Rich Get Richer. 2012 the Rich "R" Richer than ever....

 

The Rich Get Richer Through the Recovery

By ANNIE LOWREY

 

http://economix.blogs.nytimes.com/2013/09/10/the-rich-get-richer-through-the-recovery/?src=me&ref=general

The top 10 percent of earners took more than half of the country’s total income in 2012, the highest level recorded since the government began collecting the relevant data a century ago, according to an updated study by the prominent economists Emmanuel Saez and Thomas Piketty.
The top 1 percent took more than one-fifth of the income earned by Americans, one of the highest levels on record since 1913, when the government instituted an income tax.
The figures underscore that even after the recession the country remains in a new Gilded Age, with income as concentrated as it was in the years that preceded the Depression of the 1930s, if not more so.
High stock prices, rising home values and surging corporate profits have buoyed the recovery-era incomes of the most affluent Americans, with the incomes of the rest still weighed down by high unemployment and stagnant wages for many blue- and white-collar workers.
“These results suggest the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s,” Mr. Saez, an economist at the University of California, Berkeley, wrote in his analysis of the data.
The income share of the top 1 percent of earners in 2012 returned to the same level as before both the Great Recession and the Great Depression: just above 20 percent, jumping to about 22.5 percent in 2012 from 19.7 percent in 2011.
That increase is probably in part due to one-time factors. Congress made a last-minute deal to avoid the expiration of all of the Bush-era tax cuts in January. That deal included a number of tax increases on wealthy Americans, including bumping up levies on investment income. Seeing the tax changes coming, many companies gave large dividends and investors cashed out.
But the economists noted that the trends looked the same for income figures including and excluding realized capital gains — implying that the temporary tax moves were not the only reason the top 1 percent did so well relative to everyone else in 2012.
More generally, richer households have disproportionately benefited from the boom in the stock market during the recovery, with the Dow Jones industrial average more than doubling in value since it bottomed out early in 2009. About half of households hold stock, directly or through vehicles like pension accounts. But the richest 10 percent of households own about 90 percent of the stock, expanding both their net worth and their incomes when they cash out or receive dividends.
The economy remains depressed for most wage-earning families. With sustained, relatively high rates of unemployment, businesses are under no pressure to raise their employees’ incomes because both workers and employers know that many people without jobs would be willing to work for less. The share of Americans working or looking for work is at its lowest in 35 years.
There is a glimmer of good news for the 99 percent in the report, though. Mr. Piketty and Mr. Saez show that the incomes of that group stagnated between 2009 and 2011. In 2012, they started growing again — if only by about 1 percent. But the total income of the top 1 percent surged nearly 20 percent that year. The incomes of the very richest, the 0.01 percent, shot up more than 32 percent.
The new data shows that the top 1 percent of earners experienced a sharp drop in income during the recession, of about 36 percent, and a nearly equal rebound during the recovery of roughly 31 percent. The incomes of the other 99 percent plunged nearly 12 percent in the recession and have barely grown — a 0.4 percent uptick — since then. Thus, the 1 percent has captured about 95 percent of the income gains since the recession ended.
Mr. Saez and Mr. Piketty have argued that the concentration of income among top earners is unlikely to reverse without stark changes in the economy or in tax policy. Increases that Congress negotiated in January are not likely to have a major effect, Mr. Saez wrote, saying they “are not negligible, but they are modest.”
Mr. Saez and Mr. Piketty, of the Paris School of Economics, plan to update their data again in January, after more complete statistics become available.

Tom Edsall. Can Government do anything about Inequality?

Can the Government Actually Do Anything About Inequality?

http://opinionator.blogs.nytimes.com/2013/09/10/can-the-government-actually-do-anything-about-inequality/?hp&_r=0

 

By THOMAS B. EDSALL

Tom Edsall on politics inside and outside of Washington.

For a moment, let’s forget the central debate of our political period — how much of a role government should play in our lives — and ask a different question: can government policies counteract inequality in any meaningful way?

Four political scientists – Adam Bonica of Stanford, Nolan McCarty of Princeton, Keith T. Poole of the University of Georgia and Howard Rosenthal of New York University – take this issue head on in their paper, “Why Hasn’t Democracy Slowed Rising Inequality?” published earlier this year in Journal of Economic Perspectives.

During the past two generations, democratic forms have coexisted with massive increases in economic inequality in the United States and many other advanced democracies. Moreover, these new inequalities have primarily benefited the top 1 percent and even the top .01 percent. These groups seem sufficiently small that economic inequality could be held in check by political equality in the form of “one person, one vote.”

Bonica, McCarty, Poole and Rosenthal argue that politics can be an effective tool to restore economic fairness — that  government can, and should, correct imbalances the market produces, providing for those who cannot compete, ensuring opportunity for those who can and blocking those who would appropriate to themselves what the authors see as an excessive share of our national prosperity.

The four political scientists offer five “possible reasons why the U.S. political system has, during the last few decades, failed to counterbalance rising inequality”:

• An intellectual and ideological shift within both political parties toward “acceptance of a form of free market capitalism which, among other characteristics, offers less support for government provision of transfers, lower marginal tax rates for those with high incomes, and deregulation of a number of industries. Financial deregulation, in particular, has been a source of income inequality.”

•  “Immigration and low turnout of the poor have combined to make the distribution of voters more weighted to high incomes than is the distribution of households. Turnout, of course, can also be influenced by legal and administrative measures that make it relatively costly for the poor to vote.

•  “Rising real income and wealth has made a larger fraction of the population less attracted to turning to government for social insurance.”

•  “The rich have been able to use their resources to influence electoral, legislative, and regulatory processes through campaign contributions, lobbying, and revolving door employment of politicians and bureaucrats.”

•  “The political process is distorted by institutions like gerrymandering that reduce the accountability of elected officials to the majority. Other political institutions, including a bicameral legislature with a filibuster, combine with political polarization to create policy gridlock, which in turn inhibits efforts to update social safety nets and regulatory frameworks in response to changing conditions.”

The authors produce a number of graphics to support their claims. Figure 1 shows a positive correlation between the share of income going to the top 1 percent and the level of polarization between the two political parties in the House of Representatives.
Figure 1

The Federal Election Commission and the Internal Revenue Service Fig. 1

Figure 2 shows the growing dependence of Democratic candidates on contributions from donors in the top 1 percent of the income distribution. These contributions have risen from 5 percent of the money donated to Democrats in 1980 to 25 percent in 2012:

The Federal Election Commission and the Internal Revenue Service Fig. 2

In the interest of promoting debate, I ran the questions raised by the Bonica paper — “do democracies have the capacity to remediate massive increases in economic inequality” — by a number of experts, including Isabel Sawhill and Gary Burtless of the Brookings Institution; Andrew Fieldhouse and Benjamin Landy, policy analysts at the Century Foundation; Sean Reardon, a professor of education and sociology at Stanford; Austin Nichols of the Urban Institute; Daron Acemoglu, an economist at M.I.T.; and Leslie McCall, a sociologist at Northwestern.

Let me organize the responses under five topic headings:

To what degree is growing inequality a result of political decisions or of economic and demographic trends?
Fieldhouse contends that Bonica and his colleagues

oversell the relation between public policy and income inequality – the political sphere influences the playing rules for the free market, but U.S. income inequality growth is, at the core, being driven by very strong market forces for much longer than U.S. income inequality has been in the public discourse.

Looking at the issue from another angle, Acemoglu makes the case that the authors spend too little time on what he sees as the most important reason that political solutions are not likely to work:  the global economy has become even more competitive. Capital is internationally mobile, and corporations and their owners will move to other countries when faced with what they see as excessive taxes and regulatory burdens:

With the technological changes and the more globalized economy we live in, the cost of stemming the rise in inequality has also increased. A cross-country perspective shows this very clearly. Several European countries, including Germany and Sweden, which have well-functioning democracies and strong social democratic parties, have also reformed their labor market and product market institutions, leading to greater inequality over the last two decades. A cross-country perspective also indicates that the factors the paper mentions can at most be a portion of the puzzle.

The rise of inequality in Scandinavian social democracies, according to Landy, suggests that explanations based on phenomena unique to the United States, like the disproportionate influence of money in political campaigns, are inadequate:

Globalization and changes in technology have been a boon to owners of capital, allowing them to decrease their labor costs, boost productivity and, in many cases, replace workers’ jobs entirely.

Sawhill also argues that “income inequality is growing for reasons that have little to do with politics,” including “changes in household composition, more single parents, like marrying like, and wage inequality produced by the increased demand for well-educated workers and the failure of the supply of educated workers to keep pace.”

Would raising marginal tax rates significantly lessen inequality?
I found no consensus on this.
Fieldhouse contends that

tax, transfer, and regulatory policy can and should push in the right direction, but it would take large political forces to keep from exacerbating inequality; halting let alone reversing market-based inequality growth of the past three decades would require policy actions beyond the conceivably viable.

Fieldhouse notes that politically untenable policies include the adoption of full-employment monetary and fiscal policies — in other words, a massive jobs program requiring a large expenditure of tax dollars is not in the offing.
In contrast, Nichols of the Urban Institute makes the case that Bonica and his colleagues underestimate “the central importance of taxes” in fueling inequality — because they fail to recognize how much cuts in capital gains rates over the past 25 years have enhanced the wealth of the top 1 percent and especially the top 0.1 percent.
McCall, author of “The Undeserving Rich: American Beliefs About Inequality, Opportunity, and Redistribution,” suggests that liberal interest in raising top rates is a political miscalculation.  She argues that survey data show “the public has never really been oriented toward fixing inequality through taxing the rich or especially spending on the poor.” Instead voters want what she calls “market-based redistribution,” which translates into “good jobs with fair pay.”

Intellectual capture of political elites and the political and financial power of the affluent.
There was significant agreement among those I surveyed in support of two key points in the Bonica paper: that leaders in both political parties have come to accept free market ideology without question and that the affluent have used their control of money and other resources to wield excessive power over policy making. Fieldhouse writes that “political capture by the elites,” particularly with respect to the “capture” of centrist Democrats by high finance, “played a big role in financial deregulation, which in turn has greatly exacerbated income inequality growth.”
Acemoglu asserts that “the role of lobbying by the very wealthy and large corporations has truly become a huge liability for American democracy over the last several decades.”
To Reardon, “the current dominant cultural narrative about the market and efficiency and fairness and equality” is crystal clear: “it goes something like this: America = fairness/opportunity = individual freedom = free market.”

Democratic intra-party conflict.
Landy emphasizes

the split within the Democratic Party in the late 1960s between “traditional,” blue-collar Democrats and the more radicalized New Left. The Democratic Party’s newfound focus on women’s rights, gay rights and affirmative action alienated a substantial number of older, white liberals. The modern-day coalition of social conservatives and the business community would not be as strong as it is without that schism, which allowed the Republican Party to breed resentment by racializing what were formerly working-class economic issues.

Fieldhouse, in turn, maintains that Democrats have “done a better job promoting ascriptive identity policies and politics than those of general social welfare in recent decades.”

Lack of confidence in the government.
Nichols, without specifically naming the Democratic Party as the source of the problem, touches on what might be called the “confidence gap.”
He contends that “a virtually unprecedented rise in inequality since 1986 could be addressed with higher tax rates. Yet most of the bottom 99 percent does not support dramatically raising taxes on the top 1 percent.” Bonica et al, in Nichols’s view, do not address “the main reason for that phenomenon — which I suspect is a deep distrust of how the federal government makes spending decisions.”

•

A paper by Josh Bivens and Lawrence Mishel of the liberal  Economic Policy Institute, in the same issue of the Journal of Economic Perspectives, asks if “the increase in the incomes and wages of the top 1 percent over the last three decades should be interpreted as driven largely by the creation and/or redistribution of economic rents” or “simply as the outcome of well-functioning competitive markets rewarding skills or productivity based on marginal differences.”
Bivens and Mishel define “rent” as income “in excess of what was needed to induce the person to supply labor and capital,” and they assert that much of the income of the top 1 percent has little to do with productive economic activity and could be taxed away without harm to the economy.
Others writing in the same issue of the journal believe that taxing or otherwise limiting the wealth of the very rich can harm productivity.

N. Gregory Mankiw, an economist at Harvard who was chairman of the Council of Economic Advisers in the George W. Bush administration, writes that

My own reading of the evidence is that most of the very wealthy get that way by making substantial economic contributions, not by gaming the system or taking advantage of some market failure or the political process.

In “It’s the Market: The Broad-Based Rise in the Return to Top Talent,” Steven N. Kaplan of the University of Chicago Booth School of Business, and Joshua Rauh, of the Stanford Graduate School of Business, argue that talent is unequally distributed through the population and that this is reflected in the inequality of rewards. They suggest that

One explanation that has been proposed for rising inequality is that technical change allows highly talented individuals, or “superstars,” to manage or perform on a larger scale, applying their talent to greater pools of resources and reaching larger numbers of people, thus becoming more productive and higher paid.

Malcolm Gladwell’s explanation for inequality in “Outliers: The Story of Success” bridges, to some extent, the arguments of left and right. He makes the case that it is hard work – famously, 10,000 hours of hard work – that leads people to gain abilities that then result in the acquisition of disproportionate resources. Gladwell notices, however, that a remarkable degree of good luck is needed to realize the gains from even well-honed skills.

Superstar lawyers and math whizzes and software entrepreneurs appear at first blush to lie outside ordinary experience. But they don’t. They are products of history and community, of opportunity and legacy. Their success is not exceptional or mysterious. It is grounded in a web of advantages and inheritances, some deserved, some not, some earned, some just plain lucky – but all critical to making them who they are.

Gladwell adds this twist to the debate:

It is those who are successful, in other words, who are most likely to be given the kinds of special opportunities that lead to further success. It’s the rich who get the biggest tax breaks. It’s the best students who get the best teaching and most attention. And it’s the biggest nine- and ten-year-olds who get the most coaching and practice. Success is the result of what sociologists like to call “accumulative advantage.”

Inequality appears to liberals and many others to be palpably wrong. But conservative and liberals often find themselves in agreement that inequality in and of itself may not be the issue — it’s the way it is deepening and spreading and the small size of the group to whom the benefits are accruing that worries people most. Inequality exists in democracies and non-democracies alike; it clearly stems from multiple causes. But “the question for public policy,” as Greg Mankiw puts it, is “what, if anything, to do about it.”

Don't Believe Charles Murray on Inequality

Murray of The Bell Curve infamous "fame" often finds a way to blame the poor for their condition while ignoring structural causes. The game is fixed in the top 1%'s favor. Let's pay attention to those like Chait who point this out. - Fr. Rick
******************

Inequality and the Charles Murray Dodge

http://nymag.com/daily/intel/2012/01/inequality-and-the-charles-murray-dodge.html

• 1/31/12 at 3:11 PM By Jonathan Chait

Why are the very rich doing so well? Family values.

The appearance of income inequality on the political agenda has left conservatives casting about for a response, and after several months of floundering, it has increasingly narrowed down to two words: Charles Murray. Murray is the author of a new book, Coming Apart: The State of White America, which attributes the decline of the middle class to deteriorating social norms. Non-elite whites, he argues, are failing to sustain healthy marriages or strong child-rearing and work habits, leading to economic decline.

I haven’t read Murray’s book, so I can’t evaluate the argument. I have many reasons for skepticism that it actually explains what it purports to explain. There’s Murray’s non-confidence-inspiring history, the intuitive possibility that deteriorating social norms are at least partially the result and not the cause of economic stagnation (it’s no longer easy for a blue-collar earner to support a family), and the simple fact that, you know, many Americans are not white, which limits the value of a book about white people as a totalistic social explanation. But even if we grant, for the sake of argument, all the claims being made on Murray’s behalf, the basic point is that it is not a plausible response to the problem of income inequality. It’s an attempt to change the subject.

Rising income inequality is a phenomenon of the top one percent pulling away from everybody else. Conservatives want to redefine the question as concerning the top 20 percent against everybody else. If you redefine the question as being about the top quintile against the bottom four-fifths, then you can start talking about marriage and Charles Murray and safely steer the debate back onto comfortable conservative terrain. David Brooks tries that sleight of hand in his column today:

Democrats claim America is threatened by the financial elite, who hog society’s resources. But that’s a distraction. The real social gap is between the top 20 percent and the lower 30 percent. The liberal members of the upper tribe latch onto this top 1 percent narrative because it excuses them from the central role they themselves are playing in driving inequality and unfairness.

But these are two completely separate issues. Yes, the top 20 percent has done better than the bottom 80 percent, and it’s very worth exploring the role of social norms in this divergence. But income inequality has occurred between the top one percent and everybody else:

A more blunt version of this technique was previewed a couple months ago by the American Enterprise Institute’s James Pethokoukis, perhaps the right’s most enthusiastic inequality denier. Pethokoukis cited a chart, compiled by Political Calculations, purporting to show that the only change in inequality results from changed family status. Pethokoukis triumphantly presented this as the “The one chart that explodes the myth of U.S. income inequality,” and used it to segue, as Brooks does today, to Murray’s arguments about family values:

So what we have here, as always in America it seems, is culture trumping economics (though the data don’t take into account how different income groups have different inflation rates, another equalizer). AEI’s Charles Murray has a new book coming out that will expand on how values and culture influence inequality.

But the chart is completely wrong. Reader Jacques Distler pointed out to me that it relies on census data, which only asks households if they earn more than $100,000 a year. Since all the change in income inequality has come within households earning well over that mark, the census data is not going to capture the rise in income inequality. (Think of it this way. Imagine you want to show that basketball centers get taller as you move from high school to college to the NBA. If your tallest category is "six foot two and over,” you’re not going to show much of an effect.)

I e-mailed Lane Kenworthy, an inequality expert, who confirmed this for me. Inequality between the top one percent and everybody else has increased dramatically.

The growing gap between the top one percent and everybody else has a lot of important implications, the most immediate being a simple fight over resource allocation. Democrats insist that any fiscal adjustment require the richest one percent to make a meaningful contribution, while Republicans insist that it must not. That’s an important debate. The root causes of the gap between the top 20 percent and the bottom 80 percent is also interesting and important. But “hey, look – Charles Murray!” isn’t a very salient response to the problem of inequality.

Who creates Jobs?

Cartoon from Time Magazine

http://ideas.time.com/2012/01/13/cartoons-of-the-week/#jobs


Can someone explain how all these "one percenters" and other mega rich folks are "job creators" but the lack of jobs (e.g., unemployment rate) is the government's fault? How can all those who want "government out of our lives" (but not out of medicare) demand that government do something about the unemployment rate? Isn't high unemployment the fault of all those "job creators" who aren't creating jobs? Just asking....