Redistributing the Wealth — Higher and to Fewer

Robert Reich reminds us that all the talk about taxing the wealthy to redistribute downward masks a vital point — the wealthy got that way, in part, by the rigged distribution upward.

Much of the national debate about widening inequality focuses on whether and how much to tax the rich and redistribute their income downward.

But this debate ignores the upward redistributions going on every day, from the rest of us to the rich. These redistributions are hidden inside the market.

… the extra money we’re paying for pharmaceuticals, Internet communications, home mortgages, student loans, airline tickets, food, and health insurance – and you get a hefty portion of the average family’s budget.

Or, in other words, the markets are far from being ‘free,’ as is widely and loudly claimed.  The ideal state for big business is to have captive markets, or shall we call them slave markets, controlled by themselves. Until the conglomerates are broken up, and the purchasing public understands that saving 2% at the big box stores costs 4% in time, transportation and hassle, redistribution up will continue to be the norm.

The GOP Plan for the Poor: More!

Eduardo Porter of the NY Times, reports on his home state of Arizona, where I happen to be right now.

Arizona, where I was born, in July became the first state to cut poor families’ access to welfare assistance to a maximum of 12 months over a lifetime. That’s a fifth of the time allowed under federal law, and means that 5,000 more people will lose their benefits by next June.

This is only the latest tightening of the screws in Arizona. Last year, about 29,000 poor families received benefits under the Temporary Assistance for Needy Families program, 16,000 fewer than in 2005. In 2009, in the middle of the worst economic downturn since the Depression of the 1930s, benefits were cut by 20 percent.

And of course it’s not just an Arizona problem:

… if Paul Ryan, the Republican lawmaker from Wisconsin who is expected to become speaker of the House, has his way, poor people in many other states can expect similar treatment in the years ahead.

Two forces are driving this very unchristian behavior towards “the least of us”: a deep and misplaced moral punishment ethos, joined with a states rights bias that pretends what “big” government can’t do, “state” government can.  Under this fig leaf the long-ago federal aid to the poor has been replaced by block grants to the states, which then distribute funds intended for the poor anywhere they want.

Even thoughtful Republican policy wonks, and this does not include any of the current candidates for GOP presidential nomination, think what was done, was done badly.

… states were given both incentives and tools to redeploy the money to other priorities. Notably, they could get around the requirement to meet job participation benchmarks simply by reducing the caseloads of beneficiaries — almost a direct instruction to bump people off.

“States did not uphold their end of the bargain,” said Ron Haskins, an expert on welfare who worked for more than a decade for House Republicans. “So why do something like this again?”

It’s well worth a read of Porter’s article to understand just how mean spirited and deceptive this has been, with promises of more such in the wind.

For an earlier article on the myth of welfare’s corrupting influence see here.

For a public apology and detailed analysis of the current policies of block grants see Peter Germanis paper, here.

Economics: Prizing Plain Talk on Inequality

Angus Deaton, variously described as a Scotsman, a Briton and a Princeton economist has just been awarded the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2015, often called the Nobel Prize for Economics. Leaving aside all the acid and vitriol about the the name, its sponsor and the wishes of the Nobel family (and there is plenty of it) this particular prize should be welcome in a world in which growing wealth inequality is seen as a problem by almost everyone.

For a quick look at what Deaton offers on the subject, I bring you a post, brought to my attention by Paul Krugman’s blog (not the NY Times opinion piece), from Cardiff de Alejo Garcia.

“I’m passing along the most memorable passage on the topic [of inequality] that I’ve come across lately. It’s from Angus Deaton’s excellent The Great Escape: Health, Wealth and the Origins of Inequality, which I just finished and warmly recommend (I’ve embedded links to the studies and books referenced in the excerpt and footnotes):

Books The Great Escape

“There is much to be said for equality of opportunity, and for not penalizing people for the success that comes from their own hard work. Yet, compared with other rich countries, and in spite of the popular belief in the American dream that anyone can succeed, the United States is in fact not particularly good at actually delivering equal opportunities.

One way of measuring equality of opportunity is to look at the correlation between earnings of fathers and sons. In a completely mobile society, with perfect equality of opportunity, your earnings should be unrelated to what your father earned; by contrast, in a hereditary caste society, in which jobs are handed from one generation to the next, the correlation would be 1.

In the United States, the correlation is 0.5, which is the highest of the OECD countries and is exceeded only by those of China and a handful of countries where there appears to be the least equality of opportunity.

[T]here is a danger that the rapid growth of top incomes can become self-reinforcing through the political access that money can bring. Rules are set not in the public interest but in the interest of the rich, who use those rules to become yet richer and more influential.

To worry about these consequences of extreme inequality has nothing to do with being envious of the rich and everything to do with the fear that rapidly growing top incomes are a threat to the wellbeing of everyone else.”

So, congratulations to Angus Deaton, regardless of what the prize should be called. More perceptive detail on the causes and results of inequality, not only on individuals, groups and classes but on democracy itself is a good thing, if understood and acted upon.

Scandal follows Scandal but Who Needs Regulation?

Oh my goodness! Volkswagen, which distanced itself from its Adolf Hitler aided beginnings and the taint of using slave labor to become the largest automobile manufacturer in the world has exploded in the biggest manufacturing scandal of the year – maybe in several years but who can keep track?

From Upton Sinclair’s exposure of corporate meat packing fraud and filth to today, the rolls are filled with dishonorable corporate activity. I know, I know, not all of theM, but how many bad apples in a barrel before you don’t want anything to do with the whole lot?  Here are a couple of lists just to jar loose the memories. The Biggest 25 Ever (probably not, but all recent.)  And here’s a Wiki list.  It’s pretty short on Gilded Age scandals but still, many.

So, the problem is not, nor has ever been, one bad apple.  The problem is the set up of corporations to spin the “virtuous circle” of profits and greed while resisting any kind of regulation or oversight for the common good.  Today’s James B Stewart article in the NY Times makes the point about VW with plenty of detail:  it was not just the CEO Winterkorn, nor a rogue engineer somewhere.  It starts at the top, with the Board.

Volkswagen’s recent history — a decades-long feud within the controlling Porsche family, a convoluted takeover battle and a boardroom coup — has dominated the German financial pages and tabloids alike. This week, the German newspaper Süddeutsche Zeitung compared Volkswagen’s governance to that of North Korea, adding that its “autocratic leadership style has long been out of date.” It said “a functioning corporate governance is missing.”

Image result for volkswagen pollution

… I spoke this week to a longtime former senior Volkswagen executive, who agreed that a scandal, especially one involving emissions, was all but inevitable at Volkswagen. He cited the company’s isolation, its clannish board and a deep-rooted hostility to environmental regulations among its engineers. …  engineers felt that the politicians were guilty of rank hypocrisy, especially in the United States, also grumbling that electric cars make no sense as long as power plants are burning fossil fuels.

“There’s an attitude of moral superiority there,” he said. “The engineers think they know best.”

And, of course, it’s not new. Cheating, cheating, everywhere.  Because, who does the testing? Why those who have products to be tested! Wahoo!  Let the students test themselves…

Paul Krugman weighs in with a quick summary of very recent corporate scandals and hammers the drum for a return to reasonable regulation.

There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior, not least so that ethical business people aren’t at a disadvantage when competing with less scrupulous types. But we knew that, right?

Well, we used to know it, thanks to the muckrakers and reformers of the Progressive Era. But Ronald Reagan insisted that government is always the problem, never the solution, and this has become dogma on the right.

As a result, an important part of America’s political class has declared war on even the most obviously necessary regulations.

And ALL PRAISE! to the folks who found out:

Peter Mock, European managing director of a International Council on Clean Transportation and his American counterpart, John German, were sure that tests would show VW diesel to be clean!  They hired West Virginia University’s  Center for Alternative Fuels, Engines and Emissions where Dan Carder was director and research assistant professor Arvind Thiruvengadam and his colleagues hoped to be able to publish a few scholarly articles from the test results.  No one had an idea that anything was wrong.  When the results started coming in they re-did and re-did the tests, doubting themselves.

The initial test results were ready a year ago to little noise except for the EPA which began testing of its own followed by European authorities.  Bam! The VW castle is barely standing. In fact, the whole diesel line of fossil fuels may die.  The silver lining? Perhaps, to reclaim the trust of the public, VW will lead the way in to renewable fuels. Perhaps.

And, by the way, were the code that was jiggered to falsely give superb emission reading “open code” instead of proprietary, some young nerds might have discovered the problem several years ago.

Public Immorality

Robert Reich is always worth listening to whether about economics or trade or work, usually all three at the same time.  In recent blog posts he’s gone after the disappearance of public morality in great corporations, an absolute necessity, he says:

An economy depends fundamentally on public morality; some shared standards about what sorts of activities are impermissible because they so fundamentally violate trust that they threaten to undermine the social fabric.

He’s written about it twice in recent weeks, following on earlier posts about The Outrageous Ascent of CEO Pay and Corporate Welfare in California

 

 

At a time many Republican presidential candidates and state legislators are furiously focusing on private morality – what people do in their bedrooms, contraception, abortion, gay marriage – America is experiencing a far more significant crisis in public morality.

CEOs of large corporations now earn 300 times the wages of average workers. Insider trading is endemic on Wall Street, where hedge-fund and private-equity moguls are taking home hundreds of millions.

A handful of extraordinarily wealthy people are investing unprecedented sums in the upcoming election, seeking to rig the economy for their benefit even more than it’s already rigged.

Yet the wages of average working people continue to languish as jobs are off-shored or off-loaded onto “independent contractors.”

All this is in sharp contrast to the first three decades after World War II.

Read All

And if you didn’t see him in Inequality for All, here is a trailer.  Available out there in internet land

 

 

Inequality Sinks All

A couple of millionaires call out to their caste-cohort.  “Wake up!  Or lose it all!”

Peter Georgescu in the NY Times

“I’M scared. The billionaire hedge funder Paul Tudor Jones is scared. My friend Ken Langone, a founder of the Home Depot, is scared. So are many other chief executives. Not of Al Qaeda, or the vicious Islamic State or some other evolving radical group from the Middle East, Africa or Asia. We are afraid where income inequality will lead.

For the top 20 percent of Americans, life is pretty good.

Inequality the-uss-inequality-sinking-ship-inequality-cartoon

But 40 percent are broke. Every year they spend more than they have.

While so many people are struggling, even those on the higher end of the middle class have relatively little after paying the bills: on average, some $1,300 a month. One leaky roof and they’re in trouble.

If inequality is not addressed, the income gap will most likely be resolved in one of two ways: by major social unrest or through oppressive taxes, such as the 80 percent tax rate on income over $500,000 suggested by Thomas Piketty, the French economist and author of the best-selling book “Capital in the Twenty-First Century.”

We are creating a caste system from which it’s almost impossible to escape, except for the few with exceptional brains, athletic skills or luck. That’s why I’m scared. We risk losing the capitalist engine that brought us great economic success and our way of life.

… The fact that real wages have been flat for about four decades, while productivity has increased by 80 percent, shows [employees sharing amply in productivity increases and creative innovations]  has not been happening. Before the early 1970s, wages and productivity were both rising. Now most gains from productivity go to shareholders, not employees.

When Jon Stewart Took on Wall Street

Joe Nocera in the NY Times has a nice memory of how Stewart took apart the Wall Street media.

“Stewart had no special Wall Street knowledge, as he was the first to admit. What he had was a nose for a scam, and an uncanny ability to articulate what the rest of us were feeling.

“He mocked the way Wall Street firms paid ungodly sums to settle government charges without ever admitting guilt (a subject later championed, less humorously, by Federal Judge Jed Rakoff). He lampooned the way dubious deals — particularly the notorious Goldman Sachs Abacus deal — were legal, even as they oozed with sleaze. After J.P. Morgan’s big London Whale losses, he showed a Senate hearing where senators cravenly solicited regulatory advicefrom the company’s chief executive, Jamie Dimon — and then noted that J.P. Morgan was often their biggest campaign contributor. And so on.

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