By Michael Brenner

Friends & Colleagues:  It’s tough these days to hold one’s bearings. Perspective easily is lost in the swirl of headline news: the latest wacky antics of our comic President, sex scandals galore, the slime exposed by Mueller’s look under the decorative rocks in Washington’s political Garden of Eden, mischievous Russian hobgoblins gamboling around the Internet, plus the usual mayhem in the streets and “over there.”  So, it’s a struggle to keep an eye on the big things happening that don’t glow in the dark. For while we are distracted by the kaleidoscopic show, the Republicans at both ends of Pennsylvania are pillaging the country on behalf of the predatory plutocracy – bloodlessly referred to as “special interests” – privileged special interests.

A sign of this distortion is the fate of “inequality’ which for a brief time seemed to be a strong candidate for joining that coterie of elite issues that “have legs” – as they say in D.C. watering holes. It is anathema, of course, to those sweating away in order to make America Great – Again! Democrats, poor souls, are still stumbling around trying to figure out what went wrong last time, with Hillary the self-appointed group therapy shrink. Their one thrust was Operation Slogan when, in the dog days of summer, they proclaimed their new battle cry: A BETTER DEAL – more or less. This scintillating rocket shot never got off the ground. Word around the DNC is that they are vetting candidate public relations outfits to take on the challenge of coming up with something even hotter.   One uninvited proposal is: “Know when to hold ‘em, know when to fold ‘em.”

Anyway, inequality is still with us and growing worse. Here are some lengthy thoughts on the subject.  Signed, Michael Brenner, [email protected]


INEQUALITY

INEQUALITY had promised to be around for quite some time. Both as a condition and as a subject of persistent if desultory discussion. It got lift-off with the publication of Thomas Picketty’s eponymous tome in 2014.  Booster rockets kicked in during last year’s presidential campaign. It has all the ingredients that mark out a topic’s staying power: diffuse, abstract, liable to multiple definitions, connotations negative enough to arouse interest yet too feeble to spur action (at least in America), and poly-syllabic. This last quality allows commentators and politicos to sound grave when invoking it without requiring them to actually say something serious or sensible. To date, not a single OECD country has initiated a program to alleviate it. Indeed, the United States is on the brink of taking measures that will markedly widen the gap.

So, we should prepare ourselves for a flood of “inequality” talk in the public and academic lexicons where it will vie with “populism,” “reform”, divisiveness, Russian hacking, diversity and those other terms that flit through cyberspace touching down only long enough to trace their presence on the surface of our impenetrable psyches. Meanwhile, artful dodgers with a stake – material or doctrinal – in the status quo will do their best to obscure and confound.*

I.

In fact, neither the reality nor the cure is as mysterious as commonly made out to be. A few facts.

Inequality of income in the United States began to widen in the early 1970s. That is to say, 45 years before the much blamed robotic/IT so-called Revolution – and at the early stages of the progressive integration of national economies we call “globalization.” The pace accelerated beginning with the Reagan years, followed by Clinton’s deregulation plunge, and the bubbles of the past 20 years. Since the great financial collapse of 2008, the concentration of riches at the top layers of the income pyramid has been at the expense of all those below them who have experienced

That condition derives in large part from the under-taxation of the wealthy and corporations. The latter has perfected the art of tax evasion with the passive acquiescence of government authorities in Washington and London and the active facilitation of tax havens in Ireland, Luxembourg, the Netherlands, and elsewhere. The resulting depletion of treasury coffers aggravates inequality by denying resources for such expensive items as public transportation and daycare which could alleviate the burden on family budgets which otherwise must accommodate costly private services.

The blunt truth is that American salaried workers overall have experienced either near stagnation or an actual drop in real disposable income. Since 1973, 90% + of the national increase in the country’s GDP has gone to the top 4%. If distribution rates among income levels had been constant since 1973, roughly $ 3 trillion dollars of income among the top ten percent (the majority going to the top 1%) would be in the pockets of the other ninety percent (or in the federal Treasury where it could have been used to build infrastructure, pay for a national health care program, provide subventions for college tuition, child care services, or decent accommodations for the aged.

Since 2008, roughly $2 trillion has been transferred into the accounts of the top `10% (again, the lion’s share going to the super-rich) from the lower 90%.  The September 2017 Federal Reserve Bulletin on page 10 informs us that “The distribution of income and wealth has grown increasingly unequal in recent years.” The Fed Bulletin article covers the period before the dark shadow of the Trump regime was cast over the world.1

The authors of the Fed article offer up statistics from the Survey of Consumer Finances (SCF) that show that:  “Families at the top of the income distribution saw larger gains in income between 2013 and 2016 than other families, consistent with widening income inequality.” The share of income of the top 1% went up from 20.27% in 2013 to 23.80% in 2016.  The share of those in the bottom 90% declined from 52.73% in 2013 to 49.69% in 2016.

These numbers do not include the sharp erosion in job security and accompanying anguish, reduced health and retirement benefits (along with physical and mental health), and deteriorated working conditions for most salaried persons. The latter add to the social and environment factors that have produced a lowering of life expectancy unprecedented since reliable statistics have been kept.

The numbers speak for themselves – or SHOULD speak for themselves. Yet, a very large majority of economists deny the compelling truths that they reveal. Instead, quasi-mythic elements are substituted. The most pervasive, foundational myth is the claim that there are “objective” factors at work generating powerful, perhaps irresistible pressures toward inequality. “Objective” refers to factors beyond the direct control of state authorities. We read and hear this litany every day in variations of a theme that first topped the charts when played by Thomas Friedman 20 years ago. One can hardly pick up a paper, a journal, a book, or a scholarly conference paper without noting the reference to robotization, globalization, functional specialization, and STEM education – the Four Horseman of the Inequality Apocalypse. Trucks will drive themselves, vehicles will be built by robots because the vehicles themselves are smart (an assertion whose logic is obscure – its wide acceptance notwithstanding (Gyes), investment decisions will be made by algorithms, our children taught by corporate produced computer programs, our eggs dropped on our driveways by drones, our ailments diagnosed on the web and treated as dictated by data banks, etc, etc. A coterie of high tech magicians will create and maintain these electronic masters; the rest of us will compete for gigs and with impoverished retirees to serve as McDonald’s sweepers and COSTCO greeters with clickers in hand.

II.

Inequality is strongly correlated with low public revenues and low public spending. There are macro-economic linkages, philosophical linkages, and political linkages. In the United States and Great Britain, stringent governmental spending on everything but the military and Intelligence services translates generates additional pressures on working families that lower the value of their household incomes.

The great paradox is that this portrait is sketched in exquisite detail by people who take the Long Island Railroad/Metro, fly United Airlines, borrow to pay for university tuition as approved by Equifax – tuition charged by state universities abandoned by state legislatures, dread their offspring every finding themselves in a much-ballyhooed MOOC course, rush their kids to the ER for overdosing on opiates, spend a fortune on drugs to treat their (supposed) autist youngest child who is obsessed with code writing, provide room and board for a 31 year old son (a certified graphic designer) whose job was outsourced to India or given to a pliable H-4 immigrant at the insistence of Bill Gates and Zuck, support millions of prisoners overwhelmingly from the lowest income brackets at a cost greater what is spent on American higher education, and fund a military/Intelligence complex to the tune of $1 trillion annually to secure – unsuccessfully –  them from everything except their free-floating anxieties.

This phenomenon is called “cognitive dissonance.” It also is called “dogmatism” – and “careerism.”

There is, of course, some truth to the assertion that these elements in the world economic equation militate toward wage leveling, i.e a narrowing gap between American and Indian IT workers. But they are hugely exaggerated in the overall assessment of inequality. How do we know this? Well, there are some other facts staring us in the face – or, in the face of anyone you have not equipped himself with blinders. Simply put, some developed countries show far less inequality than does the United States. This is despite their being much more integrated into the global economy than we are. Yes, some of the same trends are noticeable but their effects are far milder – opening an enormous gap between the U.S. and them.  And they pay little if any price in GDP growth despite following the same flat-earth economic nostrums – austerity –  purveyed by equally misguided economists.

There is a commonly used measure of inequality within a national economy: the GINI co-efficient (GINI is not an acronym, rather the name of its original formulator).

Here are some numbers:

  • The Dominican Republic   .47
  • The United States     .46
  • Russia                   .42
  • Germany             .30
  • France                  .33
  • Belgium               .28
  • Netherlands        .28
  • Sweden                .27
  • Denmark              .29
  • Finland                 .27
  • Italy                      .35
  • Japan                    .32
  • Switzerland         .31
  • Pakistan             .30

Corrupt Autocracies

  • Egypt        .30
  • Sudan        .34
  • Belarus        .26
  • Uzbekistan   .37
  • Vietnam        .38

The implications are transparently clear:

  1. It is public policies and the structural features of an economy they shape that are the prime determinants of inequality,
  2. The United States, on this score, is out-of-step with nearly all of the developed world
  3. The answers to American inequality are to be found in its politics, its social philosophy, and its culture. These are not immutable – as witnessed by the relatively recent regression from quite different government roles and outcomes in the period between 1933 – 1973.
  4. The difference in GINI scores between the United States and Sweden is 19%. Those numbers tell us that if we had the same score as Sweden, roughly $3 trillion would be transferred from the upper brackets to the middle and lower brackets. Disaster? In fact, the Swedish economy does quite well in the same environment we inhabit – despite its much smaller economies’ leaving authorities less latitude to maneuver.
  5. The federal poverty line is $11,892 for individuals and $23,836 for a family of four.  The official poverty rate is 14.5%, meaning 45.3 million people in the US live in poverty, up by over 8 million since 2008. An additional 97.3 million (33%) of people living in the United States are low-income, defined as incomes below twice the federal poverty line, or $47,700 for a family of four. Taken together, this means that 48% of the US population is poor or low income, 1 in every 2 people.  More than 1 in 5 children in America (21.8%) are living under the official poverty line. Half of all children will be on food stamps before they turn 20, including 9 out of 10 African American children. 2

Predictably, there is strong resistance to this logic. Even stronger resistance to proposal or remedying the situation. It spurs a variety of rationalizations for explaining away the obvious.

One stresses the point that per capita income in higher in the U.S. than in the majority of other developed countries cited. Therefore, inequality is taken to be a spur to growth. BUT – the discrepancy was considerably greater in an earlier period when the United States was a more egalitarian economy than it is today. Moreover, in the period leading up to the financial crisis, a number of European countries characterized by high taxes and public spending did appreciably better than the U.S. (e.g. Denmark, Germany, the Netherlands). Plus, natural endowments and demographics are the explanation for wealth differences going back at least 150 years.

Plus, the numbers are skewed by the exceptional financialization of the U.S. economy (the financial sector accounts for approximately 30% of the economy)that generates a huge amount of “virtual” wealth whose inclusion in GDP numbers is debatable. Plus, the formula to measure inflation in the U.S. is questionable on numerous grounds.3 It was calculatedly altered under Bill Clinton to minimize the Consumer Price Index and, with it, yearly increases in Social Security outlays. There is a persuasive argument to be made that the inflation discounter of GDP growth should be greater than it is in official statistics. When population increase is added to the equation, U.S. growth rates look anemic over the past two decades.

III.

More numbers. American salaried workers put in many more hours per year than their counterparts.

Some figures:

Average annual hours actually worked per worker

OECD ranking

2016[33]
RankCountryHours
1 Mexico2,255
2 South Korea2,069
3 Greece2,035
4 Chile1,974
5 Russia1,974
6 Poland1,928
7 Latvia1,910
8 Israel1,889
9 Iceland1,883
10 Ireland1,879
11 Estonia1,855
12 Portugal1,842
13 United States1,783
14 Czech Republic1,770
OECD average1,763
15 Hungary1,761
16 New Zealand1,752
17 Slovak Republic1,740
18 Italy1,730
19 Japan1,713
20 Canada1,703
21 Spain1,695
22 Slovenia1,682
23 United Kingdom1,676
24 Australia1,669
25 Finland1,653
26 Sweden1,621
27 Austria1,601
28  Switzerland1,590
29 Belgium1,541
30 Luxembourg1,512
31 France1,472
32 Netherlands1,430
33 Norway1,424
34 Denmark1,410
35 Germany1,363

 

Note that the American worker, on average, works 30% more hours than does his German counterpart – and more than anyone else in the OECD world. In other words, his income on an hourly basis is disproportionately high. This strongly suggests that German productivity is markedly higher there than here. Official productivity numbers say otherwise. That in itself is a good reason to take a hard, skeptical look at how those numbers are calculated.

We should note that there is another factor in the equation: wide discrepancies in output per worker-hour between the pre-unification West German lander and the eastern lender absorbed 25 years ago.  That is to say, output and income may well be substantially higher in the former – close to that of the U.S. despite a very low total annual workload. That still leaves the puzzle of the odd productivity figures.

Is a partial answer to the questions posed by the anomalies in official economic statistics is to be found in the country’s balance of trade? In the last year (2015) for which there are numbers, the United States trade deficit was $565 billion. On a year-to-year basis, it rose to over $660 billion in September 2017. This means that there we received more than half a trillion dollars worth of goods and materials that were paid for in dollars – dollar-denominated IOUs. These dollars were added to the many trillions in off-shore dollars that other governments and private parties are willing to hold because the dollar acts as an international reserve currency and an international transaction currency. (China alone holds between $1.5 and 2 trillion).That is to say, for the world as a whole, it performs the essential two functions of common world currency: a storehouse of value, and a medium of exchange.

In effect, the United States has been the beneficiary of an annual “gift” worth $565 billion in goods since the claims on the United States represented by those dollars we send abroad are not exercised; they are “recycled” via reinvestments either in the US or dollar assets: United States: acquisitions, equities, securities, real estate. The majority has been retained outside the United States where it is deposited in central bank reserves and used to settle 3rd party accounts. (Petroleum on international markets is not only denominated in $US but payments are made and received in dollars. When Japan purchases crude petroleum from Saudi Arabia, it pays in dollars). This practice began in earnest in the early 1970s and continued uninterrupted ever since. The aggregate amount is more than $10 trillion.  No other economy enjoys this privilege.

The “freebies’ received by the United States do not affect foundation national economic statistics directly (that is to say: GDP, employment rates, inflation), except to the extent that unloading, transfer, shipping, etc are recorded as part of GDP. A little reflection, however, does tell us that they do register indirectly.

In the most basic sense, it enables the U.S. to avoid the path of austerity- with all its follow-on consequences – which every other ‘ordinary’ country must do when it runs large, chronic payments deficits. This is American “exceptionalism” in practice.

In addition, the recycling of dollars back into the American economy via investments is a boost to growth. Dollars printed by the Federal Reserve flow abroad and a fraction return as investments. Of course, the same effect could be created by following a very loose monetary policy, but the indirect method has fewer complications.

Finally, the availability of goods and materials paid for in pieces of paper/electronic dots eases the cost to consumers who otherwise would have to compete for more limited amounts – therefore, pay higher prices – for now abundant goods available at cheap prices. A national economy that consumes more than it produces can only get away with that so long as other parties are ready to accept your currency in enormous amounts – and to do so indefinitely.

This phenomenon helps to explain the decades-old misperception that nothing fundamental has changed in the workings of the American economy – this in the face of unprecedented wage stagnation and a historic shift of wealth upwards in the income pyramid.

The illusion that all’s well was first masked by the upsurge of women into the workforce which pumped up family income. To that was added to massive borrowing and indebtedness which contributed to the financial crash of 2008. And, throughout this period, Americans were given access to cheap Walmart T-shirts, appliances, etc to the tune of $500-600 billion per annum.

The effect is most pronounced among the working poor. A $600 billion trade deficit translates into $2,000 per capita – approximately. $8,000 for a family of 4. The poverty line for that family unit is $28,000. In short, it can be argued that imported “freebies” make the difference between destitution and subsistence for millions of Americans. Between political passivity and rebellion. To some immeasurable degree, it’s those $4.95 polo shirts and $14.95 jeans that keep tens of millions of the poor off the streets and away from the polling booth.

In short, the country as a whole life at a higher economic standard than its performance has earned. To get some perspective on this, imagine if proportional amounts of free goods were poured into France over the past 35 years: $ 2 trillion.  The French would be smothered in vintage wines, gourmet food, glamorous sports stadiums, neighborhood pools everywhere, fancy SUVs, etc.  The congenitally grumpy Gauls might even stop complaining or at least mute their complaints. Moreover, the world’s media would be spotlighting the glittering French way of life, and the economic gurus would be explicating how the rest of us could follow their example.

By contrast, where government policies follow the market-fundamentalist path pioneered by the United States (and the United Kingdom), inequality appears like night after day. Consider Germany after 12 years of Angela Merkel’s Conservative rule where emulation of the American model has been in vogue.. In the 20 years after 1995, Germany’s GINI has risen from .24 to .32. It is a country where the percentage of the population under the poverty threshold has grown by 54% in ten years, where the working poor has doubled in number in ten years, where the number of workers doing two jobs has increased by 80% in twelve years, and where the percentage of retirees under the poverty threshold has increased by 30% in ten years [Eurostat figures].

IV.

How do we close the inequality gap?

The absolute precondition is to reject the myth that the current pattern is somehow predetermined. In fact, we are captains of our fate to a far greater degree than the economists and their paymasters claim. There are hundreds of ways by which governmental actions of commission or non-commission have led to the existing distortions. ** It would take a book to detail them all. Let’s just note some outstanding examples.

  1. Raise taxes on corporations and the rich and close the myriad of tax loopholes that they are permitted to exploit. Simply restoring the rates in force in the 1950s and 1960s, and rigorously enforcing the tax laws, would yield hundreds of billions annually. By the way, rates of GDP growth in that “high tax” era eclipsed by several percentages points what we have experienced over the past 35 years.
  2. Crackdown on tax avoidance and tax evasion. The trillion or more that corporations have stashed abroad should be repatriated by any legal means permitted by the Constitution – bolstered by a relentless campaign of political suasion.
  3. Take steps to strengthen trade unions and to enforce fair practices
  4. Introduce a hefty, across-the-board raise in the minimum wage. Today’s minimum wage levels are well below what they were in the first decades of their application. Then, their presence correlated positively with economic growth and job creation. Current minimum wages have been progressively eroded by inflation to the point where an employee who earns its qualities for food stamps and income support. Walmart, the country’s Number q e, employee, has a formal program to inform its employees on how to apply. The notion that a higher minimum wage will result in job losses is just another red herring dragged into the political debate so as to preserve the advantages of those who exploit labor. That hoary claim has been around since the Pharaohs when doubtless builders contracted to construct the pyramids warned that if they were required to provide two bowls of gruel a day to workers instead of one, they couldn’t turn a profit – and, in the future, would refuse pyramid commissions to take on the Hanging Gardens of Babylon project, instead…
  5. A comprehensive strategy must be devised to curb the spike in housing/apartment costs. Constraining diverse forms of speculation in real estate is one obvious measure
  6. End the abuse of H-4 visas that supply the high tech and financial industries with pliable workers from abroad at the expense of equally qualified Americans
  7. Mount a campaign to stigmatize the corporate practice of outsourcing/’temping’ that shifts the cost of inferior service onto customers – a time and inconvenience expense that lowers their standard of living
  8. Most important, reify a national commitment to social programs aimed at compensating for downward wage pressures. In short, transfer a substantial fraction of the cost-of-living from low-paid wage-earners to those who are undue beneficiaries of contrived income distortions via the intermediation of the Federal and state governments. Every dollar spent in the categories noted above – health care, child care, retirement care, education, public transportation, etc – reduces the financial pressure on individual and family wage earners. The cumulative amounts would be several thousand per capita per annum. That will bring down the GINI to the level at which other developed societies live and thrive.

That is what’s called civilization.

  1. Break the stranglehold that economic doctrines downplaying the weight given inequality have over public policies, international financial organizations, and the economics profession. The United States, supported by its wealthy partners, controls not only national policy-making but bodies such as the IMF and World Bank as well. They are at once ideological and political instruments for ruling interests and ideas. The so-called “Washington Consensus” that has guided their programs for decades is built on market fundamentalist principles and the force-feeding of austerity policies. Cuts in public spending, the ending of food subsidies, reduced regulation of commerce, drastic privatization and lowered business taxes are the key ingredients. Together, they inescapably widen income gaps everywhere they are applied – among European debtor countries as well as in the developing world.

The buzz about inequality over the past couple of years has not changed that. It is true that the research sections of the IMF and World Bank recently have produced a few papers that call attention to the adverse effects on equitable wealth distribution of the standard “reform” package. That notion even has crept into the latest edition of the IMF’s World Economic Outlook. Any honest analysis will reach the same conclusion. However, the policy at the top, and therefore actions, have not changed in the least.

The heads of those organizations serve as front men for the governments (led by Washington) who are wedded to the status quo.

Here is Mark Weisbrot, Co-Director of the Center for Economic and Policy Research, on the subject of the influence exerted by the powers-that-be on the IMF:

“they’re still the brain trust for the austerity that you’ve seen in Europe and for a lot of policies that affect developing countries. And so, you have right now, a recognition that the global economy and globalization hasn’t worked too well in some of the high-income countries. But a lot of people defend it. A lot of people defend the globalization that’s designed here in Washington as something that really helps the poor, the majority of people in the world. And so here’s the IMF and the World Bank.

They’re the main ones that have this influence. They have real power too, because in a lot of countries if you don’t get an agreement with the IMF, you won’t get loans from the World Bank or from regional banks, or sometimes even the private sector.” Then there is the omnipresent prescription for “so-called labor law reforms that reduce the bargaining power of unions even though they say they care about inequality.

“Well, the IMF is changing some in its research department. That’s where you see the changes in theory. “Now when you look at the IMF documents and they say wonderful things. You do see a lot of these acknowledgments in the latest World Economic Outlook that there’s too much inequality. Even that there’s a need for governments to spend money. But when it comes down to it, if you look at their actual policy, that has not changed much at all.”

That is the doctrinal and political reality in Washington – in Congress, in the White House, and on 19th Street, in Brussels & Frankfurt, and in academia.

CONCLUSION

For 35 years, the United States took a different, more enlightened approach. We created a dynamic country on all fronts and, simultaneously, a more equitable one. There was no mass rebellion of the era’s Tea Party-like Bashi Bazouks instigated by the plutocrats.


NOTES

Here’s the whole table.

Income shares by income percentile

Simultaneously, and more importantly, the wealthiest 1% also now hold a greater share of the country’s wealth.  Here are government figures on wealth distribution from 1989-2016.

These figures indicate that the share of the wealth of the top 1% increased by over 2.3% from 2013 to 2016 with most of it, essentially, coming at the expense of the bottom 90%.  This increase in the share of the country’s wealth held by the 1% was more than twice the total share of wealth held by the bottom 50% in 2013 (1.05%.)

The changes in the share of wealth percentages indicate that if the total U.S. wealth remained constant from 2013 to 2016 at $88.1 trillion (as it was estimated to be in the first quarter of 2016,) the wealth held by the richest 1% from 2013-2016 increased from $31.98 trillion to $34.05 trillion, or by more than $2 trillion in just three years.

With the recent rise in the stock market, wealth inequality has presumably increased from where it was in 2016.  Greater wealth inequality will further increase if the recently proposed Republican tax cuts are enacted.

  1. According to Federal Reserve studies, more Americans in the 24-34 age group live at home with parents than independently, and that it is those 55 and older who are taking part-time jobs.  Why is this?  The answer is that part-time jobs do not pay enough to support an independent existence, and the Federal Reserve’s decade long zero interest rate policy forces retirees to enter the workforce as their retirement savings produce no income.
  1. Examples:

Tax increases – whether real estate or income vis bracket creep – are excluded. Food and energy are excluded from the “core” inflation rate due to their volatility.

The substitution switch. Another of the self-serving alterations in the CPI formulation was to introduce the functionality principle. Simply put, if the price of Choice steak goes up, one drops it from the basket of hypothetical purchases and replaces it with a cheaper cut of meat that provides equivalent nutritional values.

Then there is the notorious “Hedonic Adjustment “ factor, If the new line of computers is offered that, at the same price, add features, the amount registered as a cost in the index is lowered to account for the alleged rise in gratification – even you don’t utilize the novel features or get your kicks from playing around with computers. The converse logic does not apply:

Sample: The present consumer price index measures airfares on the presumption that the “product” one purchases are constant. Hence, an airline seat in today’s “sardine class” minus luggage privileges is taken to be the same as a seat purchased in 1973.  To be accurate, the price midway between Economy and Business should be used. These “miscalculations’ are made systematically.

The mendacity of this contrived methodology is carried to such extremes that a washing machine with a ‘touch’ control panel (instead of a mechanical dial) is defined as a hedonistic luxury for which the CPI will be discounted. These official statistics are meant to be objective, determined by scientific methodology.

They manifestly are not. The 1990s alterations were made with political intention aforethought. Any economist or official who introduces “hedonism” into numerical calculations, and then pronounces them irreproachable, is being dishonest.

A President who signs off on them (Bill Clinton) or declines to correct them with the stroke of his pen (Barack Obama) is knowingly cheating millions of Americans of what rightly and legally is due them.  Political expediency is the excuse. It’s supposed to win elections for your party; in fact, it loses them – wholesale.

See the critique by William Gross, former PIMCO manager: http://www.marketwatch.com/story/us-inflation-understated-due-to-trio-of-factors-pimcos-gross   Also: http://www.shadowstats.com/article/consumer_price_index

  1. There is a piece of the inequality picture that I have set aside. It is the effect on governmental “give-back” programs, i.e. benefit values. I have done so for two reasons. First, it is extremely hard to come up with credible figures given their inherent ambiguity and complexity. Much of the writing on the subject is tendentious. That is to say, official calculations and many academic calculations are designed to produce results that exaggerate the effect of such programs in lowering the GINI of the United States – thereby, making the American market-fundamentalist model look better than it is from a wealth distribution vantage point.

Some examples.

One, much attention is paid 401K provisions of the U.S. tax code that allow generous deductions from taxable income of retirement savings.

Problems:

(1) a minority of Americans own 401Ks – one-third and they are disproportionally in the upper-income brackets);

(2)contributions and aggregate amounts vary over the course of a working life;

(3) one does pay taxes on withdrawals upon retirement.

This last is akin to cutting 12 inches off one end of a blanket, sewing it on the other, and claiming that you’ve made the blanket a foot longer. Therefore, reliable numbers for gross GINI co-efficient are elusive and easily manipulated.  Second, similar low confidence margins surround the practice of the home mortgage deduction.

Only a fraction of Americans are homeowners, mortgage rates vary over the course of time, it is progressively lowered over the life of the mortgage and after 30 years or so it ceases to be a factor in tax calculations, income is not a condition so even the rich benefit (up to one million dollars).

Third, health insurance provided by institutions like universities to employees. In other words, it is argued that the cost of health service should be reduced accordingly. But this rapidly disappearing benefit is available only to a minority of Americans. In addition, when one adds up deductibles, co-pays, higher premiums for dependents, etc, the actual benefit shrinks.  As the beneficiary of such a university plan, I still pay more out-of-pocket than does my French counterpart.

Then there is the tendency to undervalue the “give-back” benefits in countries with higher levels of public spending and more extensive social programs. What is the value of a communal pool? What is the value of reliable, more comfortable commuter transportation? Isn’t it a gross deformation to assign equal value to commuter rail in Germany or Sweden with the abysmal services available in New York, Philadelphia, Chicago, Boston, etc?

This is an area deserving of more unbiased study and closer scrutiny. For the time being, we are on the firmer analytical ground by disregarding it for purposes of assaying inequality.

  • The outstanding example of an attempt at “confounding” is to blur the distinction between inequality of reward and inequality of opportunity. Barack Obama was a master of this calculated deception. Improved odds on socio/economic mobility may, in theory, have some marginal effect on inherited status. It does not address the cardinal question of how national wealth is distributed among income levels. It plays on the historical American illusion that everyone has a chance “to make it big;” and those who don’t have only themselves to blame.
  • Putting aside powerful structural biases that make this anything but fair competition, it is a pernicious doctrine. What it means is that a few will be given a crack at the riches enjoyed by the financial wheeler-dealers, the Silicon Valley billionaires, the real estate moguls, etc while everybody else makes do with the scanty rations that are leftover. Strip away the gloss, and what you would have (ideally) is a national lottery that rewards the winners with fortunes fit for the Great Mogul and the rest will earn meager sums to sweep up the discarded loser tickets.

This is what Obama, Hillary, and the rest of the corporate Democrats call ”A Better Deal.”

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2 COMMENTS

  1. The facts were spelled out in the article to my less intelligent tea party Evangelical Republicans.

    Nine

  2. I await more delusional comments like the one above from the peanut gallery of VT.

    Current Republicans are domestic enemies.

    Nine

Comments are closed.