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Inequality on a Global Scale (literally)

The cartoon below is from the great editorial cartoonist Stuart Carlson. It highlights with humor a very serious global economic condition, growing wealth inequality.

http://www.gocomics.com/stuartcarlson/2014/06/20#.U9Zns_ldXfJ (Go and enjoy his other cartoons.)

Allow me to breakdown the math for you. These figures work out to an average of $486 per poor person vs. $20 billion per rich person. This is not a measure of income but a measure of wealth, or capital.

Another important math fact from this illustration: If you have $20 billion in capital and earn an average return on investments of 4% a year, and if you lavishly spend $1 million per month on your lifestyle, at the end of 50 years you will still have $140 billion left for your children to inherit. That’s right, if you have seven children they would each get close to the 20 billion that you started out with.

This is the crisis of capital that we face. This fact is among the findings of economist Thomas Piketty in his recent book, Capital in the Twenty-First Century. Within just a few generations almost all the wealth on the planet will be handed down from parents to children. Almost no new fortunes will be made through the earnings of those who have to work for a living. We will effectively return to a feudal system even here in the United States and abroad. The phenomenon is global. The quicker national and global population stabilize or decline the faster wealth will concentrate among the wealthy.

All we have to do to return to a feudal society is… do nothing.

Someone on facebook asked me, “Is it really the zero-sum game that these breakdowns of wealth distribution always seem to imply?”  Good question! Is it the case that the growing wealth of the wealthy must come at the expense of growing poverty Or, doesn’t the growth of capital lift all ships?

When you look at national and global income-to-capital averages you see what looks like fairly stable ratios. Growing capital wealth and growth in income seem to balance. But look a littler closer and you see that more of the population falls into poverty as the value of capital grows at compounded rates. So yes, there is more national income, but there is an ever larger percentage of income coming from capital investments and going to the wealthy.  As capital becomes the main source of income, the real earnings of wage earners stretches and collapses at the lower end of the economic scale.  For the middle class, it is like being caught between the gravitational fields of two black holes… one created by poverty and  the other by capital wealth

Our Chronic Wage Stagnation, Symptoms and Treatments

by Brian T. Lynch, MSW

Decades of frozen wages relative to our expanding wealth is the root cause of many economic problems. More people falling into poverty, a shrinking middle class, declining retirement savings, increased welfare spending, higher unemployment, more aid to working families, declining government tax revenues, diminished funding for Social Security and Medicare, a sluggish economy (despite a record high stock market), slow job growth and heighten social tensions along the traditional fault lines of race, ethnicity and gender are among the many issues influenced by decades of wage stagnation.

Beginning in the late1970’s most American workers received only cost of living adjustments in their paychecks while their real earnings gradually diminished each year. Employers increased hourly wages to keep pace with inflation, but they suddenly stopped raising wages to reward workers for their productivity. Earned income has declined for most Americans as a percentage of our gross domestic product (GDP) This amounts to a dramatic and intentional redistribution of new wealth over the last 40 years. Nearly all this new wealth has gone to the rich and powerful.

The visual evidence of wage stagnation relative to hourly GDP is apparent in one powerful graph (below). You may have this it before.

hourly GDP vs Wage graph

 

SYMPTOMS

The effects of wage stagnation on our economy have been gradual and cumulative. Its impacts don’t raise red flags from one year to the next, but the cumulative effects are obvious. The trending rise in income inequality, for example, was missed entirely for 25 years, and then it still took another decade for it to catch the public’s attention.

According to USDA data on the real historical GDP and growth rates[i], the U.S. economy grew by $368 trillion between 1976 and 2013. That is a 109.4% rise in national wealth, more than a doubling of the national economy. Almost none of that wealth was shared with wage earners. If hourly wages continued to grow in proportion to hourly GDP, as it had for decades prior to the mid-70’s, the current median family income today would be close to $100,000 a year instead of the current $51,017 per year.[ii]

Think about that for a moment, and about all the implications for wage based taxes and payroll deductions. For simplicity sake, let’s say wages would have double if the workforce received productivity raises. That would significantly reduce the number of families currently eligible for taxpayer subsidies such as SNAP (food stamps), housing assistance, daycare and the like. At the same time the workforce would be generating much more income tax revenue.

Consider next the impact wage stagnation has had on payroll deductions. Social Security and Medicare premiums have not financially benefited from the growing economy. Double current wages and you double current revenues for these programs as well. Moreover, the economy has grown at an annual rate of 2.9% since 1976. If Social Security and Medicare had benefited from this new annual wealth, the effect on current revenue projections would be profound. We would not be looking at a projected shortfall any time in the future.

The impact of wage stagnation on consumer spending is perhaps the most insidious problem. While worker wages have stagnated, the production of goods and services has grown. How is that possible? Some of this production is sold in foreign markets, but domestic markets are still primary. And it is here where economic theories have done a disservice.

A generation of economists and business leaders have treated consumers and workers as if they were not one and the same. This has fractured how we look at the economy and given rise to the notion that labor is just another business commodity. It disguises the fact that labors wages fuel consumer spending. Wages help drive the whole economy while wage stagnation reduces consumption over time.

To overcome this effect we have seen the need for mother’s to enter the workforce in mass, and for banks to invent credit cards to bolster consumer spending. These and other creative measures can no longer forestall the decline in worker spending. So while the financial markets ride the tide of America’s growing wealth, the fortunes of those who have been cut off from that new wealth continue to slip beneath the waves.

As for social tensions among different racial, ethnic and gender groups, the effect of stagnant wages relative to the nation’s growing wealth creates a lifeboat mentality and zero sum thinking. For the first time in many generations parents are worried that their children will have less in life than they had. When the whole pie is shrinking a bigger slice by one person means a smaller piece for others. This thinking exists because for over 95% of wage earners the economic pie hasn’t grown in 40 years.

TREATMENTS

You may not be ready to accept chronic wage stagnation as “the syndrome” underlying our economic woes, but it’s also true from my experience that having solutions (or “treatment options”) at hand often makes it easier to identifying the problems they resolve. With that in mind, I want to offer some solutions to America’s low wage conundrum.

One direct approach to raising worker wages is the one currently being discussed in the public dialogue, raising the minimum wage. This benefits the lowest paid workers and also puts pressure on employers to increase pay for other lower wage earners. The current target of $10.10 per hour would still leave many families at or below the poverty line. Workers making the new minimum wage would still be eligible for some public assistance for the working poor. While passing a minimum wage law is at least possible, this option is not a systemic solution to wage stagnation. Even index the minimum wage to inflation would not compensate for declining wages relative to GDP growth.

Another direct approach to ending wage stagnation is to pass a living wage law. This would set the minimum wage at a level that would allow everyone working full-time to be financial independent from government assistance, including subsidized health care. A living wage law could be indexed to the local cost of living where a person is employed. This is idea because it takes into account local economic conditions which are determined by market forces rather than government edict. But passing a living wage law in the current political climate is unlikely.

There are other ways of encouraging wage growth that don’t involve direct wage regulation. One idea would require the federal government to recoup, through business income tax rebates, the cost of taxpayer supported aid to working families from profitable businesses that pay employees less than a living wage. Employee wages are easily identified through individual tax returns. Eligibility for taxpayer supported subsidies are relatively easy to estimate as well, so recouping public funding to support a company’s workforce is a practical possibility. A portion of the recovered money could be paid into Social Security and Medicare to make up for lost revenue due to substandard wages.

A welfare cost recovery plan could gain popular support given the growing public resentment towards taxpayer funded social programs. At least 40% of all full-time employees in America currently require some form of taxpayer assistance to financially survive. More importantly, this plan places the burden of supporting the workforce back on profitable businesses where the responsibility lies.

Another solution has been suggested by former US Labor Secretary, Robert Reich, and others. They support proposed legislation, SB 1372, that sets corporate taxes according to the ratio of CEO pay to the pay of the company’s typical worker. Corporations with low pay ratios get a tax break. Those with high ratios get a tax increase. This would effectively index worker wages to CEO compensation in a carrot and stick approach to corporate taxes. The details and merits of this approach is outlined elsewhere.[iii]

Do U.S. businesses have the financial capacity to offer higher wages to their workers? I would like to answer that question with another graph that you may also have seen before.

Credit: Blue Point Trading http://www.blue-point-trading.com/blue-point-trading-market-view-june-07-2012

There is a clock ticking somewhere in the background on this issue. There is a point somewhere in the future where it will be too late to fix wage stagnation through the normal democratic processes. History has proven this to be true. We are not at that point now, but we are past the point treating wage stagnation earnestly.

______________________________________________________

[i] Link: Real Historical Gross Domestic Product (GDP)

[ii] As of 2013 the median family income of $51,017 x GDP growth of 109.4% = $104,796 per year

[iii]  Link: Raising Taxes on Corporations that Pay Their CEOs Royally and Treat Their Workers Like Serfs

The Economy Didn’t Stall for Congress During Recession

by Brian T. Lynch, MSW

I know a place you can work where, on average, employees can accumulates personal wealth at a rate of over 15% per year!  The catch?  You have to get elected to Congress.
This is just one bit of information parsed from data on the average wealth of members of Congress.  The database is available at OpenSecrets.Org [http://bit.ly/vRBruV], courtesy of The Center for Responsive Politics.  It comes with some serious caveats. According to OpenSecrets:
By law, members of Congress are only required to report their wealth and liabilities in broad ranges. It’s therefore impossible to precisely determine how much value their assets are worth, or have gained or lost. from year to year. The Center for Responsive Politics determines the minimum and maximum possible asset values for each member of Congress to calculate a member’s average estimated wealth.”
Congress has set rules for itself so that we can only guess at how much each member is worth.  Their net worth can only be expressed as an average within a broad margin of error.  But it is still possible to learn some things about Congress as a whole if you aggregate the numbers and analyze how they change over time.
The analysis which follows is based on average Congressional wealth data for two points in time, in 2004 and in 2010.  It appear that the data only includes members who were in the House or Senate during this six year period.  Keep in mind that during this period of time the United States economy nearly collapsed.
Keep in mind that of the 383 members of the House or Senate included in this analysis, the fortunes of 140  member declined while in office.  The figures below on combined wealth adds up all the gains and subtract all the losses to arrive at the average wealth increases.  Also, to make the graphics more comprehendible and directly comparable, the dollar amounts are divided by the number of representative in each category and expressed as averages per legislator.
The other point to remember is that there are five members in the legislature, three in the House and two in the Senate, who are very wealthy.  There combined wealth is estimated at over $1.5 trillions dollars.  This skews the averages and makes the average member of Congress appear to be more wealthy than the are.  Nevertheless, this analysis is primarily about how Congressional wealth grows over time.
The Wealthiest US Legislators               Estimated Net Worth
Issa, Darrell (R-Calf)  House
$448,125,017
McCaul, Michael (R-Tex) House
$380,411,527
Harman, Jane (D-Calf) House
$326,844,751
Kerry, John (D-Mass) Senate 
$231,722,794
Kohl, Herb (D-Wis) Senate
$173,538,010
Combined Wealth
$1,560,642,099
 
 
 
So did the personal wealth of our legislators grow over the six year period between 2004 and 2010? 
Yes.  The combined person wealth of our legislators rose from around $2.2 billion in 2004 to $3.1 billion in 2010.  That is a 40.4 % growth in net worth, or around a 6.7% annual growth rate.*
Was there a difference in the growth rate between the political parties?
Yes. Republican’s as a group faired better than Democrats.  Republican’s had a 12.9% annual growth rate in personal wealth while Democrats gained at a 2.7% rate.  The combined gains of the three independents in the Senate was high also, but as you can see their combined income per member was much smaller that that of their colleagues.
 
 
Was there a difference between the House and the Senate in the growth rate of personal income?
Yes again.  The Senate is a much wealthier body than the House and it actually lost a little net worth over this six year period.  The House gained 75.1% in personal wealth for a 12.5% annual rate of growth.
When the data is further broken down by both political party and Congressional chamber it appears that Senate Democrats are collectively the wealthiest group, and the only group that lost a little personal wealth over six years.  The House is the wealthiest chamber for Republican’s, and it is also the chamber with the highest rate of growth in personal wealth.  House Republican’s as a group gained 92.8% in net worth while House Democrats gained 51% over six years.
Average Wealth Increase per Legislator by Party and Chamber – 2004 and 2010
Wealth /Member in 2004
Wealth /Member in 2010
Six Year Dif /Member
Total % Change
Annual % Change
House Democrats    (n=176)
$2,918,824
$4,408,237
$1,489,414
51.0%
8.50%
House Republicans (n=133)
$5,243,557
$10,111,971
$4,868,414
92.8%
15.47%
Senate Democrats   (n=40)
$20,516,818
$19,323,256
-$1,193,561
-5.8%
-0.97%
Senate Republicans (n=41)
$4,394,130
$5,128,482
$734,352
16.7%
2.79%
Senate Independents (n=3)
$577,182
$1,359,855
$782,673
135.6%
22.6%
Did everyone in Congress fair well over this six year period?
No. As mentioned earlier, 140 legislators lost wealth during this time.  The graph below breaks down the numbers of those who gained and lost personal wealth while in Congress.  House Democrats had the highest percentage of gainers at 67% while Senate Democrats has the lowest ratio of gainers at 59%.  The percent of those gaining personal wealth among House and Senate Republican’s was 62% and 65% respectively.  Overall, almost two-thirds (64%) of Congress gained personal wealth during their time in office.
  
 What about those who gained the most?  Just how well did they do?
There are at least two different ways to identify who gained the most.  You can look at in terms of dollar amounts gained or as a percentage of growth in net worth.  In come cases percentages can be misleading.  A person with $10.00 who gains a buck has a 10% rate of growth, but you wouldn’t say they got rich.  So both measures were used here and the results are in the following two graphs below.
Looking at both the percentage increase and actual dollars increase methods, the top ten House Republican’s, with the highest gains in personal wealth, clearly out paced the rest of their top ten Congressional colleagues in accruing wealth.  As a percentage increase in personal wealth the top ten Republican Senators and top ten Democratic Senators did equally well. The wealth of House Democrats appears to barely rise on the graph above, but that’s because they start out with so little compared to their colleagues.  The actual percentage increase for the top ten Democrats in the House was over 4000%.
So what does all of this mean?
Our legislative representatives are rich.  I’m not an economist, or a researcher, but a few conclusions do seem apparent from this analysis.  Congress, as a group, is quite wealthy.  While it may be true that there are over 400 billionaires in the United States and none in Congress, it is remarkable that nearly half of those in Congress (49%) were millionaires in 2010.   About 10% in Congress were multi-millionaires and five members were among the 1% of wealthiest Americans[1].  The wealthiest group in Congress are Democratic Senators.  They start out that way and stay that way, although they gain the least by being there.
While nearly a third of Congress are less well off after six years in service, the majority were better off and many were far better off in 2010 than in 2004.  The actual growth in personal wealth seems to be more apparent among Republican’s, particularly House Republicans, but the percentage of growth in personal wealth among the top ten House Democrats extraordinarily high.  Only 28 legislators have a net worth under $100,000.00 and only 15 are in debt.  I will leave it to the reader to contrast this with the your own situations and the folks you know.   What this analysis can’t do is tell us why  the data is as it appears. I will leave that to others for now.
All of the tables for this analysis appear below.  I encourage readers of this blog to review them for accuracy and use them to develop more information regarding the wealth patterns or our federal representatives .  Please leave comments if you find any errors or omissions in the tables.  I will make appropriate corrections on this blog post.

[1] In defining “the 1%” I prefer an approach based on wealth, not income.  Wealth is power.  Income is only an indirect measure of wealth and power.  (Is the strength of a batter measured by the rate at which it is charged or by the energy has stored?).  For my purposes here I am defining the 1% wealthiest legislators in Congress beginning with the assumption that one percent of American’s own 35% of the wealth in the US.  The net worth of all American households in 2009 was $54 trillion dollars.  There were 121,611,029 households in America in 2009 according to the US Census Bureau.  That means 1% of all households equals 1,216,610 Americans. So 1 % of all households own 35% of $54 trillion, or $18.9 trillion dollars.  If my math is correct that means that the average wealth of a household among the top 1% equals $149,277,318.
Total Wealth Increase of All US Legislators Between 2004 and 2010
Average Wealth in 2004
Average Wealth in 2010
Difference in Six Years
Total % Change
Annual % Change
All Members      (n=393)
$2,213,699,631
$3,108,019,528
$894,319,897
40.4%
6.7%
All Democrats    (n=216)
$1,334,385,659
$1,548,780,022
$214,394,363
16.1%
2.7%
All Republicans (n=174)
$877,552,427
$1,555,159,941
$677,607,514
77.2%
12.9%
Independents     (n=3)
$1,731,545
$4,079,565
$2,348,020
135.6%
22.6%
Senators            (n=84)
$1,002,563,604
$987,277,595
-$15,286,009
-1.5%
-0.3%
Congressmen    (n=309)
$1,211,147,532
$2,120,971,945
$909,824,413
75.1%
12.5%
Average Wealth Increase Per US Legislator by Party and Chamber Between 2004 and 2010
Wealth /Member in 2004
Wealth /Member in 2010
Six Year Dif /Member
Total % Change
Annual % Change
All Members       (n=393)
$5,632,823
$7,908,447
$2,275,623
40.4%
6.7%
All Democrats     (n=216)
$6,177,711
$7,170,278
$992,566
16.1%
2.7%
All Republicans  (n=174)
$5,043,405
$8,937,701
$3,894,296
77.2%
12.9%
Independents      (n=3)
$577,182
$1,359,855
$782,673
135.6%
22.6%
Senators             (n=84)
$11,935,281
$11,753,305
-$181,976
-1.5%
-0.3%
Congressmen     (n-309)
$3,919,571
$6,863,987
$2,944,416
75.1%
12.5%
Average Wealth Increase of All US Legislators by Party Between 2004 and 2010
Average Wealth in 2004
Average Wealth in 2010
Difference in Six Years
Total % Change
Annual % Change
House Democrats    (n=176)
$513,712,948
$775,849,769
$262,136,821
51.0%
8.50%
House Republicans (n=133)
$697,393,079
$1,344,892,164
$647,499,085
92.8%
15.47%
Senate Democrats   (n=40)
$820,672,711
$772,930,253
-$47,742,458
-5.8%
-0.97%
Senate Republicans (n=41)
$180,159,348
$210,267,777
$30,108,429
16.7%
2.79%
Senate Independents (n=3)
$1,731,545
$4,079,565
$2,348,020
135.6%
22.6%
Average Wealth Increase per Legislator by Party and Chamber – 2004 and 2010
Wealth /Member in 2004
Wealth /Member in 2010
Six Year Dif /Member
Total % Change
Annual % Change
House Democrats    (n=176)
$2,918,824
$4,408,237
$1,489,414
51.0%
8.50%
House Republicans (n=133)
$5,243,557
$10,111,971
$4,868,414
92.8%
15.47%
Senate Democrats   (n=40)
$20,516,818
$19,323,256
-$1,193,561
-5.8%
-0.97%
Senate Republicans (n=41)
$4,394,130
$5,128,482
$734,352
16.7%
2.79%
Senate Independents (n=3)
$577,182
$1,359,855
$782,673
135.6%
22.6%
Top Ten Legislators /w Biggest Jump in Wealth ($ increase) by Party and Chamber – 2004 and 2010
Aggregated Totals
Average Wealth in 2004
Average Wealth in 2010
Difference in Six Years
Total % Change
Annual % Change
House Democrats    (n=176)
$327,705,235
$568,142,204
$240,436,969
73.4%
12.2%
House Republicans (n=133)
$331,746,289
$1,005,864,579
$674,118,290
203.2%
33.9%
Senate Democrats   (n=40)
$137,206,389
$216,341,049
$79,134,660
57.7%
9.6%
Senate Republicans (n=41)
$21,576,271
$81,888,741
$60,312,470
279.5%
46.6%
Top Ten Legislators /w Biggest Jump in Wealth ($ increase) by Party and Chamber – 2004 and 2010
Average per Legislator
Wealth /Member in 2004
Wealth /Member in 2010
Six Year Dif /Member
Total % Change
Annual % Change
House Democrats    (n=176)
1,861,962
3,228,081
1,366,119
73.4%
12.2%
House Republicans (n=133)
2,494,333
7,562,892
5,068,559
203.2%
33.9%
Senate Democrats   (n=40)
3,430,160
5,408,526
1,978,367
57.7%
9.6%
Senate Republicans (n=41)
526,251
1,997,286
1,471,036
279.5%
46.6%
Top TenLegislators /w Biggest Jump in Wealth (% increase) by Chamber & Party – 2004 and 2010
Aggregated Totals
Average Wealth in 2004
Average Wealth in 2010
Difference in Six Years
Total % Change
Annual % Change
House Democrats*
$779,531
$31,996,557
$31,217,026
4004.6%
667.4%
House Republicans
$35,430,212
$392,877,862
$357,447,650
1008.9%
168.1%
Senate Democrats
$19,415,702
$56,516,827
$37,101,125
191.1%
31.8%
Senate Republicans
$11,871,405
$67,686,976
$55,815,571
470.2%
78.4%
Top TenLegislators /w Biggest Jump in Wealth (% increase) by Chamber & Party – 2004 and 2010
Average per Legislator
Wealth /Member in 2004
Wealth /Member in 2010
Six Year Dif /Member
Total % Change
Annual % Change
House Democrats*
$4,429
$181,799
$177,369
4004.6%
667.4%
House Republicans
$266,393
$2,953,969
$2,687,576
470.2%
78.4%
Senate Democrats
$485,393
$1,412,921
$927,528
191.1%
31.8%
Senate Republicans
$289,546
$1,650,902
$1,361,355
470.2%
78.4%
* One member, P. Kennedy, accounted for most of the increase.  Excluding him for the in rank on the list yeilds an increase of 1,602.6% or 267.1% annual increase.
*correction: on an earlier version I mistakenly said trillions instead of billions in referring to the collective wealth of congress.

Labor Day – A Day for Reflection

Labor Day. For much of the world this is a day of reflection to honor the martyrs who stood up to wealthy capitalists in the fight for dignified employment, the eight-hour workday and the five-day work week. It is a day to honor those who sacrificed their lives so that we might be home in time to eat dinner with our families and to have Saturday’s off to watch our children play baseball or soccer. It is a reminder that many of the blessings we take for granted today came at a terrible price.  If we forget how we got these benefits they will slowly erode over time and history will reap itself.

Much of the world celebrates Labor Day not in August, but in May. Have you ever wondered why? Would you be surprised to learn that labor celebrations around the world commemorate events that took place in Chicago in 1816?  Students of history will recognize this as the Haymarket, or May Day Massacre.  Below is one account from the Encyclopedia of Chicago History via Wikipedia.  http://www.encyclopedia.chicagohistory.org/pages/571.html

Haymarket and May DayLABOR UNREST, 1886 (MAP)

On May 1, 1886, Chicago unionists, reformers, socialists,anarchists, and ordinary workers combined to make the city the center of the national movement for an eight-hour day. Between April 25 and May 4, workers attended scores of meetings and paraded through the streets at least 19 times. On Saturday, May 1, 35,000 workers walked off their jobs. Tens of thousands more, both skilled and unskilled, joined them on May 3 and 4. Crowds traveled from workplace to workplace urging fellow workers to strike. Many now adopted the radical demand of eight hours’ work for ten hours’ pay. Police clashed with strikers at least a dozen times, three with shootings.

At the McCormick reaper plant, a long-simmering strike erupted in violence on May 3, and police fired at strikers, killing at least two. Anarchists called a protest meeting at the West Randolph Street Haymarket, advertising it in inflammatory leaflets, one of which called for “Revenge!”

The crowd gathered on the evening of May 4 on Des Plaines Street, just north of Randolph, was peaceful, and Mayor Carter H. Harrison, who attended, instructedpolice not to disturb the meeting. But when one speaker urged the dwindling crowd to “throttle” the law, 176 officers under Inspector John Bonfield marched to the meeting and ordered it to disperse.

Then someone hurled a bomb at the police, killing one officer instantly. Police drew guns, firing wildly. Sixty officers were injured, and eight died; an undetermined number of the crowd were killed or wounded.

The Haymarket bomb seemed to confirm the worst fears of business leaders and others anxious about the growing labor movement and radical influence in it. Mayor Harrison quickly banned meetings and processions. Police made picketing impossible and suppressed the radical press. Chicago newspapers publicized unsubstantiated police theories of anarchist conspiracies, and they published attacks on the foreign-born and calls for revenge, matching the anarchists in inflammatory language. The violence demoralized strikers, and only a few well-organized strikes continued.
HAYMARKET POSTER, 2002

Police arrested hundreds of people, but never determined the identity of the bomb thrower. Amidst public clamor for revenge, however, eight anarchists, including prominent speakers and writers, were tried for murder. The partisan Judge Joseph E. Gary conducted the trial, and all 12 jurors acknowledged prejudice against the defendants. Lacking credible evidence that the defendants threw the bomb or organized the bomb throwing, prosecutors focused on their writings and speeches. The jury, instructed to adopt a conspiracy theory without legal precedent, convicted all eight. Seven were sentenced to death. The trial is now considered one of the worst miscarriages of justice in American history.

Many Americans were outraged at the verdicts, but legal appeals failed. Two death sentences were commuted, but on November 11, 1887, four defendants were hanged in the Cook County jail; one committed suicide. Hundreds of thousands turned out for the funeral procession of the five dead men. In 1893, Governor John Peter Altgeld granted the three imprisoned defendants absolute pardon, citing the lack of evidence against them and the unfairness of the trial.

Inspired by the American movement for a shorter workday, socialists and unionists around the world began celebrating May 1, or “May Day,” as an international workers’ holiday. In the twentieth century, the Soviet Union and other Communist countries officially adopted it. The Haymarket tragedy is remembered throughout the world in speeches, murals, and monuments. American observance was strongest in the decade before World War I. During the Cold War, many Americans saw May Day as a Communist holiday, and President Eisenhower proclaimed May 1 as “Loyalty Day” in 1955. Interest in Haymarket revived somewhat in the 1980s.

A monument commemorating the “Haymarket martyrs” was erected in Waldheim Cemetery in 1893. In 1889 a statue honoring the dead police was erected in the Haymarket. Toppled by student radicals in 1969 and 1970, it was moved to the Chicago Police Academy.

Wealth Inequality and Our Brewing Social Crisis

by Brian T. Lynch, MSW

Wealth disparity has a profound, relativistic impact in human societies and this is worth understanding. Even in the most egalitarian societies where everything is shared, there are subtle differences in the distribution of goods and services. These small differences convey powerful social messages that are keenly felt by all its members. These messages impact social interactions and the social order. Wealth distribution has powerful symbolic meaning in every society, large or small, rich or poor.

wealth-inequality-is-much-worse-than-you-realize

Wealth Disparity is Worse Than You Think – Business Insider
http://www.businessinsider.com/inequality-is-worse-than-you-think-2013-3

When the actual material differences in wealth are subtle, the costs or benefits conferred by wealth distribution are limited to social perceptions and its impact on social order or governance. These material differences are not existential threats to the socially disadvantaged. However, as the actual material differences between members of society grows, the scarcity of essential resources for some may follow. This becomes ever more consequential as it increases the efforts needed to assure survival. It introduces more uncertainty and decreases the sense of  personal control. Distribution induced disparity can grow to the point where it can even become life threaten. Additionally, the social power differential grows to the point where social relationships by the advantaged towards the disadvantaged can become exploitive and extractive.

Under conditions of extreme wealth disparity there are  physical and psychological impacts on both the powerful and less powerful. The Socially disadvantaged undergo significant stress and will exhibit all the symptoms and conditions associated with chronic stress (alcoholism, drug abuse, depression, maladaptive behaviors, obesity, child abuse, poor health outcomes, etc.). What is important to understand is that it is the disparity in wealth that induces social stress, not the absolute measure of wealth. Extreme wealth disparity becomes pathological in all societies, both rich or poor. This appears to have been true throughout history. Evidence of the corrosive effects of social disparity has even been demonstrated in research studying the impact of dominance on subordinate primate populations, so this appears to be a natural phenomenon.

Extreme wealth disparity is a threat to society. This fact is underappreciated by many. And distribution induced shortages don’t need to be at starvation levels before reaching critical mass, especially in wealthy countries like ours. Pundits have used this starvation metric or comparisons of our poverty to that found in poor countries to dismiss the current threat we face from rapidly growing wealth disparity. A better measure of our social instability is the health and welfare of the nation’s poor. The ranks of the poor are growing and their welfare is rapidly deteriorating. Here we find a conspiracy of silence in the main stream press. The symptoms of poverty induced stress have been reinterpreted as moral weaknesses and personal failings for which the poor have no one but themselves to blame. Both the unfair distribution of current wages and the redistribution of wealth through taxes to assist the poor are almost taboo subjects. To raise these issues is to be accused of inciting class warfare, which is exactly what has been raging for decades to bring us to this point.

The last time America experienced such enormous wealth disparity we were fortunate that the worst consequence was the Great Depression and not a total social collapse. The Great Recession of 2008 is an early warning of what will happen if we don’t correct our current wealth imbalance. So far the alarm bells are ringing but the public address system is still on mute.

Visualizing Our Wealth Inequality

Wealth Inequality in America

It’s not everyday that a video about wealth inequality goes viral on the internet.
But this myth-shattering video is spreading across the social web, using powerful infographics to make the case that not only is wealth distributed unevenly, but that it is much, much worse than we think.
Here at the New Economics Institute, we are driven by a desire to build a new economy where wealth is distributed equitably. As the video demonstrates, most Americans are on our side. Our task now is to tell the story of a different, more prosperous future and to build the movement to get us there.
After you watch and share the video above, help us grow the movement by making a tax-deductible donation today.
[Republished with permission]

Does Philanthropy End Up Hurting the Poor and Vulnerable?

What follows is my response to an open discussion about the role and social value of philanthropic  foundations.  It is my response to the lead article by Dr. Rob Reich, which can be read in its entirity at the URL below.

BOSTON REVIEW

http://www.bostonreview.net/BR38.2/ndf_rob_reich_foundations_philanthropy_democracy.php#c5t_form

MARCH/APRIL 2013

Lead Essay:
What Are Foundations For?

Rob Reich

This article leads off our debate on philanthropy, with responses from Stanley Katz, Diane Ravitch, Larry Kramer, and others.

Graham Smith

Judge Richard Posner, one of the foremost American jurists outside the Supreme Court, once observed, “A perpetual charitable foundation . . . is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets . . . and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either.” Why, he wondered, don’t we think of these foundations as “total scandals”?

If foundations are total scandals, then we have a massive problem on our hands. We are now living through the second golden age of American philanthropy. What Andrew Carnegie and John D. Rockefeller were to the early twentieth century, Bill Gates and Warren Buffett are to the early twenty-first century.

The last decade of the twentieth century witnessed the creation of unprecedentedly large foundations, such as Gates’s. The assets of the Gates Foundation and a separate Gates Trust, which holds wealth donated by the Gates family and Buffett, together total more than $65 Billion. If the combined entities were a nation, it would be 65th on the world GDP list. And it’s not just billionaires and their mega-foundations that command attention. Record wealth inequalities might be a foe to civic comity, but they are good for philanthropy. The boom in millionaires has fueled unprecedented growth in the number and assets of small foundations as well.

So foundations have seen explosive growth. But why are they a scandal?  Read the Full Article.  http://www.bostonreview.net/BR38.2/ndf_rob_reich_foundations_philanthropy_democracy.php#c5t_form

My Comments:

In setting up his essay on philanthropic foundation in this “second golden age”, Reich offered the following:  “Let us dismiss quickly one common and intuitive thought: that foundations exist because they are remedial or redistributive, responsive to the needs of the poor or disadvantaged.”

He goes on to identify public goods this way: “It has long been understood that the commercial marketplace does not do well at providing what economists call public goods. These are goods that, like a well-lit harbor, are available to everyone if they are available to anyone; and that, like clean air, do not cost more when they are consumed by more people. “

After three decades in the field of child welfare, this was a startling and insightful dismissal.  In debating whether America’s philanthropic foundations are worthy of the tax exempt status conferred on them in 1937, Reich excludes consideration of their value relative to public services that reduce human misery but carry a cost per use.  In other words Reich’s definition of public goods includes only passive public services, like street lights, but not active public services, including child welfare.  This certainly explains why foundational giving for public needs is so small a percentage of their activity.  Yet we are asked to judge whether their social contribution is worth their $53 billion in tax exemptions each year?  How much good could that revenue do to support and strengthen our most vulnerable citizens?  Don’t ask!

To characterize social services as remedial “or redistributive” of wealth, is offensive to me.  When used to characterize government spending on the general welfare, “redistribution” is a code word to frame partisan arguments in our muffled debate over distributive justice.  Taxing the more successful citizens to promote the general welfare, except for military spending, is considered an unfair redistribution of wealth, yet any discussion on  the fair distribution of profits between workers and business owners is considered out of bounds.

The context for this discussion on foundations is the social value of philanthropy at a time when wealth disparity has never been greater.  When a growing number of wealthy foundations are extracting ever more revenue from an already dwindling federal revenue stream,  excluding consideration of their impact on public services makes this discussion itself a plutocratic exercise.

The pros and cons of whether foundations generate valuable diversity and innovation were well explored by the forum’s other contributors, but none of their essays addressed underlying assumptions.  Foundations actually do play an outsized and often deterious  role in how community social services are structured, funded and distributed. None of the contributors picked the scab off  this wound to consider the broader picture.  Financially speaking, foundations are in direct competition with public social services and the vulnerable populations served. I was disappointed.

Ruppert Murdoch, Ayn Rand and A Sociopathic Economy

Rupert Murdoch, chairman and CEO of News Corp., and one of the richest men on the planet, recently claimed that free markets are morally superior to more social based ideas of morality and fairness.  “We’ve won the efficiency argument,” he claimed.  Now he hopes to persuade us that free markets are morally superior and that socialism fails because of its “denial of fundamental freedoms.”  In Murdoch’s world the idea that market success is based on greed is a false characterization that creates confusion. He believe that markets succeeds where governments fail, not because of greed, but because people are given “… incentives to put their own wants and needs aside to address the wants and needs of others.”

It sounds great!  But before you buy into this idea you should know he goes on to say, “To succeed, you have to produce something that other people are willing to pay for.”

Therein lies the rub.  To succeed you must “produce.” For Murdoch, distributive justice is the natural outcome of these purely commercial transactions.  He quotes Arthur Brooks at the American Enterprise Institute who defines fairness as, “… the universal opportunity to enjoy earned success”. The key words here being “earned success.” Accordingly, producers are entitled to all they earn because if their product wasn’t successful, consumers are free to not buy their product. This is a cruel argument to make in the face of an elderly person having to choose between buying food or medicine, of course.  Nevertheless, in this view every sale in a free market system automatically results in a fair distribution of wealth. No other social factors should apply.  In fact, to take from producers what they’ve earned to support the lives of less successful or non-producing human beings is immoral, in Murdoch’s view.

“What’s fair about taking money from people who’ve earned it and giving it to people who didn’t,” Murdoch asks.

But Murdoch’s whole notion, which closely mirrors that of Ayn Rand, ignores the whole complex social economy in which commerce and every other human activity actually takes place.  It rejects the wisdom that markets only exist to serve societies needs.  Markets are manmade entities and not a natural phenomenon, but Murdoch’s narrow view treats markets as natural entities that are morally superior to society. It limits the meaning of production to that which has a monetary exchange value.  It assigns social value to the creators of products according to their market success, measured in material gain.  It does not account for the material contributions of the public domain in making commerce and stable markets possible. Even though the monetary value of a product is co-dependent on a consumers’ willingness to pay, it does not assign any social value to the consumer.  Only the source of a buyers money gives them any social status.

This leaves open the question of how, or even whether, to assign social value to those not immediately involved in commercial production. These folks include children, the disabled, the elderly, the unemployed, those who care for children, woman on maternity leave, all government employees, military personal, clergy, law enforcement, etc.  Murdoch’s view begs the question; What is a person worth when their value to society cannot be directly measured by their market place success?

Murdoch’s views are shared by many of today’s corporate elite.  It is the makers vs. takers mentality.  It is a view that can only be described as anti-social at best, sociopathic at its extreme. It opposes all government interventions in the market place and opposes most government regulations.  It is a philosophy designed to restricts the ability of ordinary citizens (i.e. government) to assure that our markets and commerce works for the good of society and not just for the benefit of the economically powerful. It implicitly confers ownership and control of the markets to the most powerful market makers while failing to acknowledge the corrupting effects of power on financially successful human beings.  By denying the humanity of markets it denies the vulnerability of markets to human weaknesses. This puts society at risk and cripples humanity from solving some of the really big challenges we face as a species.  How we chose to define distributive justice is arguably the most important economic question of our time. How we ultimately marshal our economic resources to solve our really big problems depends on how we ultimately organize our economy.

[Ruppert Murdoch’s views as expressed can be found at the following URL: http://nation.foxnews.com/rupert-murdoch/2013/04/22/rupert-murdoch-op-ed-case-market-s-morality?utm_source=feedly&utm_medium=feed&utm_campaign=Feed%3A+FoxNation+(Fox+Nation)]

CLASS WARFARE – OVERVIEW OF WAGES, TAXES and WEALTH IN AMERICA

Since Reagan in 1980’s Tax Rates for the wealth were cut in half and capital gains tax (where most make their money) was cut in half again. http://j.mp/ZFFQHB

Wages and GDP rose together until wages were suppressed in the 70’s, otherwise median income today would be greater than $100K instead of $51K http://j.mp/14MoT67

The combination of wage suppression and the collapse of the upper income tax brackets is the cause of our wealth and income inequality today. http://j.mp/102YbAk and http://j.mp/10DVrLn

A majority of American’s don’t make enough money to support a robust economy because a handful of us have more money than they can spend. http://j.mp/16E3zOT

Current US policy is creating permanent income inequality.  Income mobility is shrinking as income caste system forms. http://t.co/nK5uFGyCaG

We know what victory looks like in Class Warfare. It’s the formation of an income caste system where birth determines your level of success. http://j.mp/Y1HwQP

Obama’s proposed raise in min. wage from $7.20 to $9/hr would mean a person working 40hr/week at min. wage would still be below poverty line. http://j.mp/10DwY7V

If the minimum wage was raised to $18/hour the Federal Government could eliminate almost all aid to the working poor, saving tons of money.  http://j.mp/10DVrLn

Every tax dollar paid to assist the working poor is a tax subsidy providing their employer a federally funded labor discount. http://j.mp/16Bml7r

God! When are we going to wake up?

Permanent Inequality Rising Over Past Two Decades

A Spring 2013 BPEA paper by Vasia Panousi, Ivan Vidangos, Shanti Ramnath, Jason DeBacker and Bradley Heim

http://www.brookings.edu/about/projects/bpea/latest-conference/2013-spring-permanent-inequality-panousi

Disadvantaged Becoming Worse Off Long-term; Tax System Has Helped But Not Significantly

Income inequality in the US has increased in recent decades, and this increase is of a permanent nature, according to a new paper presented today at the Spring 2013 Conference on the Brookings Papers on Economic Activity (BPEA).

In “Rising Inequality: Transitory or Permanent: New Evidence from a Panel of U.S. Tax Returns” …  [the authors] use new data to closely examine inequality, finding an increase in “permanent inequality” — the advantaged becoming permanently better-off, while the disadvantaged becoming permanently worse-off. The paper has important public policy implications because rising income inequality will lead to greater disparity in families’ well-being that is unlikely to reverse, whereas “transitory inequality” or year-to-year income variability would imply greater income mobility—those who fare worse today might be able to do better in later years. The authors are among the first to examine various measures of income in great detail, including earnings from work activities as well as broader measures of family resources such as total household income. [SNIP]

Looking at the impact of tax policy on inequality, the paper finds that although the U.S. federal tax system is indeed progressive in that it has provided some help in mitigating the increase in income inequality over the sample period, it has, however, not significantly altered the broadly increasing inequality trend. All told, the results suggest that rising income inequality will likely lead to greater disparity in families’ well-being and reduce social welfare in the long-run.

 

Rising Inequality: Transitory or Permanent?

New Evidence from a Panel of U.S. Tax Returns

Click to access 2013a_panousi.pdf

Abstract

We use a new, large, and confidential panel of tax returns to study the permanent versus-transitory nature of rising inequality in individual male labor earnings and in total household income, both before and after taxes, in the United States over the period 1987-2009. We conduct our analysis using a wide array of statistical decomposition methods that allow for various flexible ways of characterizing permanent and transitory income components. For male labor earnings, we find that the entire increase in the cross-sectional inequality over our sample period was permanent, that is, it reflected increases in the dispersion of the permanent component of earnings. For total household income, the large increase in inequality over our sample period was predominantly, though not entirely, permanent. For this broader income category, both the permanent and the transitory parts of the cross-sectional variance increased, but the permanent variance contributed the bulk of the increase in the total. Furthermore, the increase in the transitory component reflected an increase in the transitory variance of spousal labor earnings and investment income. We also show that the tax system partially mitigated the increase in income inequality, but not sufficiently to alter its broadly increasing trend over the 1987-2009 period.