircase and four rear-slanted funnels. Palmer’s replica — set to first leave port in 2016 — will also divide the ship’s 2,345 passengers into three segregated classes: first, second, and steerage. Palmer’s one sop to modernity: Passengers on the Titanic II‘s initial cruise will be able to purchase special tickets that let them “eat and socialize” with travelers in all three classes . . .Sheila BairSheila Bair, a former chair of the Federal Deposit Insurance Corporation, describes herself as “a lifelong Republican” who believes that some level of inequality can speed “economic prosperity.” But America’s current “yawning gap between rich and poor,” Bair opined last week, reflects nothing more than bailouts, asset bubbles, and “unjustified tax breaks that favor the rich.” Bair’s New York Times manifesto urges her fellow Republicans to end the tax rules that let “managers of hedge funds pay half the tax rate of managers of shoe stores.” President Obama, she notes, has indeed made inequality “a signature issue.” But his economic team has been “populated by acolytes” of Wall Street whose “generous treatment of the financial sector” has “worked wonders” for the rich. Asks Bair: “Why haven’t Republicans made an issue out of this?”President Obama’s economic team has a new prime player, and he carries a Wall Street seal of approval. By a 71-26 margin, the U.S. Senate last week approved Jack Lew as the nation’s next Treasury secretary. Critics had blasted Lew over his remarkably lucrative tenure as an exec at NYU, a university with a board dominated by Wall Streeters, and his subsequent executive stint at Citigroup, where he left with a $940,000 bonus for moving into a “full-time high level position with the U.S. government.” But the Senate’s lone independent progressive, Bernie Sanders of Vermont, voted against Lew’s bid “because of the views he now holds about Wall Street and the financial system,” not the conflict-of-interest questions that surrounded his nomination. Lew, noted Sanders, opposes any move to restore Glass-Steagall safeguards against bank speculation and any corporate tax reform that actually raises corporate tax bills.Quote of the Week“Today’s vote is the result of widespread unease among the population at the exorbitant remuneration of certain company bosses.”
Simonetta Sommaruga, Switzerland’s minister of justice, Swiss voters approve tough limits on bosses’ pay, March 3, 2013
PETULANT PLUTOCRAT OF THE WEEK
Dan AkersonNew hires at bailed-out auto giant GM make only half what longer-term GM workers make. GM CEO Dan Akerson also makes less than his peers — his fellow auto industry CEOs — because federal officials still must okay all top exec pay at GM. Akerson doesn’t appear to mind two-tier pay for GM workers, but he sure doesn’t appreciate his own two-tier status. Last year, Akerson even pressed Treasury secretary Tim Geithner for a raise. The feds did okay a generous $9 million for Akerson in 2012, and reports surfaced last week that GM would be seeking a $2 million CEO pay hike in 2013. That news brought down upon GM and Akerson a ton of new bad press. But the report turned out to be in error. GM will be content to once again pay Akerson just $9 million in 2013. A GM new hire only has to work 270 years to match that total.Like Too Much?
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IMAGES OF INEQUALITY
New wealth videoThis superb video on U.S. wealth distribution, building on the work of economists Michael Norton and Dan Ariely, has just begun to “go viral.” You can watch it here.Web Gem

National Priorities Project/ A site all about “bringing the federal budget home,” helping Americans understand “sequestration” and all the other games that only the rich seem to know how to play.

PROGRESS AND PROMISE
EU flagsGoldman Sachs CEO Lloyd Blankfein pocketed $18.9 million in bonus last year, on top of $2 million in salary. He had better stay stateside. Pay deals that rich won’t fly in Europe anymore. EU nations last week agreed to cap banker bonuses at one year’s salary — and the new cap will cover power suits at U.S.-owned European subsidiaries. Banks can still raise salaries and give up to twice those salaries in bonus if shareholders agree. But the Belgian Green Party’s Philippe Lamberts, a cap drive leader, feels the new pact “will really bring down pay.” Why else, he notes, would bankers be so opposed? European business federation chief Robin Chater confirmed that opposition Thursday. He blasted the new cap and claimed with a straight face that “high remuneration levels in the financial sector” serve to minimize “corruption.”Take Action
on InequalityHelp end the “sequester” assault on public goods and services. Urge your lawmakers in Congress to raise taxes on the rich and the corporations they run.
INEQUALITY BY THE NUMBERS
Wealth distributional changesStat of the WeekTaxpayers in the top 1 percent of America’s top 1 percent all grabbed at least $7.97 million in 2011 income. In a nation of over 158 million households, analyst David Cay Johnston points out, these 15,837 uber-rich households took in 39 cents out of every $1 in increased income Americans collected over the two years after 2009. 
IN FOCUS
Brazil and the United States: A Shrinking GapLuxury fortresses. Armored cars. Helicopter commutes. The abominably unequal ‘good life’ may be closer than you think. Meanwhile, in South Africa . . .A dozen years ago, Brazil ranked as the world’s most unequal major nation. Brazil’s most affluent 10 percent were grabbing nearly 50 times more income, on average, than the nation’s poorest tenth, over double the U.S. gap.Amid this stark inequality, affluent Brazilians found themselves spending $2 billion a year on private security. Kidnappings in São Paulo, Brazil’s largest city, became so common that some plastic surgeons started specializing in ear reconstruction. The reason: Kidnappers had taken to including cut-off ears with the ransom notes they sent their wealthy victims.Over in Brazil’s second-largest city, Rio de Janeiro, carjackings were taking place so often that police were assuring well-heeled drivers they wouldn’t “be fined for running red lights at night.” Thousands of those drivers took no chances. They armored their cars, typically at $35,000 per automobile, or commuted via helicopter from fortified home to fortified office.

Could an inequality this stark ever take root in the United States? Luxury fortress life, suggests new work from the Brazil Center at the University of Texas, may actually be closing in upon us. If current trends continue, Center director Fernando Luiz Lara calculates, the United States will probably “be as unequal as Brazil” before the end of President Obama’s second term.

Two trends are driving this “convergence.” The first: Brazil’s most desperately poor have become less poor. New government social programs have halved the number of Brazilians living in “extreme poverty.”

The second: Income in the United States has continued to concentrate. Since 2009, the latest stats show, top 1 percent incomes have jumped an average 11.2 percent. Bottom 99 percent have slipped 0.4 percent.

Economists typically measure inequality with a statistic called the “Gini coefficient.” A nation with all income divided equally would have a Gini of 0.0. The reverse, one person grabbing everything, would leave the Gini at 1.0.

The world’s most equal nations have Gini ratings that hover around 0.3. Outrageously unequal nations hover around 0.6. Brazil’s gap has dropped from that 0.6 to just over 0.5, and the U.S. Gini, just 0.35 in the early 1970s, now sits at 0.477. The current trajectory, notes Fernando Luiz Lara at the University of Texas, has both nations converging at just under 0.5 by “2015 at the latest.”

Neither nation, unfortunately, seems likely to nudge the Gini needle down from there, mainly because neither nation has made much progress shrinking the income share that goes to the richest of its residents.

Wealth and income in both Brazil and the United States remain concentrated at the top. And with that concentrated wealth comes concentrated political power, enough power to derail policy moves that might roil the rich.

And what sort of policy moves might do this roiling? A neat list has just surfacedin South Africa, where working families are struggling to get by in a society thatmay now rate as the world’s most unequal major nation.

In South Africa, as in the United States and Brazil, elected leaders these days are talking cutbacks in the public services and benefits that help narrow gaps in income and wealth. But COSATU, South Africa’s labor federation, is pushing back, demanding no more squeezing on South Africa’s poor.

COSATU wants more money invested in jobs, health, and education. And that funding, says the labor group, should come from tax initiatives ranging from a new tax rate on the super rich to a “solidarity tax” to “cap the growth of earnings of the top 10 percent and accelerate the earnings of the bottom 10 percent.”

COSATU is also seeking a new “land tax to aid the process of land redistribution” and a stiff tax on financial transactions to “encourage productive investment” and “discourage hot money.”

In South Africa, COSATU adds, top CEOs are averaging 1,728 times the average income of South African workers. COSATU is calling for a new tax on firms that continue to be “stubborn in closing the wage gap.”

And to fight “wage theft,” an escalating problem in the United States as well, COSATU is demanding a tax on firms that pay below the statutory minimum and “the distribution of such tax proceeds back to the workers concerned.”

Fernando Luiz Lara from the University of Texas sees one possible plus from the impending inequality “convergence” between the United States and Brazil. Americans, he notes, “will probably be quite disturbed (and correctly so) by becoming as unequal as Brazil.”

This embarrassment, suspects Lara, just might “trigger a national conversation” about how to move toward greater equality. If that conversation takes place, maybe COSATU should sit at the table.

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New Wisdom
on WealthSarah Anderson and Sam Pizzigati, Happy Birthday, Dear Income TaxAmerican Prospect, February 25, 2013. Five lessons for progressives from our first century of income taxation.Charlotte Crane, How the 100-Year Old Income Tax Unleashed the Modern U.S. EconomyAtlantic, February 25, 2013. The 1913 introduction of the federal income tax complicated life for America’s rich.

Amia Srinivasan,Dependents of the State,New York Times, February 26, 2013. A philosopher riffs on how the wealthy rely on government support for their fortunes.

Jamelle Bouie, The Titanic Wealth Gap Between Blacks and Whites,American Prospect, February 27, 2013. A new study documents a tenfold disparity between black and white wealth, the widest such gap ever.

Chris Arnade, Why It’s Smart to Be Reckless on Wall StreetScientific American, February 27, 2013. A delightfully witty explanation of how Wall Streeters make themselves fabulously affluent.

Bartlett Naylor, Oxymoron alert: No one cares about CEO payCitizenVox, March 1, 2013. Corporate flacks say the SEC should not require firms to disclose their CEO-worker pay ratio — because no one cares!

Peter Dreier, Who Are the Billionaires Trying to Defeat Steve Zimmer?Huffington Post, March 3, 2013. A March 5 school election in Los Angeles has national implications for public education.

 

The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class cover

Read the Intro to the new book by Too Much editor Sam Pizzigati, then order at the publisher’s discount.

NEW AND NOTABLE
A Lend-and-Spend Economy Bites the DustBarry Cynamon and Steven Fazzari, Inequality and Household Finance during the Consumer Age, Levy Economics Institute of Bard College, Working Paper No. 752, February 2013.Wealthy households spend less of their incomes, years of economic research have documented, than average households. This dynamic should bring much less demand for goods and services — and economic slowdowns — whenever wealthy households gain a much greater share of national income.But the overall U.S. economy between the early 1980s and 2007, years of rapidly rising inequality, for the most part kept growing. Why no slowdown? Average families were borrowing to keep on spending, taking ever-larger home equity loans, for instance, as the housing bubble sent home values soaring.This lend-and-spend economy would not be — and could not be — sustainable. By the end of 2007, America’s economy was collapsing into Great Recession.

Washington University’s Steven Fazzari and Barry Cynamon, an economist now working at the Federal Reserve Bank of St. Louis, may not be the first analysts to tell this story. But their latest analysis adds into the mix a wealth of useful new data on America’s top 5 and bottom 95 percent. Their numbers directly link the Great Recession “to the trend toward rising income inequality.”

If households in America’s bottom 95 percent had maintained their 1980 income share over the next quarter-century, the two analysts note, the Great Recession either “would not have happened” or “would have been much less severe.”

Real recovery from Great Recession, their data suggest, simply won’t be coming “with the kind of income inequality that now prevails in the U.S. economy.”

 

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