Must Reads: If you didn't read this piece last year, here is the much expanded and poignant version in the Guardian by Linda Tirado on why "poor people eat junk food, fail to budget properly, and show no ambition." You may also want to check out this report from the Global Commission on Climate Change and the Economy on how capping carbon affects jobs. This very cool set of charts in Business Insider takes a look at the job and inequality picture in the new digital age.
According to the Wall Street Journal, Morgan Stanley has joined the growing list of folks sounding the alarm on the economic affects of inequality. Over at Policy.Mic, Ryan Neal discusses a new chart from Bard's Pavlina Tcherneva about inequality, showing things have worsened for everyone except the folks at the top since the onset of the recession (full disclosure: Bard is your editor's sort of alma mater):
After a recession, it used to be the case that those in the bottom 90% of income distribution gained the most from economic growth. Following World War II, the wealthiest 10% of American income-earners accounted for only about 20% of income growth. This isn't class warfare — it reflected the fact that those 90% simply outnumber the top 10%, and average income growth mirrored that imbalance. Since then, income growth has been on a slow but steady decline for most Americans, and a quick incline for the wealthiest. Inequality accelerated in the 1980s, when income growth for the wealthiest 10% shot from just above 40% to 80%. This was the reverse of income distribution immediately following World War II, and it has only gotten worse.
Meanwhile the recent book, "Deeply Divided" by Stanford sociologists Doug McAdam and Karina Kloos argues that economic inequality and political partisanship are "eroding U.S. democratic ideals." Similarly in the New York Times, Thomas Edsall says public policy has failed to promote equality and instead "has left millions locked into lives of restricted opportunity while bestowing the benefits of growth on the very few."
Over at Vox, Sean McElwee discuss five reasons democracy hasn't fixed inequality, which mostly amount to politics and public misconceptions about economic mobility, check out this chart:
Meanwhile, the Economist sums up a debate between David Brooks and Paul Krugman on the consumption of the rich and whether or not they should "flaunt" their wealth:
From a macroeconomic perspective, flaunting their wealth is the best thing the rich could do (apart from giving it to poorer people). The last thing we want is a bunch of sober wealthy parking their riches in Treasuries. Indeed, rising inequality is widely considered to be one of the contributing factors to "secular stagnation": a shortfall in demand coupled with excessively low interest rates. More to the point, Mr Krugman's suggestion (and Mr Brooks's, seemingly) that high levels of inequality impose a negative externality on the have-nots in society is an interesting one, though I'm not sure that income or wealth divides are generally the most salient ones in society. The bit about conspicuous consumption is food for thought.
Your editor found this very interesting bit of thought in the comments section from the piece above:
I think the macroeconomy would be better off if that wealth is invested in corporate bonds and venture capital. Even if the rich park it all in Treasuries, that reduces their return, increasing the relative attractiveness of other productive investments. Status goods is a prisoner's dilemma where all of the rich would be better off if none of them purchased it. Additionally, suppliers react to demand, so more resources would go towards these kinds of goods that result in little or no consumer surplus rather than goods that have value beyond status.
Check out this cartoon from Dan Wasserman:
Surprise! Just about everyone thinks U.S. CEOs make way too much compared to the rest of well...everyone, writes Gretchen Gavett in the Harvard Business Review:
It turns out that most people, regardless of nationality or set of beliefs, share similar sentiments about how much CEOs should be paid — and, for the most part, these estimates are markedly lower than the amounts company leaders actually earn. Using data from the International Social Survey Programme (ISSP) from December 2012, in which respondents were asked to both “estimate how much a chairman of a national company (CEO), a cabinet minister in a national government, and an unskilled factory worker actually earn” and how much each person should earn, the researchers calculated the median ratios for the full sample and for 40 countries separately.
For the countries combined, the ideal pay ratio for CEOs to unskilled workers was 4.6 to 1; the estimated ratio was about double, at 10 to 1.
In Bloomberg View, Micheal Lewis offers a cautionary tale for young people thinking of starting a career on Wall Street:
The answer is that the people who work inside the big Wall Street firms have no serious stake in the long-term fates of their firms. If the place blows up they can always do what they are doing at some other firm -- so long as they have maintained their stature in their market. The quickest way to lose that stature is to alienate the other people in it. When you see others in your market doing stuff at the expense of the broader society, your first reaction, at least early in your career, might be to call them out, but your considered reaction will be to keep mum about it. And when you see people making money in your market off some broken piece of internal machinery -- say, gameable ratings companies, or riggable stock exchanges, or manipulable benchmarks -- you will feel pressure not to fix the problem, but to exploit it.
Think education is the best way forward for the poor? Check out this piece in Salon form Matt Saccaro on why some college professors are struggling so badly they need food stamps:
Over three quarters of college professors are adjunct. Legally, adjunct positions are part-time, at-will employment. Universities pay adjunct professors by the course, anywhere between $1,000 to $5,000. So if a professor teaches three courses in both the fall and spring semesters at a rate of $3000 per course, they’ll make $18,000 dollars. The average full-time barista makes the same yearly wage. However, a full-time adjunct works more than 40 hours a week. They’re not paid for most of those hours... Nathaniel Oliver taught as an adjunct for four years in Alabama. He received $12,000 a year during his time teaching. “You fall in this trap where you may be working for less than you would be at a place that pays minimum wage yet you can’t get the minimum wage jobs because of your education,” Oliver said. Academia’s tower might be ivory but it casts an obsidian shadow. Oliver was one of many professors trapped in the oxymoronic life of pedantic destitution.
Stateline.org offers up this chart looking at poverty rates for since the "war on poverty" showing a wide disparity amongst states. Over at the New Republic, Danny Vink looks at a number of policy proposals for creating jobs. In the Economic Policy Institute's blog, Josh Bivens argues poverty reduction has been stalled by policy, including the cut to unemployment benefits:
A key barrier to translating overall economic growth in recent decades into rapid poverty reduction has been the rise in income inequality. Were economic growth more broadly shared, the poverty rate would be much lower. Here we make the case that this rise in inequality has large policy fingerprints all over it.
In RealClearMarkets, the Manhattan Institute's Mark Mills offers a new counterpoint to the robots vs jobs debate, arguing that based on the jobless rate for the last century, new technology does not create unemployment.
Over at the Chronicle of Philanthropy, Amy Schiller looks at the ice bucket challenge and Ferguson shooting and wonders if the majority of the social sector is playing it too safe:
We should ask ourselves how nonprofits, which are devoted to improving the world and extending generosity to others, are so easily able to see, empathize with, and take action on behalf of people vulnerable to illness—a nameless, faceless force of nature—but less willing to do the same with those who are vulnerable to police violence, a problem that has an all-too-specific name. If those of us in the nonprofit world limit ourselves to "safe" causes, we’re missing out on our highest calling. Philanthropy often strives to address problems with money instead of political (or, thankfully, physical) conflict. It favors an environment of pragmatism rather than justice—one that assumes problems like racially disproportionate incarceration, educational disparities, and poverty exist a priori, rather than as conditions formed by institutions, policies, and individuals who need to be held accountable.
Meanwhile in the Democracy Journal, Gara LaMarche discusses the significant political power that the "donor class" has amassed:
[T]he rise of very large philanthropies that are not shy about playing for big stakes in the public sphere raises crucial questions about philanthropic power and to whom it is accountable... But few bother to examine these claims about the agency of foundations with much rigor, and the same list of philanthropy’s “greatest hits” appears again and again. Courageous risk-taking is not what most people associate with foundations, whose boards and senior leadership are often dominated by establishment types. If tax preference is meant primarily to encourage boldness, it doesn’t seem to be working. The question is not whether many good things are accomplished with the money excluded from taxation for philanthropy. The standard is whether the record of philanthropy justifies the foregone tax revenue that in our current dire fiscal state could be used to keep senior centers and libraries and after-school programs open, hold tuition within reach at public colleges and universities, expand Internet access in rural communities, and on and on.
As you may have heard or may not have heard depending on how you get your news, last week's climate march was well attended. The New York Times on Sunday ran a story noting that the Rockefeller Brothers Fund, which largely derived from oil wealth, is divesting their $860 million fund from fossil fuels:
At the Rockefeller Brothers Fund, there is no equivocation but there is caution, said Stephen Heintz, its president. The fund has already eliminated investments involved in coal and tar sands entirely while increasing its investment in alternate energy sources.
Unwinding other investments in a complex portfolio from the broader realm of fossil fuels will take longer. “We’re moving soberly, but with real commitment,” he said.
Philip Van Dorn over at MarketWatch says you can sort of follow suit as a retail investor but leaving fossil fuels behind isn't as easy as just divestment:
It is very unlikely that the institutions following this trend — with investment assets of about $50 billion — will have much of an effect on the major energy companies, which fill a critical role all over the world. But the idea is that they can have an influence on the debate over global warming and fossil-fuel use by taking their money elsewhere...
One way you can follow the lead of the Rockefeller fund is to invest in a “socially responsible” mutual fund or exchange traded fund, and we have provided two lists of these funds below. Of course, “socially responsible” is a subjective term. It’s likely the managers of the Rockefeller fund and most of the “715 individuals and institutions [who] have pledged to invest in clean energy solutions,” discussed by Arabella Advisors in a recent press release, are still contributing to fossil-fuel companies by driving luxury cars, riding in limousines or on yachts, taking cruises, flying in their private jets, or consuming high-end goods transported by rail, truck or ship.
The UNFCCC's Christiana Figueres and the International Labor Organization's Guy Rider say going green will create jobs and be a new source of wealth. And Yes Magazine features climate change fellows in Appalachia working on creating a post-coal economy.