Posts Tagged ‘chart’

philanthropy

Yes, indeed, as state and local governments struggle with budget deficits and the social infrastructure continues to crumble, rich Americans are sliding “into the driver’s seat of public life, with private funders tackling problems that government can’t or won’t.”

Look in any area — the arts, education, science, health, urban development — and you’ll find a growing array of wealthy donors giving record sums. Philanthropists have helped fund thousands of charter schools across the country, creating a parallel education system in many cities. The most ambitious urban parks in decades are being built with financing from billionaires. Some of the boldest research to attack diseases like cancer and Alzheimer’s is funded by philanthropy. Private funders, led by the Gates Foundation, play a growing role in promoting global health and development.

But as “Bill,” one of the readers who commented on the New York Times article, understands, what we’re seeing “is an undemocratic system that disproportionately allocates the wealth produced by society as a whole to a few unelected people at the top, and expects them to redistribute it in some way. Some do, some don’t.”

The fact is, there’s a close correlation between the growth in the surplus captured by the top 1 percent (as seen by the red line in the chart above) and the real amount of charitable giving in the United States (the blue line in the chart).

The system is undemocratic, first, because the workers who produce the surplus have no say in how much is distributed to others, including the tiny group at the top. Second, it’s undemocratic because the top 1 percent, who have managed to capture a large share of the surplus, are the ones who decide whether or not to give to philanthropy—and on what projects.

They’re the ones who get to decide what kinds of schools American children will attend, whether or not there will be urban parks, what kind of research will be done on which diseases, and so on. They’re literally remaking social life in their own image.

Ultimately, efforts to level the playing field of civic life won’t get very far as long as economic inequality remains so high, putting outsize resources in the hands of a sliver of supercitizens.

Today, as in the first Gilded Age, economic inequality and undemocratic philanthropy go hand in hand.

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Apparently, Richard Reeves is worried that the top echelons of the U.S. middle class—those earning over $120,000—are separating from the rest of the country, and pulling up the drawbridge behind them.

“The upper middle class families have become greenhouses for the cultivation of human capital. Children raised in them are on a different track to ordinary Americans, right from the very beginning,” he writes.

The upper middle class are “opportunity hoarding” – making it harder for others less economically privileged to rise to the top; a situation that Reeves says places stress on the efficiency of the US economic system and creates dynastic wealth and privilege of the kind the nation’s fathers sought to avoid.

That makes sense. The fact is, class mobility has been declining in the United States. The lack of movement up and down the economic ladder, which itself is a product of growing inequality, serves to magnify the obscene levels of inequality in the United States.

The two longstanding myths about U.S. economic and social structures—that classes don’t exist and, even if they do, there is plenty of movement between them—have been shattered in recent years.

But Reeves needs to take another look at what’s going on. First, it’s not an either-or issue—the top 1 percent or the top 20 percent. Both groups are pulling away from the bottom 90 percent.

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The share of income going to the top 10 percent (since I don’t have data on the top 20 percent) has soared over the course of the past four decades from 34 percent to 47 percent. Meanwhile, the share going to the bottom 90 percent has fallen precipitously, from 66 percent to 53 percent.

Top1

The members of the top 1 percent have also pulled away from those at the bottom, since their share of income has grown during the same period from 11 percent to 20 percent.

Both groups—the top 10 percent and the top 1 percent—are pulling away from and leaving everyone else behind.

But there’s also a difference between them, which Reeve also misses. Whereas those at the very top are responsible—via their membership in boards of directors of large corporations as well as their role in sole proprietorships, partnerships, LLCs, and other business forms—for appropriating the surplus, the rest of the top group tend to get a cut of the surplus. In other words, the remaining members of the top 10 (or, for Reeves, 20) percent share in the booty that is extracted from everyone else.

The fact that those at the top are pulling away from everyone else is not just a matter of “legacy” students gaining admittance to top universities or well-placed internships. It’s also about the surplus they manage to capture, both directly and indirectly. That’s what distinguishes them from the 90 percent, who produce but do not share in the surplus—or, for that matter, have any say in what happens to the surplus.

Reeves’s major concern is to celebrate and restore the idea of meritocracy. I get that. The question he doesn’t pose, however, is: where’s the merit in excluding those in the bottom 90 percent from having a say in how much surplus there will be and what to do with it once it’s produced?

The fact is, the organization of U.S. economic and social institutions means that those at the top, whoever they are and however much they might change, are in a position to capture and do what they want with the surplus everyone else creates.

That’s why the current system is “rigged” and those at the top are pulling away from the vast majority at the bottom.

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The so-called economics experts surveyed by the UK Centre for Macroeconomics—whose aim is to inform “the public about the views held by prominent economists based in Europe on important macroeconomic and public policy questions”—are in substantial agreement that “lower real wage growth was beneficial for employment levels during the Great Recession.” A clear majority (65 percent) either strongly agree or agree, which increases (to 70 percent) when the answers are weighted with self-reported confidence levels.

I would bet, based on their responses to other questions, the analogous group of “experts” in the United States—such as the mainstream economists who comprise the IGM Panel—hold the same view.

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Here’s the problem: the correlation between wages and employment in the United States (measured in terms of percent change from one year ago in the chart above) does not tell us anything about causality. Mainstream economics experts presume (based on the assumptions embedded in their macroeconomic models) that causality runs from wages to employment. So, in their view, low wage growth is beneficial for employment levels.

What they don’t consider is the opposite relationship: that moderate employment growth (especially during and after a recession) leads to low wage growth.

The key is the Industrial Reserve Army, which is missing from the models used by the so-called experts. As I wrote back in 2015,

While mainstream economists congratulate themselves on a successful economic recovery, which has lowered the headline unemployment rate and requires now a return to “normal” monetary policy, they accept a situation in which a large Reserve Army of Unemployed, Underemployed, and Low-Wage Workers has both been created by and, in turn, fueled a recovery characterized by stagnant wages for most and growing profits and high incomes for a tiny minority at the very top.

In other words, all mainstream economists are doing is congratulating themselves for a job well done—in supporting an economic system that exists not to serve the needs of workers, but in which workers exist only to serve the needs of their employers.

As it turns out, that self-congratulatory stance is adopted by so-called economics experts on both sides of the Atlantic.

fredgraph

The business press is having a hard time figuring out this one: the combination of unrelenting drama in and around Donald Trump’s White House and the stability (signaled by the very low volatility) on Wall Street.

As CNN-Money notes,

One of the oldest sayings on Wall Street is that investors hate uncertainty. But that adage, much like other conventional wisdom, is being challenged during the Trump era.

Despite enormous question marks swirling around the fate of President Trump’s economic agenda and his political future, American financial markets have remained unusually calm.

What’s going on?

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What investors actually hate is not uncertainty but, rather, threats to profits. And corporate profits have been growing spectacularly during the recovery from the Second Great Depression. Between the fourth quarter of 2008 and the first quarter of 2017, corporate profits rose more than 150 percent. Meanwhile, U.S. stocks (as measured by the Standard & Poor’s 500) increased by more than 200 percent. The rise in stock prices stems both from the growth in corporate profits and from gains in the stock market itself, which together have fueled further increases in the stock market with steadily declining levels of volatility.

As Ruchir Sharma admits,

Mr. Trump’s mercurial ways may be a source of great concern or indifference, depending on your ideological leanings. But Wall Street doesn’t seem to care one way or other.

What Wall Street cares about is not uncertainty but profits.

That’s the bottom line.

income-distribution-usa-cities

Yesterday, I discussed new findings concerning the fact that, while the United States is getting richer every year, American workers are not.

That same problem is showing up in American cities, which since 1970 have experienced a “hollowing-out” of the middle-class.

The graphic above shows the change in income distribution in 20 major U.S. cities between 1970 and 2015. In 1970, each of these cities exhibits a near-symmetrical, bell-shaped income distribution—a high concentration of households in the middle, with narrow tails of low and high-income households on either end. By 2015, the distributions have grown more polarized: fewer middle-income households, and more households in the low-income and/or high-income extremes.

1970 2015

Chicago is a good example of what has taken place in urban areas across the country. It boasted a thriving manufacturing sector in 1970. As illustrated in the map on the left above, incomes were lowest in the city center, growing higher radially outward toward the city’s borders. And while Chicago was largely successful in transitioning away from manufacturing to a service-based economy by 2015, that transition created a heavy concentration of wealth in the business/financial district and marked decline in most of the surrounding areas (as indicated in the map on the right).

To listen to the champions of American capitalism, cities represent the solution to growing inequality and the decline of the middle-class associated with the “old” manufacturing economy. But, as it turns out, urban centers are characterized by the same kind of grotesque inequalities and hollowing-out of the middle-class as the rest of the country.

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That’s the way Fatih Guvenen, an economist at the University of Minnesota and one of the authors of a new paper on the decline of the American middle class, characterizes the results of their study.

What the authors found is, first, comparing the cohort that entered the labor market in 1967 to the cohort that entered in 1983, median lifetime income of men declined by 10–19 percent. Thus, for example, in terms of real earnings (deflated by the personal consumption expenditure), the annualized value of median lifetime wage/salary income for male workers declined by $4,400 per year from the 1957 cohort to the 1983 cohort, or $136,400 over the 31-year working period.

For women, median lifetime income increased by 22–33 percent from the 1967 to the 1983 cohort, but these gains were relative to very low lifetime income for the earliest cohort.

Second, they found that inequality in lifetime incomes has increased significantly within each gender group, which is largely attributed to an increase in inequality at young ages. Thus, for example, the median income at age 25 has declined steadily from the 1967 cohort to the 1983 cohort. Moreover, median incomes over the first 10 years in the labor market for more recent cohorts (those that turned 25 in the 2000s) indicate that the trend of declining median lifetime incomes seems likely to continue.

What the results show is that more unequal incomes are not primarily a result of a widening gap between younger and older workers. Even among older workers, typical incomes have been falling while the richest have been enjoying more and more of the economy’s gains. Poorer workers—who tend to be younger—will likely earn more as they get older but they are not going to earn enough to make up the difference.

Yes, indeed, this is a pretty bleak picture.

CEOs

According to the AFL-CIO Executive Paywatch project, in 2016, CEOs of S&P 500 Index companies received, on average, $13.1 million in total compensation. In contrast, production and nonsupervisory workers earned only $37,632, on average, in 2016—a CEO-to-worker pay ratio of 347 to 1.

Above is a list of the top twenty CEOs, ranging from Kenneth Lowe of Scripps Networks Interactive at over $28 million to Sundar Pichai of Alphabet, who managed to capture over $100 million in executive compensation.