Despite what the debt and deficit hawks would have you believe, we can’t cut our way back to prosperity. No large economy has ever recovered from serious recession through austerity. But there is another factor holding our economy back: inequality.
Any solution to today’s problems requires addressing the economy’s underlying weakness: a deficiency in aggregate demand. Firms won’t invest if there is no demand for their products. And one of the key reasons for lack of demand is America’s level of inequality — the highest in the advanced countries.
Because those at the top spend a much smaller portion of their income than those in the bottom and middle, when money moves from the bottom and middle to the top (as has been happening in America in the last dozen years), demand drops. The best way to promote employment today and sustained economic growth for the future, therefore, is to focus on the underlying problem of inequality. And this better economic performance in turn will generate more tax revenue, improving the country’s fiscal position.
The janitors, represented by Local 1 of the Service Employees International Union, will throw up picket lines in front of corporate offices in Minneapolis, Washington D.C., Seattle, San Ramon, Los Angeles and Oakland Calif., Boston, and Denver. The strikes are being called, the union says, to support the janitors in Houston.
There will also be support rallies in more than a dozen cities throughout the U.S. and Canada. SEIU represents some 150,000 janitors throughout the United States.
Back in the day, the king of the Aztecs would get ice cream this way. At dawn a slave would go to the top of a mountain where slabs of marble had been placed. The dew would freeze on the cold marble and the slave could collect a quart or two of ice. Then he’d take the ice and run. Relays of slaves would carry the ice to the palace, where it would be turned into a treat for the king. Hundreds of men tied up getting one man a little treat.
That’s where we are today. Look at the real cost of one private jet or private golf course and think of what we could be doing with that money. If they were competing to see who could build the fastest plane or best computer I’d say let them go, but it’s a contest to see who can spend the most on a party.
Governor Mitt Romney got all the press at the NAACP convention in Houston on Wednesday, but janitor Alice McAfee got a standing-o. She spoke to a packed auditorium about her plight and that of over 3,000 fellow janitors in the city.
The Houston janitors are currently paid an hourly wage of $8.35 and earn an average of $8,684 annually, despite cleaning the offices of some of the largest and most powerful corporations in the world—Chevron, ExxonMobil, Wells Fargo, Shell Oil, JPMorgan Chase and others in the “City of Millionaires.” They are asking building owners and cleaning contractors for a raise to $10 an hour over the next three years; the counter offer is a $0.50 pay raise phased in over five years, virtually guaranteeing that the janitors continue to live in poverty.
On Tuesday, following a month of protests and one-day strikes, 250 janitors in nine buildings walked off the job to begin a citywide strike. By today, janitors from eighteen buildings will have joined the picket line. They are protesting employer harassment—including potential stripping of healthcare benefits and workplace intimidation—in response to the workers’ attempt to improve wages and benefits. The workers won’t return to their jobs until the cleaning contractors return to the bargaining table.
“We think we’ve moved past discrimination but we haven’t,” McAfee told the convention. “Now it’s low-wage workers who are treated like second-class citizens.… This fight is about putting an end to discrimination once and for all—racism, discrimination against immigrants, and discrimination against the working poor. This is about restoring dignity to all work.”
In addition to giving McAfee a standing ovation, audience members started spontaneously handing her cash—and it just kept coming; a total of $3,200 in unsolicited donations will be deposited into the janitors’ strike fund.
Public says rich are drawing away from middle class. 76 percent of people surveyed say the gap between the standards of living of the middle class and the rich grew over the last decade, compared to just 16 percent who think it narrowed.
It’s a fact. As union membership declines, income inequality increases. Check out this graph from the Economic Policy Institute showing just that.
Low-wage work is a pandemic. A third of our population ekes by on less than $36,000 for a family of three. That’s 103 million people living on less than twice the poverty line, but most of them technically aren’t poor or don’t consider themselves poor. Yet they struggle every month to make ends meet and are one medical emergency or protracted illness away from bankruptcy.
Why so much low-wage work? Because over the past 40 years, well-paying industrial jobs disappeared, unions lost much of their clout, the minimum wage stagnated, and the field of competition in many areas became globalized.
The result: half of U.S. jobs now pay $34,000 or less a year. A quarter of U.S. jobs pay less than $22,000, the poverty line for a family of four. And the wages for those jobs have been stuck for four decades. Today, they pay only 7 percent more than they did in 1973.
Most families cope by having both parents work, but the rising number of single moms means that millions of households have just one possible worker. It’s no wonder that 42 percent of single-mother families with children under 18 are poor.
How, in a democracy supposedly based on one person one vote, could the 1 percent could have been so victorious in shaping policies in its interests? It is part of a process of c, disillusionment, and disenfranchisement that produces low voter turnout, a system in which electoral success requires heavy investments, and in which those with money have made political investments that have reaped large rewards — often greater than the returns they have reaped on their other investments.
There is another way for moneyed interests to get what they want out of government: convince the 99 percent that they have shared interests. This strategy requires an impressive sleight of hand; in many respects the interests of the 1 percent and the 99 percent differ markedly.
The fact that the 1 percent has so successfully shaped public perception testifies to the malleability of beliefs. When others engage in it, we call it “brainwashing” and “propaganda.” We look askance at these attempts to shape public views, because they are often seen as unbalanced and manipulative, without realizing that there is something akin going on in democracies, too. What is different today is that we have far greater understanding of how to shape perceptions and beliefs — thanks to the advances in research in the social sciences.
It is clear that many, if not most, Americans possess a limited understanding of the nature of the inequality in our society: They believe that there is less inequality than there is, they underestimate its adverse economic effects, they underestimate the ability of government to do anything about it, and they overestimate the costs of taking action. They even fail to understand what the government is doing — many who value highly government programs like Medicare don’t realize that they are in the public sector.
Not only do Americans misperceive the level of inequality; they underestimate the changes that have been going on. Only 42 percent of Americans believe that inequality has increased in the past ten years, when in fact the increase has been tectonic. Misperceptions are evident, too, in views about social mobility. Several studies have confirmed that perceptions of social mobility are overly optimistic.
In Houston, more than 3,200 janitors clean the offices of some of the largest and most powerful corporations in the world: JP Morgan Chase, Shell, Exxon Mobil, Chevron, Wells Fargo, KBR and Marathon Oil, to name a few. For their labor, they are paid an hourly wage of $8.35 and earn an average of $8,684 annually. Two janitors together would earn about $17,300 a year—still well below the poverty line of $22,314 for a family of four.
Yesterday, the contract between the janitors and the cleaning contractors expired. SEIU Local 1 spent the past month trying to reach an agreement to raise the janitors’ hourly wage to $10 over the next three years. But the contractors countered with an offer of a $0.50 pay raise phased in over five years and—according to SEIU spokesperson Paloma Martinez—said that they “wouldn’t budge.” The contractors claimed that the building owners and tenants—the aforementioned corporations—aren’t willing to pay anything close to a living wage.
In response the janitors voted to authorize their bargaining committee to call a strike. For workers already struggling on sub-poverty wages, this was no easy decision.
“The workers were really insulted by the offer,” said Martinez. “The contractors said they weren’t going to move and they blamed it on the building owners, but we all know the state of the real estate market here.”
With the city enjoying the fruits of the energy industry, Houston’s commercial real estate market is indeed the best performing market in the United States in terms of demand. It has the highest number of new corporate real estate projects in the nation, vacancy rates below the national average and rising rental rates.
Nevertheless, the city’s janitors are among the lowest paid in the nation, with workers in cities with far weaker real estate markets earning a significantly higher hourly wage: Cincinnati ($9.80), Cleveland ($10.30), Detroit ($10.97) and Chicago ($15.45) are a few examples.
Adapted from The Price of Inequality, by Joseph Stiglitz, to be published in June
Put sentiment aside. There are good reasons why plutocrats should care about inequality anyway—even if they’re thinking only about themselves. The rich do not exist in a vacuum. They need a functioning society around them to sustain their position. Widely unequal societies do not function efficiently and their economies are neither stable nor sustainable. The evidence from history and from around the modern world is unequivocal: there comes a point when inequality spirals into economic dysfunction for the whole society, and when it does, even the rich pay a steep price.
The relationship is straightforward and ironclad: as more money becomes concentrated at the top, aggregate demand goes into a decline. Unless something else happens by way of intervention, total demand in the economy will be less than what the economy is capable of supplying—and that means that there will be growing unemployment, which will dampen demand even further. In the 1990s that “something else” was the tech bubble. In the first decade of the 21st century, it was the housing bubble. Today, the only recourse, amid deep recession, is government spending—which is exactly what those at the top are now hoping to curb.
… The word “rent” was originally used, and still is, to describe what someone received for the use of a piece of his land—it’s the return obtained by virtue of ownership, and not because of anything one actually does or produces. This stands in contrast to “wages,” for example, which connotes compensation for the labor that workers provide. The term “rent” was eventually extended to include monopoly profits—the income that one receives simply from the control of a monopoly. In time, the meaning was expanded still further to include the returns on other kinds of ownership claims.
In their simplest form, rents are nothing more than re-distributions from one part of society to the rent seekers. Much of the inequality in our economy has been the result of rent seeking, because, to a significant degree, rent seeking re-distributes money from those at the bottom to those at the top.
But there is a broader economic consequence: the fight to acquire rents is at best a zero-sum activity. Rent seeking makes nothing grow. Efforts are directed toward getting a larger share of the pie rather than increasing the size of the pie. But it’s worse than that: rent seeking distorts resource allocations and makes the economy weaker. It is a centripetal force: the rewards of rent seeking become so outsize that more and more energy is directed toward it, at the expense of everything else. Countries rich in natural resources are infamous for rent-seeking activities. It’s far easier to get rich in these places by getting access to resources at favorable terms than by producing goods or services that benefit people and increase productivity. That’s why these economies have done so badly, in spite of their seeming wealth. It’s easy to scoff and say: We’re not Nigeria, we’re not Congo. But the rent-seeking dynamic is the same.
In a society in which inequality is widening, fairness is not just about wages and income, or wealth. It’s a far more generalized perception. Do I seem to have a stake in the direction society is going, or not? Do I share in the benefits of collective action, or not? If the answer is a loud “no,” then brace for a decline in motivation whose repercussions will be felt economically and in all aspects of civic life.
There are many costs to this lack of opportunity. A large number of Americans are not living up to their potential; we’re wasting our most valuable asset, our talent. As we slowly grasp what’s been happening, there will be an erosion of our sense of identity, in which America is seen as a fair country. This will have direct economic effects—but also indirect ones, fraying the bonds that hold us together as a nation.
Widening inequality is corrosive of trust: in its economic impact, think of it as the universal solvent. It creates an economic world in which even the winners are wary. But the losers! In every transaction—in every encounter with a boss or business or bureaucrat—they see the hand of someone out to take advantage of them.
Nowhere is trust more important than in politics and the public sphere. There, we have to act together. It’s easier to act together when most individuals are in similar situations—when most of us are, if not in the same boat, at least in boats within a range of like sizes. But growing inequality makes it clear that our fleet looks different—it’s a few mega-yachts surrounded by masses of people in dugout canoes, or clinging to flotsam—which helps explain our vastly differing views of what the government should do.
There is no good reason why the 1 percent, with their good educations, their ranks of advisers, and their much-vaunted business acumen, should be so misinformed. The 1 percent in generations past often knew better. They knew that there would be no top of the pyramid if there wasn’t a solid base—that their own position was precarious if society itself was unsound. Henry Ford, not remembered as one of history’s softies, understood that the best thing he could do for himself and his company was to pay his workers a decent wage, because he wanted them to work hard and he wanted them to be able to buy his cars. Franklin D. Roosevelt, a purebred patrician, understood that the only way to save an essentially capitalist America was not only to spread the wealth, through taxation and social programs, but to put restraints on capitalism itself, through regulation. Roosevelt and the economist John Maynard Keynes, while reviled by the capitalists, succeeded in saving capitalism from the capitalists. Richard Nixon, known to this day as a manipulative cynic, concluded that social peace and economic stability could best be secured by investment—and invest he did, heavily, in Medicare, Head Start, Social Security, and efforts to clean up the environment. Nixon even floated the idea of a guaranteed annual income.
This book is next on my reading list.
|—||Economist Nouriel Roubini in a WSJ interview. He earned the nickname “Dr Doom” for predicting the current financial crisis. (via humanformat)|
For the general population, the 99% in the imagery of the Occupy movement, it’s been pretty harsh — and it could get worse. This could be a period of irreversible decline. For the 1% and even less — the .1% — it’s just fine. They are richer than ever, more powerful than ever, controlling the political system, disregarding the public. And if it can continue, as far as they’re concerned, sure, why not?
Take, for example, Citigroup. For decades, Citigroup has been one of the most corrupt of the major investment banking corporations, repeatedly bailed out by the taxpayer, starting in the early Reagan years and now once again. I won’t run through the corruption, but it’s pretty astonishing.
In 2005, Citigroup came out with a brochure for investors called “Plutonomy: Buying Luxury, Explaining Global Imbalances.” It urged investors to put money into a “plutonomy index.” The brochure says, “The World is dividing into two blocs — the Plutonomy and the rest.”
Plutonomy refers to the rich, those who buy luxury goods and so on, and that’s where the action is. They claimed that their plutonomy index was way outperforming the stock market. As for the rest, we set them adrift. We don’t really care about them. We don’t really need them. They have to be around to provide a powerful state, which will protect us and bail us out when we get into trouble, but other than that they essentially have no function. These days they’re sometimes called the “precariat” — people who live a precarious existence at the periphery of society. Only it’s not the periphery anymore. It’s becoming a very substantial part of society in the United States and indeed elsewhere. And this is considered a good thing.