An imbalance between rich and poor is the oldest and most fatal ailment of all republics.
The causes which destroyed the ancient republics were numerous; but in Rome, one principal cause was the vast inequality of fortunes.
In the long run men inevitably become the victims of their wealth. They adapt their lives and habits to their money, not their money to their lives. It preoccupies their thoughts, creates artificial needs, and draws a curtain between them and the world.
The man of great wealth owes a peculiar obligation to the state because he derives special advantages from the mere existence of government.
Anyone with common sense recognizes that the growing disparity in wealth between the upper class and the middle class is inimical to the long term peace and harmony of our country: US.
Capitalism produces prosperity for the many and just as certainly creates gross inequality of wealth. Do Donald Trump, George Soros, and over-paid hedge fund mangers, really need billions to be happy? while others struggle to pay the rent to avoid homelessness and traumatic dislocation for their kids?
The rich are different; they get richer
By Harold Meyerson, Published: March 27
Occupy Wall Street is not known for the precision of its economic analysis, but new research on income distribution in the United States shows that the group’s sloganeering provides a stunningly accurate picture of the economy. In 2010, according to a study published this month by University of California economist Emmanuel Saez, 93 percent of income growth went to the wealthiest 1 percent of American households, while everyone else divvied up the 7 percent that was left over. Put another way: The most fundamental characteristic of the U.S. economy today is the divide between the 1 percent and the 99 percent.
It was not ever thus. In the recovery that followed the downturn of the early 1990s, the wealthiest 1 percent captured 45 percent of the nation’s income growth. In the recovery that followed the dot-com bust 10 years ago, Saez noted, 65 percent of the income growth went to the top 1 percent. This time around, it’s reached 93 percent — a level so high it shakes the foundations of the entire American project.
While never putting a premium on economic equality, America has always prided itself on being the preeminent land of economic opportunity. If all of this nation’s wealth is captured by a narrow stratum of the very rich, however, that claim is relegated to history’s dustbin. Research by Julia Isaacs of the Brookings Institution, as part of the Economic Mobility Project, has shown that intergenerational mobility in the United States has fallen far below the levels in Germany, Finland, Denmark and other more social democratic nations of Northern Europe. Now, Saez’s analysis of income data provides further evidence that mocks America’s self-image as a land where hard work yields rewards.
How has the top 1 percent been able to decouple itself from the nation beneath it? To begin, much of its income comes from investments in funds and firms that are raking in profits from overseas ventures in economies like China’s, which weathered the downturn better than ours. Much of those firms’ profits also derive from their reduced labor costs — the result of layoffs and paycuts. Finally, as Saez points out, there has been “an explosion of top wages and salaries” since 1970. In that year, 5.1 percent of all wages and salaries paid in the United States went to the wealthiest 1 percent. In 2007, the share going to the wealthiest 1 percent had more than doubled, to 12.4 percent.
The consequences of this concentration of wealth and income extend beyond the purely economic. A middle class enduring prolonged stagnation isn’t likely to fund projects the nation needs to undertake — such as rebuilding our infrastructure or increasing teacher pay — or, ultimately, to retain its faith in the efficacy of democracy. The rise of super PACs, the low rates of taxation on capital gains and hedge fund operators, the ability of the major banks to fend off reform — all testify to the power of a neo-plutocracy beyond democratic control
Most proposals to restore a modicum of balance to the American economy focus on making the tax code more progressive. Raising the tax on investments to the level of the tax on wages, for instance, and increasing the inheritance tax would help start reconstruction of a more viable economy.
But changes to the tax code, indispensable though they would be, aren’t remotely sufficient to the challenge of restoring the broadly shared prosperity that Americans enjoyed in the mid-20th century. That would require changing some laws to give stockholders and other corporate stakeholders the power to diminish the share of corporate revenue routinely claimed these days by top executives — at the expense of everyone else. It would require revitalizing unions. David Madland and Nick Bunker of the Center for American Progress recently found that in 1968, when 28 percent of the workforce was unionized, 53 percent of the nation’s income went to the middle class. In 2010, when 11.9 percent of the nation’s workers were unionized, the share claimed by the middle class had fallen to 46.5 percent.
Capitalism can create prosperity, but left unfettered it doesn’t create broadly shared prosperity — and never will. If belief and participation in democracy are sustained by people’s conviction that democracy produces good economic outcomes, then the growing concentration of wealth and income in the United States is a long-term threat to everything we profess to stand for. A nation where 93 percent of income growth goes to the top 1 percent is not a nation that will embark on great projects, or long command the allegiance of its people.
The Rich Get Even Richer
By STEVEN RATTNER
Published: March 25, 2012
NEW statistics show an ever-more-startling divergence between the fortunes of the wealthy and everybody else — and the desperate need to address this wrenching problem. Even in a country that sometimes seems inured to income inequality, these takeaways are truly stunning.
In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households.
Still more astonishing was the extent to which the super rich got rich faster than the merely rich. In 2010, 37 percent of these additional earnings went to just the top 0.01 percent, a teaspoon-size collection of about 15,000 households with average incomes of $23.8 million. These fortunate few saw their incomes rise by 21.5 percent.
The bottom 99 percent received a microscopic $80 increase in pay per person in 2010, after adjusting for inflation. The top 1 percent, whose average income is $1,019,089, had an 11.6 percent increase in income.
This new data, derived by the French economists Thomas Piketty and Emmanuel Saez from American tax returns, also suggests that those at the top were more likely to earn than inherit their riches. That’s not completely surprising: the rapid growth of new American industries — from technology to financial services — has increased the need for highly educated and skilled workers. At the same time, old industries like manufacturing are employing fewer blue-collar workers.
The result? Pay for college graduates has risen by 15.7 percent over the past 32 years (after adjustment for inflation) while the income of a worker without a high school diploma has plummeted by 25.7 percent over the same period.
Government has also played a role, particularly the George W. Bush tax cuts, which, among other things, gave the wealthy a 15 percent tax on capital gains and dividends. That’s the provision that caused Warren E. Buffett’s secretary to have a higher tax rate than he does.
As a result, the top 1 percent has done progressively better in each economic recovery of the past two decades. In the Clinton era expansion, 45 percent of the total income gains went to the top 1 percent; in the Bush recovery, the figure was 65 percent; now it is 93 percent.
Just as the causes of the growing inequality are becoming better known, so have the contours of solving the problem: better education and training, a fairer tax system, more aid programs for the disadvantaged to encourage the social mobility needed for them escape the bottom rung, and so on.
Government, of course, can’t fully address some of the challenges, like globalization, but it can help.
By the end of the year, deadlines built into several pieces of complex legislation will force a gridlocked Congress’s hand. Most significantly, all of the Bush tax cuts will expire. If Congress does not act, tax rates will return to the higher, pre-2000, Clinton-era levels. In addition, $1.2 trillion of automatic spending cuts that were set in motion by the failure of the last attempt at a deficit reduction deal will take effect.
So far, the prospects for progress are at best worrisome, at worst terrifying. Earlier this week, House Republicans unveiled an unsavory stew of highly regressive tax cuts, large but unspecified reductions in discretionary spending (a category that importantly includes education, infrastructure and research and development), and an evisceration of programs devoted to lifting those at the bottom, including unemployment insurance, food stamps, earned income tax credits and many more.
Policies of this sort would exacerbate the very problem of income inequality that most needs fixing. Next week’s package from House Democrats will almost certainly be more appealing. And to his credit, President Obama has spoken eloquently about the need to address this problem. But with Democrats in the minority in the House and an election looming, passage is unlikely.
The only way to redress the income imbalance is by implementing policies that are oriented toward reversing the forces that caused it. That means letting the Bush tax cuts expire for the wealthy and adding money to some of the programs that House Republicans seek to cut. Allowing this disparity to continue is both bad economic policy and bad social policy. We owe those at the bottom a fairer shot at moving up.
President, Institute for America’s Future
The 1% Strike Back
Posted: 03/29/2012 10:57 am
In 2010, as the economy began its slow recovery from the Great Recession, a new study shows the richest 1% of Americans captured a staggering 93% of all income growth, while the incomes of most Americans stagnated. 93%. Occupy that. The 1% are back.
The stock market — leading source of wealth for the few — rebounded. Housing — the leading source of wealth for middle income Americans — continued to decline. Median CEO pay soared a stunning 27%. When the 2011 figures come out, the disparities will be even greater. America is recovering the old economy’s extreme inequalities.
This divorce of the 1% from the rest of us is bad for the economy and for the democracy. It’s even bad for your health. The question is what can be done about it.
In the New York Times last week, financier Steven Rattner summarized the conventional remedies: “better education and training, a fairer tax system, more aid programs for the disadvantaged” to help them “escape the bottom rung.”
OK, but as Harold Meyerson suggests in the Washington Post, this agenda ignores the major source of the new inequality: the changes in how corporations reward their employees.
Who is in the 1%? As Emmanual Saez, the author of the inequality study report, writes, today’s top earners tend to be “working rich.” About a third (31%) of the top 1% are executives and managers outside of finance. Another 14% are “financial professionals.” Doctors are about 16%, lawyers 8%.
Inside our companies, CEO pay has soared, while worker pay has stagnated at best. According to the Institute for Policy Studies, CEOs are now making 325 times what the average worker makes. CEO pay has soared as companies have dramatically increased stock options as part of compensation packages. Worker pay has stagnated as companies have waged relentless and successful war on unions. Even mid-level executives have not shared in the fabulous rewards offered the top.
The Costs of CEO Excess
Ironically, the new concentration of rewards at the top is dysfunctional to companies, as well. As Roger Martin details in his brilliant, Fixing the Game: Bubbles, Crashes, and What Capitalism can Learn From the NFL, CEO pay exploded when companies adopted reward systems based upon maximizing shareholder value. Stock options were dramatically increased as a source of CEO pay, on the theory that the CEO would share the interests of shareholders. Before the change — from 1960 to 1980, CEO compensation per dollar of net income earned for the 365 largest publicly traded U.S. companies FELL by 33%. CEO pay rose, but they earned more for the shareholders for steadily less relative compensation. After 1980, as new compensation schemes came into play, CEO compensation per dollar earned doubled from 1980 to 1990 and quadrupled between 1990 and 2000. And, stockholders fared better in the earlier period than the latter.
In 1970, CEOs of S and P 500 firms earned an average of $850,000, with less than 1% coming from stock based compensation. By 2000, CEOs averaged $14 million in compensation in comparable dollars, with 50% coming from stock options. The pay packages are justified as “pay for performance,” but like we’ve seen with the AIG bonuses paid out after the failing company was nationalized, or Wall Street bankers adjusting to lower profits by increasing the percentage they take in bonuses, the pay is too often divorced from the performance. The fired CEO of HP, Leo Apotheker is a poster child. He got the boot after 11 months of abject failure, but walked away with $13 million in severance pay plusthe $10 million he pocketed as a signing bonus.
With stock options, CEOs have multi-million dollar personal incentives to focus on the market’s short-term expectations rather than the long-term health of the company. Worse, they also have multi-million dollar incentives to cook the books, plunder their own companies to meet short-term expectations, purge workers, move jobs to low wage centers abroad and more. With CEOs increasingly serving relatively short tenures, they clean up, get out and leave the ruins to their successors. The infamous Wall Street acronym — IBG-UBG — “I’ll be gone; you’ll be gone” — is rife in corporate suites, as well.
Not surprisingly, one result has been crime and scandal. The accounting scams of 2001-2002 — Enron, WorldCom, Tyco International, Global Crossing, Adelphia and more — were among the biggest business scandals in decades. Then a few years later the news about pervasive backdating of stock options exploded. Executives were routinely backdating their options to hit the lowest stock price in previous months. This enriched executives while defrauding shareholders, abetting tax fraud and committing corporate accounting fraud. The leading study showed that some 2000 American businesses had manipulated their stock option grants. Eventually, some 150 companies issued restatements; some executives were fired; some were fined, a handful went to prison. And the housing bubble, of course, followed that, and what the FBI called an “epidemic of fraud” that contributed to it. The scandals get worse as the pay soars.
To address growing inequality, something has to be done to transform the way we reward CEOs, to ensure that the rewards of rising productivity and profits are shared more fairly within the corporation. “Say on pay” legislation now gives shareholders the right to an advisory vote on CEO pay packages, and this spring is likely to witness numerous challenges to indefensible schemes. Shareholders and governing boards could push to eliminate stock-based incentive compensation, with a possible exception for that which vests after retirement. Some have suggested limiting the amount of pay companies can write off as a business expense to, say, $1 million (including the present cost of stock options), giving shareholders and boards the incentive to act. Others have suggested tying the tax rate companies pay to the pay ratio of their CEO to employees. Companies that limit CEO pay to 25 times that of median workers pay would pay a lower rate, with the tax rate rising as the gap widens. That would give shareholders and boards an added incentive to curb excessive compensation schemes.
Executive compensation needs to become part of the reform agenda. A first step has been built into the Dodd-Frank financial reform bill. It requires companies to report annually the ratio of CEO pay to that of their average worker, including employees abroad. The SEC has dawdled on issuing regulations, in part because of a furious lobbying campaign led by the Chamber of Commerce and legions of companies. Congressional Progressive Caucus co-chairs Raul Grijalva and Keith Ellison, and Senator Menendez, the author of the law, have recently called on the SEC to act. SEC Chair Mary Schapiro now promises to issue regulations in the next two months, but these promises have been made and broken in the past. Public pressure will be needed to make certain the corporate lobby doesn’t win further delay
The Decline of Worker Pay
On worker pay, the trends are equally stark. Productivity is up, profits are up, but workers are not sharing in the rewards. One major factor has been that we’ve allowed multinationals to control our trade policy, fecklessly running up unprecedented deficits with mercantilist nations like China, while facilitating the export of jobs abroad. Another major factor has been the unrelenting war on unions.
When unions represented 30% of the private workforce in the years after World War II, they helped workers capture a fair share of the profits and productivity they were creating. Union jobs set a standard that non-union employers had to compete with. And the union movement helped lift the minimum wages and fair labor standards for all.
Now unions are barely 7% of the private workforce. Companies routinely trample labor laws and use the threat of moving abroad to force pay and benefit cutbacks. The result has been a declining middle class. Analysts at the Center for American Progress recently found that in 1968, when 28% of the workforce was unionized, 53% of the nation’s income went to the middle class. In 2010, when 11.9% of the nation’s workers were unionized, the share claimed by the middle class had fallen to 46.5%. Not surprisingly, the states most hostile to unions were the states with the weakest middle class. A recent studyby economists estimated that the decline of unions accounts for up to one-third of the rise in economic inequality in the United States over the past 30 years.
Labor unions are under assault across the country, but that isn’t because workers don’t want a voice at work. Rather, companies routinely trample our weak labor laws, and make organizing virtually impossible. After Obama was elected, even with Democrats in control of the White House and both houses of Congress, labor law reform didn’t even come up for a vote.
The Great Recession exposed deep systemic weaknesses in our economy: A bloated and reckless financial system; unsustainable trade deficits and a hollowed out manufacturing sector; extreme inequality and a declining middle class, a growing public investment deficit in areas vital to our future. As President Obama says, it isn’t enough to recover to that old economy because that was failing the middle class even before it collapsed.
The test is not whether we can reflate another bubble, but whether we can build a new foundation for sustained growth and shared prosperity. A central part of that, as the Occupy demonstrators have warned us, is to address the extreme concentration of wealth and power that cripples our economy and corrodes our democracy. Empowering workers and holding executives accountable has to be central to that effort.
Worrying: Data from the Bureau of Labor Statistics shows that nearly 20 per cent of America’s core workforce are out of a job
The myth of the disappearing middle class
By Ron Haskins, Published: March 29
Ron Haskins is co-director of the Brookings Institution’s Center on Children and Families and its Budgeting for National Priorities Project. He was a senior adviser on welfare policy to President George W. Bush.
President Obama, many Democrats and editorial page writers have been working to convince the nation that it is wracked by inequality, a disappearing middle class and a lack of opportunity. The charge of growing inequality is partly correct, mostly because those at the top of the income distribution have pulled away from the rest of us. But the other charges are wrong or misleading.
First, consider the claim that the nation’s economic growth in the past three decades has gone straight to the richest Americans. The focus on the “1 percent” too often leaves out consideration of the overall distribution of income. Economist Richard Burk-hauser of Cornell shows in a forthcoming paper in National Tax Journal that, when the insurance value of health care and the value of certain government transfer payments are included in income, the top 20 percent of the income distribution experienced income growth of about 50 percent between 1979 and 2007 (in dollars adjusted for inflation).
He also notes that households near the top of the top 20 percent have achieved income gains of well above 50 percent. But the income of households between the 60th and 80th percentiles grew by 40 percent, and those in the 40th to 60th percentile grew by nearly 40 percent. In these numbers, the disappearing middle class appears pretty healthy.
What about those at the bottom, supposedly floundering? Based only on their market income, the bottom 20 percent lost about one-third of its income between 1979 and 2007. But when Burkhauser calculates the impact of government transfers, the value of health insurance not paid for by households and the decline in household size, the bottom 20 percent had about 25 percent more income in 2007 than 1979. Even the bottom is moving up.
These figures on total income obscure key points about economic well-being. First, health care gets more expensive every year, and the government must pay more through the tax code, Medicare and Medicaid. Those intent on emphasizing income inequality can ignore the value of health-care benefits, but most people consider it at least as great as the value of other types of income.
A second common mistake is ignoring the contribution of government benefits to income. Our federal income tax system sends billions of dollars to poor and low-income households, substantially increasing their income and taking a bite out of inequality. Households in the top 1 percent pay about 40 percent of federal income taxes, and the top 10 percent pays nearly 75 percent.
Put another way, the federal income tax system directly transfers billions in cash from the top to the bottom. Programs for poor and low-income families, including food stamps, the earned-income tax credit, Head Start and Pell Grants, annually transfer more than $900 billion in cash and other benefits to the poor and near-poor.
In the national debate about opportunity and inequality, people tend to talk about opportunity as if it were an omnipotent cosmic force imposed on Americans by a vicious capitalist economy, the effects of which are ignored by our uncaring government. But opportunity in America depends largely on decisions made by people who are free actors.
Consider three decisions that young people make: at what points to stop their education, begin work, and marry and have children. Brookings Institution calculations of census data for 2009, a deep recession year, show that adults who graduated from at least high school, had a job, and were both at least age 21 and married before having children had about a 2 percent chance of living in poverty and a better than 70 percent chance of making the middle class — defined as $65,000 or more in household income. People who did not meet any of these factors had a 77 percent chance of living in poverty and a 4 percent chance of making the middle class (or higher). Unless young Americans begin making better decisions, the nation’s problems with poverty and inequality will continue to grow. Consider also that children of parents whose income was in the bottom 20 percent have a 45 percent chance of remaining in the bottom themselves. But if they get a college degree, they cut those odds by nearly two-thirds and quadruple their chances of earning more than $100,000.
The most shocking failure of individual responsibility is the decline of marriage and rise of nonmarital births. Brookings data show that if the same share of adults were married today as in 1970, poverty would be reduced by more than a quarter. And yet young women who have a high school degree or less education increasingly do not marry, and about 40 percent of their babies are born outside marriage, quadrupling the chance that they and their babies will live in poverty. Children from single-parent families have, on average, more developmental problems, including lower educational achievement, than children of married parents. This perpetuates poverty and lack of mobility into the next generation.
Yes, the nation needs its safety net, but improvements in personal responsibility would have a greater and more lasting impact on poverty and opportunity. This is the message that our presidential candidates, media and educational institutions should emphasize — not the misleading focus on the lack of opportunity in America