Transcript The Growth of Inequality

The First Cause
of the Economic Crisis
The Growth of Inequality
The Great Recession
• The economic collapse called the Great
Recession lasted from Dec. 2007 – June 2009
• That’s right – it ended (officially) in June 2009
• But the impact on our lives continues:
• Let’s talk:
What has been the impact of the Great
Recession on you/your family/your future?
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The Purpose of this Workshop
• To shape the future – where we want out
country to go – we need to understand what
caused the economic crisis that we know of as
the Great Recession
• This workshop is designed to give us that
understanding
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How Bad Was the Great Recession?
• Housing: 1 in 10 home owners may face
foreclosure
• Household wealth declined 20%
• US auto industry faced bankruptcy
• GDP fell faster than at any time since 1930s
• And then there is unemployment…
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The Great Recession – and “Recovery*”:
Unemployment by Race, Ethnicity and Age
20%
18%
16%
14%
African-American
Hispanic
White
Age 16 - 24
12%
10%
8%
6%
4%
2%
2007
2008
2009
2010
•The “Great Recession”
officially ended in
June 2009
Unemployment remains high with some groups suffering more than others
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Was it
just an
accident?
CPEG Economic Crisis Workshop Barclay
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If you remember nothing else from
this workshop today…
• The economic crisis was not an accident
• It was the result of policies and decisions over
more than 30 years
• To understand what we need to do, we need
to understand what those policies and
decisions were
• The policies and decisions that caused the
crisis represent a world view: neoliberalism
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What Is Neoliberalism?
• Core tenet: markets are self correcting and provide
the best (most efficient in terms of resource use)
outcomes if allowed to function
– Markets bring together a large number of participants who
vote with their dollars
• Therefore:
– Remove regulatory “restraints” on markets – governmentregulated outcomes are always “second best”
– Turn activities over to private sector wherever possible
– There is no “common good,” only individuals seeking their
personal well being
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How Did We Get Here?
• Three Causes
– Long term growth of inequality
– Rise of Finance - Credit/debt/and housing
– Changes in US role in world economy
• In this session we will talk about
inequality
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Do Income Inequality Walk and Income Share Walk before proceeding
You will need 6 volunteers
See “How to do the Workshop” – “Inequality Walk” Skit Instructions
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Growth of Income Inequality
• The inequality walk illustrated how average
income levels in US changed 1979 – 2006
• You often hear the argument that inequality
has increased because of “educational”
differences or “skill based technological
change.” (This is a neoliberal argument.)
• Thus you may see a chart like the one on the
next slide….
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% of Total Household Income
Growing Inequality:
Top 10% Income Share, 1950 - 2008
55
50
45
Top 10% Income
Share
40
35
30
25
05
20
00
20
95
19
90
19
85
19
80
19
75
19
70
19
65
19
60
19
55
19
50
19
But is this the real story – or does it mask a more significant story?
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The Real Story:
Income Distribution at the Top,
1950 - 2008
Perenct of Total Income
25
22.5
20
Top 1% Income
Share
Next 4%
17.5
15
12.5
Next 5%
10
7.5
5
06
20
02
20
98
19
94
19
90
19
86
19
82
19
78
19
74
19
70
19
66
19
62
19
58
19
54
19
50
19
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The Real Story
• As we saw in the inequality walk, all income
groups lost income share
• EXCEPT:
• The top 1%
• Their income share increased more than 2-1/2
times over the past 35 years
• The neoliberal “explanation” of superior
education or higher skills fails
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Average Income by Quintiles and
Top 1%, 1979 and 2006 (2006 $)
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
1979
2006
$200,000
$0
p
To
1%
%
en
rc
pe
%
h
8t
20
-9
t
ex
80
N
%
%
20
20
20
m
e
dl
id
t
ex
to
ot
M
N
B
e
til
“There are some
distances that only
money can measure.”
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Why the Misdirected Explanation?
• What does the education/skills training
“explanation” for growing inequality suggest?
• Workers should go back to school, get more training
and they will find good, well paying jobs
• However, the gap between the top 1% and everyone
else – including those with college degrees - has
increased
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This graph compares
the average income
of people with a
college degree to the
average income of
people who comprise
the top 0.1% of the
population.
In 1967 a person with a
college degree made
10% of what a person
in the top 0.1% made.
In 2007, it was only
4.2%.
College degrees do not explain the growth of inequality
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What Does the Misdirected
Explanation Protect?
• No need to address the huge concentration of
income in the top 1%
• But the real question is:
Why has the top 1% done so well while the
rest of us have been treading water?
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Who Are the Top Income Households?
• We can start by asking who are the very top
income households?
• Are they athletes and entertainment
celebrities?
• No – the very top income households are the
economic elite in the US
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Who Is in the Top 0.1% of Income?
(Analysis of 2004 tax returns)
Non-Financial Execs,
Managers, etc.
Financial Execs,
managers, etc.
Not Working
40.8%
18.4%
6.3%
Lawyers
6.2%
Sports, media,
entertainment
3.1%
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CEO vs. Average Worker Pay, 2004
American
exceptionalism?
Source: Multiplier of CEO Pay to Average Worker Pay. Adam Choate , Dana Rowzee, Jerrod Tinsley,
CEO Pay Rates: U.S. vs. Foreign Nations. November 17, 2005
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Is Increased Inequality “Inevitable?”
• Neoliberals often argue that increased
inequality simply reflects a globalized market
• But is that true?
• Do other wealthy countries see the same
levels of inequality as the US?
NO
• Also, the growth of inequality in the US is
much greater than in other rich societies
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Inequality in the US Has Grown Much More than in
Other Wealthy Countries:
Top 1%’s Share of Total Income
% of Total Income
20
18
16
14
12
1975
10
1990
8
2000s
6
4
2
0
US
Australia
France
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Norway
23
Comparing Inequality Between
Countries
• Gini Index is most common measure
• Gini Index range is 0.0 to 1.0
– A Gini Index of 0.0 would mean that all
households have the same income
– A Gini Index of 1.0 would mean that one
household has all the income
– Gini index for industrialized countries ranges from
about 0.2 – 0.5
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The Level of Inequality is Much Greater in
the US than in Other Wealthy Countries
0.6
Sweden
Denmark
Iceland
0.5
Finland
Austria
Norway
Gini Index
0.4
Germany
France
Australia
Netherlands
0.3
Canada
Spain
Greece
0.2
Italy
Switzerland
UK
N. Zealand
0.1
Japan
US
Mexico
0
The US is more like Mexico than like Sweden.
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Composition of Income for Top 1% (2008)
(for bottom 99%, over 90% of income comes from wages and salary)
100%
90%
80%
70%
41.4%
60%
Interest
Capital Income*
Wages/Salary
50%
40%
30%
55.7%
20%
10%
0%
Fitzgerald: The rich are different from us.
Hemmingway: Yes, they have more money.
But where they get their money from is different.
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*Capital income
includes capital
gains, dividends,
stock options, etc
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How Much Income Would Be Required to
Be in Each Income Category in 2008
Top 10%
$107,540
Top 1%
$341,810
Top 0.1%
$1,401,549
Top 0.01%
$6,414,011
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Why Did Inequality Increase?
• Decline of unionization
• Shift in the tax burden
• Policies supported inequality
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As Union Density Declined,
the Income Share of Top 1% Increased
In the mid-1950s about 36% of US workers were in unions (up from 31% at the end of WWII)
30.00%
25.00%
20.00%
15.00%
10.00%
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
20
08
5.00%
Union Members as a % of US Working Population
Income Share Top 1%
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Impact of Union Decline
• Unions were crucial in the “Great
Compression” of incomes 1930s – 1950s
• Unions pioneered linking health care to
employment
• Unions pioneered concept that employment
should also provide pensions
• Unions are essential to the political education
of their members
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Credit: Carol Simpson, CartonWork.com
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Shifting the Tax Burden: Individuals
• Until the 1980s, the top federal income tax
rate had been above 70% since WWII
• During the 1980s (Reagan years) the top tax
rate was cut in half
• And the bottom federal income tax rate
actually increased
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Federal Income Tax Rates:
Highest vs. Lowest Rate, 1969 - 2009
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Top Rate
Bottom Rate
03
20
02
20
-2
9
00
01 00
20 20
93 92
19 19
91 90
19 19
88
19
87 86
19 - 19
82 81
19 19
-
71
19
70
19
69
19
The Big Shift: 1982 - 1988
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Changes in Effective Federal Tax Rate Benefited Top
Incomes Much More than the Rest of US
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Shifting the Tax Burden: Corporations
• The other big shift in who pays taxes has
favored corporations over individuals
• The corporate income tax used to be a
significant source of federal revenue
– About 2/3 of the revenue raised by individual
federal income taxes
• Now it is less than 20% of individual federal
income tax revenue
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Federal Government Revenues
as a Percent of GDP
11%
9%
6%
4%
1%
19
1
1
1
1
1
1
1
1
1
1
1
1
1
2
2
2
46 950 954 958 962 966 970 974 978 982 986 990 994 998 002 006 010
Individual Income Taxe Revenue as a % of GDP
Corporate Income Tax Revenue as a % of GDP
Corporations have shifted taxation on to the rest of us.
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Income Redistribution: Policies
• By 1970s the service sector was growing much faster
than the manufacturing
• What kind of employment would people find in the
“new economy”
– Low wage or high wage?
• The minimum wage did not keep up with inflation
• The attack on unions made organizing service
workers more difficult
• Is the US’s large proportion of low wage work
inevitable?
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Percent of Population with Income
Less than 50% of Median ( 2007/08)
% of Population
25
1 in 6 workers in the
US earn less than half
the median income.

20
15
In Denmark, only
1 in 16 workers
earn less than half
the median income.
10
5
0
Denm ark
Austria
Netherlands
France
Norw ay
Finland
Sw eden
Sw itzerland
Germ any
Belgium
Ireland
Poland
New Zealand
OECD
United Kingdom
Canada
Italy
Greece
Portugal
Spain
Australia
Korea
Japan
United States
Israel
Mexico
Countries with greater inequality have larger low wage sectors.
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Inequality as Social Policy
• US labor markets are “segmented”
• This means that the distribution of jobs
by gender, ethnicity and race is uneven
• The result: women and racial and ethnic
minorities are more likely to work in
lower wage sectors than white males
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Labor Force Segmentation, 2009:
Job Share/Labor Force Share
1.8
1.6
Health Care
Mfg - Durable Goods
Mfg - Nondurable
Construction
Education
Wholesale Trade
Retail Trade
1.4
1.2
1
0.8
0.6
0.4
0.2
0
All Females
All AfricanAmericans
All Latinos
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A ratio of 1.0 means job
share = labor force share
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Segmented Labor Markets Create
Inequality
160%
Median Wage Ratio
150%
White male/white
female
White male/black
male
White male/Hispanic
male
Black male/black
female
Hispanic
male/Hispanic female
140%
130%
120%
110%
100%
90%
80%
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Credit: Cartoon Group
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The Fraying of Social Bonds
• Economic costs are only part of the curse of
inequality
• Equally important are the costs to the bonds
that link people together in a modern
commercial/industrial society
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The Spirit Level –
Wilkerson and Pickett
• In this book the authors look at national
scores on a range of measures of health, social
and educational well being
• They look only at the rich societies – 23
countries with per capita incomes ranging
from $22,000 - $48,000
• No relationship between per capita income
level and how well or poorly these countries
score
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Inequality and the Spirit Level
• However, there is a strong correlation between the
extent of inequality and country scores on:
– Health
• Life expectancy
• Infant mortality
• Obesity
– Education
• Scores on international math and literacy tests
• Early school leaving
– Social well being
• Prison population/100,000
• Social mobility
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Inequality and the Spirit Level
• Less equal societies perform worse on these
measures than more equal societies
• US is among the worst on these measures
• Racial/ethnic homogeneity does not explain
the different results by income inequality
• Hear the interview with Richard Wilkerson at
http://www.pbs.org/newshour/bb/business/j
uly-dec11/makingsense_09-28.html
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The Fraying of Social Bonds
“Do you think that most people can generally be trusted?”
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Rising Inequality, Declining Trust in the US, 1960 – 1998
(the numbers are the years, e.g. 66 = 1966)
Most People Can Be Trusted
Trust = 1.097 - 1.720 GINI
r² = 0.542 RMSE = 0.043 n = 28
.6
68
66
.5
60
64
71
7372 80
74
76
84
92
79
75 78 81
.4
83
89
8788
91
90
86
98
93
96
95 94
.3
.35
.4
Gini index of inequality
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How Has the US Economy Performed
During the Past 3 Decades?
• Has inequality produced faster rates of
growth, benefitting all of us?
• Does “A rising tide lifts all boats”? (as
neoliberals often argue)
• NO
• US GDP/capita growth at best middle of the
pack
• The Top 1% failed to produce growth
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Average Annual GDP Growth per capita,
Neoliberal Period (1979 – 2008)
3%
3%

2%
2%
1%
1%
0%
1979 - 2008
France
Italy
Canada
Australia
Germany
Denmark
US
Belgium
Sweden
Japan
Austria
Netherlands
Spain
UK
Norway
US Growth only middle of the pack – less than Japan
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What Happened to the Money?
• The top 1% receives over $1 trillion more
income each year than was the case in 1976
• What have they done with this money?
• Did they create jobs?
OR
• Did they spend it on lavish consumption?
• Did they speculate in financial markets?
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What Is Neoliberalism?
• Core tenet: markets are self correcting and provide
the best (most efficient in terms of resource use)
outcomes if allowed to function
– Markets bring together a large number of participants who
vote with their dollars
• Therefore:
– Remove regulatory “restraints” on markets – governmentregulated outcomes are always “second best”
– Turn activities over to private sector wherever possible
– There is no “common good,” only individuals seeking their
personal well being
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