What does the financial services industry actually do? Financial intermediaries primarily deal with each other by moving money around in complex transactions, to a large extent through securitization, in which assets are transformed into securities and resold countless times. By far the greatest part of the financial flows is [are] recycled back and forth, with the main purpose to generate profits and outdo competitors. Only a fraction flows into the real economy to finance sustainable businesses and create jobs.
In recent decades, wall Street has celebrated the self-indulgent glamor and desirability of greed, wealth, and excess, just qas society hs glorified the financial world’s unbridled capitalism, often on TV, in glossy magazines, in Hollywood blockbusters such as Wall Street , and best-selling novels like Liar’s Poker. Wall Street’s excessive compensation to some extent is also a manifestation of our society’s values. Surgeons don’t get paid bonuses if they save lives, and policemen make a fraction of bankers’ salaries even though they put their own lives at risk for the benefit of others. This compensation gap implies that our society assigns greater value to making money than it does to preserving lives.
In 2015, two extraordinary federal corruption trials in New York led to the convictions and resignations of the state’s two most powerful legislative leaders in Albany and exposed long-hidden bribery connections to Mr. Litwin’s empire, laying bare a seamy world of payoffs, political favors and legislation that reaped staggering profits and savings for the real estate industry, and for Glenwood Management in particular.
Growth ditch: A meager GDP expansion won’t suffice
THE EDITORIAL BOARD
MAY 3, 2017
It’s too early to draw any large conclusions about the performance of the U.S. economy during the Trump administration, but the first quarter of 2017’s growth rate, 0.7 percent, is distressingly low.
North Korea’s growth rate is estimated at between 1 and 1.5 percent, by comparison.
The U.S. stock market, among the economy’s leading indicators, continues to go up. The investor class reaps immediate benefit, pension plans and 401(k)s get a boost, and consumer spending is bolstered by the wealth effect. Yet a large number of Americans do not realize gains.
A Pew Research Center study released last week found that between 1991 and 2010 the American middle class had shrunk, from 62 to 59 percent of adults in middle-income households. The number of rich and the number of poor had increased as the middle class was hollowed out. Income, in effect, was redistributed from the middle class to the upper-income class as economic inequality widened.
The same Pew study found that U.S. performance with respect to the fate of the middle class was worse than that of the other 11 countries in the study. Advocates of globalization will find it hard to argue that America is benefiting from the present arrangement.
The contraction of America’s middle class has led to frustration with and distrust of its ruling political elite, contributing to the vote for Mr. Trump in November, particularly from the “forgotten people.” Political developments such as the non-repeal of the Affordable Care Act, the non-rocket start of the tax reform bill, and the threat of yet another war, with North Korea — as opposed to progress on infrastructure construction and repair — are undoubtedly making those who voted for Mr. Trump in hopes of an economic resurgence, including growth and jobs, begin to wonder. Yet turnout at his rallies, such as Harrisburg on Saturday, would suggest that he still has time.
As far as overall economic prospects for America are concerned, the long-term decline of the middle class in favor of the rich and the poor, and the economy’s feeble 0.7 percent growth rate so far this year, are real signs of reason for grave concern on the part of our leaders. We have seen distress already in three-and-four-job families, opioid deaths and people just dropping out of the economy, but the Pew study and the sub-North Korea growth rate has placed frightening data meat on the bones of concern.
Researchers have answered a big question about the decline of the middle class
America is getting richer every year. The American worker is not.
Far from it: On average, workers born in 1942 earned as much or more over their careers than workers born in any year since, according to new research — and workers on the job today shouldn’t expect to catch up with their predecessors in their remaining years of employment.
Stagnant or falling earnings have put a squeeze on working- and middle-class households. The trend has also widened the gap between the rich and everyone else as, overall, the economy has continued to grow overall but the bulk of those gains have ended up in the pockets of the affluent.
For instance, the typical 27-year-old man’s annual earnings in 2013 were 31 percent less than those of a typical 27-year-old man in 1969. The data suggest that today’s young men are unlikely to make up for that decline by earning more in the future.
Women have done much better than men. More women have entered the labor force and taken on more prestigious and remunerative careers. Still, women are making less than men over their working years, and women’s rising earnings have not made up for the decline in men’s incomes for the population as a whole.
Recently, women’s progress has stalled, in part due to the financial crisis. The typical female worker who was 27 in 2013 made no more than the typical woman of that age did in 1980.
As more women entered the labor force, median household incomes rose even as incomes of individual workers of a given age stagnated, with families using extra workers to bring home more money. But that climb ended in 1999, and since then, median household incomes have fallen, according to the census.
“Overall, this is a pretty bleak picture,” said Fatih Guvenen, an economist at the University of Minnesota and one of the authors of the new paper.
The study, published Monday by the National Bureau of Economic Research, has not been peer reviewed, so other economists may yet challenge both specific results and the paper’s general conclusions. All the same, the research offers an answer to a couple of important questions that have been nettling economists.
In particular, the results show that more unequal incomes are not just a result of a widening gap between younger and older workers. Even among older workers, typical incomes have been falling while the wealthiest have been enjoying more and more of the economy’s gains. Poorer workers — who tend to be younger — will earn more as they get older, but they are not likely to earn enough to make up the difference.
“This idea that we’re having this progression of increasing incomes over time — I think that might be true for the upper regions of the income distribution but not for the median,” said Nathaniel Hendren, a Harvard University economist who was not involved in the study.
Among workers of a given age, some will climb the ladder quickly. Medical students and interns, for example, might begin their careers with incomes near poverty and then get rich in middle age. Incomes might even decline for other workers, such as professional athletes, musicians or technology entrepreneurs who never manage to build on an initial success.
Those cases are unusual, however. The new research shows that in the past, a good guide to forecasting typical career earnings among Americans of a given age has been their average income they were 25.
The implication, Guvenen argues, is that economists should search for explanations for households’ current financial woes in the youth and childhood of today’s workers.
“We are maybe looking at the wrong place for the solution to stagnation in wages and rising inequalities,” Guvenen said. “To understand higher inequality, we should turn and take a closer look at youth.”
It remains to be seen whether the situation will improve in the future for younger workers today, but their prospects seem dim. Young workers’ incomes are still declining today, suggesting that their trajectories over the rest of their careers will be lower as well.
“Things just keep looking worse,” Hendren said.