Opinion

The Great Debate

The middle class’s missing $1.6 trillion

The United States was the world’s first middle-class nation, which was a big factor in its rapid growth.  Mid-19th-century British travelers marveled at American workers’ “ductility of mind and the readiness…for a new thing” and admired how hard and willingly they labored. Abraham Lincoln attributed it the knowledge that “humblest man [had] an equal chance to get rich with everyone else.”

Most Americans still think of themselves as middle class.  But the marketing experts at the big consumer goods companies are giving their bosses the unsentimental advice that the middle class is an endangered species. Restaurants, appliance makers, grocery chains, hotels are learning that they either have to go completely up-scale, or focus on bargains for the struggling and budget-conscious.

Current income surveys, for statistical reasons, usually segment families by broad categories, which obscure the recent radical shift of income to a thin stratum of the super-rich. Well-to-do people may buy $100 coffee pots, but the lion’s share of the income growth has been going to folks with five houses and staff to make the coffee.

For the last 15 years, an international consortium of economists has been building data bases on the income shares of the richest people in the developed countries, based on pre-tax market income including capital gains and tax-exempt income, and excluding government transfers. The American data reveals the greatest inequality by far, followed by Great Britain.

The stunning income distribution has a remarkable symmetry.  In 2012, the top 10 percent captured half of all reported income. But the top 1 percent got almost half of that — 22.5 percent — while the top 10th of 1 percent (0.1 percent) captured half of that. All three are within a few decimal places of the previous highs — which occurred in 1928, just before the market crash that ushered in the Great Depression.

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.

A ‘Marshall Plan’ for Africa’s employment challenge

To Africa’s many challenges, add one more: unemployment.

Unemployment, independent of any other factor, threatens to derail the economic promise that Africa deserves. It’s a time bomb with no geographical boundaries: Economists expect Africa to create 54 million new jobs by 2020, but 122 million Africans will enter the labor force during that time frame. Adding to this shortfall are tens of millions currently unemployed or underemployed, making the human and economic consequences nearly too large to imagine.

Thus, even with the strong economic growth we have seen over the past decade, job creation in Africa remains much too slow. Africa needs a comprehensive, coordinated approach akin to America’s “Marshall Plan” in Europe after World War Two. That effort focused on building infrastructure, modernizing the business sector, and improving trade. By the end of the four-year program, Europe surpassed its pre-war economic output.

We can, and must, do the same for Africa. Entrepreneurs, politicians, philanthropic foundations, and development organizations — such as the World Bank, International Finance Corporation and USAID — must all work together to solve the unemployment crisis and make Africa an engine of growth. If we are outrun by the employment challenge, Africa will be a drag on global growth and resources for generations to come.

A road paved with sand

Bills have been introduced into both the House and the Senate to dismantle the federal government’s role in interstate highways and leave that massive responsibility to individual states. Tea Party adherents and other conservatives are applauding this effort. The Interstate Highway System, they argue, was largely completed in the 1980s and local communities should provide their own transportation needs.

The new transportation bill proposed by Senator Mike Lee (R-Utah) and Representative Tom Graves (R-Ga.) however, tragically misses the mark when it comes to our national infrastructure needs. Their legislation would abandon the highway trust fund just when our roads and highways are most in need of reconstruction, repair and expansion.

Though many voters are demanding a check on big government, our elected officials need to remember that the Founding Fathers wrote into the Constitution a federal obligation to build and maintain a national infrastructure. Localizing responsibility for the Interstate Highway System is a complete disconnect from how the world’s largest economy works.

Can ‘D+’ in infrastructure lead to ‘A’ in economics?

When the American Society of Civil Engineers gave American infrastructure a D+ “report card” this year, maybe the United States should have been proud of its first improved grade in 15 years. But moving from D to D+ still means we need to take tremendous strides to make our cities “smarter.”

Raising our grade to a C isn’t that far out of reach. In fact, we can probably do even better.

The United States has demonstrated an uncanny ability to compete and innovate at high levels despite its often decrepit infrastructure — some pipes and railroads predate the first radio transmission and airplanes. What the civil engineers’ ranking really shows is that the United States has an enormous opportunity to surpass our global competition — succeed at “A” levels in the global economy — if we can just improve our playing field a little more.

America can help fix the world by fixing itself

Five years into the global financial crisis, the U.S. and global economies remain mired in a weak-growth, low-inflation, high-unemployment environment. Debt busts such as 2008-09 are hard to exit from, and recoveries are long and painful. However, three complicating factors make the current environment even more challenging.

First, economic growth models lie broken across developed and emerging economies alike, with the United States deleveraging from its debt-fueled consumption excesses, the European Union locked in a fiscal and currency straitjacket and China (and emerging economies more broadly) transitioning from export-led to domestic-demand-led growth. Second, globalization is in retreat as financial institutions retrench. And third, debt levels remain highly elevated in the developed economies, leading policymakers to rely almost exclusively on monetary policy to buffer the necessary deleveraging process.

The current policy mix of easy money and tight fiscal conditions, however, produces the worst of both worlds: stagnant global growth and increased risk of financial asset bubbles alongside rising prospects for beggar-thy-neighbor tendencies (already somewhat evident in global currency markets).

Rebuilding our economic backbone

We’re getting beat by Estonia.

Not that there’s anything wrong with the tiny state on the Baltic Sea. But the nation that built the Hoover Dam, pioneered the Interstate Highway System and created the best aviation system in the world, is rapidly sliding toward the bottom of the list when it comes to infrastructure.

Infrastructure is the economic backbone of any modern society. Without a reliable, functioning system, things we take for granted would fall apart: roads and bridges, schools, public and private transportation, the energy grid that powers our lives, the water we drink. But today the United States no longer leads the world in infrastructure competitiveness. Countries like the Netherlands, South Korea and Singapore now rank in the top 10, according to the World Economic Forum, while the United States, once No. 1, has fallen to 14.

If this does not concern you, it should.

Building America’s Future, a national and bipartisan coalition of state and local elected officials that I co-chair with New York Mayor Michael Bloomberg and former California Governor Arnold Schwarzenegger, recently updated Falling Apart and Falling Behind, a comprehensive report on the state of America’s infrastructure.

Rebuilding post-Sandy: Whole greater than parts

President Barack Obama asked Congress for more than $60 billion to help repair and rebuild infrastructure damaged by Hurricane Sandy in the Northeast. The House of Representatives finally voted Friday on a small down payment, roughly 10 percent.

As in the past, engineering experts will likely seek to build in added protections for the specific pieces of the infrastructure that failed in the storm – for example, flooded subway lines or power substations. What they don’t usually address, however, is how to protect networks as a whole.

Ignoring how everything works together is short-sighted. No matter how much money is spent, one part of the system can always go down again. As Sandy demonstrated, a failure at any point can have a cascading effect.

from Africa News blog:

100 years and going strong; But has the ANC-led government done enough for its people?

By Isaac Esipisu

Although the role of political parties in Africa has changed dramatically since the sweeping reintroduction of multi-party politics in the early 1990s, Africa’s political parties remain deficient in many ways, particularly their organizational capacity, programmatic profiles and inner-party democracy.

The third wave of democratization that hit the shores of Africa 20 years ago has undoubtedly produced mixed results as regards to the democratic quality of the over 48 countries south of the Sahara. However, one finding can hardly be denied: the role of political parties has evidently changed dramatically.

Notwithstanding few exceptions such as Eritrea , Swaziland and Somalia , in almost all sub-Saharan countries, governments legally allow multi-party politics. This is in stark contrast to the single-party regimes and military oligarchies that prevailed before 1990.

from Africa News blog:

Selling Africa by the pound

The announcement by a U.S. investor that he has a deal to lease a swathe of South Sudan for farmland has again focused attention on foreigners trying to snap up African agricultural land.

A few months ago, South Korea’s Daweoo Logistics said it had secured rights to plant corn and palm oil in an even bigger patch of Madagascar - although local authorities said the deal was not done yet. Investors from Asia and the Gulf are looking elsewhere in Africa too.

Investor interest in farmland – not only in Africa – grew sharply after food prices shot to record highs last year. Although commodity prices have fallen since, there is still anticipation of long term demand growth once the world emerges from its current economic troubles.

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