The nation's richest families have a lot to celebrate tonight.
For the remaining 95% of us there is not a lot of good economic news to celebrate as we enter 2008.
The Congressional Budget Office's (CBO) recently updated its authoritative data series on household incomes (1979-2005). Its latest report reveals a sharp and unprecedented increase in income inequality.
Total household income grew $1.1 trillion in the 2003-05 period. But despite strong productivity growth, these gains have not been shared broadly. Almost two-thirds (63%) of the gain in household income from 2003 to 2005 went to just 5% of the nation’s wealthiest households. those making more than $150,000 annually.
This increase in income inequality (both pre- and post-tax) as measured by the change in the shares of income going to different income classes, was greater from 2003 to 2005 than over any other two-year period covered by the CBO data.
An amazing $400 billion in pre-tax dollars was shifted from the bottom 95% of households to those in the top 5% (all income data in this report are inflation adjusted and in 2005 dollars).
By 2005 the top fifth held a larger share of income (both pre- and post-tax) than everyone else in the bottom 80%.
On a pre-tax basis in 2005, the top 1%, with 18.1% of total income, held a much larger share of income than the bottom 40% of households, which only received 12.5
Had income shares not shifted as they did, the income of each of the 109 million households in the bottom 95% would have been $3,660 higher in 2005.
For more than a decade elite opinion makers, including the Milwaukee Journal Sentinel editorial board, have argued that income inequality was growing because the global economy rewarded education. Stemming the alleged "brain drain" of four year college graduates and increasing their percentage of the workforce has become a centerpiece of Wisconsin's economic development strategy.
If education was the key to increasing incomes, inequality would have declined over the past 30 years as Americans have increased their level of educational achievement. From 1970 to 2004, the percent of college grads nearly doubled in the U.S. to almost 30% of the adult population, while the share of income going to the bottom 90 percent decreased by almost 15 percent!
We have become more unequal as we have become more educated!
Income inequality has grown because the distribution mechanisms that have historically worked to ensure more equitable outcomes, strong unions, progressive taxation, labor market policy, and regulation have largely been dismantled over the past thirty years, a victim of the nation's 30 year romance with"free market" economics. Under the alluring guise of economic liberty, laissez faire policies allow powerful corporations and wealthy individuals to manipulate market outcomes. As a result corporate profits, CEO compensation and income inequality have soared to record heights.
If we are serious about reducing economic inequality, we need to adopt policies that ensure that economic prosperity is shared broadly. These would include making it easier for workers to organize unions (including extending this right to the University of Wisconsin faculty); indexing the minimum wage to the CPI; legislating protection for homeowners facing foreclosures; enacting universal healthcare and progressive tax reform (including closing corporate tax loopholes); insisting that all developments receiving public subsidies pay the prevailing wage and hire locally; and regulating the mortgage and financial sectors whose recklessness has brought the economy to the verge of a recession.
If the Wisconsin's legislative bodies and the United States Congress fail to enact policies that address the nation's growing economic insecurity and income inequality, most of us won't have much more to celebrate in 2008 than we do tonight.
Showing posts with label free market. Show all posts
Showing posts with label free market. Show all posts
Monday, December 31, 2007
Sunday, December 30, 2007
The free market is a false idol
The New York Times' Peter S. Goodman, in a piece entitled "The Free Market: a False Idol Afterall," notes that America's 30 year romance with deregulation and privatization has led to a host of problems from housing foreclosures to global warming to growing income inequality that demand governmental action:
"For more than a quarter-century, the dominant idea guiding economic policy in the United States and much of the globe has been that the market is unfailingly wise. So wise that the proper role for government is to steer clear and not mess with the gusher of wealth that will flow, trickling down to the every level of society, if only the market is left to do its magic.
That notion has carried the day as industries have been unshackled from regulation, and as taxes have been rolled back, along with the oversight powers of government. Faith in markets has held sway as insurance companies have fended off calls for more government-financed health care, and as banks have engineered webs of finance that have turned houses from mere abodes into assets traded like dot-com stocks.
But lately, a striking unease with market forces has entered the conversation. The world confronts problems of staggering complexity and consequence, from a shortage of credit following the mortgage meltdown, to the threat of global warming. Regulation — nasty talk in some quarters, synonymous with pointy-headed bureaucrats choking the market — is suddenly being demanded from unexpected places. ..
Adam Smith used the metaphor of the invisible hand to describe how markets should function: With everyone at liberty to pursue self-interest, the market omnisciently distributes goods and capital to maximize the benefits for all. Since the Reagan administration, that idea has weighed in as a veritable holy commandment, with the economist Milton Friedman cast as Moses.
But now the invisible hand is being asked to account for what it has wrought. In this country, many economic complaints — from the widening gap between rich and poor to the expense of higher education — are being dusted for its fingerprints. ..
'Untethered market forces lead to bad things,' said Mr. Bernstein of the Economic Policy Institute. 'You simply can’t run an economy as complicated as ours on ideology alone.'"
"For more than a quarter-century, the dominant idea guiding economic policy in the United States and much of the globe has been that the market is unfailingly wise. So wise that the proper role for government is to steer clear and not mess with the gusher of wealth that will flow, trickling down to the every level of society, if only the market is left to do its magic.
That notion has carried the day as industries have been unshackled from regulation, and as taxes have been rolled back, along with the oversight powers of government. Faith in markets has held sway as insurance companies have fended off calls for more government-financed health care, and as banks have engineered webs of finance that have turned houses from mere abodes into assets traded like dot-com stocks.
But lately, a striking unease with market forces has entered the conversation. The world confronts problems of staggering complexity and consequence, from a shortage of credit following the mortgage meltdown, to the threat of global warming. Regulation — nasty talk in some quarters, synonymous with pointy-headed bureaucrats choking the market — is suddenly being demanded from unexpected places. ..
Adam Smith used the metaphor of the invisible hand to describe how markets should function: With everyone at liberty to pursue self-interest, the market omnisciently distributes goods and capital to maximize the benefits for all. Since the Reagan administration, that idea has weighed in as a veritable holy commandment, with the economist Milton Friedman cast as Moses.
But now the invisible hand is being asked to account for what it has wrought. In this country, many economic complaints — from the widening gap between rich and poor to the expense of higher education — are being dusted for its fingerprints. ..
'Untethered market forces lead to bad things,' said Mr. Bernstein of the Economic Policy Institute. 'You simply can’t run an economy as complicated as ours on ideology alone.'"
Wednesday, July 25, 2007
Outsourcing aircraft maintenance-"In the long run we are all dead"
During the first three years of the Bush administration American workers lost 2.2 million jobs.
In a remarkable display of political tone deafness Gregory Mankiw, Chairman of the President's Council of Economic Advisers at the time, praised the outsourcing of American jobs stating: “I think outsourcing is a growing phenomenon, but it's something that we should realize is probably a plus for the economy in the long run"
Since Makiw's remarks disenchantment with outsourcing has grown beyond job loss to include consumer concerns with lead-laced toy trains, poisoned toothpaste and pet food, contaminated fish and counterfeit drugs.
Now add to your list of fears the outsourcing of commercial jetliners maintenance.
That's right- we are outsourcing air traffic safety!
Business Week reports that commercial jetliners are routinely repaired in 698 maintenance shops around the world that hire unskilled and untrained employees.
The Transportation Dept. estimates U.S. airlines spent 64% of their maintenance budgets, or some $3.7 billion, at outsourced facilities last year, up from only 37% in 1996.
Yet, the Federal Aviation Administration (FAA) has neither the funds nor the staff to oversee these far flung international operations.
Even more disturbing, there are literally hundreds of unlicensed maintenance subcontractors that operate completely below FAA radar. Licensed outsourcers turn to these shops to save money, according to recent congressional testimony by Calvin L. Scovel III, the Inspector General (IG) for the Transportation Dept.
The IG testified that uncertified foreign repair stations repair critical components, such as landing gear and perform complete engine overhauls. The FAA admits that it doesn't even know the extent of the maintenance performed at these uncertified and unregulated repair facilities.
Free market zealots, if they are consistent, would argue that we should rely on market mechanisms, not the heavy hand of government regulation, to weed out incompetent maintenance firms. In plane language (excuse the pun), improperly maintained planes will crash sending market signals to commercial airline companies and passengers alike to avoid rouge maintenance companies or airlines that source to them. This gives new meaning to John Maynard Keynes prescient rebuttal to laizze faire economics that "Long run is a misleading guide to current affairs. In the long run we are all dead."
Perhaps we should ask Dr. Mankiw, now a Harvard professor, whether he thinks outsourcing commercial aircraft maintenance to rouge, low cost facilities is a "plus?" And whether he's willing to risk his own personal safety as the market responds " in the long run" to short run airplane crashes?
In a remarkable display of political tone deafness Gregory Mankiw, Chairman of the President's Council of Economic Advisers at the time, praised the outsourcing of American jobs stating: “I think outsourcing is a growing phenomenon, but it's something that we should realize is probably a plus for the economy in the long run"
Since Makiw's remarks disenchantment with outsourcing has grown beyond job loss to include consumer concerns with lead-laced toy trains, poisoned toothpaste and pet food, contaminated fish and counterfeit drugs.
Now add to your list of fears the outsourcing of commercial jetliners maintenance.
That's right- we are outsourcing air traffic safety!
Business Week reports that commercial jetliners are routinely repaired in 698 maintenance shops around the world that hire unskilled and untrained employees.
The Transportation Dept. estimates U.S. airlines spent 64% of their maintenance budgets, or some $3.7 billion, at outsourced facilities last year, up from only 37% in 1996.
Yet, the Federal Aviation Administration (FAA) has neither the funds nor the staff to oversee these far flung international operations.
Even more disturbing, there are literally hundreds of unlicensed maintenance subcontractors that operate completely below FAA radar. Licensed outsourcers turn to these shops to save money, according to recent congressional testimony by Calvin L. Scovel III, the Inspector General (IG) for the Transportation Dept.
The IG testified that uncertified foreign repair stations repair critical components, such as landing gear and perform complete engine overhauls. The FAA admits that it doesn't even know the extent of the maintenance performed at these uncertified and unregulated repair facilities.
Free market zealots, if they are consistent, would argue that we should rely on market mechanisms, not the heavy hand of government regulation, to weed out incompetent maintenance firms. In plane language (excuse the pun), improperly maintained planes will crash sending market signals to commercial airline companies and passengers alike to avoid rouge maintenance companies or airlines that source to them. This gives new meaning to John Maynard Keynes prescient rebuttal to laizze faire economics that "Long run is a misleading guide to current affairs. In the long run we are all dead."
Perhaps we should ask Dr. Mankiw, now a Harvard professor, whether he thinks outsourcing commercial aircraft maintenance to rouge, low cost facilities is a "plus?" And whether he's willing to risk his own personal safety as the market responds " in the long run" to short run airplane crashes?
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