{"id":1034,"date":"2013-07-28T06:59:37","date_gmt":"2013-07-28T10:59:37","guid":{"rendered":"http:\/\/www.dougsbriefcase.com\/blog\/?p=1034"},"modified":"2013-07-28T09:47:58","modified_gmt":"2013-07-28T13:47:58","slug":"economic-inequality-not-obamas-fault","status":"publish","type":"post","link":"https:\/\/www.dougsbriefcase.com\/blog\/economic-inequality-not-obamas-fault\/","title":{"rendered":"Economic Inequality Not Obama\u2019s Fault"},"content":{"rendered":"

 <\/p>\n

<\/p>

\"The<\/a>

The \u201cOccu\u00adpy Wall Street\u201d demon\u00adstra\u00adtions are a dis\u00adtant mem\u00ado\u00adry, but the eco\u00adnom\u00adic dis\u00adpar\u00adi\u00adties they decried still per\u00adsist. [Cred\u00adit: ABC<\/span> News]<\/p><\/div>Pres\u00adi\u00addent Oba\u00adma has a new plan to revi\u00adtal\u00adize the mid\u00addle class.<\/span>  <\/span>It almost cer\u00adtain\u00adly won\u2019t work, but that almost cer\u00adtain\u00adly isn\u2019t his fault.<\/span>  <\/span><\/span><\/span>\n

That the econ\u00ado\u00admy still needs fix\u00ading at this point in his tenure is a damn\u00ading admis\u00adsion.<\/span>  <\/span>It still hasn\u2019t ful\u00adly recov\u00adered from the finan\u00adcial melt\u00addown of 2008 and prob\u00ada\u00adbly won\u2019t dur\u00ading his pres\u00adi\u00adden\u00adcy<\/a><\/span><\/span>.<\/span>  <\/span>One would think he would avoid call\u00ading atten\u00adtion to that fact.<\/span>  <\/span>Instead, he chose to give the first in a series of eco\u00adnom\u00adic speech\u00ades at Knox Col\u00adlege in Gales\u00adburg (IL<\/span>) <\/a><\/span><\/span>,<\/span> the place where he deliv\u00adered his first pub\u00adlic address <\/a><\/span>as a US<\/span> Sen\u00ada\u00adtor in 2005.<\/span><\/span><\/span><\/p>\n

There is some\u00adthing poignant about the choice.<\/span>  <\/span>In 2005, the new\u00adly-elect\u00aded Sen\u00ada\u00adtor already had been tagged by cor\u00adpo\u00adrate news out\u00adlets as a con\u00adtender to suc\u00adceed Pres\u00adi\u00addent Bush, a man they reviled.<\/span>  <\/span>Oba\u00adma was every\u00adthing Bush was not \u2013 young and well-spo\u00adken, a pro\u00adfes\u00adsor of law and com\u00admu\u00adni\u00adty activist, a pro\u00adgres\u00adsive cast as \u201cpost-par\u00adti\u00adsan.\u201d<\/span>  <\/span>With his approval rat\u00adings <\/a>now close to where his predecessor\u2019s were at this point in his term, you can see how Gales\u00adburg might evoke nos\u00adtal\u00adgia for the days when he was a more pop\u00adu\u00adlar and less polar\u00adiz\u00ading figure.<\/span><\/span><\/span><\/p>\n

It also invites a look at how far our econ\u00ado\u00admy has fall\u00aden and how par\u00adlous our government\u2019s fis\u00adcal predica\u00adment has become in the 8 years since the first Gales\u00adburg speech.<\/span>  <\/span><\/span><\/span><\/p>\n

\n\n\n\n\n\n\n\n\n\n
Economic\/Fiscal Indi\u00adca\u00adtor<\/span><\/span><\/strong><\/td>\n\n

July 2005<\/span><\/span><\/strong><\/p>\n<\/td>\n

\n

July 2013<\/span><\/span><\/strong><\/p>\n<\/td>\n<\/tr>\n

First quar\u00adter GDP<\/span> growth<\/span><\/span><\/td>\n\n

3.1%<\/span><\/span><\/a><\/p>\n<\/td>\n

\n

1.8%<\/span><\/span><\/a><\/p>\n<\/td>\n<\/tr>\n

Pri\u00ador year deficit as pct of GDP<\/span><\/span><\/span><\/td>\n\n

3.5%<\/span><\/span><\/a><\/p>\n<\/td>\n

\n

7.0%<\/span><\/span><\/a><\/p>\n<\/td>\n<\/tr>\n

Gov\u00adern\u00adment debt held by public<\/span><\/span><\/td>\n\n

$4.3T<\/span><\/span><\/span><\/a><\/p>\n<\/td>\n

\n

$11.9T<\/span><\/span><\/span><\/a><\/p>\n<\/td>\n<\/tr>\n

Pri\u00ador month unem\u00adploy\u00adment rate<\/span><\/span><\/a><\/td>\n\n

5.0%<\/span><\/span><\/p>\n<\/td>\n

\n

7.6%<\/span><\/span><\/p>\n<\/td>\n<\/tr>\n

Pri\u00ador month work\u00adforce par\u00adtic\u00adi\u00adpa\u00adtion rate<\/span><\/span><\/a><\/td>\n\n

66.1%<\/span><\/span><\/p>\n<\/td>\n

\n

63.5%<\/span><\/span><\/p>\n<\/td>\n<\/tr>\n

Real medi\u00adan House\u00adhold Income<\/span><\/span><\/a><\/td>\n\n

$54,000<\/span><\/span><\/p>\n<\/td>\n

\n

$51,500<\/span><\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

In 2005, Sen\u00ada\u00adtor Oba\u00adma was imag\u00adin\u00ading him\u00adself in the White House.<\/span>  <\/span>He did not imag\u00adine it would be like this.<\/span>  <\/span>The man who once vowed to \u201cremake the world<\/a>\u201d <\/span><\/span> now has to launch a months-long cam\u00adpaign just to get Con\u00adgress to pass bills to raise the government\u2019s bor\u00adrow\u00ading lim\u00adit and fund its day-to-day oper\u00ada\u00adtions.<\/span>  <\/span>Posi\u00adtion\u00ading him\u00adself for this fall\u2019s show\u00addowns over those pro\u00adsa\u00adic bits of leg\u00adis\u00adla\u00adtion was the prin\u00adci\u00adpal pur\u00adpose of this week\u2019s Gales\u00adburg speech and its sequels in Jack\u00adsonville (FL<\/span>)<\/a><\/span><\/span> and War\u00adrens\u00adburg (MO<\/span>)<\/a><\/span>.<\/span><\/span><\/span><\/a><\/p>\n

The Pres\u00adi\u00addent also is using these speech\u00ades to advance his nar\u00adra\u00adtive about an econ\u00ado\u00admy that remains sur\u00adpris\u00ading\u00adly unre\u00adspon\u00adsive more than four years after the reces\u00adsion end\u00aded.<\/span>  <\/span>\u201c<\/span>We\u2019re not there yet\u201d was per\u00adhaps his most mem\u00ado\u00adrable line; it\u2019s not my fault, his most insis\u00adtent message.<\/span><\/span><\/span><\/p>\n

Above all, he promised to help the mid\u00addle class by attack\u00ading eco\u00adnom\u00adic inequal\u00adi\u00adty.<\/span>  <\/span>The pro\u00adpos\u00adals he laid out were famil\u00adiar, small and not up to the task. <\/span> <\/span>The widen\u00ading gap between rich and poor and the ero\u00adsion of the mid\u00addle class began long before he took office and has wors\u00adened since.<\/span>  <\/span>It isn\u2019t caused by our tax code, among the world\u2019s most pro\u00adgres\u00adsive, and won\u2019t be reme\u00addied by rais\u00ading its top rates.<\/span>  <\/span>Nor will it be cured by stim\u00adu\u00adlus bills, gov\u00adern\u00adment con\u00adstruc\u00adtion projects, big\u00adger stu\u00addent loan sub\u00adsi\u00addies or oth\u00ader bro\u00admides the Pres\u00adi\u00addent has pro\u00adposed.<\/span>  <\/span>It defies pol\u00adi\u00adcy\u00admak\u00aders in the US<\/span>, Europe and Japan, where inequal\u00adi\u00adties have widened as mon\u00ade\u00adtary inter\u00adven\u00adtions have multiplied.<\/span><\/span><\/span><\/p>\n

The most strik\u00ading inequal\u00adi\u00adty in high\u00adly devel\u00adoped coun\u00adtries isn\u2019t between incomes; it is the ris\u00ading ratio of wealth to income.<\/span>  <\/span>Uni\u00adver\u00adsi\u00adty of Paris econ\u00ado\u00admists Thomas Piket\u00adty and Gabriel Zuc\u00adman<\/a> stud\u00adied those ratios in 8 coun\u00adtries over the course of cen\u00adturies<\/span><\/span>.<\/span>  <\/span> <\/span>Their biggest find\u00ading: wealth to income ratios in advanced twen\u00adty-first cen\u00adtu\u00adry economies (includ\u00ading ours) have returned to lev\u00adels sim\u00adi\u00adlar to those of the 18<\/span>th<\/span><\/sup>-19<\/span>th<\/span><\/sup> centuries.<\/span><\/span><\/span><\/p>\n

What is a wealth to income ratio?<\/span>  <\/span>It mea\u00adsures the amount of wealth \u2013 land, homes, invest\u00adments \u2013 that cit\u00adi\u00adzens of a coun\u00adtry hold and com\u00adpares it to the total incomes they earn.<\/span>  <\/span>LeBron James will like\u00adly earn more this year than you will earn in a life\u00adtime.<\/span>  <\/span>That\u2019s income inequal\u00adi\u00adty.<\/span>  <\/span>But he also owns more and big\u00adger hous\u00ades, more and fanci\u00ader cars, and has a much big\u00adger invest\u00adment port\u00adfo\u00adlio than you.<\/span>  <\/span>That\u2019s a mea\u00adsure of wealth.<\/span>  <\/span>A country\u2019s wealth to income ratio com\u00adpares the sum of all the wealth indi\u00advid\u00adu\u00adals hold to the sum of their wages.<\/span>  <\/span>Income is the life blood of the mid\u00addle class; wealth, though dis\u00adtrib\u00aduted broad\u00adly (many own their own homes and have some sav\u00adings), is high\u00adly concentrated.<\/span><\/span><\/span><\/p>\n

In 2010, aggre\u00adgate wealth in our coun\u00adtry was 4.3 times as large as aggre\u00adgate income [Data\u00adbook, table A\u20111<\/a>]<\/span>,<\/span> for a ratio of 431%; it reached its nadir in 1944 at 276%, just before the growth of the mid\u00addle class hit full throt\u00adtle.<\/span>  <\/span>The con\u00adtrasts are more strik\u00ading in Europe.<\/span>  <\/span>The UK<\/span>, for exam\u00adple, had a wealth to income ratio of 527% in 2010, com\u00adpared with 196% in 1948, its low\u00adest point.<\/span>  <\/span>The authors believe that the ratio for both coun\u00adtries has like\u00adly risen since 2010 (p. 18<\/a>).<\/span>  <\/span><\/span><\/span><\/p>\n

The cur\u00adrent ratios recall dis\u00adpar\u00adi\u00adties that exist\u00aded in the 18<\/span>th<\/span><\/sup> and 19<\/span>th<\/span><\/sup> cen\u00adturies when wealth was pri\u00admar\u00adi\u00adly denom\u00adi\u00adnat\u00aded in land (and, in the case of the US<\/span> South, slaves; see Fig\u00adure 12<\/a>). <\/span> <\/span>In those days, Europe\u2019s nobil\u00adi\u00adty and America\u2019s upper class\u00ades owned large swaths of land. <\/span> <\/span>Today, land counts for just a tiny frac\u00adtion of wealth.<\/span>  <\/span>It has been replaced by oth\u00ader forms of wealth, prin\u00adci\u00adpal\u00adly invest\u00adments (Fig\u00adure 4<\/a>).<\/span>   <\/span><\/span><\/span><\/p>\n

Piket\u00adty and Zuc\u00adman sug\u00adgest many rea\u00adsons for this return to ear\u00adli\u00ader times, includ\u00ading the decline in pop\u00adu\u00adla\u00adtion growth that has occurred in all eight coun\u00adtries they stud\u00adied.<\/span>  <\/span>When pop\u00adu\u00adla\u00adtion growth slows, aggre\u00adgate income slows with it (p. 20<\/a>).<\/span><\/span><\/span><\/p>\n

Over the course of cen\u00adturies, Piket\u00adty and Zuc\u00adman found, the ratio of wealth to income has fol\u00adlowed a U\u2011shaped curve: high in the 18<\/span>th<\/span><\/sup> and 19<\/span>th<\/span><\/sup> cen\u00adturies, sharply declin\u00ading in the first half of the twen\u00adti\u00adeth cen\u00adtu\u00adry (see Fig\u00adure 3<\/a>; the social effects of this decline on the British land\u00aded nobil\u00adi\u00adty are chron\u00adi\u00adcled in \u201cDown\u00adton Abbey\u201d), and ris\u00ading since to ear\u00adli\u00ader lev\u00adels. The trend is least pro\u00adnounced in the US<\/span>, which avoid\u00aded the dev\u00adas\u00adta\u00adtion and destruc\u00adtion wrought by two world wars, fought large\u00adly on Euro\u00adpean and Japan\u00adese soil (Table 10<\/a>).<\/span>  <\/span>The US<\/span> suf\u00adfered enor\u00admous loss of life dur\u00ading those times, but its cities weren\u2019t bombed and its pop\u00adu\u00adla\u00adtion wasn\u2019t decimated.<\/span><\/span><\/span><\/p>\n

Pol\u00adi\u00adcy\u00admak\u00aders don\u2019t talk much about the wealth to income ratio.<\/span>  <\/span>The Pres\u00adi\u00addent, for exam\u00adple, has a lot to say about income dis\u00adpar\u00adi\u00adties.<\/span>  <\/span>He gen\u00ader\u00adal\u00adly uses that to argue for high\u00ader tax\u00ades on \u201cthe rich,\u201d insist\u00ading that they pay their \u201cfair share.\u201d<\/span>  <\/span>His pol\u00adi\u00adcy pre\u00adscrip\u00adtion would, iron\u00adi\u00adcal\u00adly, increase the wealth to income ratio.<\/span>  <\/span>The authors note that if they had used \u201cdis\u00adpos\u00adable income\u201d \u2013 the amount peo\u00adple earn, net of tax\u00ades and trans\u00adfer pay\u00adments \u2013 instead of pre-tax income, the wealth to income ratio would be even high\u00ader (p. 19<\/a>).<\/span>  <\/span><\/span><\/span><\/p>\n

The grow\u00ading wealth to income ratio might pro\u00advide one piece of the puz\u00adzle in explain\u00ading why our \u201crecov\u00adery\u201d from the most recent reces\u00adsion has been so weak, uneven and unkind to the mid\u00addle class.<\/span>  <\/span>We\u2019re not cre\u00adat\u00ading enough jobs, the pri\u00adma\u00adry source of mid\u00addle class income; two mil\u00adlion few\u00ader peo\u00adple <\/a>were work\u00ading last month than in ear\u00adly 2008 <\/span><\/span> and the labor force par\u00adtic\u00adi\u00adpa\u00adtion rate con\u00adtin\u00adues to hov\u00ader near 30-year lows<\/a>. <\/span> Real medi\u00adan income has declined.  <\/span>But we are cre\u00adat\u00ading wealth; the Dow and S&<\/span>P aver\u00adages ear\u00adli\u00ader this month reached all-time highs.<\/span><\/span><\/span><\/p>\n

Those dis\u00adpar\u00adi\u00adties are, at least to some extent, the result of the pol\u00adi\u00adcy of the Fed\u00ader\u00adal Reserve.<\/span>  <\/span>The Fed has sup\u00adpressed inter\u00adest rates and is buy\u00ading gov\u00adern\u00adment and mort\u00adgage-backed bonds at the rate of $85 bil\u00adlion per month.<\/span>  <\/span>The the\u00ado\u00adry is that cheap cred\u00adit will keep banks healthy, enabling them to lend to indi\u00advid\u00adu\u00adals and small busi\u00adness\u00ades.<\/span>  <\/span>The biggest banks are healthy; but they\u2019re not lend\u00ading near\u00adly as much as the Fed\u2019s econ\u00ado\u00admists had pre\u00addict\u00aded or hoped.<\/span>  <\/span>The oth\u00ader ben\u00ade\u00adfit is that big cor\u00adpo\u00adra\u00adtions will see their stock prices rise and their bor\u00adrow\u00ading costs drop, fuel\u00ading big\u00adger prof\u00adits that will, in turn, induce them to hire more peo\u00adple.<\/span>  <\/span>There is strong evi\u00addence that the Fed\u2019s poli\u00adcies have padded cor\u00adpo\u00adrate prof\u00adits<\/a>,<\/span><\/span><\/span> b<\/span>ut the jobs have yet to mate\u00adri\u00adal\u00adize.<\/span>  <\/span>The wealth to income ratio con\u00adtin\u00adues to grow.<\/span><\/span><\/span><\/p>\n

It\u2019s not sup\u00adposed to work this way and no one (includ\u00ading me) seems to know why it has.<\/span>  <\/span>For the Fed\u00ader\u00adal Reserve and its sis\u00adter cen\u00adtral banks in Europe, Japan and else\u00adwhere, the solu\u00adtion is to keep doing what they\u2019ve been doing and hope for a dif\u00adfer\u00adent result.<\/span>  <\/span>Per\u00adhaps that result will one day come.<\/span>  <\/span><\/span><\/span><\/p>\n

But per\u00adhaps the rules of the game are chang\u00ading in ways that aren\u2019t cap\u00adtured in the com\u00adput\u00ader mod\u00adels that inform mon\u00ade\u00adtary pol\u00adi\u00adcy.<\/span>  <\/span>Cen\u00adtral banks and gov\u00adern\u00adments need to con\u00adsid\u00ader the pos\u00adsi\u00adbil\u00adi\u00adty that their the\u00ado\u00adries are flawed and that mod\u00adels bet\u00adter matched to cur\u00adrent real\u00adi\u00adties are need\u00aded.<\/span>  <\/span>Pikety and Zucman\u2019s work sug\u00adgests that the world today isn\u2019t the world of 1950; deep\u00ader and larg\u00ader trends are in motion.<\/span>  <\/span>If they\u2019re right, then maybe it\u2019s worth try\u00ading to under\u00adstand those trends and ascer\u00adtain their caus\u00ades.<\/span>  <\/span>Per\u00adhaps pol\u00adi\u00adcy\u00admak\u00aders will come to see that their actions have exac\u00ader\u00adbat\u00aded the prob\u00adlems they\u2019re try\u00ading to solve.<\/span><\/span><\/span><\/p>\n

It is iron\u00adic that the Pres\u00adi\u00addent who spoke so often about eco\u00adnom\u00adic inequal\u00adi\u00adty will be remem\u00adbered for an econ\u00ado\u00admy in which the gap between Wall Street investors and mid\u00addle class fam\u00adi\u00adlies widened into a chasm.<\/span>  <\/span>In try\u00ading to revive the mid\u00addle class, the Pres\u00adi\u00addent who once pro\u00adclaimed that his pres\u00adi\u00adden\u00adtial nom\u00adi\u00adna\u00adtion marked \u201cthe moment when the rise of the oceans began to slow<\/a>\u201d <\/span><\/span>may be stand\u00ading against eco\u00adnom\u00adic tides that he can\u00adnot command.<\/span><\/span><\/span><\/p>\n

The Pres\u00adi\u00addent and his apol\u00ado\u00adgists say it isn\u2019t his fault.<\/span>  <\/span>They may well be right.<\/span><\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

  Pres\u00adi\u00addent Oba\u00adma has a new plan to revi\u00adtal\u00adize the mid\u00addle class.  It almost cer\u00adtain\u00adly won\u2019t work, but that almost cer\u00adtain\u00adly isn\u2019t his fault. <\/p>\n","protected":false},"author":3,"featured_media":1051,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","wp_typography_post_enhancements_disabled":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"nfd_image_url":"","nfd_onboarding_generated":"","footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[12,18,25,371,14,370,102],"tags":[431,33,424,84,32,427,425,428,47,430,1190,429,432,426],"class_list":["post-1034","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-debt-ceiling","category-economy","category-european-central-bank","category-federal-reserve-economy","category-global-economy","category-monetary-policy","category-unemployment","tag-debt","tag-deficit","tag-economy-2","tag-federal-reserve","tag-gdp","tag-income","tag-inequality","tag-middle-class","tag-obama","tag-post-partisan","tag-president-obama","tag-progressive","tag-recession","tag-wealth"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t