Posts Tagged ‘inequality’

Student-debt

Special mention

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The high times aren’t going away in New York.

The city of just six years from now will be dramatically taller, with a series of luxury high-rises towering above Central Park, a new West Side development and downtown spires.

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That’s because, as Martin Fuller [ht: ja] explains, there’s a lot of money to be made building and spent on purchasing new luxury condominium buildings in New York City. He refers to these new buildings—like One57 and 432 Park Avenue (buildings 25 and 9 in the rendering above)—as three-dimensional balance sheets.

They’re not so much new architectural masterpieces and engineering marvels as conspicuous ways for the world’s super-rich to consume the growing portion of the surplus they’re managing to capture. In fact, a duplex penthouse atop the French architect Christian de Portzamparc’s One57 condominium sold for an unprecedented $100,471,452.77! (In 2014, seven more apartments at that address, built by the Extell Development Company, changed hands for between $32 million and $56 million each.)

As we know, in general New York City housing is increasingly beyond the reach of pretty much anyone outside the top 10 percent. As for the conspicuous construction associated with the world’s super-rich,

the smokestack­-like protuberances that now disrupt the skyline of midtown Manhattan signify the steadily widening worldwide gap between the unimaginably rich and the unconscionably poor. Those of us who believe that architecture invariably (and often unintentionally) embodies the values of the society that creates it will look upon these etiolated oddities less with wonder over their cunning mechanics than with revulsion over the larger, darker machinations they more accurately represent.

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As it turns out, crows are even smarter than we thought possible.

And CEOs at large U.S. companies have collectively captured more in compensation than we thought possible.

According to Reuters [ht: ja], 300 CEOs who served throughout the 2009-2013 period at S&P 500 companies together realized about $22 billion in compensation—that’s $6 billion more in compensation than initially estimated in annual disclosures—in the form of pay, bonuses and share and option grants, or an average of $73 million each.

To put those numbers in perspective, the AFL-CIO estimates that, in 2013, the CEO-to-worker pay ratio was 331:1.* That ratio was 46:1 in 1983, 195:1 in 1993, 301: 1 in 2003.

Like any ratio, the result depends on both the denominator and the numerator. The CEO-to-worker pay ratio has grown because, during the 2009-2013 recovery, workers’ wages have remained roughly unchanged while CEO compensation has soared. Thus, the combination of falling unemployment, growing productivity, and higher corporate profits and stock prices we’ve seen in recent years hasn’t helped workers but only the owners and executives of the corporations where they work.

“The numbers can be obscene, particularly when you look at the general challenges we face as an economy and society,” said Matthew Benkendorf, a portfolio manager at Vontobel Asset Management, which oversees about $50 billion.

We’ve long known that crows are pretty clever. Remember Aesop’s famous fable “The Crow and the Pitcher”? The thirsty crow drops pebbles into a pitcher with water near the bottom, thus raising the fluid level high enough to permit the bird to drink.

Do we really need to be any more clever to figure out that—as CEO compensation continues to grow, leaving workers and everyone else further and further behind—existing economic institutions have failed us and need to be replaced?

*The CEO-to-minimum-wage-worker pay ratio in 2013 was, of course, much higher—774:1

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I’ve been doing a lot of thinking about utopia these days—from the plenary address I gave at New Harmony last November to the talk I’m giving at Manchester University in April.

So, I’m fascinated by the fact that Mark Bittman, in honestly confronting the Brave New World—”featuring even fewer haves and more have-nots than the current one”—has turned to the idea of utopia. He looks at some top-down solutions (such as public works and Guaranteed Basic Income) but then argues that bottom-up changes have “even more potential for a more equitable economic system.”

What we’re seeing, on a small but growing scale, is a world where energy and even power may become increasingly decentralized, and communities are building more on local and regional levels, creating organizations that benefit more of their members. Worker ownership — which, for obvious reasons, combats income inequality directly — is becoming more common, and these organizations are talking to one another locally. Even something as simple as the farm-to-school movement means that economies are becoming more local and communities are supporting their own businesses.

Those kinds of institutions—in which workers, their families, and the communities in which they live—do, in fact, have much more potential than more jobs and an economic safety net to challenge and provide an alternative to a system in which “capital has full control, as it nearly does now.”

Socialist utopia is what we used to call that change from the bottom up, although Bittman worries that “both those words are forbidden in neoliberal society.” Maybe he’s right, and we might want to come up with a different “pitch.”

For my part, the key is to connect the idea of utopia to critique—to a “ruthless criticism” of the existing order. And that’s what I plan to talk about at Manchester University in April, connecting the idea of utopia as critique to the task of reviving the idea of the intellectual and challenging the new corporate university.

As William Deresiewicz argued in his 2008 American Scholar article,

The liberal arts university is becoming the corporate university, its center of gravity shifting to technical fields where scholarly expertise can be parlayed into lucrative business opportunities. . . Yet there is a dimension of the intellectual life that lies above the passion for ideas, though so thoroughly has our culture been sanitized of it that it is hardly surprising if it was beyond the reach of even my most alert students. Since the idea of the intellectual emerged in the 18th century, it has had, at its core, a commitment to social transformation. Being an intellectual means thinking your way toward a vision of the good society and then trying to realize that vision by speaking truth to power. . .

Being an intellectual begins with thinking your way outside of your assumptions and the system that enforces them.

Fortunately, we can count Bittman among those who are thinking their way toward a vision of the good society and then trying to realize that vision by speaking truth to power.

inequality

Special mention

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The discussion of capital and labor shares puts the issue of class at the top of the agenda. No wonder, then, that mainstream economists are expending so much effort these days attempting to define away the problem.

Let me explain.

If we look at changes in capital and labor shares (measured in terms of corporate profits before tax and compensation of employees as shares of gross domestic product, as in the chart on the left), we can clearly see that, in recent decades, the profit share has been rising and the labor share has been falling. In other words, labor has been losing out to capital—and we need to focus on solving that class problem.

But, of course, the share of income accruing to capital doesn’t just show up in corporate profits; some of that capital share is also distributed to a small portion of income-earners in the corporate (both financial and nonfinancial) sector. The share of income of the top one percent (as in the chart on the right) is a good approximation. If we therefore added the top-one-percent to corporate profits, and at the same time subtracted it from the compensation of employees, the divergence between the capital and labor shares would be even greater—and the class problem would be even more acute.

MIT’s Matthew Rognlie understands this perfectly. He notes that David Ricardo pronounced the issue of how aggregate income is split between labor and capital the “principal problem of Political Economy” and that the recent explosion of research on inequality has both called into question the postwar presumption of constant capital and labor shares and emphasized the increasing share of income accruing to the richest individuals. In other words, class has once again reared its ugly head.

Instead of trying to solve this class problem, Rognlie attempts to define away the problem—first, by focusing on net income shares and, then, by including housing in capital. He concludes that, once those adjustments are made,

concern about inequality should be shifted away from the split between capital and labor, and toward other aspects of distribution, such as the within-labor distribution of income.

The problem with focusing on net income shares—that is, in the case of capital, gross profits minus depreciation—is that it confuses flows of value (corporate profits before taxes, plus incomes to the top one percent, in the way I suggested above) with expenditures (e.g., by corporations to replace the value of plant, building, and machinery that has depreciated in value during the course of production).

The problem with including housing in the capital stock is that it doesn’t form part of the capital from which capitalists derive a flow of new value added or created. Housing industry profits are already accounted for in gross corporate profits. The fact that individuals may own housing doesn’t allow them to capture any of that new value; it just allows them to enjoy the benefits of have a home and to pay the costs (to banks and other financial institutions) of financing their homeownership.

While I agree with Rognlie that the “story of the postwar net capital share is not a simple one,” the fall and then recovery of the capital share (in the form of both corporate profits and one-percent incomes), which is mirrored by the rise and then fall of the wage share, can’t simply be defined away.

In other words, just as it was in the early-nineteenth century, class remains the “principal problem of Political Economy” in our own times.

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Yesterday during my office hours, on the eve of the 2015 NCAA tournaments, I spent some time with a student discussing the “unmistakable whiff of the plantation” associated with major-college athletic programs. I then sent them to read Taylor Branch’s 2011 article in The Atlantic.

It just happens that, today, George Yancy published his conversation with Noam Chomsky about the unmistakable legacy of slavery and “slavery by another name” in the United States. I reproduce the first part of that conversation below.

Here are a few charts to put the current situation (with respect to racial disparities in poverty, unemployment, wealth, and incarceration) in perspective:

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George Yancy: When I think about the title of your book “On Western Terrorism,” I’m reminded of the fact that many black people in the United States have had a long history of being terrorized by white racism, from random beatings to the lynching of more than 3,000 black people (including women) between 1882 and 1968. This is why in 2003, when I read about the dehumanizing acts committed at Abu Ghraib prison, I wasn’t surprised. I recall that after the photos appeared President George W. Bush said that “This is not the America I know.” But isn’t this the America black people have always known?

Noam Chomsky: The America that “black people have always known” is not an attractive one. The first black slaves were brought to the colonies 400 years ago. We cannot allow ourselves to forget that during this long period there have been only a few decades when African-Americans, apart from a few, had some limited possibilities for entering the mainstream of American society.

We also cannot allow ourselves to forget that the hideous slave labor camps of the new “empire of liberty” were a primary source for the wealth and privilege of American society, as well as England and the continent. The industrial revolution was based on cotton, produced primarily in the slave labor camps of the United States.

As is now known, they were highly efficient. Productivity increased even faster than in industry, thanks to the technology of the bullwhip and pistol, and the efficient practice of brutal torture, as Edward E. Baptist demonstrates in his recent study, “The Half Has Never Been Told.” The achievement includes not only the great wealth of the planter aristocracy but also American and British manufacturing, commerce and the financial institutions of modern state capitalism.

It is, or should be, well-known that the United States developed by flatly rejecting the principles of “sound economics” preached to it by the leading economists of the day, and familiar in today’s sober instructions to latecomers in development. Instead, the newly liberated colonies followed the model of England with radical state intervention in the economy, including high tariffs to protect infant industry, first textiles, later steel and others.

There was also another “virtual tariff.” In 1807, President Jefferson signed a bill banning the importation of slaves from abroad. His state of Virginia was the richest and most powerful of the states, and had exhausted its need for slaves. Rather, it was beginning to produce this valuable commodity for the expanding slave territories of the South. Banning import of these cotton-picking machines was thus a considerable boost to the Virginia economy. That was understood. Speaking for the slave importers, Charles Pinckney charged that “Virginia will gain by stopping the importations. Her slaves will rise in value, and she has more than she wants.” And Virginia indeed became a major exporter of slaves to the expanding slave society.

Some of the slave-owners, like Jefferson, appreciated the moral turpitude on which the economy relied. But he feared the liberation of slaves, who have “ten thousand recollections” of the crimes to which they were subjected. Fears that the victims might rise up and take revenge are deeply rooted in American culture, with reverberations to the present.

The Thirteenth Amendment formally ended slavery, but a decade later “slavery by another name” (also the title of an important study by Douglas A. Blackmon) was introduced. Black life was criminalized by overly harsh codes that targeted black people. Soon an even more valuable form of slavery was available for agribusiness, mining, steel — more valuable because the state, not the capitalist, was responsible for sustaining the enslaved labor force, meaning that blacks were arrested without real cause and prisoners were put to work for these business interests. The system provided a major contribution to the rapid industrial development from the late 19th century.

That system remained pretty much in place until World War II led to a need for free labor for the war industry. Then followed a few decades of rapid and relatively egalitarian growth, with the state playing an even more critical role in economic development than before. A black man might get a decent job in a unionized factory, buy a house, send his children to college, along with other opportunities. The civil rights movement opened other doors, though in limited ways. One illustration was the fate of Martin Luther King’s efforts to confront northern racism and develop a movement of the poor, which was effectively blocked.

The neoliberal reaction that set in from the late ‘70s, escalating under Reagan and his successors, hit the poorest and most oppressed sectors of society even more than the large majority, who have suffered relative stagnation or decline while wealth accumulates in very few hands. Reagan’s drug war, deeply racist in conception and execution, initiated a new Jim Crow, Michelle Alexander’s apt term for the revived criminalization of black life, evident in the shocking incarceration rates and the devastating impact on black society.

Reality is of course more complex than any simple recapitulation, but this is, unfortunately, a reasonably accurate first approximation to one of the two founding crimes of American society, alongside of the expulsion or extermination of the indigenous nations and destruction of their complex and rich civilizations.