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Monseigneur (often a most worthy individual gentleman) was a national blessing, gave a chivalrous tone to things, was a polite example of luxurious and shining fife, and a great deal more to equal purpose; nevertheless, Monseigneur as a class had, somehow or other, brought things to this. … – Charles Dickens, A Tale of Two Cities, 1859 (Book 2, Chapter 23)
As we begin 2012, let me reemphasize my primary reason for blogging: to study and communicate the economic causes and consequences of income and wealth inequality in America. I continue to feel at year-end, as I did twelve months ago, that the U.S. economy (at least for the bottom 99%) is steadily sinking into the black hole of depression, and that the only way out for the bottom 99% is the application of Keynesian stimulus combined with a new focus on what America does with its money (e.g., less waste on militarism and more investment in infrastructure and green jobs). For this, control of Congress must be wrested from the wealthiest 1% of Americans.
I’m interested in the economic well-being of the American people. I support the preservation and improvement, for example, of our public education, health, and retirement systems. I would like to see a nuanced, 21st-Century-relevant return to the employment and prosperity that fueled the creation and growth of the middle class after WW II. “Getting it right” is now more important than ever – crucial in fact. Sadly, too many Americans seem to be in full retreat from the task of deciding how to do this, focusing entirely on fantasies and divisive issues of personal morality (like abortion and birth control); and too many politicians, with the vague (and routinely unexplained) assertion that they want to fix America’s “problems,” advance economic policies that aggressively destroy our social systems. Such people and politicians either are not interested in improving the well-being of the American people or they falsely believe that their ideological agenda will somehow get the job done, despite the current 99% depression and years of proof to the contrary.
One thing is certain, such politicians together with the corporations and the wealthy that finance them are simply hostile to government and publicly provided services. For the hyper-rich this is self-serving: Without government interference, they can do what they want to control markets and maximize profits, and they profit greatly (in both wealth and control) when they can privately provide public needs and services, from education and health care to national “security” and imprisonment. They call those who oppose them “socialists,” but when they are in control of government and unconstrained, they may fairly be called “plutocrats” or “fascists.” For me, however, understanding the facts and their implications is far more important than contesting the semantic manipulations they engender, although sadly it is the latter that holds sway with those ignorant of the former.
The Inequality Problem
To me, the political debates we are witnessing in the run-up to the 2012 elections are almost entirely detached from reality. Discussions of economic policy and notions of fairness among the prospective Republican candidates for the presidency are missing a huge piece of the puzzle. Such debates, predictably, ignore income and wealth inequality and their causes and consequences, and accordingly fail to address what will be needed to put an end to their continuing growth.
That’s a tragic shame: Inequality is America’s core problem. For the past three decades, the control of American government by the owners of the means of production and distribution has led to excessive profits, rapidly growing inequality of wealth and incomes, and the continuous decline of the middle class and the rest of the bottom 99%. What is too often overlooked is this: The inequality machine is still running at full speed, and things keep getting worse. The situation has become so bad, in fact, that halting and reversing its economic stagnation and social deterioration must now be America’s top priority.
We are used to thinking of the United States as the greatest country in the world. We are now learning, however, that social well-being is inversely correlated with the degree of income inequality, and that among the world’s most developed nations the United States now has the highest degree of income inequality, and arguably the worst social problems. The United States has, arguably, sunk to last place:
The above graph shows the results of a recent study of countries in the Organization for Economic Cooperation and Development (OECD) relating the degree of income inequality (the ratio of top versus bottom quintiles) to an index of social ills (including level of trust, mental illness, life expectancy and infant mortality, obesity, children’s educational performance, teenage births, homicides, imprisonment rates, and social mobility.)  There is likely room to refine the definition of the variables in this study, or to introduce other potential variables. Regardless, the study confirms a basic relationship between high levels of income inequality and social decay and strife.
The status of the United States revealed by this study is appalling. The United States has the highest income inequality ratio in this group (second-highest in the world, in fact, behind Singapore). It has also by far the worst social health (as defined by this index) among rich nations. This is especially disconcerting, because the United States is also among the highest nations in per capita income; but being rich overall does not save a country from the harmful impacts of high inequality.  Moreover, the United States is well above the regression line in the measurement of social problems, suggesting that factors other than inequality growth are aggravating these problems.
As discussed elsewhere, income inequality in the United States by 2007 reached the highest level since 1929 and the advent of the Great Depression. Clearly, Americans are paying a dear price to maintain and increase that level of income inequality, and correcting the serious harm it is causing has to be the top priority for the bottom 99%.
As suggested by the above Dickens quotation (see Essays on Inequality VI – A Tale of Two Economies), even as the middle class and the bottom 99% steadily decline in America it is not surprising to see most of the wealthiest Americans in the top 1% defend themselves as good guys whose behavior and wealth are above reproach.
Some billionaires and millionaires, like Warren Buffett, understand the seriousness of America’s economic situation, and are sensitive to their roles in the income and wealth inequality crisis:
Not all affluent Americans are on the defensive. Billionaire Warren Buffett, 81, chairman and CEO of Berkshire Hathaway Inc., has called for increasing taxes on the wealthy, as has Patriotic Millionaires, a group whose supporters include Ask.com co-founder Garrett Gruener and Peter Norvig, director of research at Google Inc., according to its website.
“Rich businesspeople like me don’t create jobs,” Nick Hanauer, co-founder of aQuantive Inc., an online advertising company he sold to Microsoft Corp. for about $6 billion, wrote in a Dec. 1 Bloomberg View article. “Let’s tax the rich like we once did and use that money to spur growth.” 
These people understand how the economy works, and indeed those whose customers are mainly Americans depend upon it working well to make money. Back in January of 2011, I wrote this:
Throughout my adult life, I have instinctively believed that an economic collapse would not only condemn many millions of people to poverty, but it would be bad for business too, as it was during the Great Depression. As candidate Barack Obama put it in his March 27, 2008 speech at Cooper Union, “Renewing the American Economy”: “[T]he core of our economic success is the fundamental truth that each American does better when all Americans do better; that the well-being of American business, … its capital markets and its American people are aligned.”
One would think that capitalists whose success depends in large measure on marketing goods and services to Americans (such as the Waltons or Bill Gates) would be inclined to agree with Obama on that. Nonetheless, the policies of the capitalist elite, pressed by Republicans in government, display no alignment of their interests and those of the rest of the American people. Congressional Republicans have shown no detectable interest in economic recovery or the economic well-being of the bottom 99%. [fn. omitted] There seems to be no concern that the empires of the wealthy might ultimately collapse along with the collapse of the American economy. 
We now know that wealth on the order of $16-18 trillion (today’s dollars) was lost by the bottom 99% of Americans from 1979 to and including the Crash of 2008 – about $60,000 for every man woman and child (about $2,000/current person/year) – some destroyed but most of it transferred to the top 1%. Our federal government, under 1% control, has borrowed many trillions more to enrich the wealthy and corporations and for the extravagant and mostly non-productive exercise of world-wide police power and warfare. Ironically, most of the top 1% is worse off than even they would have been with stable 1980-level inequality and a healthier economy. And as we slide into depression, it’s the small businesses serving local economies that are the first to go under.
In 2012, we will continue to discuss how inequality destroys prosperity, productivity, employment, and GDP – as often and as thoroughly as possible – and we will identify policies to reverse it. Suffice it to say here, the Patriotic Millionaires and billionaires like Warren Buffett and Howard Schultz (Starbucks) are absolutely right: we’re all in this together. The current trend carries the seeds of their demise as well as destruction of the bottom 99%.
Other wealthy people don’t see this confluence of interest, and tend to credit themselves extensively or even exclusively for the creation of the wealth they now hold. They treat the Occupy movement as a personal attack on their character. This, for example, was the response of Jamie Dimon, CEO of JPMorgan Chase & Co. and the highest-paid chief executive officer among the heads of the six biggest U.S. banks ($23 million 2010 compensation) when he was asked about hostility toward bankers at an investor’s conference in New York last month: “Acting like everyone who’s been successful is bad and because you’re rich you’re bad – I don’t understand it. Sometimes there’s a bad apple, yet we denigrate the whole.” 
The comments of others, such as Paychex founder Tom Golisano and Home Depot Inc. co-founder Bernard Marcus seem even more arrogant and condescending:
Tom Golisano, the billionaire founder of Paychex Inc., said he thinks it’s “ridiculous” to place the blame for inequality on the rich. “If I hear a politician use the term ‘paying your fair share’ one more time, I’m going to vomit,” Golisano told Bloomberg.
But it’s not only nauseating at the top—it “feels lonely,” too, according to John Allison, a director of BB&T Corp. Allison and Staples co-founder Thomas Stemberg shared with Bloomberg their common aversion to Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a provision that would require companies to disclose the ratio of CEO-to-worker pay for a median employee. Section 953(b) caused little controversy when the act was originally debated, but critics like Stemberg and Allison are now calling the rule “incredibly wasteful” and “insane.”
While some top investors have rallied behind the Occupy Wall Street movement’s message, “one-percenters” like Jamie Dimon, the head of JP Morgan Chase, hedge-fund manager John Paulson, and Home Depot co-founder Bernie Marcus, have formed a public-relations group to defend themselves from Occupy demonstrations and criticisms. Called the “Job Creators Alliance,” the group develops talking points and messaging aimed at “shaping the national agenda,” according to its website.
Maybe Bernie Marcus should start with fine-tuning his own messaging instead of relying on the alliance. When asked by Bloomberg if he was worried about becoming a target of Occupy protestors, he replied: “Who gives a crap about some imbecile? Are you kidding me?” 
These attitudes and ideas, all of which are self-serving, are problematic: Some of them are designed to deflect, to chase away criticism without answering any actual issues. For example, what could Tom Golisano’s denialistic “don’t blame the rich for inequality” possibly mean? It sounds like: “Hey, that’s the way it is. Deal with it.” And it’s essentially irrelevant whether Jamie Dimon is personally a “good” or “bad” person: What is relevant is the economic impact and fairness of bankers making $23 million per year – or, certainly, hedge fund managers making $1-4 billion per year.
John Maynard Keynes, in the heart of the Great Depression, wrote this:
For my part, I believe that there is social and psychological justification for significant inequalities of incomes and wealth, but not for such large disparities as exist today. There are valuable human activities which require the motive of money-making and the environment of private wealth-ownership for their full fruition. * * * But it is not necessary for the stimulation of these activities and the satisfaction of these proclivities that the game should be played for such high stakes as at present. 
I agree: It’s just too facile to argue that everyone deserves as much as they can make, in a no-rules free-for-all. The owners of the means of production do little or none of the actual producing, so they can’t take complete credit for the existence of jobs and GDP. The proper income split between labor and capital is an age-old issue, and it’s never been resolved by labeling rich people and corporations “job creators.”
In fact, the import of Nick Hanauer’s statement quoted above – “Rich business people like me don’t create jobs” – should be obvious: They don’t create the demand for the goods and services they sell. They hire people to produce goods and services only when they expect to profit from doing so, and they will not expect to profit unless they expect the necessary demand for their goods and services to be there. Here are “Harrison’s Three Rules” on this point:
1. Businesses don’t become successful by either intentionally or recklessly throwing away money;
2. Successful businesses will always try to minimize labor costs as part of maximizing profits;
3. Reducing labor’s “share” of GDP reduces labor’s income and demand, leading to lower production and fewer jobs.
It’s more accurate, then, to think of businesses as reluctant employers, and when capital’s share increases through growing inequality and the economy shrinks, they actually become “job destroyers.” They downsize. They lay people off. Keynes was right, and this is as simple as it is obvious: It falls on government spending to create the economic demand, jobs, and economic growth needed to counter a recession or a depression. Government is therefore both the “business/earnings creator” and the “jobs creator.”
Of course, to make that happen government needs to increase taxes on the hyper rich whose excessive share of wealth and income created the problem in the first place. Federal debt is huge, especially as a percentage of GDP, so taxing the rich is a far better alternative than aggravating the level of debt through deficit spending.
Thus Grover Norquist, founder of Americans for Tax Reform, has it wrong. One hundred percent wrong. Upside-down and backwards wrong. Either he doesn’t understand economics, or he doesn’t care, and it almost certainly doesn’t matter which.  It’s the destructive result that really matters, and so far that result has been successfully pursued by preying on America’s ignorance of economics and penchant for unsophisticated, one-dimensional ideology.
Meanwhile, the income taxation issue continues to wallow in a haze of obfuscation. Two months ago, it was suggested to House Speaker John Boehner that at Occupy Wall Street “there doesn’t seem to be the sense among people here that the sacrifice is being shared”:
“Come on,” Boehner protested. “The top 1 percent pay 38 percent of the income taxes in America. You know, how much more do you want them to pay? Let’s take all the money the rich have, it won’t even put a dent in our current budget deficit, much less our debt.” 
That response is both meaningless and wrong. It was wrong to assert that “all the money the rich have” would not “make a dent” in the current budget deficit.  And it is meaningless to tout the 38%-of-tax-revenue figure because there’s no way to know, a priori, whether that is too much or too little: If the top 1% took home 50% of all income, it would be extremely unfair for them to pay only 38% of the income taxes, leaving the bottom 99%, over which the other 50% of income would be spread far more thinly, to pay 62% of the income taxes. So it’s just not that simple.
But even flat taxation would be unfair, especially when we consider income and wealth inequality: “In 2010, the richest 1 percent of Americans owned 70 percent of all financial assets. Between 2002 and 2006, they captured three-quarters of the nation’s economic growth.”  Almost all new income is going to the top 1%, as discussed in an earlier post in this series  My view is that the appropriate top income rate on the top 1% (or the appropriate highest portion thereof) is one that creates an “optimal inequality” over time. One good place to start figuring that out would be to consider how much income tax revenue would be needed to counter the annual wealth transfer, identified earlier, of about $2,000/per capita/per year from the bottom 99% to the top 1%. More on that later.
One thing is certain, whether “bad” or “good,” uncaring and selfish or merely misled, folks like Norquist and Boehner are relying on a fog of ignorance to carry the day with policies that manifestly favor the rich, to the very great harm and potential demise of the bottom 99%. The strongest recommendation I can make today to all readers of this post is to follow the blogs of Paul Krugman and Robert Reich on economic matters. Both of them are sound analytic thinkers, and each has made it a point to dispel common economic misperceptions that are meant to lead us astray.
In Nobody Understands Debt, Krugman explains why the obsessive focus in 2011 on reducing the federal debt is misplaced and harmful: “So yes, debt matters,” he concludes. “But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.”
In The Seven Biggest Economic Lies, Reich sums up the fallacies of Reaganomics “trickle-down” propaganda. Among the “lies” he discusses is the claim that “cutting the budget deficit now is more important than boosting the economy”:
Untrue. With so many Americans out of work, budget cuts now will shrink the economy. They’ll increase unemployment and reduce tax revenues. That will worsen the ratio of the debt to the total economy. The first priority must be getting jobs and growth back by boosting the economy. Only then, when jobs and growth are returning vigorously, should we turn to cutting the deficit.
The path to recovery is incontrovertible, and it’s clear – when you understand economics.
JMH – 1/8/2012 (rev. 2/3/12)
 Income Inequalities and Social Ills, Understanding Society, July 3, 2011, citing “The Spirit Level: Why Greater Equality Makes Societies Stronger,” by Kate Pickett and Richard Wilkinson, April 2011.
 See List of countries by GDP (PPP) per capita, various sources, Wikipedia. Notably, Pickett and Wilkinson argue that “the degree of inequality is itself an important cause of social harms,” more important than the average (mean) level of affluence (Income Inequalities and Social Ills, supra). The United States has per capita income almost as high as Norway’s, for example, but the United States has much higher income inequality than Norway and a far higher index of social ills.
 Bankers Join Billionaires to Debunk ‘Imbecile’ Attack on Top 1% , by Max Abelson, Bloomberg, December 20, 2011
 The American Bad Dream – (5) The Concentration of Wealth, February 21, 2011.
 ‘Lonely’ Billionaires Are ‘Going to Vomit’ Over ‘Imbecile Crap’, by Emily Wathen, Campusprogress.org, January 3, 2012.
 John Maynard Keynes, The General Theory of Employment, Interest, and Money, first printing 1935, Harvest/Harcourt, Inc., 1953, 1964 ed., 1991 printing, p. 374.
 It does matter some, of course. I personally doubt that Norquist could take Economics 101 today and actually change his mind; he’s in way too deep for that now. Either way, we have to hold him accountable for knowing, but ignoring, the truth.
 Boehner defends the 1%: ‘How much more do you want them to pay?’, by David Edwards, The Raw Story, November 6, 2011.
 Earlier this year Macroeconomic Advisers estimated that the Bush tax cuts for the rich alone (the difference between the 35% and 40% tax rate) has a combined 2011-2012 budgetary effect of $124 billion. See Growth in Inequality of Wealth: After 2007.
 Boehner defends the 1%: ‘How much more do you want them to pay?’, by David Edwards, supra.
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