Opinion

The Great Debate

The other inequality is structural

For the second year in a row, the issue of economic inequality was featured in President Barack Obama’s State of the Union Address. Even some Republican lawmakers have now dared to speak the “i-word.”

Though Obama predictably avoided comparisons between the earnings held by the top 1 percent and the 99 percent of Occupy Wall Street fame, the message was familiar: The widening income gap between the very rich and everyone else is a stain on the social compact and a serious problem for future economic growth.

Focusing on this income inequality is crucial. Lower incomes create an oxymoronic class of “working poor.” Inadequate pay hurts consumption and reduces tax revenues. People simply do more for themselves with more money, growing it into wealth for future generations — and as a cushion against economic downturns. A good job, as the president said, remains the best access to the promise of opportunity.

But there is another inequality that the president and others fail to address at the nation’s peril — structural inequality. This is the very foundation that reproduces widespread income gaps, the ground beneath the feet of income inequality.

It is not an abstract idea. We experience structural inequality — see it in the quality of local schools and their test scores, smell it in the access to healthy food or not, feel it in a sense of safety or danger as we walk the streets.

Swiss outrage over executive pay sparks a movement in Europe

Here’s an idea for how to end corporate greed and reverse the trend of growing income inequality worldwide: impose a new rule that would limit the pay of top executives to just 12 times that of the lowest-paid employees at the same firm. In other words, prevent CEOs from earning more in one month than the lowliest shop-floor worker earns in a year.

This proposal might sound like something cooked up by Occupy Wall Street or another radical protest movement, but in fact it comes from the heartland of a nation not usually known for its disdain of money-making: Switzerland. On Nov. 24, the Swiss will vote in a referendum on whether to enshrine the 1:12 pay ratio — in their national constitution, no less.

The initiative is backed by an assortment of mainstream political groups, including the Social Democratic Party and the Greens, who argue that CEO pay in Switzerland has gotten out of control and needs to be reined in. They quote a raft of figures to show that the ratio of top to bottom earners in Swiss firms has grown from about 1 to 6 in 1984, to 1 to 43 today. And that’s just the average. In some companies, especially banks, the gap is much wider, with top executives such as Brady Dougan, the American CEO of Credit Suisse, and Andrea Orcel, head of investment banking at UBS, earning hundreds of times as much as their juniors.

Obama on King, but in a passive voice

It was a sermon — of sorts.

President Barack Obama’s address at the Lincoln Memorial on Wednesday only rarely echoed the cadence — the preacher’s rhythm — of the speech he was there to commemorate, and could not match its moral force. But this was a sermon all the same.

It was, to be precise, an exhortation against economic inequality — a fitting message on the 50th anniversary of the March on Washington for Jobs and Freedom, and certainly in keeping with Martin Luther King Jr.’s dream.

But the real measure of yesterday’s speech is not whether it was as powerful as King’s — will any speech ever be? — but whether it was the most effective speech Obama could have given on this stage, at this moment in time.

Trying to raise a family on a fast-food salary

Fast-food workers in more than 50 cities Thursday are striking for fair pay and the right to form a union — the biggest walkout to hit the industry. This latest round of labor unrest comes 50 years after hundreds of thousands of Americans, led by Martin Luther King Jr., joined the March on Washington for Jobs and Freedom, demanding not only civil rights, but also good jobs and economic equality.

One demand of the 1963 marchers was raising the federal minimum wage to $2 an hour. In today’s dollars, that’s roughly $15 an hour — what the striking fast-food workers are now calling for.

For all the progress made since 1963, the reality is that economic inequality persists and continues to grow. Income inequality is greater today in the U.S. than in any other OECD nation, except Chile, Mexico and Turkey, and exceeds that of many developing countries.

The real student loan crisis

A month has passed since Congress allowed interest rates on federal student loans to double for some borrowers, increasing the cost of their college educations by as much as $4,500. While the debate continues to focus on the interest rate for future borrowers, it is ignoring the larger problem with student debt: the more than $1 trillion that had already been borrowed before the interest rate debate. This existing debt will continue to drag down borrowers’ financial security, which in turn drags down the entire economy. By how much? Demos, the public policy group where I work, has just released a study that estimates the economic impact of the existing student debt burden, and finds that it may cost the country more than $4 trillion in lost economic activity.

This economic drag happens because student loan payments take a significant bite out of many borrowers’ incomes, causing them to delay or forego important purchases or investments. A recent study by the American Institute of CPAs found that 75 percent of student debtors had made personal or financial sacrifices because of their student loan payments. Forty-one percent have postponed contributions to retirement plans, 40 percent have delayed car purchases, and 29 percent have put off buying a house. The effects of delaying making these crucial investments early in borrowers’ lives, in turn, are magnified because of the amount that the lost home equity and investment returns would have compounded over their entire working lifetimes.

Our study tries to estimate just how much delaying saving for retirement or purchasing a home will cost borrowers over their lifetimes. We use data from the Federal Reserve’s 2010 Survey of Consumer Finances (SCF) to determine the average salary, retirement savings, and liquid savings of an average, young, dual-headed, college-educated household both with and without education debt. We then project their salary and assets over a lifetime using generally-accepted values for salary growth, savings rates, investment returns, etc. We reduce the savings of the indebted household by their monthly student loan payment while they are repaying their loan, and observe the difference in net worth between the debt-free and indebted households as they approach retirement.

Inequality’s pernicious twin is our growing cultural divide

I enjoyed reading Reuters’ textured survey of the nature of inequality in America, and how government shapes it, shrinking the gaps between us through some of its actions and widening them through others. One comes away from the series with an appreciation for the complex blend of factors — federal policy, technology, unevenness of educational opportunity, the evolution of the market — that has helped propel some of us to where we are today, while failing to lift others.

High and rising inequality is more tolerable, of course, if everyone is getting ahead.  And it is less troubling if mobility up and down the ladder is free and easy — in particular if the children of those at the bottom can readily climb upwards, and if the children of those at the top do not remain there as a birthright.  But neither of these conditions inheres strongly in the United States today.  Over the past decade or more, median incomes have been stagnant. And intergenerational mobility in modern America is actually lower than it is in Europe, notwithstanding America’s reputation as the land of opportunity.

The Reuters series touches briefly on the growing bifurcation of family culture in the United States. Increasingly, college graduates marry each other, pool their relatively high incomes, and, in a variety of ways, push their children ahead. Lower-skilled, lower-income Americans lead less secure lives, and — partly as a result — they marry less and less. In a variety of ways, their children fall behind.

First Gilded Age yielded to Progessives, can today’s?

 

C.K.G. Billings, a Gilded Age plutocrat, rented the grand ballroom of the celebrated restaurant Sherry's for an elaborate dinner on March 28, 1903. He had the floor covered with turf so that he and his 36 guests could sit on their horses, which had been taken up to the fourth-floor ballroom by elevator.

Mark Twain labeled the late 19th century the Gilded Age – its glittering surface masking the rot within. This term applies today for the same reasons: The rich get richer; most everyone else gets poorer. And the public thinks corruption rules.

New technologies similarly transformed the economy in that era and boosted productivity even as life for many Americans grew worse. Bloated tycoons? Desperate workers? A threatened middle class? Poverty amid the sweeping progress? Check, check, check and check.

But the silver lining of our current Gilded Age redux is that we left this stunning income inequality behind once. We can do it again. Americans eventually escaped the Gilded Age because they also made it a period of reform that ushered in the Progressive Era.

What exactly do we mean by ‘inequality’?

What do we mean by “inequality,” and why exactly is it bad for American democracy? Are we discussing inequality of wages within a given firm or industry? Or inequality in household income — i.e., the difference between the poor and the middle class, or between the rich and everyone else? What about political inequality — is it a cause or an effect of economic inequality?

These are not idle questions, and to contemplate even incomplete answers appears, on the basis of these two books, to reveal a kind of knowledge inequality. Unless you’ve got a PhD in economics or political science and what Princeton University political scientist Martin Gilens calls “a virtual army of research assistants,” there’s not much chance that you’re going to reach airtight answers on your own.

Gilens and James K. Galbraith are among the few experts who’ve been working on the subject for more than a decade. Their conclusions reinforce the fears of those of us who’ve suspected that inequality is a blight on American society. Indeed, the damage to democratic values is not in some distant dystopian future: Gilens states plainly that the relationship between the policy desires of the wealthiest 10 percent of the population and actual federal public policy over recent decades “often corresponded more closely to a plutocracy than to a democracy.”

The retail price of America’s income inequality

Retail is considered one of the bright spots in the American economy, one of only six job categories projected to grow nationally through 2018. But a survey released this week makes clear that many of these are jobs in name only, offering poverty-level wages, highly restricted access to benefits, part-time work when full-time is desired, and a workforce so cowed that it routinely accepts working conditions that make work-life balance, or the chance to upgrade skills and move into better-paid work elsewhere, all but impossible.

The survey, conducted by Retail Action Project, a New York City-based workers’ advocacy group, offers frank data from 436 workers in 230 stores across the city’s five boroughs, from the luxury purveyors of Fifth Avenue to discount outlets in the Bronx. With 242,000 retail workers in Manhattan alone, the data – the first ever gathered directly from these workers – offers a telling and sobering look at this important industry.

The report’s highlights:

    The median wage in New York is $9.50 an hour, 52 percent lower than the citywide average for all industries. If associates in one of the nation’s costliest cities can’t even earn a living wage, who can? Black and Latino workers surveyed are more likely to be hired part-time and given worse schedules than their coworkers. Based on average wages and hours worked per week, white workers’ income is 12 percent higher than that of their black colleagues. Just over half of workers surveyed earn less than $10 an hour. But more than three-quarters of female Latino workers – 77 percent – fall beneath that threshold. While 54 percent of white workers received a raise or promotion after six months on the job, only 39 percent of black workers and 28 percent of Latino workers did.

The irony of retail work for many of these employees is that they can’t afford to buy much of what they’re selling. When I worked as an associate for 27 months at The North Face, a $30 hat, even with an employee discount, cost more than an hour of my labor.

Mr. 1 Percent versus Mr. 1 Percent

Listening to a newly populist President Obama or to Mitt Romney, who touts his CEO past at every turn, it is tempting to imagine a 2012 election that unfolds as textbooks imagine, with Republicans speaking for business and Democrats standing up for the little guy. Don’t be fooled. A more accurate reading of the contest features two elite candidates who represent different wings of the 1 Percent – a group increasingly divided over economics and the role of government.

Look closely at Obama’s rhetoric and you see that he’s not channeling Occupy Wall Street as much as a pragmatic tax-and-invest liberalism. Obama speaks for highly educated, affluent Americans who want government to do more, not less, on a number of fronts – like education, infrastructure, scientific research and clean energy. These folks don’t envy Europe; they envy China, which is deploying a muscular statism to compete economically and dominate the future.

Yes, Obama has made some strong statements lately about inequality and raising taxes on rich people. But most of this goes over just fine in Malibu or Manhattan. Many of the rich are ready to pay higher taxes – with polls showing, for instance, that a majority of millionaires support the Buffett Tax. And many agree that inequality has gone too far, seeing the growing wealth divide as a threat to America’s economic dynamism and social cohesion. The things that liberal rich people don’t like – unions, protectionism, and regulation, etc. – Obama doesn’t like much either.

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