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Income inequality isn't going away

A few months ago, there was some good discussion on the blog about the persistently large gap in income inequality. And though the Occupy movement no longer garners headlines, the problem of income inequality remains a core moral issue for many Americans. It is widely thought that Bill de Blasio's focus on the topic has aided his rise in the New York City mayoral race. Andrew Sullivan's influential blog continues its coverage of the data, which shows that just since 2009, top 1% income has grown by 31.4% and everyone else's has been basically flat. Our own E. J. Dionne continues to cover the politics of inequality, and the U.S.C.C.B. has not shied away from it in its advocacy.

Last time we talked about it on this blog, we focused on ratios of CEO-to-worker pay in a given year, and David Cloutier followed up with a longer analysis at Catholic Moral Theology. But the problem is about more than a given year -- it's about the long-term trend from the late 1970's to the present. Timothy Noah has called this period The Great Divergence, in a multifaceted analysis of the possible causes of the growing gap. To my mind, the long-term story offers a compelling moral problem for our time, and one without an easy solution.

A quick way to capture the "great divergence" is this summary of the Economic Policy Institute's report from last year, about which Jena McGregor at the Washington Post wrote:

Average CEO compensation, according to EPI’s calculations, rose 726.7 percent between the years of 1978 and 2011 — more than double the percentage increase in the Standard & Poor’s 500-stock index. Meanwhile, pay for the average private-sector nonsupervisory worker rose a startlingly meager 5.7 percent. ...

My guess is that it’s this inequality that really erodes worker satisfaction and guts employee morale far more than the discrepancy between the top and bottom in any one year’s pay.

I think she's right. Everyone expects annual ratios of 20-to-1 or even 200-to-1 in our form of capitalism. But the fact that purchasing power has not trickled down in the long run -- over my whole lifetime -- is what drains energy and optimism.

One feature of Pope Francis's pontificate has been a renewed emphasis on moral issues that had been thought of as peripheral for many Catholics. He has expanded the core of what counts as a central moral issue. But it's worth remembering that his predecessor had strong words on growing inequality, such as those quoted in the U.S.C.C.B.'s letter from Labor Day:

The dignity of the individual and the demands of justice require, particularly today, that economic choices do not cause disparities in wealth to increase in an excessive and morally unacceptable manner, and that we continue to prioritize the goal of access to steady employment for everyone. . . . Through the systemic increase of social inequality . . . not only does social cohesion suffer, thereby placing democracy at risk, but so too does the economy, through the progressive erosion of "social capital" . . . indispensable for any form of civil coexistence. (Caritas in Veritate no. 32)

Evangelical leader Jim Wallis is famous for saying, "The federal budget is a moral document." I agree. But every budget is a moral document -- from that of Wal-Mart down to that of each family's breakfast table. In a democracy, the problem of income inequality is everyone's problem. And it's not going away.

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The 1% earn their income from 'money makes more money' .... not job income. The rest  have to learn and absorb this lesson.... . our system is built on "money makes more money'... a good job is one that allows the worker to start to learn 'money makes money' .. public workers may have learned this when their pensions have been very  generous over the last decades.And better incomes at the bottom  is the reason minimum wages must increase even if the hamburgers cost a quarter more. ..   

No question that this is a huge problem. But it is ironic that in New York City where DiBlasio is making it an issue, the layoffs are no where near the catastaphies in other states. Much of it isdut to Manhattan's real estate which attracts so much foreign money that the prices will never go down there. Thus enhancing the tax base. On the other hand, Republicans do not realize that this inequality will diminish their party. This was certainly the message of the last election. Labor will get more members as the Middle Class realizes that its power is gone. 

Ed Gleason: > our system is built on "money makes more money”

Classic capitalism is certainly founded in this manner, hence its name.   But it is not a very helpful formula for those who cannot accumulate capital, and it does not easily apply to the lives of most of us, even if we were to subscribe to it as an appropriate basis.

There has been an interesting discussion over the last couple of years in Bruce MacEwen’s blog adamsmithesq about paradigms for compensation of attorneys other than billable hours.  Six months ago, I was passing through the airport in Charlotte NC, and having some time to kill I decided to get a shoe polish.  The young man shining shoes was very engaging, but not very worldly. He said he had never been away from North Carolina, and wanted to know if I thought Atlanta might be a place where he could be happy.  He was very concerned with the future of his young children.   He had posted a sheet with rates for polishing different styles of shoes and boots, but as I jumped down, I would not read it at the distance, so I asked what the charge would be.   He very naturally answered, “Whatever makes you happy.”  So I paid $20 for a shoeshine that, when I could read it, I saw was a nominal $6.  Not because I felt sorry for the man, not because of some prior plan, but simply because it seemed a “happy” sum for the experience.   And he took it in exactly that way, thanking me, not at all in any servile way, but rather as if $20 for a shoeshine were a level of happiness that he recognized, too.  And I thought that, however different the context, it might work well as a compensation model in many transactions, including the legal ones of MacEwen’s main readership (“American “Big Law”). 

" But it is not a very helpful formula for those who cannot accumulate capital'

If the education system taught and encouraged all future workers, that saving 10-15% of all they ever earn ought to be placed in  accumutated capilal account the national income leveling could be done in a generation. Your  shoeshiner ought to  know to put 2 bucks of your generous wage in such a capital accumulation  account. He was never taught how our system really works.

Forgive my skepticism.  Believe me, I understand the political potency of this issue.  But I really think that, if our concern is to improve the lot of those whose real incomes over time are flat or shrinking, this issue represents a juxtaposition of two facts (CEOs: getting richer; workers: not getting richer) whose cause-and-effect connection hasn't been established.

To put it another way: suppose boards of directors adopted a corporate governance rule that executive compensation may not grow any faster than the compensation of the rank and file workers in the enterprise.   Wouldn't that seem just and fair?   At least in the shor term, such a rule would effectively eliminate the growing discrepancy.  From the papal point of view, it would also seem to have the potential to forge a bond of solidarity between CEO and workers.  But I don't think it would improve the lot of the workers.  Actually, I think it would motivate executives to go find a population of much cheaper workers (possibly in the developing world) who could be given larger raises every year.

Let me suggest that we juxtaposition the plight of workers to a fact in this Forbes article from July: "The 3000 corporations that make up the Russell 3000 index, which represent 98% of all publicly traded stocks, have over $3 trillion in liquid assets on their balance sheets."  I'm probably as numerically-challenged as the next person, but I believe that works out to $1 billion per large corporation, just sitting there, earning interest (and given the reality of interest rates today, probably not much of that).  I would rather see pressure brought to bear on executives and boards to take that cash and give their employees raises, and make capital investments that create new jobs.  And as far as I'm concerned, set aside some of it to give raises and bonuses to the fat cats.  If the enterprise grows and the workers are happy, I'd say they deserve it.

 

I apologize for the typos and misuse of words in the previous comment.  I'll try to re-read and correct better next time before hitting Save.

 

…the problem of income inequality is everyone's problem.

Ok, I’ll bite.   What, exactly, is the problem of inequality?   How does a rich man having less money make me a better person?   How is my obsession with what he has any less sinful than his obsession with what he has?

Apologies in advance if I’m questioning what we're supposed to accept as an article of faith.

There are some things in the world that are intrinsic problems for people – say volcanoes or malaria.   There are other problems that arise for people because of how they understand society to work.   If there is a belief that income inequality arises from fundamental, systematic corruption, then that is a problem, potentially a problem for everyone if the belief becomes widespread.  It is problematic whether or not the belief is “objectively” true,” whatever that might mean.  There is a significant portion of the population that considers tax advantages for the wealthy, laws that restrict labor unions, weakening of environmental protections and worker safety rules, etc. to be the intended outcomes of electoral politics that are fundamentally corrupted by our campaign financing.  The rich get richer, demanding ever increasing “productivity” from their workers which they manipulate by laying off workers here and offshoring not only the work, but also the profits for yet further tax advantage.  The representatives who vote to support the policies that make this possible are rewarded with yet further electoral donations, not to mention directorships and prized consultancies when they cross K Street.

For better or worse, a large portion of the American population (overwhelmingly in the portion of the population whose incomes and wealth have stagnated) believes in some form of the labor theory of value, whether they have ever heard of the theory or not.  In fact, they were taught it as part of the Horatio Alger legend – their hard work will allow them to accumulate wealth that will permit, in fact impel them to advance to the level of Ownership.   Except that is not their experience.

Those of us writing to Commonweal have overwhelmingly been through an educational system that has taught us (with varying levels of success) a different narrative: one of the Invisible Hand, in which homo economicus is a Hero of our system, and in which economic and ethical life are two entirely separable matters.  Thank goodness we do not have to live as do those others, but it certainly would be nice if they were just bright enough to recognize that this is not only the way the world does work, but also should work.

Mark P - I don't believe you are biting so much as baiting.  If your obsession with what he has is a problem for you capitalism as an economic model provides a solution...get more stuff.  Any useful religion, on the other hand, has another solution entirely.  Perhaps moving towards the middle would help.

Mark L - well said.  I'm uncertain as to whether I am expressing a different view of one of your remarks when I say my impression is too many of us now experience capitialism as a religion.  A sometimes vague, often intense belief we are doomed if we wander too far from its dogma.  The thing of it is from Adam Smith to Joseph Stiglitz and beyond there are more than a few highly useful, readily available opportunities to a see capitalism as a set of constructive notions in somewhat specific circumstances and not a grand dogma at all.

 

 

There is a significant portion of the population that considers tax advantages for the wealthy, laws that restrict labor unions, weakening of environmental protections and worker safety rules, etc. to be the intended outcomes of electoral politics that are fundamentally corrupted by our campaign financing.  The rich get richer, demanding ever increasing “productivity” from their workers which they manipulate by laying off workers here and offshoring not only the work, but also the profits for yet further tax advantage.  The representatives who vote to support the policies that make this possible are rewarded with yet further electoral donations, not to mention directorships and prized consultancies when they cross K Street.

RIght - as it happens, I belong to the portion of the population that believes this.  Not that this is the whole picture: there are still large sectors of the economy where the work-hard-and-you'll-get-ahead narrative still holds true; and the corruption of political favoritism isn't restricted to the wealthy - it also pertains to people in the working classes who have figured out how to pull the right levers, push the right buttons and grease the right skids (eg some public-sector labor unions).  But it is reality.

So I think this is a pretty good explanation of *why* or *how* the rich get richer; but it doesn't answer the question, "Why aren't the poor and working classes getting better off?"

 

"Apologies in advance if I’m questioning what we're supposed to accept as an article of faith."

Mark, 

Help me out. Parse the Magnificat for me.

 "Why aren't the poor and working classes getting better off?"

Jim P. --

 It's because for many years now their wages haven't risen with prices. As inflation creeps up the wages are worth less, so the workers are worse off.  Falling behind 2% a year for even just 5 years reduces the buying power very noticeably for a poor or middle class person.  

Put at its simplest it's almost tautological:  they don't have more money because they don't make more money.  And they don't make more money because their employers won't raise their wages. 

Complaints of inequality is not a matter of envy.  It's a matter of justice -- of business not sharing profits proportionately with labor.

Always amused by those who *preach* about welfare queens, etc. Welfare is seen as any advantage or public good slant - thus, social security; food stamps; medicare/medicaid; healthcare reform act, etc.

But, a balanced, nuanced analysis (agree with Jim P) indicates that you can also define *welfare* in terms of tax advantages to the 1% (avoiding taxes at death; passing on inherited wealth w/o taxes; estate gifts for those who can play the system; corporations can use tax loopholes to actually pay little to no taxes; offshore accounts; the way the farm bill protects large industrial farm corporations and pays them not to plant, subsidies for their crops, you could go on and on) and yet this is rarely ever described as *welfare*.  Compared to the 1950-60s, the 1% pay significantly less in taxes compared to other levels of income and some (most) of this can be attributed to *welfare* in the sense of an economic system slanted by Congress/Administrations to benefit the 1% as if they are entitled.

So, the 1% stack the deck; redefine *welfare*; and then try to reduce or eliminate the common good *welfare* by making folks look like they are *users*; *lazy*; etc.

MIghtBe/MightNotBe--Can you explain to me what a useful religion's solution MightBe to our unwholesome desire for OPM?

Bill--It would be impolite of me to answer your request until you've first answered my question.

".  .  .   and yet this is rarely ever described as *welfare*."

Bill deH. --

It is sometimes referred to as "welfare for the rich", a felicitous phrase.  Tells it like it is. 

Aw shucks, Mark P., we both know ole' Pope Francis has just recently done a much better job of providing a useful explanation than I could.  But, to respond to what I believe is the gist of your question, when fishing with rather light tackle one is more likely to find success by casting in the shallows.  At the moment I can't recall which of the gospels made that very suggestion.  Perhaps it was Pisces.

Mark P:  you might want to read Christopher Hayes' "The Twilight of the Elites" to see a different point of view about the negative effects of income inequality ... and they all aren't on the large number of people who are at the low end of the scale.

 "Why aren't the poor and working classes getting better off?"

 

The problem with this formulation of the problem is that it is false.  The poor and working classes are better off.  Think phones, TV's, computers, foodstuffs, autos, clothes, health care, etc.  While the poor and working class may need improvements in all these areas, there has been substantial quantitative and qualitative improvements in quality and affordability for all these goods since the 1970's and everyones consumption of them.  The rising economic tide has lifted all boats since the 1970's though, no doubt some are still scraping bottom.  

MightBe: >too many of us now experience capitalism as a religion

Yes, that is close to my thought.  But of course, if there were any Communists left, one would say much the same of them.   And because we talk and think “theologically” in these matters, we argue from positions that have almost no room for compromise, or even growth.

What is really quite astonishing is that in America we are operationally (and often rhetorically) committed to the concept of economic determinism at a level that would quite astonish Frederick Engels, whether we see ourselves as of the Left or of the Right.  A level that is utterly at odds with every Wisdom literature that has ever existed, never mind the Gospels. 

Mark L.

"What is really quite astonishing is that in America we are operationally (and often rhetorically) committed to the concept of economic determinism at a level that would quite astonish Frederick Engels,"

Mark --

Indeed.  I wonder whether the economic conservatives (mainly the right-wing Republicans)  realize that in being such rigid economic determinists they share a lot with Marx?  Irony of ironies, good ole liberal Keynes realized that long-term predictions in economics are impossible because there are so many variables that can change so fast. 

 

Jim—

Thanks for the recommendation.    I’m not convinced the elites that Hayes refers to are quite the same as the rich who are the subject of this thread.    Some overlap, to be sure, but I don’t think the woman who starts her own nail salon business, or Joe the Plumber, are people that Mr. Hayes would consider “elite.”   If anything, I think his elites are more likely to envy the rich.

What kind of society would allow someone who did not even go to college to earn more than someone who graduated from, say, Brown?