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We statistical rabble-rousers are back. In an earlier post we talked about the distribution of wealth in this country. Now we’re ready to talk about the distributions of income. Income, remember, includes what you earn from work, and also whatever interest you get on the money you keep in the bank (not much, these days) and from stock dividends, bonds, rents, and so forth.
You probably won’t be stunned to learn that the United States has a very unequal distribution of income. But the actual figures may still shock you. In 2006, the top 1 percent of earners walked off with 21.3 percent of the nation’s income, the next 19 percent below the top took 40.1 percent, and the rest of us, the bottom 80 percent, got a crummy 38.6 percent of the nation’s income.
Economists have come up with a way of measuring income inequality, the Gini coefficient, a ratio which can vary from zero, where everybody earns the same, to 100 where one exceedingly rich person earns all the income in the country. We’re not quite half way to 100. Using that scale, South Africa has a Gini index of 65, U.S. has an index of 45 and Sweden is the lowest with 23. Remember, the goal here is to get a low score.
So, if we make a list with the country which has the most income equality at the top, and we go down the list, we have Sweden at the top with 23, Norway with 25, Austria at 26, Germany at 27, Denmark at 29, Australia 30.5, Italy 32, Canada 32.1, France 32.7 – OK, to make a sad story shorter, you have to descend past Switzerland, the United Kingdom, Egypt, India, Japan, Israel, China, Russia and Iran before you sink to the inequality of the United States.
In 2010 psychologists Dan Ariely of Duke University and Michael I. Nortonof the Harvard Business School, showed pie charts representing various levels of wealth distribution and asked people to choose the one which they thought represented distribution in the U.S. In another, they asked people to choose which society they would prefer to live in. Ninety percent or more of the 5,522 respondents — whatever their gender, age, income level, or party affiliation — thought that the American wealth distribution most resembled one in which the top 20 percent has about 60 percent of the wealth. In fact, as noted, the top 20 percent control about 85 percent of the wealth. Recently the same experiment was carried out by Paul Solman on NPR’s News Hour. No surprises. He got essentially the same results. People not only didn’t realize what an enormous share of the nation’s wealth was owned by the top 20 percent. As the psychologist Dan Ariely pointed out, what was perhaps more disturbing was that they truly had no idea that the bottom 40 percent, getting up toward half the nation, had 0.3 percent of the US wealth, or just about nothing.
But studies show that the great, great majority of our fellow citizens aren’t mean spirited bastards. Yes, they’re uninformed. And yes, they hold the comforting belief that the top 20 percent possess only somewhat more than half the wealth of the country. They can’t believe the top fifth actually controls 85 percent. It’s clear that most Americans would like to live in a country that has a more equal distribution of wealth. A country where a person born poor has a good chance to earn a decent living and to move into the middle class. That would be a country where, after a lifetime of work, you didn’t worry about an impoverished old age, a nation where you couldn’t be bankrupted by sickness, a nation where the poor don’t buy lottery tickets, knowing that the astronomical odds against their winning are no worse than their chance of earning their way out of poverty. A country like, say, one of those wicked socialist European nations our masters warn us against.
(“The Storming of the Bastille” which illustrates this post, was painted by Jean-Pierre Houël who was born in 1735 and died in 1813. He lived through exciting times — the reign of Louis XV, the French Revolution, and Napoleon’s First Empire. He traveled widely, loved to paint landscapes, and was skilled at engraving and guache, and a water colorist famed for his ability to depict light and atmospheric effects. No, we don’t expect any such scenes to occur here. But we do think that class warfare is, in fact, going on right now. At Critical Pages, we’re on the side of the angels.)
Is there class warfare in the United States. Well, no. Mobs armed with stones and Molotov cocktails aren’t running in the streets, trying to overthrow the existing order. The poor aren’t rioting, smashing windows and peeing against bank doors, demanding a greater share of the wealth of this country. The rich aren’t — well, uh, well — what do the rich do in class warfare? Come to think of it, class warfare is always portrayed as the poor assaulting the rich, demanding a re-distribution of wealth. And that’s right, isn’t it? The rich don’t attack the poor, because the poor don’t have anything that the rich want. So class warfare is always a matter of poor people — and they’re the big majority — ganging up against rich people, a small minority.
You might say that in class warfare the rich are an embattled minority, trying to hold their own against great odds. But, as we said earlier, we don’t have class warfare in this country. Indeed, you might go so far as to say we don’t have class warfare in this country because that particular war was over a long time ago when the rich won. Of course, saying things like that might be understood as in invitation to class warfare, so we shouldn’t go down that path. Anyway, let’s look at how the wealth of this country is spread up and down the different levels of society.
Economists define wealth as your assets (your cash, savings in the bank, stocks and bonds, and the things you own that are convertable to cash) minus your debts. The most recent data we have is from 2007. (We suspect that these figures have not changed for the better since then.) As of 2007, the top 1 percent of households owned 34.6 percent of all privately held wealth, and the next 19 percent had 50.5 percent, which means that the top 20 percent of households owned 85 percent.
Or, to put it another way, the bottom 80 percent of all households, that’s four-fifths of all households in the United States, share 15 percent of the wealth. And as you go down the economic ladder, things get worse. The bottom 40 percent of US households control 0.3 percent — that’s zero point three — which is, essentially nothing. That’s the bottom 40 percent. That’s a pretty big share of all the households in the US having no wealth to speak of.
By the way, most of the wealth that the bottom 80 percent own comes from the value of their home. If you look at purely financial wealth — total wealth minus the value of the home — the bottom 80 percent have only 7 percent of the nation’s wealth.
When it comes to financial wealth, the top 10 percent have 80 percent to 90 percent of stocks, bonds, trust funds, and business equity, and over 75 percent of non-home real estate. Some people – those class warfare types! – argue that when a group controls that much of the income producing capacity of a country, they essentially control the country.
These figures come from G. William Domhoff, of the Sociology Department at the University of California at Santa Cruz. They draw in large part on the work of the economist Edward Wolff. We plan to post more on this subject, but with restraint, understanding that you can stand only so much bad news before turning sour. Intrepid readers who want to pursue this further on their own can make a good start at Domhoff’s website.
(The illustration for this post is “Liberty Leading the People,” a robust Romantic work by Eugene Delacroix. It celebrates not the French Revolution of 1789-1794, but the July Revolution of 1830 that toppled Charles X of France. It’s a grand vision of Liberty flanked by the bourgeois in his top hat and cravat, his firearm at the ready, and the youthful worker with his pistols, two levels of society joining to overthrow the stupidly backward regime of Charles X. If class warfare breaks out in the United States, we doubt it will be commemorated in a painting displaying a handsome bare-breasted woman leading the people.)
Yes, you can do it. Writers starve not because people don’t read — you’re reading this note, right? — but because not enough readers buy their books. So as a Public Service we at Critical Pages urge you to visit your local, privately owned, independent bookstore and buy a book. They’ll love you, the publisher will love you and the author, getting his crummy 10 percent of the retail price, will love you, too.
Speaker of the House, John Boehner said it in a speech he made to the Economic Club of DC a couple of days ago.
Actually, the Speaker’s “simple equation” is bad math. One of the most prosperous periods in recent US history came during the administration of President Clinton, when the tax rates were higher. As you recall, Clinton was followed by President Bush who cut taxes, mostly for the rich. Those Bush tax cuts resulted in the squandering of the surplus produced by the Clinton administration. There was no money to pay for the just war in Afghanistan and Bush’s optional war in Iraq. Remember how the President and Vice President Cheney said that oil revenue from the quickly freed and grateful nation of Iraq would pay for the wars? Those were the days. As it happened, the combination of tax cuts and the increased spending of borrowed money meant that the deficit grew and grew hugely. As for jobs, Bush created about 3 million jobs (net) over his eight years; Clinton created 23 million. That ought to settle this nonsense about killing jobs by raising taxes on millionaires.
We hate to drag this out, but Speaker Boehner has also said, back in May 10th of this year, that those Bush tax cuts created 8 million jobs over 10 years. No objective analysis of that period can find 8 million jobs. Rather than add to the misery of this post and your web experience, we refer you to PolitiFact, an objective site that sorts out the truths and falsehoods of our politicians.
Back in 1992 a woman spilled a fresh, hot cup of McDonald’s coffee in her lap. Yes, you remember it. She sued McDonald’s and in 1994 a jury awarded her nearly $3 million, $2.7 million of which was punitive damages. Those are the bare, misleading facts — facts that became the basis of a hundred jokes and the prime example in arguments for tort reform against “frivolous law suits.” Over the years, the incident took on a life of its own and became an urban legend. Early in 2011 a documentary about the incident, Hot Coffee, premiered at the Sundance film festival and this summer it appeared on HBO. (The movie was brought to our attention by a post at the always interesting suzannesmomsblog.com)
The documentary’s website says, “Everyone knows the McDonald’s coffee case. It has been routinely cited as an example of how citizens have taken advantage of America’s legal system, but is that a fair rendition of the facts? Hot Coffee reveals what really happened to Stella Liebeck, the Albuquerque woman who spilled coffee on herself and sued McDonald’s, while exploring how and why the case garnered so much media attention, who funded the effort and to what end.”
The website also points out that “Susan Saladoff (Producer, Director) spent twenty-five years practicing law in the civil justice system, representing injured victims of individual and corporate negligence. She stopped practicing law in 2009 to make the documentary, Hot Coffee, her first feature-length film.” This is a modest way to confess that the documentary is NOT going to be even-handed in its presentation. Indeed, Abnormaluse.com, a website on the other side of the legal issues involved, says that the attorneys interviewed during the documentary were chosen by Susan Saladoff to represent exclusively her own point of view.
On the Google corporate website, under the heading Our philosophy there’s a subheading that says You can make money without doing evil. Well, that’s good to know. In fact, Google has set up a philanthropic organization at www.google.org to do good.
On the google.org website, under the heading Philanthropy @ Google, it says, “Google approaches philanthropy in a variety of ways. In 2010, charitable giving at Google exceeded $145 million in funding to non-profits and academic institutions, and more than $184 million in total giving when including Google Grants, Google.org technology projects and product support for non-profits.”
That’s impressive. And it suggests that Google is interested in being a good corporate citizen, doing good instead of evil while making money.
On the other hand, we heard from National Public Radio that eight years ago Google transferred all of its non-U.S. intellectual rights to a subsidiary in Ireland. Intellectual property rights are the meat and bones of Google’s business. And if those rights were in the U.S., all profits due to those rights would be taxed at the usual corporate tax rate of 35 percent. But Google’s tax rate in Ireland is only 12.5 percent.
But wait, there’s more! Google’s Irish subsidiary pays royalties to a second Irish subsidiary that has its tax residency in Bermuda where the corporate tax rate is zero.
Wait, wait, there’s still more! Ordinarily, the first Irish subsidiary would have to pay taxes to shift money from Ireland to Bermuda, so to get around that little problem, Google sends the royalties from the first Irish subsidiary to a Ducth subsidiary that passes them on to the second Irish subsidiary that has designated no-tax Bermuda as its residency.
When it comes to arranging things to lower your taxes, U.S. Supreme Court Justice Learned Hand has said this — Everybody does so, rich or poor, and do right, for nobody owes any public duty to pay more taxes than the law demands. Taxes are enforced exactions, not voluntary contributions.
Maybe the tax code needs to be rethought and rewritten.
Labor Day is now thought of primarily as the day that marks the end of summer and, in rather rarified society, the last day of the season in which it’s fashionable for women to wear white. So the holiday has come to have an autumnal, a valetudinarian air about it.
Of course it wasn’t that way to begin with. It was established in the heyday of raw capitalism to acknowledge — maybe placate is the more accurate word — workers. It was celebrated with marches, banners, speeches and some great songs. But unions, the backbone of the labor movement, have steadily diminished in membership and power. In the 1960s about a third of all non-agricultural workers were unionized. According to the US Department of Labor, by 1983 only 20.1 percent of wage and salary workers were members of a union. Unions continued to lose members and by last year only 11.9 percent of workers were unionized. In a sense, Labor Day has come to mark the autumn of the labor movement.
Unfortunately, this great Woody Guthrie song is rather more nostalgia than a call to action. But it’s still a great song.
The noted political economist is Robert Reich, a professor of Public Policy at the University of California, Berkeley. In this video, he connects the dots about the structure of the US economy, and does it in a mere two minutes and fifteen seconds. Reich is also a fast hand with the felt-tipped pen and may have an alternate career as a political cartoonist. This video has been around a while and has been seen by well over a million people. But we have a weakness for the message. Check it out.
Now that the stock market is going up and down by three or four hundred points a day, it’s time to introduce our financial adviser, Chicken Little. That’s Mr. Little over there on the left, watching the sky fall. Chicken Little has a good memory for market behavior over the past hundred years, has studied the Great Depression and is thoroughly familiar with the writings of economists such as John Maynard Keynes, Friedrich Hayek, Martin Feldstein, and Paul Krugman.
About the current market situation, our adviser tells us “The market is highly volatile,” and “Traders are worried about the Euro-zone economies, especially the status of European banks, and the debts of some European nations, such as Greece, Ireland, Spain, Italy and now, possibly, France. Also, the downgrading of the United States’ credit from AAA to AA+ doesn’t inspire confidence.”
Mr Little tries to agree with politicians who say that we are suffering from a lack of confidence and nothing more. As he phrased it, “The market is down because people won’t buy stocks when they have no confidence that business will improve. After all, 14,000,000 people don’t have jobs to earn money and buy things. So it’s really just a lack of confidence, nothing more.”
According to Chicken Little, “The market hates uncertainty and currently things are very uncertain, and that’s why the market is so hateful. If you keep in mind that past performance is no indication of future results, you’ll do fine.”