Wednesday, March 9, 2016
Gateway to
Sources and Information About Income Inequality in the United States
Millions
of Americans are working longer hours for lower wages, and yet almost all of
the new income and wealth being created is going to the top one percent. While
the top one percent have seen their incomes rise 18 percent over the past
decade, those in the middle have actually seen their incomes fall.
25 HEDGE FUND MANAGERS GET MORE THAN ALL THE KINDERGARTEN
TEACHERS IN US
“When we talk about the one percent, we’re
talking about two groups of people above all: corporate executives and what
are called ‘financial professionals’ (these include people who work
for banks and the like, but also money managers, financial
advisers, and so on). These are the people that [Thomas] Piketty terms ‘supermanagers,’ and he
estimates that together they account for over half of the people in the one
percent.
“The emblematic figures
here are corporate CEOs, whose
pay rose 876 percent between 1978 and 2012, and hedge fund
managers, some of whom now routinely earn billions of dollars a year. As one
famous statistic has it, last year the top twenty-five hedge fund managers
together earned more than all the kindergarten teachers in America did.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
NOBEL PRIZE WINNER JOSEPH
STIGLITZ
‘[Joseph] Stiglitz’s emergence as a prominent critic of
the current economic order was no surprise. His original Ph.D. thesis was on inequality. And his entire career
in academia has been devoted to showing how markets cannot always be counted on
to produce ideal results. In a series of enormously important papers, for which
he would eventually win the Nobel Prize, Stiglitz showed how imperfections and
asymmetries of information regularly lead markets to results that do not
maximize welfare. He also argued that this meant, at least in theory, that
well-placed government interventions could help correct these market failures. Stiglitz’s work in this field
has continued: he has just written (with Bruce Greenwald) Creating a Learning
Society, a dense academic work on how government policy can help drive
innovation in the age of the knowledge economy.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
RICH HAVE OUTSIZED SHARE
OF THE REWARDS
“All this rent-seeking, [Joseph] Stiglitz argues,
leaves certain industries, like finance and pharmaceuticals, and
certain companies within those industries, with an outsized
share of the rewards. And within those companies, the rewards tend to be
concentrated as well, thanks to what Stiglitz calls ‘abuses of
corporate governance that lead CEOs to take a disproportionate
share of corporate profits’ (another form of rent-seeking). In Stiglitz’s
view of the economy, then, the people at the top are making so much because
they’re in effect collecting a huge stack of rents.
“This isn’t just bad in
some abstract sense, Stiglitz suggests. It also hurts society and the
economy. It erodes America’s ‘sense of identity, in which
fair play, equality of opportunity, and a
sense of community are so important.’ It alienates people from the
system. And it makes the rich, who are obviously politically influential, less
likely to support government investment in public goods (like education and infrastructure) because
those goods have little impact on their lives. (The one percent are, in
fact, more likely than the general public to support cutting
spending on things like schools and highways.)
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
MUTUAL
FUNDS HAVE $16 TRILLION
“. . .
what’s really going on? Something much simpler: asset
managers are just managing much more money than they used
to, because there’s much more capital in the markets than there once was. As
recently as 1990, hedge funds managed a total of $38.9 billion. Today,
it’s closer to $3 trillion. Mutual funds in the US
had $1.6 trillion in assets in 1992. Today, it’s
more than $16 trillion. And that means that an asset manager today can
get paid far better than an asset manager was twenty years ago, even
without doing a better job.
“This doesn’t mean that
asset managers or corporate executives ‘deserve’ what they earn. In fact,
there’s no convincing evidence that CEOs
are any better, in relative terms, than they once were, and plenty of
evidence that they are paid more than they need to be, in view
of their performance. Similarly, asset managers haven’t gotten better at
beating the market. The point, though, is that attributing the rise in their
pay to corruption, or bad rules, doesn’t get us that far. More important,
probably, has been the rise of ideological assumptions about the
indispensability of CEOs, and
changes in social norms that made it seem like executives should take whatever
they could get. ([Joseph] Stiglitz alludes to these in The Price of Inequality, writing,
‘Norms of what was “fair” changed, too.”) Discussions of shifts in norms often
become what the economist Robert Solow once called a ‘blaze of
amateur sociology.’ But that doesn’t mean we can afford to ignore those shifts,
either, since the rise of the one percent has been propelled by
ideological changes as much as by economic or regulatory ones.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
RICH TODAY ARE SO MUCH RICHER
‘[.
. . in The Great Divide, [Joseph] Stiglitz is mostly interested
in one dimension of inequality: the gap between the people at the very top and
everyone else. And his analysis of that gap concentrates on the question of why incomes at the top
have risen so sharply, rather than why the incomes of everyone else have
stagnated. While Stiglitz obviously recognizes the importance of the decline in union power, the impact of
globalization on American workers, and the shrinking value of the minimum wage,
his preoccupation here is primarily with why the rich today are so much richer than they used to be.
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
PICTURE
OF ECONOMIC INEQUALITY
[Quoting
economist Joseph
Stiglitz
in The Great Divide:
“There
are so many different parts to America’s inequality: the extremes of income and wealth at the top, the hollowing out of the
middle,
the increase
of poverty at the bottom. Each has its own causes, and needs its own remedies.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
REDUCED COMPETITION
“[economic] Rents are nothing new — if you go
back to the 1950s, many big American corporations faced little competition and enjoyed what
amounted to oligopolies. But there’s a good
case to be made that the sheer amount of rent-seeking in the US economy has expanded over the years. The number of patents is
vastly greater than it once was. Copyright terms have gotten longer. Occupational licensing
rules
(which protect professionals from competition) are far more common. Tepid antitrust
enforcement has led to reduced competition in many industries. Most importantly, the financial industry is now a much bigger part of the US economy
than it was in the 1970s, and for [Joseph] Stiglitz, finance profits are, in large part, the result of what
he calls ‘predatory
rent-seeking
activities,’ including the exploitation of uninformed borrowers and investors, the
gaming of regulatory schemes, and the taking of risks for which financial
institutions don’t bear the full cost (because the government will bail them out if things go wrong).”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
MAKING CONSUMERS WORSE OFF
“[. . .
economic] rents make the economy less efficient, because they move it
away from the ideal of perfect competition, and they make consumers worse off. So from the
perspective of the economy as a whole, rent-seeking is a waste of time and
energy. As [Joseph] Stiglitz puts it, the economy
suffers when
“ ‘more efforts go into “rent seeking” — getting a larger slice of the country’s economic pie—than into enlarging the size of the pie.’ ”
“ ‘more efforts go into “rent seeking” — getting a larger slice of the country’s economic pie—than into enlarging the size of the pie.’ ”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
WEALTHY’S SHARE HAS DOUBLED
“The
fundamental truth about American economic growth today is that while the work
is done by many, the real rewards largely go to the few. The numbers are, at
this point, woefully familiar: the top one percent of earners take home more than 20
percent of the income, and their share has more than doubled in the last
thirty-five years. The gains for people in the top 0.1 percent, meanwhile, have been
even greater. Yet over that same period, average wages and household incomes in
the US have risen only slightly, and a number of demographic groups (like men
with only a high school education) have actually seen their average wages decline.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36..
CEOS’ PAY
RISING ‘BRISKLY’
“The idea that high CEO pay is
ultimately due to poor corporate governance is a commonplace, and certainly
there are many companies where the relationship between the CEO and
the board of directors (which in theory is supposed to be supervising him) is
too cozy. Yet as an explanation for why CEOs
get paid so much more today than they once did, [Joseph] Stiglitz’s
argument is unsatisfying. After all, back in the 1960s and 1970s, when CEOs were paid much less, corporate
governance was, by any measure, considerably worse than it is today, not
better. As one recent study put it:
“ ‘Corporate boards were predominately made up
of insiders…or friends of the CEO
from the “old boys’ network.” These directors had a largely
advisory role, and would rarely overturn or even mount major challenges to CEO decisions.’
“Shareholders, meanwhile,
had fewer rights and were less active. Since then, we’ve seen a host of reforms
that have given shareholders more power and made boards more diverse and
independent. If CEO compensation were
primarily the result of bad corporate governance, these changes should have had
at least some effect. They haven’t. In fact, CEO pay has continued to rise at a brisk
rate.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
‘TOO HARMFUL TO BE IGNORED’
“Income inequality has become such an
undeniable problem, in fact, that even Republican politicians have taken to decrying its
effects. It’s not surprising that a Democrat like Barack Obama would call dealing with inequality “the
defining
challenge of our time.” But when Jeb Bush’s first big policy speech of 2015 spoke of the
frustration that Americans feel at seeing “only a small portion of the
population riding the economy’s up escalator,” it was a sign that inequality had simply become too
obvious, and too harmful, to be ignored.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
INEQUALITY
DOES NOT HELP ECONOMIES GROW FASTER
“
. . . conservative economists once insisted [that] inequality is good for
economic growth. In fact, it’s clear that US-style inequality does not help
economies grow faster, and that moving toward more equality will not do any
damage. We just can’t yet say for certain that it will give the economy a big
boost.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
REDUCED COMPETITION
“[economic] Rents are nothing new — if you go
back to the 1950s, many big American corporations faced little competition and enjoyed what
amounted to oligopolies. But there’s a good
case to be made that the sheer amount of rent-seeking in the US economy has expanded over the years. The number of patents is
vastly greater than it once was. Copyright terms have gotten longer. Occupational licensing
rules
(which protect professionals from competition) are far more common. Tepid antitrust
enforcement has led to reduced competition in many industries. Most importantly, the financial industry is now a much bigger part of the US economy
than it was in the 1970s, and for [Joseph] Stiglitz, finance profits are, in large part, the result of what
he calls ‘predatory
rent-seeking
activities,’ including the exploitation of uninformed borrowers and investors, the
gaming of regulatory schemes, and the taking of risks for which financial
institutions don’t bear the full cost (because the government will bail them out if things go wrong).”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
INEQUALITY
DAMAGES ECONOMIC GROWTH
“More interestingly (and more contentiously), [Joseph] Stiglitz argues that inequality does serious damage to economic
growth:
the more unequal a country becomes, the
slower it’s likely to grow. He argues that inequality hurts demand, because rich people
consume less of their incomes. It leads to excessive debt, because people feel
the need to borrow to make up for their stagnant incomes and keep up with the
Joneses. And it promotes financial instability, as central banks try to make up for stagnant
incomes by inflating bubbles, which eventually burst. (Consider, for instance,
the toleration, and even promotion, of the housing bubble by Alan Greenspan when he was chairman
of the Fed.) So an unequal economy is less robust, productive, and stable than it otherwise would
be. More equality, then, can actually
lead to more efficiency, not less. As Stiglitz writes, “Looking out for the
other guy isn’t just good for the soul—it’s good for business.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
ECONOMICS AND EQUITY
“Historically, inequality was not something that
academic economists, at least in the dominant neoclassical tradition, worried
much about. Economics was about production and allocation, and the efficient
use of scarce resources. It was about increasing the size of the pie, not
figuring out how it should be divided. Indeed, for many economists, discussions
of equity were seen as perilous,
because there was assumed to be a necessary “tradeoff” between efficiency and equity: tinkering with the
way the market divided the pie would end up making the pie smaller. As the University of Chicago economist Robert Lucas put it, in an
oft-cited quote: “Of the tendencies that are harmful to sound economics, the
most seductive, and…the most poisonous, is to focus on questions of
distribution.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36..
RICH PAID MUCH MORE FOR THEIR WORK
“[.
. . .the rise
of high-end incomes in the US is still largely about labor income rather than capital
income. [Thomas] Piketty’s book is, as the
title suggests, largely about capital: about the way the concentration of wealth
tends to reproduce itself, leading to greater and greater inequality. And this is an increasing problem in the
US,
particularly at the highest reaches of the income spectrum. But the main reason
people at
the top are so much richer these days than they once were (and so much richer than
everyone else) is not that they own so much more capital: it’s that they get paid much more for their
work
than they once did, while everyone else gets paid about the same, or less. Corporate CEOs, for instance, are paid far more today than they were in the
1970s, while assembly line workers aren’t. And while incomes at the top have
risen in countries around the world, nowhere have [incomes at the top] risen faster
than in the US.
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
NOT A REWARD FOR DOING BETTER WORK
“One oft-heard
justification of this phenomenon [income inequality] is that the rich get paid
so much more because they are creating so much more value than they once did.
Globalization and technology have increased the size of the markets that
successful companies and individuals (like pop singers or athletes) can reach,
so that being a superstar is more valuable than ever. And as companies have gotten
bigger, the potential value that CEOs can add
has increased as well, driving their pay higher.
“[Joseph] Stiglitz will have
none of this. He sees the boom in the incomes of the one percent as
largely the result of what economists call ‘rent-seeking.’ Most of us think of
rent as the payment a landlord gets in exchange for the use of his property.
But economists use the word in a broader sense: it’s any excess
payment a company or an individual receives because something is keeping
competitive forces from driving returns down. So the extra profit a monopolist earns
because he faces no competition is a rent. The extra profits that big banks earn
because they have the implicit backing of the government, which
will bail them out if things go wrong, are a rent. And the extra profits that
pharmaceutical companies make because their products are protected by
patents are rents as well.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
MONEY MANAGERS
“While money managers do reap the benefits of opaque and
overpriced fees for their advice and management of portfolios, particularly
when dealing with ordinary investors (who sometimes don’t understand what
they’re paying for), it’s hard to make the case that this is why they’re so much richer than they
used to be. In the first place, opaque as they are, fees are actually easier to
understand than they once were, and money managers face considerably more competition than
before, particularly from low-cost index funds. And when it comes to hedge fund managers, their fee structure
hasn’t changed much over the years, and their clients are typically reasonably
sophisticated investors. It seems improbable that hedge fund managers have somehow gotten
better at fooling their clients with ‘uncompetitive and often undisclosed
fees.’”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
‘OUR
POLICIES AND POLITICS SHAPE INCOME INEQUALITY’
“In the years since the financial crisis, [Columbia University economist Joseph] Stiglitz has been among the
loudest and most influential public intellectuals decrying the costs of inequality, and making the case
for how we can use government policy to deal with it. In his 2012 book, The Price of Inequality, and in a series of
articles and Op-Eds for Project Syndicate, Vanity Fair, and The New York Times, which have now been
collected in The Great Divide, Stiglitz has made the case that
the rise in inequality in the US, far from
being the natural outcome of market forces, has been profoundly shaped by “our
policies and our politics,” with disastrous effects on society and the economy
as a whole. In a recent report for the Roosevelt Institute called Rewriting the Rules, Stiglitz has laid out a
detailed list of reforms that he argues will make it possible to create “an
economy that works for everyone.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
ONE PERCENT MANIPULATES MARKETS AND THE POLITICAL PROCESS
“As a collection of columns, The Great Divide is somewhat fragmented and repetitive, but it has a clear
thesis, namely that inequality in the US is not an unfortunate by-product of
a well-functioning economy. Instead, the enormous riches at the top of the income ladder are largely the result
of the ability of the one percent to manipulate markets and the political process to their own benefit.
(Thus, the title of his best-known Vanity Fair piece: ‘Of the 1 percent, by the 1 percent, for the 1 percent.’) Soaring inequality is a sign that American capitalism itself has gone woefully wrong. Indeed, Stiglitz
argues, what we’re stuck with isn’t really capitalism at all, but rather an
“ersatz” version of the system.”
James Surowiecki, “Why the Rich Are So Much Richer,” in the New
York Review, September 24, 2015, pp: 32-36.
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