Friday, February 13, 2015

Personal Observations

Personal Observations

Feb 13, 2015

It's one thing to argue the economics of inequality. The reality is that there are different and conflicting interpretations of the data and the theories. There is ambiguity. Personal biases play in. Some feel the most important thing is to allow motivation to be undisturbed by taxation, that opportunity abounds, and others feel the wealthy should help the underprivileged in one way or another.

It's entirely another thing to experience the realities of the world around us on a daily basis. Sometimes, what we see with our own eyes, in the halls and on the streets of our city, on the back roads of the world, tells us more, with no ambiguity. There is a reality.

Yesterday, I had the privilege to attend a San Francisco Symphony performance. Herbert Blomstedt, now about 87, was conducting Sibelius and Mozart.

I found a hall filled to about 2/3 capacity at 10am on a weekday, tickets very cheap ($40) at this "open rehearsal," in which we could see and hear this elderly icon graciously instruct his large orchestra, and then conduct them through the complex and beautiful compositions.

I felt deeply moved by the music and by the whole scene. Blomstedt, without a glance at his music, so clearly calling out with his hands to the oboes, then the bassoons, and to each section of instruments, calling up their volumes in one and down in another. The musicians, each with an accomplished specialty, some in their twenties, some in their seventies, each in complete command of their unique instruments and roles.  All of it coming together in a way that transcends the imagination of just how--how the composer dreamed it up and wrote it down, a different score for each of the dozens of instruments and individual parts; how the conductor memorized it and knows each part, adding his own interpretation; how the musicians have been able to devote their entire careers to playing a viola or a french horn, with excellence. All for our pleasure, and for a short period of almost touching the essential beauty of life.

As I listened and watched, I considered the cost of all this--the hundreds of musicians and support staff coming from all over the Bay Area, maintenance of the great hall, and all of it. The hundreds of years of devotion to these exquisite compositions.

I reflected on how fortunate I am, having the privilege to be touched by such accomplishment and beauty. I thought of those in The Ukraine, in Nigeria, in Syria and Iraq, in rural India, and in the homeless shelters of our own cities, some only a few blocks from this great hall. We have 45 million in poverty in our country. I imagine none of them would regard even the $90 for two tickets to this performance to be inconsequential in their daily survival needs.

How can we avoid being reminded vividly of the privilege of our lives here, realizing that much of the world will not have this opportunity in their lifetimes? Here in San Francisco, one of the wealthiest cities in the US, the wealthiest country in the world. Maybe it's easy to be remain oblivious, surrounded as we are by such privilege and wealth.

Branko Milanovic, noted scholar of inequality at the World Bank, has analyzed available global data to conclude the following: some 50-60% of your economic destiny today is pre-determined by the country in which you happen to have been born; another 20% is pre-determined by the wealth of your parents. Thus, almost 80% of your economic destiny is pre-determined. And, he speculates that when the data permits analysis of gender, race, religion and other factors which are givens at birth, the percentages will be far higher.

For those who haven't seen this conclusion before, it doesn't mean there is no chance for pulling oneself up by the bootstraps, even if one was born of color, female, in Uganda, of poor parents, or an equivalent set of pre-determined obstacles. Some do. However, the data clearly shows that the "chance" of your "making it" with such birth handicaps is far lower than for the rest of us. It is "almost" impossible. My parents were relatively poor, but I was born in the USA. I'm male, Caucasian, Protestant. And, that was a very different time, a very different political scene, and a very different economy than today. There was more opportunity.

Some in this area who live in poverty, some who are working with very tight budgets, some who have been forced to move to the distant suburbs of our San Francisco by our increasingly unaffordable housing, many, many, will not be able to experience the Symphony. Ever. And, as Milanovic says, the vast majority of those born in the wrong country of poor parents, never will. Ever.

I have a wonderful young couple who clean my home biweekly. They are immigrants. They work very hard, do an excellent job for me, always willing to do anything extra that I need. As I was recording these thoughts today, the husband arrived , and with great trepidation took me aside to ask whether I could consider an advance on future cleaning of my home, so that he could buy the little things they need for the new baby they are soon expecting.

Branko Milanovic:

Monday, February 9, 2015

Republicans and Inequality

Republicans and Inequality
Feb 9 2015

There can be no dispute that we are seeing a staggering rise in inequality in the US. This has rightfully become a political issue worth debating (and resolving).

When a right wing academic chides his own side of the political spectrum for disingenuously promoting a political solution to inequality, his analysis deserves reading, and he deserves recognition for intellectual honesty. This is the message from Ramesh Ponnuru of the American Enterprise Institute, a conservative think tank, in today's NY Times.

He's pointing out that Republicans have started blaming the Obama administration and the Democrats for the significant rise in inequality, and have even been so bold as to suggest that Republicans will provide a solution, less inequality, if only we elect a Republican President in 2016, giving them control of all three chambers of our federal government. If ever there was, this is truly the pot calling the kettle black!

Ponnuru explains--there is no real interest among the consensus of Republicans in addressing inequality.  There are no visible Republican proposals which would improve inequality. It's worse. He goes on to explain a critical variable: That the Republican economic centerpiece is just economic growth. That's all. He clearly explains that when growth is strong, everything else constant, guess what?  Inequality increases! So, in essence, the Republican agenda is indisputably inconsistent with improving inequality. It's really that simple.

I'm impressed with this accurate and honest explanation, and most especially coming from a sound voice on the Right. He advises Republicans to give it up--it's dishonest.

On the other hand, Republicans can honestly argue that they might be able to make the economy grow faster than Democrats can. Comparisons between Democratic and Republican administrations' growth records across the Twentieth Century would not lend credence to that argument, at least not based on history. Nevertheless, I would trust Republicans might honestly believe they can do that.

However, they may not be able to pull it off.  As Ponnuru suggests, removal of some of the restrictive, burdensome and ineffective regulations would be helpful (although many have been added under Republican administrations, as well as Democratic).  So, they will find me with an open mind, interested, if they think they can grow the economy faster. I would listen to their proposals. Growth is good, beneficial. But, growth alone will not reduce inequality.

Ponnuru accurately observes that the American population still seems more interested in jobs and opportunity than in measures to reduce inequality. Faster growth might improve opportunity. Wages might increase. But wealth and income disparity will not diminish--it will worsen, unless there is some form of redistribution.  I believe it indisputable that at some extreme of inequality, depending (of course) on other variables, any country will eventually face revolution. I suppose the Republicans who really understand economics and history are banking on the hope that inequality will (somehow) level out on its own. This is known as the "Kuznets curve," no longer believed by most economists. And in the meantime, they are betting that improving jobs and wages (a little) will suffice. The real questions are (a) is it getting worse? (b) at what rate? and (c) and how far are we from the precipice?

Redistribution is the only answer to reducing inequality. There is no other answer. Redistribution can come in many forms, however. Some are particularly painful to conservatives--like taxing the rich to provide welfare to the unemployed. But, there are more palatable forms of redistribution. Schools and infrastructure would be good places to start. We shouldn't even be debating these priorities. They contribute to opportunity for all, which Republicans claim they support. These are properly called redistribution when the wealthy pay for more than their share of the benefit. But isn't that better than wondering whether your children or grandchildren will have the wherewithal to hire enough vigilantes to protect their gated homes?

The rationale for the continuing tolerance among Americans (and for Chinese and other unequal developed nations) for rising inequality is perhaps best explained by a parable from the noted economist Albert Hirschman in 1973. Paraphrased by Debraj Ray, this is it:

"You’re in a multi-lane tunnel, all lanes in the same direction, and you’re caught in a serious traffic jam.

After a while, the cars in the other lane begin to move.  Do you feel better or worse? At first, movement in the other lane may seem like a good sign: you hope that your turn to move will come soon, and indeed that might happen. You might contemplate an orderly move into the moving lane, looking for suitable gaps in the traffic. However, if the other lane keeps whizzing by, with no gaps to enter and with no change on your lane, your reactions may well become quite negative. Unevenness without corresponding redistribution can be tolerated or even welcomed if it raises expectations everywhere, but it will be tolerated for only so long. Thus, uneven growth will set forces in motion to restore a greater degree of balance, even (in some cases) actions that may thwart the growth process itself."

Americans and Chinese are still believers in the Horatio Alger story, but reality for the great majority is that bootstrapping it is harder than ever.

It's not so easy to get into that fast lane. The traffic there is moving faster and faster these days. Those Bentleys and Rolls Royces only seem to brake to admit those of their own kind. Expensive private high schools in my neighborhood, feeders to Ivy League Universities, cost $35-40,000 per year, while the San Francisco public schools must get by on a budget amounting to about $9,000 per student.

The Republican stance on key economics defies rationality. For example, to promote growth, few would disagree that appropriate spending on our infrastructure is needed and would greatly benefit growth. Here we are talking about worn out roads and highways, bridges, tunnels, inadequate fast rapid transit, tired airports, our power grids, and even our internet (slower than many other nations). Note the powerful correlation between public investment and economic growth:

Paul Krugman has argued the key point repeatedly and does so again in today's NY Times. Essentially, it comes down to the Republican attitude of severe austerity--that reducing debt and meanwhile reducing government (continuously) is the answer. Europe is demonstrating now that this cannot be the entire answer. I argue that the Obama administration (and the Federal Reserve) deserve great praise for rather miraculously dragging our economy to this stage of growth while continuously restrained in proper tools to do so, by Republican excessive adherence to austerity. Maybe austerity can be understood for Japan, with astronomical debt, but certainly not for the largest economy in the world, the reserve currency of the world.

If we are to continue across the next few years with Republican control of the purse strings, just how are they going to grow the economy? Removing regulations alone will simply not do it.

A better statement from Republicans can be suggested: "We don't think inequality is important to fix. It is simply a factor of motivation, which is a good thing for everyone. As to those with motivation who have obstacles to their achievement, we're sorry, but we simply can't distinguish between those who really want to work and those who don't, so we don't favor any form of redistribution. We will only be able to contribute to improved opportunity for those who can take advantage of it. We hope you all continue to agree with us."

I will close by acknowledging there are poor legislators on both sides of the aisle, as there are wise voices on both sides. However, it is now the Republican Party which has allowed itself to be hijacked by extremists on the far Right, such that it is unlikely Republicans can even stimulate growth. And, as Ponnuru so rightly states, Republicans have no interest in reducing inequality.

In just previous posts, I argue that Republican policies (neoliberalism) are largely responsible for the rise in inequality across the last 30 years.


Paul Krugman:

Ramesh Ponnuru:

Debraj Ray on Hirschman:

Tuesday, December 16, 2014

Postscript re Republicans

Postscript re Republicans
Dec 15, 2015

If you're kind enough to read my blog and haven't yet read the just previous posting, please look it over before reading this one. This is a postscript resulting from two things: One is a very useful exchange I had with a friend whose opinions I value, a very respected economist and professor. He doesn't agree with my conclusions. I probably haven't changed his mind, and he hasn't changed mine, often the case in a good debate. However, I took away a number of good points and benefitted greatly from the exchange. I'll explain below, without identifying the person, because I don't pretend to be able to represent his complete views on the subject.

The other is from the New York Times of today. There is an opinion piece by Paul Krugman and a piece by Robert Pear. Both result from the outcome of the omnibus funding bill just approved by Congress.  References are below. Again, my focus is on the behavior of the Republican Party, which I believe is very poorly serving our country.

One of the reactions to my post of yesterday was to argue the point of who/what is responsible for the rise in inequality experienced in most countries. Here in the US, I argued that the Republicans and their policies are the prime culprit. My friend argued that globalization is the cause.

Just what is "globalization?" "Globalization and Development" was the title of my MSc. program in London during 2012-3. Many definitions were discussed in class. Merriam dictionary's is good for today's purposes: " the development of an increasingly integrated global economy marked especially by free trade, free flow of capital, and the tapping of cheaper foreign labor markets." Note that these are prototypical Republican agenda. This is what American business wants. Republicans of today are committed to advancing the private market as a solution to most all our needs, while starving government. Republicans have accelerated globalization, in the form they prefer, for the benefit of private capital.

Technology and transportation are companion elements to globalization, the recent accelerated development of both of which has enabled the rapid spread of globalization in it's third wave (1870-1914, 1950-1980, and 1980 forward). 

My friend is right. Globalization has resulted in inequality--inequality between countries (failure to converge in incomes) and inequality within countries. The latter has happened because cheaper foreign labor accompanied by faster transportation and advancing technology has moved jobs overseas. In my home town in North Carolina, almost the entire local employer base in textiles and furniture was moved to China and elsewhere around the globe. Improved technology provided for communication and remote management with China. Improved transportation enabled China to ship heavy sofas to the US at substantially lower prices than for US manufacturers. Enhanced financialisation and open borders enabled US producers to move labor, factories, capital and funds flows rapidly around the world. Enhanced "flexibility" for US employers pursued by Reagan and Republicans since has enabled them to abandon North Carolina workers on a moment's notice and leave them without support or new skills training. These policies are central to the Republican agenda.

Globalization also means facing how pollution from China affects the US and vice versa. We two are the top producers, and we may endanger the planet if we don't cut back. Just now, legislators are struggling to restrain our use of fossil fuels. This necessity costs jobs for coal miners in Kentucky and elsewhere. I believe this action is necessary, but what's lacking is government and industry working together to re-train and support workers who lose jobs. China is far ahead of the US now in fully accepting the role of government to pave the way for its industry, with infrastructure, research, and significant investment where private capital cannot do the job. In the US, Republicans even resist government investment to develop solar. Of course there will be some failures when government invests in pioneering business where private industry will not, but that's a justified role of government. That's how the internet was first developed--by the US government, not by private industry.

My friend pointed out correctly that the support for globalization comes from Democrats as well as Republicans--e.g., note the impact of the Clinton administration and the retired Clinton activity on advancing globalization. However, I do believe Republicans and their "neoliberal" policies have been the major drivers of globalization. It would have happened anyway, most likely, but under Democratic philosophies, I believe there might well have been far less impact on inequality. We would have retained worker protections which have been whittled away since Reagan.  We could have better managed the danger of free flowing capital around the world. 

He reminded me that Wall Street supports both parties. Yes, but according to the research behind Paul Krugman's article of today, starting with support for Romney in 2012, Wall Street money swung much more heavily to Republican candidates and policies. 

I'll try to tackle globalization more in another post--can it be restrained? How? What would be some wise global policies to enable a more fair and sustainable outcome to the continuance of globalization? One thing for sure--the optimal development of globalization is not just uncontrolled free borders, free markets, free capital, and "flexibility" for employers. If capitalists feel everything about their corporations needs to be carefully controlled, why do they think that world markets need no controls? Why is that different? Isn't good management all about controlling outcomes?

For now, just consider this: The graph below displays countries which have experienced the greatest globalization, as defined in the chart:

Note that Singapore, Ireland, and Switzerland are now more "globalized" than even the US. But, the movement of inequality (measured the the Gini index) has been dramatically different for these 4 countries. What have Singapore, Ireland, and Switzerland done to manage the impact of globalization on their populations, their pursuit of equality, that we have not?

Here is a comparison of the Gini indices (measurement of inequality--higher is worse) for the four:

Ireland             35.9 (1987)                           33.9 (2010)
Singapore          NA                                      46.3 (2013)
Switzerland     33.1 (1992)                           28.7 (2012)
United States   34.0 (1985)                           47.6 (2013)

While Singapore appears to have been consistently high, not increasing much (based on other data), Ireland and Switzerland reduced inequality over roughly comparable periods, while the US significantly increased inequality.

And, what about Finland and Norway? They have also been actively engaged in globalization and yet have kept inequality remarkably low--both below 26.0 in 2011, about equal to where they were in 1999. Between 1985 and 2008, income inequality rose in most OECD countries, but not all. It fell or held constant in Turkey, Greece, Hungary, France, and Belgium.

The mentioned constitute a good list of outliers to the trend of increasing inequality. It's not just one country with unique characteristics that managed it well. It's not just non-participants in globalization which performed well in inequality. How did they do it? Part of the answer is in how much the government did to reduce market-generated inequality. As shown in the chart below, the US diid less than most in the way of redistribution.

                                Source: The Economist Nov 26 2013

As a result of our form of capitalism and our reduced form of social welfare and related investments to benefit lower classes, the income of the top 20% and especially the top 1% significantly outpaced the rest of our population between 1979 and 2011, both before and after taxes:

And the US poverty rate today of about 14% of our population has not declined from its level in 1967. In a word, things have not been getting better in the US since Republican agenda (sometimes called "neoliberalism") began to dominate our economics:

Yes, we have had Democratic administrations during this time, and they too have paid too much homage to the neoliberal economics, whether by pressure of Republican political force, the pressure of big conservative money, or by simply failing to see how far the pendulum was swinging. Maybe it just wasn't clear until some of us began to marvel at the atrocious behavior of the GOP during the 6 years of the Obama administration.

The point was also made in response to my previous post, that it's not just the Republicans opposed to expanding immigration--in fact, many of the poor and middle class Americans oppose immigration, because immigrants are taking some of the jobs in the lower income category, driving down wages--restaurant workers as an example.  Yes, with apology for the necessity to speak here in broad terms when indeed there are so many variations of philosophy within both parties, I nevertheless think that almost all of the anti-immigration rhetoric preceding the recent election came from the Republican side of the aisle. I believe this is just one of the "tools" conservatives realize they can use to lure Americans to vote their way (along with freedom to own and carry guns, opposition to abortion, continuing tax reductions, etc.). In my view, these points are not the major wins Republican leaders seek (except for the tax reductions). This is a carefully developed marketing program, designed to appeal to the poorer segments of our population.

I'm in favor of some form of amnesty for those illegals within our borders who have worked and paid taxes for a period of time. I'm in favor of increased quotas. I believe it's time for us to recognize in our globalized world that our responsibilities do not stop at our borders. We must start to think as citizens of the world.

Unfortunately, it is not possible for any country to just accept all immigrants who want to come. If we could, it would solve a great deal of global inequality, but the disruption to any receiving nation has to be managed. In-migration has to be paced. Along with increased immigration, we need increased equal education for all, to enable us to keep advancing the US economy in service and information sectors. As shown in this chart, we do not need many immigrants to support our agricultural segment. We need them to support the advanced sectors of our economy. We have to recruit well educated immigrants and train and educate others to do that work.

The omnibus spending bill was approved by Congress this week, after much fear that Republicans would halt spending in objection to Obama's recent executive action on immigration. Ted Cruz apparently tried, but as a credit to more reasonable Republicans, that didn't happen. However, an important element of Dodd-Frank regulation of banks was substantially weakened as a rider to the spending bill. Republicans held the funding of government hostage to this payoff to Wall Street, as well as to Blue Cross and Blue Shield tax breaks, relief from environmental controls for cattlemen, and tax experts said the bill "bestowed favors on all sorts of constituencies," ending up "a Christmas tree bill."

Perhaps the most significant of these was the weakening of one particularly key part of bank regulation. Having spent most of my career in banking, I feel qualified to comment on it. My career involved lending of most all types--commercial, real estate, and consumer. I'm not a huge fan of bank regulation, because we have done it so poorly--far more complicated and costly than it needs to be.

A great deal of today's banking regulation is a massive waste of time and money. For example, the increased regulation of mortgage loans under HMDA (the Home Mortgage Disclosure Act) is a huge and expensive burden to regulators, banks, and to borrowers. If you have bought or re-financed a home in recent times, you know. There are dozens of documents to sign. No-one reads them. There are many forms to fill out. Regulators comb through banks files in examinations to see if every rule and document requirement is met. Much of this could be eliminated if we had just a few rules for banks, whose deposits are protected by the FDIC. We could require banks only make home mortgage loans with 20% minimum cash down payment. We could require banks not sell more than 80% of the loan, or that banks retain the first 10% of the risk of all loans that are sold.  Just these regulations could replace endless paperwork, save millions if not billions, and strengthen bank regulation. 

But such rules are not favored by banks and their Republican friends. Big banks would rather suffer the burden of complex detailed regulation in order to still be allowed to make riskier loans and to sell 100% of the loans if they prefer--leaving the risks to the buyers of those loans.

Bundling these loans up and securitizing them into tranches with suggested levels of risk and return (sometimes called "financial weapons of mass destruction--WMD's") is what led to the start of the economic depression beginning in 2008. The rights of big banks to trade for their own account in these kinds of instruments was just what Dodd-Frank was created to eliminate. The rider to the omnibus bill, added by Republicans, weakened that protection to American bank investors and taxpayers substantially. These protections are not wasted regulation like those cited above. They are important. Republicans have scuttled them with their amendments to the omnibus bill. In the meantime, it is hard to find a segment of capitalism in which executives are paid more than in the financial sector. Jamie Dimon of Chase was paid $20 million for 2013, notwithstanding trading losses of $6 billion a year earlier and fines for $1 billion in 2013. 

Due to the exchange with my esteemed friend, I want to say again (if I did not do this sufficiently in the previous post) that both Democrats and Republicans are at fault across the Board. The tax advantages that Democrat Harry Reid added to the omnibus bill to satisfy the casinos in his home state of Nevada are one example--similar to all of Republican Mitch McConnell's earmarks for Kentucky coal mine operators. Tax reductions have taken place in both administrations, as have added burdensome and ineffective regulation. Pork barrel "earmarks" are inserted by legislators of both parties. Hilary Clinton's courting of Wall Street donors is another example.  I regret that the justification usually given by Democrats is probably unavoidable in the hard scrabble world of politics: "The Republicans drive these issues like big donor money, and we can't go to a gunfight with only a knife."

Ultimately, regardless of how one ranks the influences that caused the rise in inequality, I would like to add two points to what I said in the previous post:
  1. No matter what one believes to be the cause (s) of our high inequality, Republicans have done virtually nothing to try to restrain it across the last 30 years, unless one gives credit to attempts to strengthen the private sector vs. workers, in order to raise growth--the "trickle down" approach. But as we know from the last 30 years with steadily rising inequality, there hasn't been any trickle down. We still have 45 million Americans categorized as in poverty in the US and wages of the middle class have hardly moved. Jobs have become insecure.
  2. As to the future--can anyone point to current Republican policies, legislation proposed, that is intended to reduce inequality, restore more equal opportunity, other than trying to raise growth by more power and freedom to the private sector?
Thank you for reading my posts!: I get so few comments to this blog, and I am most grateful to my friend for stimulating discussion, asking me to clarify, and educating me. I would be most grateful to any of you for doing the same, regardless of whether you agree with me or you do not!


Paul Krugman, NYT, Dec 15 2014:

Robert Pear on the omnibus spending bill, NYT, Dec 15

Sources for Gini comparisons:

US Gini and poverty record:

Saturday, December 13, 2014

The Pope or the Republicans...?

The Pope or the Republicans...?
December 12, 2014

Across my lifetime, I never thought the Republicans were the best party for social justice, although I'm told they once were. I spent a career in the private sector, during which I generally thought the Republicans were best for economic wisdom. As a lifelong registered Democrat, I voted Republican a number of times. But, I have felt growing concern with how the world and our country have changed in recent years.  And after a year (2013) studying economics in London, and observing for a year since,  I have concluded that the "Grand Old Party" has lost its wisdom on economics (and a few other important attributes) along the way.  I am now planning to look to the Pope for more economic guidance than to the Republicans.

Consider the message from the Pope when speaking to the European Parliament recently, as reported in the Huffington Press:
"To cheers from both the Eurosceptic and left-wing members, the Pope railed against the 'certain selfish lifestyles, an opulence that is no longer sustainable' and the 'frequent indifference to the world around us, especially to the poorest of the poor.'" 

Quoting Pope Francis: "To our dismay we see technical and economic questions dominating the political debate, to the detriment of genuine concern for human beings. Men and women are reduced to cogs in a machine, items of consumption to be exploited.The result is that when human life is no longer useful to the machine, it is discarded without qualms, as in the case of the terminally ill, the elderly who are abandoned and the children who are killed in the womb. It is a great mistake when technology is allowed to take over, and there is a confusion between ends and means. It's an inevitable consequence of throwaway culture and uncontrolled consumerism." These characterizations apply to the US as much as to Europe, if not more so, considering that our inequality and social mobility is worse than that of most European countries.

I don't agree with all of the Pope's views, abortion rights as an example. However, I do agree with much of what this Pope stands for. He's a great transforming voice in the Catholic church and in religion today. Of course, some will say, what does the Pope know about economics? And what kind of economic message is conveyed in his views? He is calling for countries and companies to restore recognition of people as human beings, as opposed to units of production, who can be discarded as soon as capitalism finds better alternatives for production, without obligation to help re-train and re-deploy, without obligation to provide gainful and equal opportunity for all. He is insisting that citizens are not just automatons whose fulfillment is met only by constantly increasing consumption. I relate to his objection to selfish lifestyles and opulence, when there remain hundreds of millions in poverty, significant segments in most all countries in the world. The US Census Report says we have 45.3 million US citizens living in poverty, as of 2013.

These are most definitely economic factors. They are reflections of the harmful excesses of an unrestrained capitalism, the American version of which may be the most harsh on the middle class and poor. These behaviors cost our country and our economy. These are reflections of the Tea Party, the Libertarians, the Conservatives, mostly represented by the contentious and fractionalized Republican Party of today--the party now distinguished for its inability to propose any meaningful legislation, focusing all its attention on criticizing President Obama and the Democrats, and reducing government, at the expense of schools and infrastructure, as well as worker protections and social welfare.

What the Pope is decrying can be considered under the broad umbrella of "inequality," a term Republican refuse to use and consider. They prefer "poverty" because that term suggests I can choose to help if I want to, whereas "inequality" suggests I am responsible to help--I failed to provide for others as I should have. Republicans don't want any obligation assumed, since that would invite another pejorative word--"redistribution."  Some find that the essence of this position by the Right is based on deep seated ideology, such as value of the individual (as opposed to the group), the belief that anyone can make it here (and if you haven't, it's your own fault), and favoring opposition to government doing much more than protecting private property rights, rule of law, and national defense. Unfettered capitalism should be left to do the rest. 

In contrast, the Democratic view can be summarized as valuing the collective, recognizing that equal rights means equal opportunity that requires work and protections to sustain. Democrats understand that some citizens simply need support from the state, which should be active in its partnership with capitalism, and should restrain some of the excesses of uncontrolled capitalism. Consider the agreements reached for the Millenium Development Goals. The much debated process ended up agreeing that while markets drive economic growth, they need the public sector to support them. The MDG goals also ended up agreeing that poor countries must have active support from rich countries. We were a major party to these global MDGs. Have we forgotten--government has a significant role, and we should concern ourselves with the needs of developing countries and their citizens? Consider what might happen if we really applied these principles in our trade and immigration policies.

As to the Republicans, I'm forced to agree with the views of Thomas Mann and Norman Ornstein. They wrote a best selling book in 2012. Mann is a Senior Fellow at Brookings, a centrist Think Tank, and Ornstein is a scholar at The American Institute, a conservative think tank. Indicating they have come to stark conclusions of today's Republican Party with regret, they write, "We have been studying Washington politics and Congress for more than 40 years, and never have we seen them this dysfunctional. In our past writings, we have criticized both parties when we believed it was warranted. Today, however, we have no choice but to acknowledge that the core of the problem lies with the Republican Party.The GOP has become an insurgent outlier in American politics. It is ideologically extreme; scornful of compromise; unmoved by conventional understanding of facts, evidence and science; and dismissive of the legitimacy of its political opposition. When one party moves this far from the mainstream, it makes it nearly impossible for the political system to deal constructively with the country’s challenges."

I hold Republicans largely responsible our high inequality, driven by their economic policies since around 1980, sometimes called "neoliberalism." There are other contributing factors, such as technology, globalization, and financialization, but Republican policies have significantly influenced these as well. 

So, just how severe is our inequality in the US? Just how successful have the Republicans been in advancing this set of views?

The answer is very successful. We are now back to the 1925 peak of inequality, the "robber baron" peak. We enjoyed a period of improvement between 1925 and 1975.  Recognizing that some "re-balancing" of the power of labor and capital may have been necessary in the 70's and 80's, the pendulum has now swung way too far to the Right. Republicans have done an excellent job of persuading Americans that Democrats and big government are responsible for their lackluster wages and poor jobs prospects, by arguing that the Democrats have hobbled capitalism with too much government and regulation--just get rid of all that, and everything will soon be hunky-dory. The Republican argument is that all we need is more growth! More growth comes only from unfettered capitalism. That's the argument.  

There are two main problems with this argument:

First, it is certainly not evident that growth alone will reduce inequality, without any form of redistribution (either via increased taxes on the wealthy, or by simply re-allocating the existing government budget--federal, state, or local--to such as education and infrastructure from such as military or excessive government support for the relatively wealthy elderly, as examples).

Actually, for the world's largest economy, we have had pretty decent growth since 1980, when all the ups and downs are smoothed out, but inequality increased steadily, regardless of the growth. Conservatives can argue that even more growth might do it. But, what about China?  From a much smaller base in 1980, China's GDP grew at about 10% annually across this period, becoming the 2nd largest economy, and their inequality index has risen at about the same pace as ours. Once an egalitarian country, China also has very high inequality now. China has proven that growth can reduce poverty (from 65% of the population in 1980 to 10% now), but not necessarily inequality--that is, not without government intervention. There is certainly no evidence of the "Kuznets curve" revealing itself (inequality actually correcting for itself without government actions).

Second, how is growth to be achieved? What will induce greater growth? Conservatives argue that reduced government intervention (reduced regulations) will raise growth. Yes, in some cases, done selectively, that will help. We have many regulations that are burdensome on business. This posting is not intended to address the waste in government, but if properly addressed, there is more than enough there to allow for significant progress in education and infrastructure without raising taxes on anyone. It is indeed a major opportunity not addressed by either party. But until it is, we can't just starve government without re-allocating and re-engineering what government does.  Just reducing regulations will not produce the result. And regulations have come from both sides of the aisle.

Then, Republicans argue that more foreign trade will do it. Yes, that can help, but there are complications. One is that conservatives are not fair in WTO and other trade negotiations--they want to protect our producers and persuade others to lower barriers. Another is that the open borders forced upon developing countries by neoliberal policies adopted by the IMF have had severely deleterious effects...except for the benefits to developed country producers, or course. 

A third argument is the "supply side" one--reduce taxes on the wealthy and they will invest it in productive jobs producing businesses.  Yes, in theory, but in the period of the highest marginal tax rate (above 90%), 1951-1963, the economy had outstanding growth--3.7%. And, we have reduced taxes from a high of 65% (top incomes) in 1980 to below 40% today--and look what happened to inequality across that period--it rose steadily, wages stagnated, worker protections deteriorated, and we have a highly dissatisfied citizenry now.  So, there is good cause to question whether the wealthy are now putting their savings into jobs producing investments. Maybe it's now going mostly into luxury homes, cars, yachts, art, and passive investments in financial markets.

Beth Ann Bovino, Chief US Economist at Standard & Poors, a very capitalist organization, wrote recently: "One of the reasons that could explain this [current] pace of very slow growth is higher income inequality. And that also might also explain what happened that led up to the great recession." The major argument in the S&P study is that the wealthy tend to spend less of their money, so putting more money in the pockets of the middle class and below will grow the economy (the "demand side" argument).  Indeed, many economists (e.g., Joseph Stiglitz, Paul Krugman) have argued that we could have had higher growth since 2008 if we had been willing to stimulate the economy--spend large sums on infrastructure, for example, employing millions of people. Republicans refused to spend, even to restore our deteriorating US infrastructure. Five years ago S&P forecasted our 10 year growth rate at 2.8%. They have now reduced it to 2.5%.

The NYT article on the S&P study adds, "Ms. Bovino and her colleagues find that if the average amount of education of the nation’s work force were to increase at the same rate it did during the middle of the 20th century, over the next five years annual G.D.P. would be 2.4 percent higher." Makes sense. I got a good education in public schools in the 50s and 60s, even in a small town in North Carolina.  But public education has been starved by the Republicans in recent decades. In fact, within 3 blocks of my home, four private schools educate about 1,500 high school students of the wealthy at a cost of about $35,000 per year. Meanwhile, San Francisco's Unified School District tries to educate 52,000 students on a budget of about $9,000 per pupil.  Wealthy public school districts like Orinda, CA, operate essentially like private schools, where the high cost of housing can only be met by the wealthy, who give generously to public school support. You must live there to attend. These are examples of what the economist Albert Hirschman explained in his 1970 treatise on the "exit voice." When the wealthy exit public services because they can afford private services, there is no effective political voice remaining to defend the institutions they no longer care about.

In addition to logic and reasoning, there is also scholarly evidence that inequality does slow growth. The think tank of the OECD (Organization for Economic Cooperation and Development) has just published a study which concludes that “income inequality has a sizeable and statistically negative impact on growth, and that redistributive policies achieving greater equality in disposable income have no adverse growth consequences." They estimate that US economic growth over the period of 1985-2005 would have been 6 or 7 points higher if inequality had not risen over that period.

Angel GurrĂ­a, the OECD’s secretary general, said: “This compelling evidence proves that addressing high and growing inequality is critical to promote strong and sustained growth and needs to be at the centre of the policy debate. Countries that promote equal opportunity for all from an early age are those that will grow and prosper.”

The International Monetary Fund (IMF), historically very conservative in its economics, released a report in April 2014: "… lower net inequality is robustly correlated with faster and more durable growth, for a given level of redistribution. And…redistribution appears generally benign in terms of its impact on growth; only in extreme cases is there some evidence that it may have direct negative effects on growth. Thus the combined direct and indirect effects of redistribution—including the growth effects of the resulting lower inequality—are on average pro-growth." While Republican rebuttals to any mention of higher taxes like to raise ire by suggesting Democrats are talking about doubling rates on the wealthy, in fact, no one is. A 10% increase would yield significant results. Or, how about raising capital gains taxes from 20% to 30%? 

Yet, the conclusion that inequality reduces growth will certainly remain disputed disputed. Even the findings of such entities as S&P, the OECD, and the IMF will undoubtedly be disputed by conservative economists. 
  • However, I certainly haven't found any studies arguing the contrary--that high and rising inequality enhances growth.
  • Second, there is no dispute about the social and moral negatives to high and rising inequality, at least none other than the Libertarian response that we are all on our own, and that somehow this is what God intended. 
  • Furthermore, Republicans should take note--regardless of their arguments, there is a growing chorus of concern expressed across the spectrum from liberal to conservative. Politically, it is time for Republicans to pay attention.
  • Finally, even if growth should be slightly restrained by actions taken to improve equality of opportunity, or even to gradually redistribute by modestly increased taxation on the wealth and those of higher incomes, the trade offs would certainly be more acceptable to Americans than continuance of present trends.  
It does seem abundantly clear that Americans are not happy with the trends of the last 30, 20, or 10 years. It's getting worse (for middle class and below). The recent mid-term election results suggest Americans have been persuaded to blame their frustrations over poor jobs, low wages, and reduced opportunity on the Democrats and big government. The reality is that these ills are largely the result of Republican policies over the last 30 years.

So, to me, it's Paul Krugman and Pope Francis, who would constitute a good start to make economic policy for us for the next few years. I've had enough of "starve the beast (of government)," let infrastructure crumble, trust the private sector and the invisible hand, and everyone for himself. Not to mention that some Republicans are overanxious to get involved in foreign wars (or even to start one--e.g., with China).  As for building more fences, I'm for finding ways to admit more hard working immigrants who want to abide by our laws and pay their taxes. We didn't become the strongest nation on earth by closing our borders. Have we forgotten we are all immigrants or children of immigrants? At a time of challenge to our strength and leadership, this is not a time to kick away the ladder. 

Of course, I recognize that the above description of the two parties is overly simplistic, as there are all kinds of combinations of views on both sides of the divide. Nevertheless, for these purposes, I felt this description adequate.

The Republicans are "out to lunch." I hope it's a short lunch, not too much champagne, and they will soon recover some balance and some wisdom. I occasionally voted Republican in the past, and would be open to doing so in the future. I acknowledge that there are some wise and reasonable voices in the Republican ranks, whose views are not those I criticize above--but they appear to be in a minority and unable to influence progress in recent times. Regrettably, our best hope may be for the upcoming period of Republican control to demonstrate to Americans that Republican policies will not achieve the improvements they rightfully demand--and that we can then move the pendulum toward greater equality, progress in wages and jobs, in equal opportunity, and a more egalitarian country.


Pope Francis Slams EU's 'Opulence' and 'Aloofness' in Historic Speech:

Let’s just say it: The Republicans are the problem: problem/2012/04/27/gIQAxCVUlT_story.html

US Census:

Brookings on MDG's:

Standard and Poors on how inequality restrains economic growth:

The Guardian: Summary of OECD report:

IMF Report "Redistribution, Inequality and Growth, April 2014: