Posts Tagged ‘inequality’

wealth shares

[modified from the original source (pdf)]

We’ve been learning a great deal about the conditions and consequences of the obscene levels of inequality in the United States—now, in the past, and it seems for the foreseeable future.

Right now, inequality is escalating within public higher education, especially in research universities that are chasing both tuition revenues and rankings. Thus, the editorial board of the Badger Herald, the student newspaper at the University of Wisconsin, found it necessary to criticize the lifting of the out-of-state student enrollment cap because it betrays the Wisconsin Idea and is making the university both “richer and whiter.”

Instead of increasing enrollment by targeting low-income and underrepresented Wisconsin students, UW now joins the ranks of public institutions that are happy with increasing the — already substantial — socioeconomic divide on campus. Making UW a bougie playground for the greater Chicagoland area is not the way to keep Wisconsin a world-class institution.

The Wisconsin students are right.* As recent research by Ozan Jaquette, Bradley R. Curs, and Julie R. Posselt confirms, public research universities are increasingly relying on tuition increases to fund their activities.** Thus, they are admitting more nonresident students—both for their out-of-state tuition payments and to raise the universities’ academic profile—and, as a result, the proportion of historically underrepresented students and especially of low-income students is declining. Moreover,

The shift towards nonresident students suggests that public research universities have increased the value they place on students who pay high tuition and have high test scores. This shift is indicative of a deeper change in organizational values, away from the public good emphasis on access and towards the self-interested emphases of academic profile and revenue generation. As scholars, campus leaders, or policymakers, we must ask ourselves, whether these are the values we want our flagship public institutions to promote?

We also need to look at the way inequality played out in American history, and make the appropriate connections to the present and future. In a recent paper, Suresh Naidu and Noam Yuchtman examine the situation of labor markets during the first Gilded Age. Their argument, in a nutshell, is that labor markets in the late-nineteenth and early-twentieth centuries are as close as we have seen in U.S. history to the unregulated labor market that is presumed and celebrated within neoclassical economics. But, the authors explain, those Gilded-Age labor markets were characterized by high levels of conflict—between labor movements and employer organizations (over wages and, when workers went on strike, replacement workers or scabs)—which, in turn, called on increased levels of judicial intervention as well as domestic policing and military intervention, generally on the side of the employers.***

And the implications for the United States, in the second Gilded Age:

Looking around today, it is obvious that inequality and conflict over the distribution of wealth and income remain salient a century after the first Gilded Age. History is never a perfect guide, but the late 19th century suggests that even as markets play a greater role in allocating labour, legal and political institutions will continue to shape bargaining power between firms and workers, and thus the division of rents within the firm. What remains to be determined – and battled over – is which institutions are empowered to act, and whose interests they will represent. Regardless, latent labour market conflict seems likely to be a prominent feature of our new Gilded Age.

Finally, what can we way about inequality looking forward? According to Robert Shiller, it “could become a nightmare in the decades ahead.”

The reason for this dire prognosis is that the structures that create high levels of inequality in the first place serve as barriers to policies that might actually lessen the amount of inequality. According to Angus Deaton, “Those who are doing well will organize to protect what they have, including in ways that benefit them at the expense of the majority.” Historically, the only exceptions in capitalist democracies emerge in times of war, “because war mobilization changed beliefs about tax fairness.”

And contra Robert Solow (“We are not good at large-scale redistribution of income”), capitalist societies have consistently shown to be very good at large-scale redistribution of income toward the top—just not particularly interested in moving in the opposite direction, in redistributing income to those at the bottom.

In fact, neither Shiller nor the nine other economists who contributed to a recent project on long-term forecasting “expressed optimism that inequality would be corrected in the future, and none of us ventured that any major economic policy was likely to counteract recent trends.”****

Shiller uses Satyajit Ray’s 1973 movie “Distant Thunder”—about the Bengal famine of 1942-43, when millions died, almost all from the lower classes—to illustrate our current dilemma. There was plenty of food in the Bengal Province of British India to keep everyone alive but “the food was not shared adequately.”*****

Systems of privilege and entitlement permitted hoarding of food by people of status whose lives went on much as usual, except that they had to brush off starving beggars and would occasionally see dead bodies on the street.

It’s clear that, today, there are plenty of goods—food, clothing, and shelter—to go around but they’re not being shared equally. Not by a long shot. The problem is, existing “systems of privilege and entitlement” permit the accumulation of wealth on one end and misery on the end—just as they did during the first Gilded Age and, unless things change, will continue to do so for the foreseeable future.

Meanwhile, the lives of people of status go on much as usual, in their “bougie playground”—except they have to brush off the contemporary equivalent of starving beggars and occasionally see the analogy today of dead bodies on the street.

 

*It should perhaps come as no surprise that a prominent mainstream economist, Rebecca Blank, Chancellor of the University of Wisconsin-Madison since 2013, is the one who sought (and won) an end to the cap on out-of-state and international students.

**As Stephanie Saul reports,

According to the College Board, the average cost of attending a four-year public university, including room and board, increased from $11,655 in 2000 to $19,548 in 2015, in inflation-adjusted dollars. In the City University of New York system, tuition at four-year colleges is now $6,330, having increased by $300 each year since 2011, when it was $4,830. . .

“What Sanders figured out — it’s not the $65,000 cost of attendance at some of our pricier privates driving the debt bubble, but rather the disinvestment and privatization of public higher ed,” said Barmak Nassirian, the director of federal relations and policy analysis for the American Association of State Colleges and Universities.

***This is one of the examples I use in my graduate-level course on the Political Economy of War and Peace—that the United States has its own history of intrastate wars (which, like many such wars in recent times, were class wars) and that, as the authors explain, “military and law enforcement institutions of the United States, in particular the Army, the National Guard, and the FBI, can trace their origins to the federal troops, state militias, and private Pinkertons deployed in 19th century labor conflicts.”

****The key point Shiller does not address is the role mainstream economics has played both in creating the current levels of inequality and in creating barriers to imagining and enacting policies and strategies for doing away with the grotesque levels of inequality we are witnessing today.

*****Amartya Sen famously argued that democracy prevents famines. That may be true. But it doesn’t prevent hunger or the other economic and social catastrophes that stem from the high levels of inequality we’ve seen in the first and second Gilded Ages in the United States.

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Last week’s unrest in Milwaukee wasn’t caused by the police killing of Sylville K. Smith, a 23-year-old black man. It’s been brewing for decades.

As Roger Bybee explains,

The recent outbreak of violent rioting in Milwaukee came as no surprise to anyone paying even the slightest attention to the deterioration of conditions for the city’s African Americans, especially the young.

Even CNN [ht: ja], which botched (and then, later, apologized for) its reporting of Sherelle Smith’s remarks about moving violence away from the local community, understood “The ongoing protests and violence that have occurred over the past several days in Milwaukee are about more than the police killing of Sylville Smith.”

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In a recent report, the National Urban League (pdf) examined economic data for African Americans (and Hispanics) in 70 metro areas and found that Milwaukee has the largest gap in unemployment between blacks and whites in the country and the second biggest income gap.

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The unemployment rate for blacks in Milwaukee is 4 times that for whites, while the median income for black households is only 40.8 percent of white household income. (Nationally, the corresponding numbers are 2 and 60 percent.)

Milwaukee

source

Those racial inequalities in Milwaukee are both a condition and consequence of the economic and racial segregation of the city. Thus, while the majority-white downtown area is booming (with trendy new restaurants and craft breweries), outlying majority-black neighborhoods in and around Sherman Park (where the shooting took place) are falling farther and farther behind.

Milwaukee-1

And, in the final contribution to the foul Milwaukee brew, the homicide rate (at 23 per 100,000, higher even than Chicago’s) is also unequally distributed across the city. Thus, for example, in the police district that includes the downtown, the homicide rate was just two, while in the bordering district to the northwest of downtown (which includes Sherman Park), the murder rate was 36, or 18 times as high.

As Daniel Kay Hertz explains,

High levels of gun crime profoundly affect neighborhood residents whether or not they are a direct victim. Witnessing a shooting, or having a friend or loved one become a victim, can be deeply traumatic, leading to depression, anxiety, difficulty concentrating at school or work, and other issues. High crime rates can affect whether businesses are willing to locate near your home, reducing your access to important services like banking, and contributing to depopulation and abandonment. . .

Nor are neighborhoods facing these issues randomly distributed: They are much more likely to be home to disproportionate numbers of people with low incomes and people who are black or brown. That racial and economic segregation play an important role in perpetuating deep social inequalities has been well-established. Directly and indirectly, violent crime is itself a crucial part of the basket of disadvantages that make living in a segregated neighborhood so costly.

It should come as no surprise then that the Brew City, with its strict segregation and profound racial inequalities, should have erupted after the latest police shooting.

And, as Bybee warns, unless the racial political economy of Milwaukee is criticized and transformed, “the recent explosions may signal more episodes of rage to come in the months ahead.”

wealth

Everyone knows wealth in the United States is unequally distributed, even more than the nation’s income (and that’s saying something).

For example, according to a new report from the Congressional Budget Office [ht: ja],

In 2013, families in the top 10 percent of the wealth distribution held 76 percent of all family wealth, families in the 51st to the 90th percentiles held 23 percent, and those in the bottom half of the distribution held 1 percent. Average wealth was about $4 million for families in the top 10 percent of the wealth distribution, $316,000 for families in the 51st to 90th percentiles, and $36,000 for families in the 26th to 50th percentiles. On average, families at or below the 25th percentile were $13,000 in debt.

But, wait, it gets worse. The distribution of wealth among the nation’s families was more unequal in 2013 than it was in 1989. For instance, the difference in wealth held by families at the 90th percentile and the wealth of those in the middle widened from $532,000 to $861,000 over the period (both in 2013 dollars). The share of wealth held by families in the top 10 percent of the wealth distribution increased from 67 percent to 76 percent, whereas the share of wealth held by families in the bottom half of the distribution declined from 3 percent to 1 percent.*

Yes, that’s right: in 2013, the bottom half of U.S. families held only 1 percent of the nation’s wealth.

wealth-percentiles

And it gets even worse: from 1989 to 2013, the average wealth of families in the bottom half of the distribution was less in 2013 than in 1989. It declined by 19 percent (in contrast to the 153-percent increase for families in the top 10 percent). And the average wealth of people in the bottom quarter was thousands of dollars less in 2013 than it was in 1989.**

poor wealth

So, let’s get this straight. The share of wealth going to the top 10 percent of households, already high, actually increased between 1989 and 2013. And the share held by the bottom 50 percent, already tiny, fell. And, finally, the average wealth for families in the bottom half of the distribution was less in 2013 than in 1989 and many more of them were in debt.

Now, to put things in perspective, the United States had Democratic presidents (Bill Clinton and Barack Obama) during thirteen of the twenty-four years when workers and the poor were being fleeced.

And now they’re being asked to vote for one more Democrat, with the same economic program, because it will “make history”?

 

*To be clear, a large portion of the decline in wealth for the bottom 50 percent occurred after the crash. Still, compared with families in the top half of the distribution, families in the bottom half experienced disproportionately slower growth in wealth between 1989 and 2007, and they had a disproportionately larger decline in wealth after the 2007-09 recession.

**In 1989, families at or below the 25th percentile were about $1,000 in debt. By 2013, they were about $13,000 in debt, on average. Overall indebtedness also increased during the same period: by 2013, 12 percent of families had more debt than assets, and they were, on average, $32,000 in debt.

wealth-time

Toward the end of the Civil War, former black slaves were ordered to receive “40 acres and a mule.”* Then, a few months later, Andrew Johnson overturned General Sherman’s Order and most of the United States’ 3.9 million former slaves never received any of the promised wealth.

Now, a century and a half later, researchers at the Corporation for Enterprise Development and the Institute for Policy Studies (pdf) have calculated that it would take African-Americans another 228 years (just seventeen years shorter than the actual span of slavery in the United States) to accumulate the same amount of wealth whites had in 2013 if current policies remain in place. (For the average Latino family, it would take 84 years.)

Think about that!*

wealth divide

Over the past three decades, the average wealth of white families has grown by 84 percent, three times as fast as the rate for African-American families and 1.2 times the growth rate for Latino families. In dollar terms, if the past 30 years were to repeat, whites would see their wealth increase by about $18,000 a year on average, while Latino household wealth would increase an average $2,250 a year and wealth for African-Americans would grow by just $750 annually.

forbes

But the problem of wealth is not just a matter of ethnicity or race. Between 1983 and 2013, the top 20 percent of the wealthiest households took 99.4 percent of all wealth gains, with the top 1 percent taking the lion’s share of those gains (40 percent). Meanwhile, the bottom 80 percent of households—white, black, hispanic, and so on—were left with just 0.6 percent of total wealth gain.

And, of course, for the ultra-wealthy group that make up the Forbes 400, things have been even better. Since 1983, this elite group has seen their wealth increase by an average of 736 percent, from $700 million to $5.8 billion. As the authors explain,

the billionaires of the Forbes 400—which includes only two African-Americans and five Latinos—now own more wealth than the entire Black population and one-third of the Latino population, combined. That’s 400 wealthy individuals versus more than 60 million people.

tax benefits

The fact is, wealth-building policies in the United States have long favored the wealthy over typical wage earners, and many of the largest and most powerful of these programs flow through the U.S. tax code. An overwhelming amount of the spending done through the tax code goes to white households at every income level but especially for those (who themselves are overwhelmingly white) at the very top.

Perhaps it’s time then for a new redistributive Order, the contemporary equivalent of 40 acres and a mule for all working-class households in the United States.

 

*And it’s a conservative estimate, since the analysis is based on average, not median, levels of wealth.

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Is education the solution to the problem of growing inequality?

As I wrote in early 2015,

Americans like to think that education is the solution to all economic and social problems. Including, of course, growing inequality.

Why? Because focusing on education—encouraging people to get more higher education—involves no particular tradeoffs. More education for some doesn’t mean less education for others (at least in principle). And providing more education doesn’t involve any structural changes in society—just more funding. (Of course, suggesting more education under current conditions—when public financing of higher education continues to decline, and students and their families are forced to take on more and more debt—is itself disingenuous).

As a result, there’s a broad consensus in the middle—among conservatives and liberals alike—that encouraging more young people who have yet to enter the labor market and existing workers who want to get ahead to obtain a college education will solve the problem of inequality.

And I proceeded to show how, in terms of declining wages for workers at various levels of education and increasing inequality within the top 1 percent, more education does not actually solve the problem of inequality.

But education is still the preferred solution of mainstream Democrats, and inequality itself is receiving less attention. And Thomas Frank [ht: sm] (in an interview with Jennifer Berkshire aka EduShyster) explains why:

Tom Frank: The Democratic party really doesn’t care about inequality because they’re now a party of the professional class: affluent, white-collar professionals. They themselves say this all the time; they talk about the professional class as being their constituency. But we don’t often try to put the pieces together and try to figure out, well what does it mean to be a party of the professional class vs. the working class? One thing it means is that inequality is seen as the natural order of things. In fact, professionals believe in inequality. They think of inequality as totally fair and the way things should be, and they think that because they themselves are the winners in the great inequality sweepstakes.

EduShyster: There are many great lines in Listen, Liberal, but one of my faves is that whenever the kind of liberal you’re describing stumbles upon an economic problem—say, the collapse of the middle class—s/he sees an education problem.

Frank: That’s one of the lines in the book that I’m quite proud of. The liberals I’m describing are an affluent group, by and large, who’ve done very well, and they attribute their success to their education. The professional class is defined by educational achievement. That’s who they are. They’re defined by how and what they did in school. So they look out at the rest of the country that’s going in reverse, at the middle class dream that’s falling apart, and they say *you know, it’s really your own fault. You should have tried harder in school. You should have gone to the right school.* But defining every economic problem as an education problem is basically a way of blaming the victim.

EduShyster: Here, allow me to repeat that for emphasis, but with italics to emphasize the condescension: you know, it’s really your own fault. You should have tried harder in school. You should have gone to the right school.

Frank: There is nothing that gives the lie to the meritocratic view of the world than what’s happened to humanities PhDs. These are people with the highest degree there is. They spent the most time in school of anyone. This is where the idea that education solves economic problems totally breaks down. I spent 25 years in school and got a PhD in history at the University of Chicago, a degree that used to be valued in the marketplace. But the marketplace figured out a way to casualize university labor. The whole idea of the professional, meritocratic way of looking at the world is that if you study, you’ll win—good things will come to you. I studied hard, and I got good grades and I got a PhD and my dissertation was even published. None of it made any difference. What my generation learned, and what everybody is starting to understand now, is that it’s not about education—it’s about power. It’s about power in the workplace. And we didn’t have any.

Basically, mainstream liberals, like their conservative counterparts, believe in “just deserts,” the idea that everyone receives what they deserve in capitalist markets. That means, if there are fundamentally unequal outcomes (which barely anyone attempts to deny these days), it’s because that’s what people deserve.

But of course some within the mainstream do believe inequality is a problem, if only because it might incite a reaction that calls into question the existing order. And that’s where conservatives and liberal begin to differ: whereas conservatives tend to want to eliminate government intervention (e.g., because it creates a dependency on social welfare programs), liberals look to education as the solution (to the problem of inequality as well as to issues of declining productivity, slow growth, and much else).

What neither conservatives nor liberals want to see is unequal power in the workplace—and that’s a problem more education simply can’t solve.

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