For must reads this week we have a longish article in New York Magazine by Benjamin Wallace-Wells on whether the United States has reached its economic growth peak centering around the ideas of economist Robert Gordon. The American Economic Association has a series of articles on inequality and the one percent (some of which have been cited in previous newsletters). We also have this round up of eighteen authors in the Stanford Social Innovation Review on the degree to which impact investors can create social impact. And because there is some correlation between learning and economic success, we have this piece in the Boston Review from Michael Gecan on education reform gone awry. [*Editor's Note: The next newsletter will be sent out the first week of September.]
This week we have another installment on thinking about how much inequality matters in creating poverty. The Washington Post's Eduardo Porter called the inequality data "sobering." A new report summarized by the Huffington Post's Mark Gongloff finds the United States has the highest income inequality among developed countries and that is plays a role in undermining democracy:
Thank the dynamic duo of Wall Street and Washington, which have been working so well together for the past few decades to make laws that favor banks. Turns out this Axis Of Making It Rain has also been making laws that favor the exorbitantly wealthy. Win-win. Unless you are poor, in which case: Sorry, be born to richer parents next time, maybe? One thing you'll notice in this chart is that, typically, the bigger the tax cuts given to the 1 percent (the horizontal scale on the chart), the bigger the income inequality. This is consistent with other studies that have shown the tax code has a big effect on income distribution. That's one way Washington has boosted inequality: By slashing taxes on the rich, for freedom and growth and trickling down on the poor.
There is also this analysis of the report in the Atlantic. Also of interest is this video from The Rules on the growing global wealth inequality. PBS last month had a series of posts from three economists on inequality in America. Economist Miles Corak had this to say on the so-called Gatsby Curve:
While "The American Dream" is probably best left to novelists, this has not stopped economists from trying to put numbers to metaphor. Is inequality a good thing, reflecting the fruits of skill and ambition and offering a promise of possibility for the next generation? Or does it skew opportunity, crudely mirroring the power of privilege and place and reflecting unfair barriers to success regardless of talent?
We also have Alan Krueger, who most recently headed Obama's Council of Economic Advisors, weighing in:
The music industry is a microcosm of what is happening in the U.S. economy at large. We are increasingly becoming a "winner-take-all economy," a phenomenon that the music industry has long experienced. Over recent decades, technological change, globalization and an erosion of the institutions and practices that support shared prosperity in the U.S. have put the middle class under increasing stress. The lucky and the talented -- and it is often hard to tell the difference -- have been doing better and better, while the vast majority has struggled to keep up. These same forces are affecting the music industry. Indeed, the music industry is an extreme example of a "superstar economy," in which a small number of artists take home the lion's share of income.
PBS's Simone Pathe also excerpts former Bush advisor Greg Mankiw article defending the one percent—which was a must read in a previous newsletter. Doubling down on the conservative argument that the inequality debate isn't all it is seems, we have the American Enterprise Institute's James Pethokoukis weighing with analysis and charts based on a recent report:
The superrich are getting that way through effort and education — particularly in industries where tech and globalization play a big role — rather than through inheritance.
Surprise, U.S. corporations are doing better than ever. The Economix's Floyd Norris looks at the growing gap between corporate earnings and wages. Over at Campaign for America's Future, Richard Escrow rails about the increasing "bankization" of America, where the nation's "wealth and economic fate is increasingly hijacked by Wall Street":
[T]he “real” economy – the one where people live, and work, and buy things – has suffered even as Wall Street and the stock market have boomed. That trend continued this week, too, Wal-Mart announced disappointing sales and lowered its projections. Its Chief Financial Officer observed that “The retail environment remains challenging in the U.S. and our international markets, as customers are cautious in their spending.” Cisco also lowered its sales expectations. As the Journal article notes, these announcements added to the fear that the Fed’s interventions might wind down. This stock market story illustrates the gulf between a stock-market economy increasingly driven by the banking industry – an economy which has been booming, today’s news notwithstanding – and a human economy wracked by consumer fears, falling wages, joblessness, and low-level jobs for a growing number of people who are working.
Derek Thompson in the Atlantic looks at what globalization and technology has to do with joblessness and inequality:
Sky-high corporate profit and stagnant wages aren't juxtaposing stories. They're the same story. And the main characters of that story are the familiar twin forces of globalization and technology, both of which have accelerated since the early 1990s. In a sentence: Globalization (in particular, increased trade with China) has opened the doors to more consumers and more cheap workers while labor-saving technology has created more efficient ways to serve those consumers. As a result, the businesses are bigger, but the workers' share is getting smaller. Fifty years ago, the four most valuable U.S. companies employed an average of 430,000 people with an average market cap of $180 billion. These days, the largest U.S. companies have about 2X the market cap of their 1964 counterparts with one-fourth of the employees. That's what doing more with less looks like.
The Washington Post's Matt Miller, meanwhile, enters the McDonald's wage debate, arguing that jobs not easily off-shored should pay a living wage:
[A]ccording to the SEIU, the typical hamburger flipper is no longer the teenager of popular imagination, but a struggling adult of 28. Many have lost better-paying jobs and are scrambling for whatever they can get. The paradox is that for both fast-food employers and their critics these trends present an opportunity. If global economic integration is putting downward pressure on the wages of jobs that can be performed elsewhere, the one sector immune to these pressures is in-person service work. That means jobs in areas such as home health care, retail sales, teaching, personal grooming and fast food. In-person service work accounts for roughly 30 million jobs in the United States. The sector is experiencing faster job growth than the economy overall, but wages are relatively low and lag wage growth in the broader economy. If we could make this non-offshorable segment of American work a more certain path to the middle class, it would offer an important measure of security and optimism in a global economy that poses threats to many Americans. Figuring out a feasible way to do this ought to be a national priority.
You also may be interested in the Daily Caller's Mickey Klaus rebuttal of Miller's ideas, which he calls "corporatist". Klaus instead says lowering incentives to hire illegal workers would have an effect on making wages more competitive. Over at In These Times, United Steelworkers' Union President Leo Gerard says all low wages amount to is more corporate welfare:
More money would work so much better for McDonald’s employees than Thompson’s recommendation that they forego food or rely on food stamps. And welfare. And public housing. And Medicaid. That’s the real McDonald’s budget. Like other employers paying minimum wage or slightly more, McDonald’s leans on taxpayers to subsidize the payroll. Taxpayers cover the cost of McDonald’s workers’ health care and a big portion of their housing and food costs. The vastly profitable McDonald’s corporation is an unabashed welfare recipient. Coronate Ronald McDonald Welfare King. Sound the trumpets!
In the Daily Beast, Daniel Gross looks at Wal-Mart’s sluggish numbers and ties it to corporate employment practices:
According to the Bureau of Labor Statistics, average hourly earnings for workers in the private sector have risen by a scant 1.9 percent in the past 12 months. Quarter after quarter, corporate America collectively puts up big profits, buys back shares, rewards executives handsomely, pays dividends—and then effectively freezes wages. And then executives at stores that cater to the bottom half of the income ladder wonder why nobody shows up. “Where are all the consumers?” read a plaintive email from a Wal-Mart executive earlier this year. “And where is all their money?”
Also available is this analysis in Washington Monthly from former OMB head Peter Orszag on why there are so many open positions while hiring remains stagnant.
This week the New York Times took a long hard long at the Clinton Foundation and its finances and the role of 990 data. In this letter located in the Huffington Post, Bill Clinton defends his foundation and discusses their economics from his perspective. Meanwhile, Politico looks at Hillary's planned move to the foundation. Also this week Hewlett Foundation's Bill Schambra and Stanford Law's Paul Brest debate in the Nonprofit Quarterly on the challenges of "strategic philanthropy."