Capital in the Twenty-First Century

Thomas Piketty's Capital in the Twenty-First Century spent 20 weeks on the New York Times bestseller list this year - quite a feat for a 600-plus page work from a French economics professor. Analyzing international economic data from 1700 to the present, Piketty determines the reasons for the growing wealth and income inequality that the world has been seeing for the past several decades and suggests solutions. Piketty finds, unsurprisingly. that there is no inherent self-corrective market mechanism that can turn this around - a rising tide will not lift all boats.

The main argument from Piketty's exhaustive analysis of the data goes something like this. The inequality in wealth and income that we are seeing now has been consistent throughout history until the eve of the First World War. The movement towards equality that we saw in the mid-twentieth century was an anomaly produced by the shocks of two world wars and a depression and the government responses to these crises. In rich nations, the portion of national income coming from capital relative to the portion coming from labor has been growing steadily since the 1970's. This results from several factors: the "elasticity of substitution" between labor and capital (that is, it is "always possible...to find new and useful things to do with capital" in a modern industrialized society), an increased mobility of capital (e.g., investing abroad as nations compete for capital investments), an increase in capital's bargaining power vis-a-vis labor, and a slower growth rate. The average return on capital is greater than the growth rate in national income. Capital thus accumulates and concentrates in the hands of the wealthiest, the primary owners of capital. In the rich nations, the capital/income ratio is now approaching the levels seen before the First World War.

Piketty concludes that "there is no reason capital's share [will] decrease over the very long run." The principal lesson Piketty draws from his analysis of the capital/income ratio is that "there is no natural force that inevitably reduces the importance of capital and of income flowing from ownership of capital over the course of history." Rather political forces have been central to any corrective action. "Progress toward economic and technological rationality [does not inherently lead] toward democratic and meritocratic rationality. The primary reason for this is [that]...technology, like the market, has neither limits nor morality."

The story on income inequality is more nuanced. While the portion of national income of the 1% has been increasing since the 1970's in the "Anglo-Saxon" nations due to the rise of what Piketty calls the highly compensated "supermanager", there has been barely any increase in income inequality in the rich nations of continental Europe and Japan with their stronger social programs. In the US, the share in labor income⁽¹⁾ of the top 1% is now approaching 18%; in Britain, 15%. The share of the top 1% in the rich nations of continental Europe and Japan varies from about 7% in Sweden to about 11% in Germany.

One of Piketty's underlying assumptions is that significant wealth and income inequality is "potentially threatening to democratic societies and to the values of social justice on which they are based."  He doesn't specify exactly why this should be so but here are my thoughts - some warning flags, if you will, that capitalism has gone awry in the 21st century:

• The inequality is so great that basic needs are not provided for a portion of the population
• Wages are so low that a family must endure poverty even when the wage-earner is working full-time
• Accumulated wealth is used to drown out the voices of the majority, to distort the truth, and to influence laws to maintain its advantage at the expense of the common good

Just a brief look at recent headlines are enough to convince one that our standing as a just and democratic society is endangered :

• In 2012, 49 million Americans were in food-insecure households and 46.5 million were living in poverty. Prior to passage of the Affordable Care Act, nearly 50 million Americans were without health insurance. The massive misinformation campaign on the Affordable Care Act has helped keep this a political issue - one that can ultimately deny millions affordable access to health care.

• 

  At the funeral of Maria Fernandes
  Photo credit: Mel Evans/Associated Press

  The poverty level income for a family of four is $23,850. The minimum wage would need to be $12 per hour for a wage earner to keep his or her family out of poverty. The Federal minimum wage, last adjusted in 2009, is just $7.25/hour. Thirty-two-year old Maria Fernandes was working "three jobs, at three Dunkin’ Donuts stores in northern New Jersey, shuttling from Newark to Linden to Harrison and back."  Last Friday, she died while napping in her car - overcome by gasoline fumes from a tipped over can in the back of her SUV. [NYTimes, September 28]
• The Supreme Court's  Citizens United and McCutcheon decisions effectively granted corporations and individuals unlimited ability to spend money influencing elections.  If these decisions weren't enough, we got word last week that the well-funded conservative group Americans for Prosperity sent out incorrect voter registration information to hundreds of North Carolina voters and one cat. North Carolina passed one of the worst voter suppression laws in the country and these changes make it essential that information sent to voters is correct. Among the erroneous information sent out on the "official application form" were contradictory final registration dates, contradictory information on where to send the forms, and the wrong zip code for the Board of Elections.

From Capital in the 21st Century

Inequality also increases financial instability.  Pikkety notes that the share of the top 10% in US national income peaked twice in the past hundred years - "once in 1928 (on the eve of the crash of 1929) and again in 2007 (on the eve of the crash of 2008)."  In his view, "there is absolutely no doubt that the increase of inequality in the United States contributed to the nation's financial instability. The reason is simple: one consequence of  of increasing inequality was virtual stagnation of the purchasing power of lower and middle classes in the United States, which inevitably made it more likely that modest households would take on debt, especially since...banks and financial intermediaries, freed from regulation and eager to earn good yields on the enormous savings injected into the system by the well-to-do, offered credit on increasingly generous terms."

So what's the solution to wealth and income inequality and its associated ills and risks?  Piketty proposes to regulate capitalism with a global, progressive, annual tax on capital. "The goal is first to stop the indefinite increase of inequality of wealth, and second to impose effective regulation on the financial and banking system in order to avoid crises.  To promote these two ends, the capital tax must first promote democratic and financial transparency: there should be clarity about who owns what assets around the world."  Goodbye, tax havens and secret bank accounts; hello, international sharing of bank data.   Piketty provides an example - a blueprint for a European wealth tax. Given the very high level of private wealth in Europe today, "a progressive annual tax on wealth at modest rates would bring in significant revenues."  If applied to all the member states of the European Union, a "wealth tax of 0 percent on fortunes below 1 million euros, 1 percent between 1 and 5 million euros, and 2 percent above 5 million euros" would "affect about 2.5 percent of the population and bring in revenues equivalent to 2 percent of Europe's GDP."

Idealistic?  Utopian? Perhaps or, as Piketty, referring to the euro, would have it: "no more so than attempting to create a stateless currency,"  His analysis provides a data-based look at the direction capitalism is taking and what might be done to control it so that the interests of all, the common good, may be served. 

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Note 1: Labor income is that portion of income due to wages and compensation. It does not include the income from capital. The shares of the top 1% in total income from both capital and labor are greater than the figures given.

Five Nuggets from Capital in the Twenty First Century

The book is loaded with interesting facts and insights.  Here are a few:

"...if the rate of population growth observed from 1700 to 2012 --- 0.8 percent per year --- were to continue for the next three centuries, the world's population would be on the order of 70 billion in 2300."

"In regard to average return...the annual rental value of housing, which accounts for half of total national wealth, is generally 3-4 percent of the value of the property."

"The most striking fact is...that in all these societies, half of the population own virtually nothing: the poorest 50 percent invariably own less than 10 percent of the national wealth, and generally less than 5 percent."

"...inflation is largely a twentieth-century phenomenon.  Before that, up to World War I, inflation was zero or close to it."

"There are two main ways to finance [a government's] expenses: taxes and debt.  In general, taxation is by far preferable to debt in terms of justice and efficiency...[Debt] financing is in the interest of those who have the means to lend to the government.  From the standpoint of the general interest, it is normally preferable to tax the wealthy rather than borrow from them."

Sunday Roundup - May 4, 2014

This is the weekly selection of news and opinion from outside the US mainstream corporate media.  Today we look at Ukraine, Syria, global May Day celebrations, South Sudan and income disparity on 21st century America.

Ukraine

Outside the burned out trade union building in Odessa(Reuters)

With military operations by Ukrainian government forces underway against a rebel-held city, the crisis in the Ukraine has taken another step towards civil war.  The Guardian reported the Russian reaction to the Ukrainian offensive on Friday: A spokesman for Vladimir Putin said the Geneva agreement to defuse the situation in eastern Ukraine was no longer viable after Kiev launched a military operation against the rebel-held city of Slavyansk on Friday.  The Ukrainian military launched its first serious offensive to retake the city, which is being held by pro-Russia militia, early on Friday morning....Russia's foreign ministry accused the Ukrainian military of launching rocket strikes at protesters and claimed it had used ultranationalists from the group Right Sector..."As we have warned many times before, the use of the army against its own people is a crime and is leading Ukraine to catastrophe," the statement said.  The situation worsened later Friday when skirmishes broke out in Odessa between pro-Russian and anti-separatist groups.  As reported by the BBC: Pro-Russia supporters in the Ukrainian city of Odessa have voiced their anger a day after 42 people were killed.  Friday's clashes culminated in a major fire at a trade union building where most of the deaths occurred. Hundreds of people gathered there on Saturday.  The protest comes as Ukraine says it has seized a security building from rebels in the east of the country. Most of the deaths occurred when petrol bombs were thrown at the trade union building where pro-Russian protesters had sought refuge in the trade union building after their encampment was burned down.

Katrina vanden Heuvel and Stephen Cohen,writing in The Nation , in an article to be published in the May 19 issue, wonder about Obama's indirect declaration of a new Cold War against Russia - a declaration made with little discussion or public debate and with bipartisan and media support or indifference.  No modern precedent exists for the shameful complicity of the American political-media elite at this fateful turning point. Considerable congressional and mainstream media debate, even protest, were voiced, for example, during the run-up to the US wars in Vietnam and Iraq and, more recently, proposed wars against Iran and Syria. This Cold War—its epicenter on Russia’s borders; undertaken amid inflammatory American, Russian and Ukrainian media misinformation; and unfolding without the stabilizing practices that prevented disasters during the preceding Cold War—may be even more perilous....Both sides in the confrontation, the West and Russia, have legitimate grievances. Does this mean, however, that the American establishment’s account of recent events should not be questioned?  Vanden Heuvel and Cohen point to twenty years of NATO's eastward expansion, the triggering of the Ukraine crisis by the West’s attempt, last November, to "smuggle the former Soviet republic into NATO", and the "jettisoning in February of the West's own agreement with then-President Viktor Yanukovych" which brought to power in Kiev an extremely anti-Russian and unelected regime.  Most recently, Kiev’s sending of military units to suppress protests in pro-Russian eastern Ukraine is itself a violation of the April 17 agreement to de-escalate the crisis.

Syria
Syria's government and rebels have agreed to a ceasefire in Homs to allow hundreds of fighters holed up in the old quarters of the city to leave – a deal that will bring the country's third-largest city under the control of forces loyal to Bashar al-Assad. [The Guardian, May 2]  The fighters were the remnants of the rebel forces that had controlled Homs until the Syrian government began its offensive.  This is a face-saving measure for the small hardcore group of rebels that had remained fighting, dispatching explosive-rigged cars into government-controlled areas, killing dozens of people, mostly civilians. Most recently, two car bombs on Tuesday killed more than 50 people in a government-controlled area of Homs.  

May Day (International Labor Day)

From Common Dreams post: Union leaders during May Day celebrations in Bilbao, Spain
 The banner in front reads, "Without Quality Employment, There is no Recovery'
(Photograph: VINCENT WEST/Reuters)

Except in the United States and Canada, May 1 is a public holiday that celebrates the contributions of workers around the world.  This year was no exception. From the Common Dreams post of May 1: In marches and street demonstrations, people across the world on Thursday were marking May Day, or International Labor Day, by demanding better treatment of working people and union members as they also called  for respect of democratic freedoms and equal rights.  Most marches went off peacefully but there was a confrontation with police in Turkey where the government had banned demonstrations.

South Sudan
There's a small spark of hope emerging in South Sudan.  John Kerry appears to be on the verge of getting two rival factions to agree to sit down for ceasefire discussions.  As reported in The Guardian on Friday: The peace talks could mark a turning point in nearly six months of horrific fighting largely along ethnic lines between Dinka and Nuer tribes. It began after Kiir [the country's President], a Dinka, accused Machar, a Nuer, of plotting a coup to seize power last December. A ceasefire agreement reached in January was abandoned within days.

Rise of the Oligarchs
State Department whistle-blower Peter van Buren takes a look at life on the other side of the tracks in 21st century America in a May 1 TomDispatch.com post.  As part of his journey through the country, he visits Atlantic City, New Jersey, Weirton, West Virginia, and Spanish Harlem in New York City.  What he sees and reports is not pretty - a damning reflection on the living conditions of the working class in the richest nation on earth.  Van Buren observes the cumulative effects of years of deindustrialization, declining salaries, absent benefits, and weakened unions, along with a rise in meth and alcohol abuse, a broad-based loss of good jobs, and soaring inequality...What I found in my travels was place after place being hollowed out as wealth went elsewhere and people came to realize that, odds on, life was likely to get worse, not better. For most people, what passed for hope for the future meant clinging to the same flat-lined life they now had...What’s happening is both easy enough for a traveler to see and for an economist to measure. Median household income in 2012 was no higher than it had been a quarter-century earlier. Meanwhile, expenses had outpaced inflation. U.S. Census Bureau figures show that the income gap between rich and poor had widened to a more than four-decade record since the 1970s. The 46.2 million people in poverty remained the highest number since the Census Bureau began collecting that data 53 years ago. The gap between how much total wealth America's 1% of earners control and what the rest of us have is even wider than even in the years preceding the Great Depression of 1929.  With the Supreme Court decisions allowing an ever-increasing role for money in shaping our politics and, let's face it, money wins elections, I'm afraid the interests of the 99% will not come to the forefront anytime soon.

Sunday Round-Up - June 23, 2013

Iranian Elections

In what nearly all observers think is a good sign for Iranian relations with the West, Hassan Rouhani won a landslide victory in the Iranian presidential elections "promising better relations abroad and more freedom at home".   Rouhani won the election outright after securing more than 50% of the vote - far ahead of the next candidate, who received just 16% of the vote - and thereby avoiding the need for a run-off.   Al Jazeera reported: "In a statement, reported by the Iranian media on Saturday, the president-elect hailed his election as a victory of moderation over extremism:  'This victory is a victory for wisdom, moderation and maturity... over extremism.' "  The jubilant crowds celebrating in the streets were a marked contrast to the demonstrations following the 2009 presidential election, when results showed the conservative Ahmadinejad had won over the reformist candidate.   According to Al Jazeera's analyst: "The outcome will not soon transform Iran's long tense relations with the West, call into question its disputed pursuit of nuclear power or lessen its support of Syria's president in the civil war there - matters of national security that remain the domain of [Supreme Leader Ayatollah Ali] Khamenei. But the president runs the economy and wields important influence in decision-making and Rouhani's meteoric rise could offer latitude for a thaw in Iran's foreign relations and more social freedoms at home after eight years of confrontation and repression under President Mahmoud Ahmadinejad." The pace of change will ultimately be decided by the Ayatollah Khamenei, whom Rouhani visited on Sunday (June 16) after the election. [Reuters]

[Photo: Al Jazeera]

 

NSA Surveillance, Snowden and Hong Kong

The US has charged 29 year old whistle-blower Edward Snowden with espionage. Kind of ironic, isn't it?   They are charging the person who blew the cover on the NSA's warrantless surveillance with spying.   Snowden meanwhile remains in Hong Kong.   Thursday's South China Morning Post reported on the commentary in China's "party newspapers."  Reporting on an article in the Global Times, it noted the Times commentary "that Hong Kong should follow public opinion in handling the case, not worry about Sino-US relations and 'be more spontaneous'."   Public opinion in Hong Kong is strongly supportive of Snowden.  The People's Daily said "the Prism scandal was America's trouble in the first place", but some US politicians were trying to "create a new link between China and the scandal with their own imagination" by hinting that Snowden was a Chinese spy. It said such a link was 'nonsense' and Beijing should ask the 'big mouths' to shut up. "Pouring dirty water on China shows how American politicians are embarrassed and anxious," it said. Both articles indicate that China is determined to separate the Snowden case from overall Sino-American relationship.

[Photo from South China Morning Post A banner supporting Edward Snowden, a former contractor at the National Security Agency, is seen at Central district. Photo: David Wong]

 

UPDATE - 9AM EDT, 6/23/13

Edward Snowden is reported as having left Hong Kong today.  Hong Kong officials had rejected the US request for extradition "since the documents provided by the U.S. government did not fully comply with the legal requirements under Hong Kong law."  Hong Kong had requested more information from the US and said that "there is no legal basis to restrict Mr. Snowden from leaving Hong Kong."

Palestinian Diaspora Forgotten?

Thursday was World Refugee Day. Press TV reported on the plight of the victims of what they termed the world's largest and longest standing refugee crisis:  "Following World Refugee Day, The Palestinian Liberation Organisation called upon the international community to hold Israel accountable for one of the largest refugee crises, since Israel displaced Palestinians from their homeland in 1948.   Palestinian refugees constitute the largest and longest standing refugee crisis in the world with up to 6 million 1st and 2nd generation Palestinian refugees scattered around the world unable to return to Palestine." Palestinian refugees have the right of return per UN resolution 194 which resolves "that the refugees wishing to return to their homes and live at peace with their neighbours should be permitted to do so at the earliest practicable date. It further states that compensation should be paid if they do not wish to return." In the on again/off again push towards a two-state solution and the attempts to resuscitate the long-moribund Israeli-Palestinian peace process, many Palestinians feel that international law is being ignored as all parties "continue to insist that refugees should wait indefinitely to return home."   The Syrian Civil War has added significantly to the plight of the refugees.  530,000 Palestinians are registered with the UN as refugees in that country.  The United Nations News Centre reported on June 17: "Warning that the centrifugal force of the Syria crisis continues to imperil the region, a senior United Nations agency official today said that more than half of the Palestinian refugee camps in Syria have become 'theatres of war,' where killings and kidnappings have become the norm.  According to the Commissioner-General of the UN Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), Filippo Grandi, seven out of 12 of the agency’s camps are now virtually inaccessible." 

[Photo: UNRWA]

Brazil 2014 World Cup Protests

Brazil has won five World Cups - more than any other nation. It is the fifth most populous country and, depending on what list you use, has between the sixth and ninth largest economy. Still its social inequity has been as legendary as its Rio de Janeiro slums. Things have been improving somewhat for Brazil's poor especially since the election of "pink revolution" hero Lula (Luiz Ignacio Lula da Silva) as President in 2002 and his succession by Dilma Rousseff.  Pulsamerica opined in a January article: "Though Brazil remains a country of stark contrasts, its strides against poverty and inequality cannot be underestimated. It can be argued that until recently the focus in Brazil has always been on reducing poverty rather than combating income and social inequality overall, however, an emphasis on distribution, creating more job opportunities, investing in structural education systems and addressing discrimination are being implemented to ensure more equality in the future." But the movement towards more social equality is far from complete. (See, for example, Harper's Magazine's June 2013 article "Promised Land" by Glenn Cheney about the efforts of Sister Leonora Brunetto for agrarian land redistribution.) Just how far from complete the march towards equality is was demonstrated this past week as protests erupted against the money being spent on 2014 World Cup preparations (~18 bln USD) . As reported Friday in the Daily Mail: "More than a million Brazilians took to the streets of at least 80 Brazilian towns and cities in demonstrations that saw violent clashes and renewed calls for an end to government corruption and demands for better public services. Riot police battled protesters in at least five cities, with some of the most intense clashes in Rio de Janeiro, where an estimated 300,000 demonstrators swarmed into the city's central area." At least one person has been killed in the rioting.  President Rousseff , who was "a former Marxist rebel who fought against Brazil's 1964-1985 military regime and was imprisoned for three years and tortured by the junta, pointedly referred to earlier sacrifices made to free the nation from dictatorship. 'My generation fought a lot so that the voice of the streets could be heard,' Rousseff said. 'Many were persecuted, tortured and many died for this. The voice of the street must be heard and respected and it can't be confused with the noise and truculence of some troublemakers.' " The protests continued Saturday.

[Photo from Daily Mail website (copyright Marco Isensee/Demotix: "Revolution: A football shirt-clad protester waves the Brazilian flag through clouds of smoke and teargas during violent clashes between protesters and police in Rio de Janeiro"]

Sunday Round-Up May 5, 2013

This is the weekly selection of news and opinion from sources outside the US mainstream media. Today we look at views and news on income inequality, bees and pesticides, the Israeli-Palestinian peace process, and the Israeli campaign to get the United States to bomb Syria.  Special thanks to Le Monde Diplomatique, Mother Jones, The Guardian, and Haaretz.

In a May 1 article in Le Monde Diplomatique, Serge Halimi writes of the growing worldwide social and economic inequality.  He quotes Francis Fukyama: “Inequality per se has never been a big problem in American political culture, which emphasises equality of opportunity rather than of outcomes...But the system remains legitimate only as long as people believe that by working hard and doing their best, they and their children have a fair shot at getting ahead, and that the wealthy got there playing by the rules”. Halimi's analysis of the current economic situation (for example: "The 63,000 people — 18,000 in Asia, 17,000 in the US and 14,000 in Europe — who have a fortune of over $100m collectively own $39,900bn.") leads him to conclude that "All over the world this age-old faith, whose effect can be calming or anaesthetising, is evaporating." And the impact on democracy is telling.  In the US, Congress often does not enact laws that the majority want because of the influence of and pressure from well-funded lobbyists. "We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.” ( Louis Brandeis, US Supreme Court Justice from 1916 to 1939)

In MotherJones, Tom Philpott reports on the European Commission's April 29 vote "to place a two-year moratorium on most uses of neonicotinoid pesticides, which are a widely used class of chemicals suspected of contributing to a severe global decline in honeybee health...In the wake of Europe's decisive action, the US Environmental Protection Agency dithered."

 

 

In Friday's Guardian, Ian Black reports on the attempt by a group of European leaders to break the impasse in the Israeli-Palestinian peace process. Elements of the appeal include recognizing the following: The Madrid and Oslo agreements "are moribund. Solutions based on the West Bank but excluding the Gaza Strip while perpetuating the split between the PLO and Hamas, will not work. The EU...must have a more equal role alongside the US. The Palestinian territories are under occupation. A 'peace process' that maintains and finances the status quo must end." One of the signatories Sir Jeremy Greenstock notes, "Whatever his rhetoric Barack Obama has not done anything significantly different from George Bush on this issue. We wanted to say with emphasis: 'It's time for a fresh start.' "

With Saturday's news that Israel launched an airstrike into Syria [see article in Huffington Post], this item from the Israeli newspaper Haaretz appears timely. Gideon Levy warns that Israel's "fear campaign calling upon Obama to bomb Syria has one real goal in mind. It's not helping Syria's civilians. It's a strike on Iran." Let's hope Obama is smart enough to ignore the Israeli advice and not get tricked into another war in the Middle East.

The Price of Inequality

The Price of Inequality by Nobel Economist Joseph Stiglitz is a book filled with insight into the workings (or non-workings) of the markets and on the roles of government and of central banks in the economy. A major theme of the book is that “inequality is as much the result of political forces as of economic ones.” He explodes prevailing myths about the “free” market place, globalization, the effectiveness of austerity programs, GDP as an indicator of economic performance, and government vs. private efficiency. He also exposes the policies enacted since the 1980’s that brought about the Great Recession and the current state of inequality in this country. This historic inequality has potentially serious consequences as the book’s subtitle states: “How Today’s Divided Society Endangers Our Future”.

Let’s face it. It is not a level playing field. The rules of the game have been shaped by the powerful. One concept that Stiglitz introduces and that is at the heart of inequality is what economists call rent seeking. Broadly defined, rent seeking occurs when those at the top get income “not as a reward [for] creating wealth but by grabbing a larger share of the wealth that would otherwise have been produced without their effort.” Some examples of rent-seeking include sale of natural resource leases on public lands at below market value, statutes that allow corporations to pass costs on to the rest of society, government subsidies and noncompetitive procurement practices (e.g., private contracting for wars in Afghanistan and Iraq). Basically, it’s the corporate welfare that is so engrained in our tax codes and government policies.

In the section on “history of the deficit“, Stiglitz reviews how the country went from the large surpluses of the Clinton years to the seemingly out-of-control deficits of today. He lays the blame squarely where it belongs: the Bush tax cuts (about 1/5 of the 2012 deficit; $3.3 trillion dollars if extended for 2011-2020), the expenses incurred in the wars in Iraq and Afghanistan (long-term this will exceed $2-3 trillion), the provision that the Federal government, the largest buyer of drugs in the world, couldn’t negotiate price with drug companies as part of the Medicare Drug Benefit (worth “by some estimates, a half trillion dollars over ten years”) and, of course, the biggest contributor by far - The Great Recession brought about by the collapse of the housing bubble and the deregulated financial environment so dear to those on the Right. As Stiglitz states, “16 percent of the deficit was for measures to stimulate the economy…but almost half (48 percent) of the entire deficit was a result of underperformance of the economy.” The latter, he explains, “led to lower tax revenues and higher expenditures on unemployment insurance, food stamps, and other social protection programs.”

Stiglitz is well aware that the major problem now is not the deficit but the joblessness and lack of demand in the economy. Companies are not investing in capital or labor - not because they are unprofitable or lack confidence in the government but because there is a lack of demand brought about by the Great Recession. This lack of demand could be alleviated by government spending (for example, on infrastructure and education) and by benefits to those that would spend the money and put it back into the economy (e.g., unemployment insurance, food stamps, etc.) There is a multiplicative return to the economy on these expenditures - exactly the expenditures demonized by those on the Right.

In addition to discussions on the history of austerity program failures from the time of Hoover to the current European economic crisis, the deleterious effects of central bank policies on real wages, the evisceration of our democracy and the causes for the loss of American leadership abroad, the author throws out an occasional gem such as the Lockheed Martin F-35 Joint Striker Fighter project. This weapon that we don’t need for a type of conflict we will not be fighting, at $382 billion, “costs half of the entire Obama stimulus program.”

The book is not about the politics of envy but, as Stiglitz states in his concluding chapter, it is “instead about the politics of efficiency and fairness.” After reading more than 250 pages on how the system was rigged for inequality, I was beginning to lose hope. Is there any way out of this mess? Is there any way to restore upward mobility to the 99%?

In the last chapter, the author presents a well thought out program of economic reform. Among the reforms that would make a big difference are curbing the financial sector (“Dodd Frank is a start but only a start”), stronger and more effectively enforced competition laws, improved corporate governance, comprehensive bankruptcy law reform, ending government giveaways in the disposition of public assets and in procurement, ending corporate welfare including hidden subsidies, and comprehensive legal reform to democratize access to justice. In addition, he proposes two significant tax reforms - a more progressive income and corporate tax system with fewer loopholes and a more effective estate tax system. Several additional actions “would make a big difference in the plight of the 99 percent”: improving access to education, helping ordinary Americans save (“say, a matching grant or expansion of first-time home owner programs”), universal health care, and strengthening other social protection programs.

There are additional proposals on tempering globalization (“ending the race to the bottom” as Stiglitz phrases it), fiscal and monetary policies to restore and maintain full employment, and a growth agenda based on public investment. He also addresses “immediate issues” - fixing the mortgage problem by restructuring mortgages, more aggressive stimulation of the economy to increase employment and more active labor market policies to train workers for new jobs.

Citizens United has ensured the dominance of the 1% agenda in national politics for the foreseeable future. Without major political reforms, it is doubtful that the political process would allow even the “barest elements of this agenda.” So we are probably looking at a long-term thing. It has taken the Right 30 years of relentless propagandizing of a failed economic theory and policies to bring us to the inequality and economic crisis that we see today. Perhaps it will take as long for the country to regain its senses.

In light of this, “Is There Hope?” - as the concluding section of the book asks. Stiglitz sees two routes by which reform might happen. “Those in the 99 percent could come to realize that they have been duped by the 1 percent: that what is in the interests of the 1 percent is not in their interests…and…the second way that reform could happen [is that] the 1 percent could realize that what’s been happening in the United States is not only inconsistent with our values but not even in the 1 percent’s own interest.”

He then presents two visions for America a half century from now. One is of a society even more divided between the haves in gated communities and have-nots with ever decreasing opportunity for advancement. We would devolve to a plutocracy.

The other is a vision of a society of “shared destiny and a common commitment to opportunity and fairness, where the words ‘liberty and justice for all’ actually mean what they seem to mean…This second vision is the only one consistent with our heritage and our values.”

So is there hope? Stiglitz concludes that yes, there is hope but time is running out. “Four years ago there was a moment where most Americans had the audacity to hope. Trends more than a quarter century in the making might have been reversed…Today, that hope is flickering.”

If Obama does win a second term, this book should be required reading both for him and for his entire economic policy team. They really need to be better informed. Better yet, he should bring in Joseph Stiglitz to head up and reorganize his team. (See #4 on the October 24, 2011 post: Obama Short(falls) List.)  Of course, if the 1% wins in November and Republicans control Congress, the Supreme Court, and the Presidency, we will lose any chance to even begin implementing the slightest of the necessary reforms for at least four years.

Too much government?

What do our friends on the right mean when they say there’s “too much government”?

Is it that they want to keep as much as they can of what they earn? I’m sure we all want this. But, let's face it, compared to other industrially-advanced democracies, Americans pay a lower percentage of their income in taxes than citizens of almost any other country.

Perhaps part of the answer is that the Right hate being taxed for things that they don’t see as directly benefiting them or people like them. If this is so, we have lost the sense of common purpose that is at the heart of citizenship in a democracy.

Perhaps another part of the answer is that over the past 30 years or so, we have learned to place material self-interest above all else.

Perhaps another part of the answer is that we have been brain-washed into thinking that an unregulated (or lightly regulated) Market will mean prosperity for all. Well, it certainly means more profit for corporations but... The 2008 Crash resoundingly proved that this not necessarily the case for all of society.

We live in an age of insecurity and insecurity breeds fear. Some will stroke these fears to divide us and to gain political power. We needn’t let them.  It is time for progressives to retake the high ground in this debate. It will be a difficult and long-term effort. But, after we are done licking our wounds from the mid-term elections, we should stop cowering in the shadows, reframe the debate and articulate a truer vision of what America can be.

A great starting point for the discussion is Tony Judt’s “Ill Fares the Land” (The Penguin Press, 2010). If you haven’t already read it, go out and buy a copy. This excellent book describes how we got to where we are now (income inequality, the growing gap between the rich and the rest), the effects of inequality (it can be correlated against social immobility, health problems, crime, and mental illness) and what can be done about it.

In a clear and understandable way, Judt also discusses the current state of social democracies, contrasts Keynes and Hayek (the intellectual godfather of the conservative “Chicago School”), describes how “Great Societies” were built from the end of WWII through the ‘70’s and how they have been unraveled over the past 30 years most notably in the US and the UK.

The next few postings will examine and develop the concepts presented in Tony Judt’s book. Stay tuned and join in the discussion.