Monday Reads

Good Morning!

This morning I thought I’d focus on income inequality, upward mobility, and our whining one percenters who just can’t get enough, in preparation for the State of the Union address tomorrow. I’m not sure if you saw this one about a poor persecuted Silicon Valley billionaire who feels that America treats the rich like the NAZIs treated Jewish people, but I think you should.

A billionaire Silicon Valley venture capitalist has been condemned for “ghastly and disgraceful” comments after he compared criticism of America’s rich to the persecution of Jews in Nazi Germany in the 1930s.

Tom Perkins, 66, wrote a letter to the Wall Street Journal, which was published, in which he likened the Occupy movement to Kristallnacht, the infamous pogrom of Nov 9-10, 1938.

In his letter titled “Progressive Kristallnacht Coming?” Mr Perkins said: “Writing from the epicentre of progressive thought, San Francisco, I would call attention to the parallels of fascist Nazi Germany to its war on its ‘one per cent’, namely its Jews, to the progressive war on the American one per cent, namely the rich.

“From the Occupy movement to the demonisation of the rich embedded in virtually every word of our local newspaper, the San Francisco Chronicle, I perceive a rising tide of hatred of the successful one per cent.”

Mr Perkins cited the antipathy in San Francisco towards luxury “Google buses” that carry technology workers to their well paid jobs, and growing anger over rising house prices caused by wealthy buyers employed by internet companies.

“This is a very dangerous drift in our American thinking,” he wrote.

“Kristallnacht was unthinkable in 1930; is its descendent ‘progressive’ radicalism unthinkable now?”

During Kristallnacht, translated as the Night of Broken Glass, Jewish shops were smashed, hundreds of synagogues were destroyed, 91 Jews were murdered and 30,000 arrested, with most of them sent to concentration camps.

If that doesn’t leave you speechless, nothing will.

Robert Reich is among the policy wonks who wonders what’s happened to this country,  Most of us can’t figure out why more people aren’t taking to the streets to demand things change.

People ask me all the time why we don’t have a revolution in America, or at least a major wave of reform similar to that of the Progressive Era or the New Deal or the Great Society.

Middle incomes are sinking, the ranks of the poor are swelling, almost all the economic gains are going to the top, and big money is corrupting our democracy. So why isn’t there more of a ruckus?

The answer is complex, but three reasons stand out.

First, the working class is paralyzed with fear it will lose the jobs and wages it already has.

In earlier decades, the working class fomented reform. The labor movement led the charge for a minimum wage, 40-hour workweek, unemployment insurance, and Social Security.

No longer. Working people don’t dare. The share of working-age Americans holding jobs is now lower than at any time in the last three decades and 76 percent of them are living paycheck to paycheck.

No one has any job security. The last thing they want to do is make a fuss and risk losing the little they have.

Besides, their major means of organizing and protecting themselves — labor unions — have been decimated. Four decades ago more than a third of private-sector workers were unionized. Now, fewer than 7 percent belong to a union.

Second, students don’t dare rock the boat.

In prior decades students were a major force for social change. They played an active role in the Civil Rights movement, the Free Speech movement, and against the Vietnam War.

But today’s students don’t want to make a ruckus. They’re laden with debt. Since 1999, student debt has increased more than 500 percent, yet the average starting salary for graduates has dropped 10 percent, adjusted for inflation. Student debts can’t be cancelled in bankruptcy. A default brings penalties and ruins a credit rating.

To make matters worse, the job market for new graduates remains lousy. Which is why record numbers are still living at home.

Reformers and revolutionaries don’t look forward to living with mom and dad or worrying about credit ratings and job recommendations.

Third and finally, the American public has become so cynical about government that many no longer think reform is possible.

When asked if they believe government will do the right thing most of the time, fewer than 20 percent of Americans agree. Fifty years ago, when that question was first asked on standard surveys, more than 75 percent agreed.

One of the most outrageous lies told by the wealthy is how they pay all the taxes.  This is only true of Federal Income taxes that are designed to be progressive.  Most state and local taxes are not progressive and they impact poor, working class, and middle income people. The very wealthy also have a huge amount of their income exempt from social security withholding.

The federal personal income tax only made up 28% of all U.S. government tax collections in 2012. Federal, state and local governments collected $4 trillion in taxes last year; just $1.1 trillion of that was federal personal income tax.

And people with low incomes who don’t pay federal personal income tax do pay lots of those other taxes: payroll tax, state income tax, sales tax, property tax, excise taxes, and more. They pay other taxes indirectly: Workers bear the burden of employer-paid payroll taxes and part of the burden of corporate income taxes.

Here’s a chart I made earlier this year showing the distribution of the tax burden when you add all the taxes together. Earners in the top 1% pay about 43% of their incomes in tax. People in the middle quintile pay 25%. The poorest fifth pays 13%.

Business Insider, data from Tax Policy Center and Institute on Taxation and Economic Policy

Rich people do pay a lot more taxes than poor people, both in absolute terms and as a percentage of income. But the rich are not paying all the taxes. And looking just at the federal personal income tax and trying to draw conclusions about who pays “taxes” will lead you to wrong answers.

You’ll notice that a lot of this discussion comes from economists or business journalists.  Here’s an article from HBR that says that “We Can’t Afford to Leave Inequality to the Economists”.

But the aforementioned Emanuel Saez, together with Thomas Piketty of the Paris School of Economics, has for the past decade-plus been using income tax records to compile a rich account of what’s been going on up there in the top 1%.  You’re probably familiar with the basic outlines, but it’s worth throwing out a few numbers from their most recent update:

• From 1993 to 2013, incomes of the bottom 99% of taxpayers in the U.S. grew 6.6%, adjusted for inflation. The incomes of the top 1% grew 86.1%.
• The top 0.1% of U.S. taxpayers claimed 11.33% of overall income in 2012, up from 2.65% in 1978. The top 0.01% got 5.47%, up from 0.86% in 1978.
• The average income of the top 0.01% was 859 times that of the bottom 90% in 2012. In 1973 the top-0.01%-to-bottom-90% ratio was just under 80.

Something really dramatic is going on up there in the top 5%, the top 1%, the top 0.01%. But while economists know some things about the impact of increasing overall income inequality, they still don’t know all that much about what this 1% stuff means. In their new paper, Chetty, Hendren, Kline, Saez, and Turner write that their finding of steady intergenerational income mobility “may be surprising in light of the well-known negative correlation between inequality and mobility across countries.” A possible explanation, they continue, is that

[M]uch of the increase in inequality has been driven by the extreme upper tail … [and] there is little or no correlation between mobility and extreme upper tail inequality — as measured e.g. by top 1% income shares — both across countries and across areas within the U.S. Instead, the correlation between inequality and mobility is driven primarily by “middle class” inequality.

That’s the thing about this rise in “extreme upper tail inequality” — most pronounced in the U.S. but by now a clearly global phenomenon. It is one of the most dramatic economic developments of the past quarter century. And it seems like it might be bad thing. But conclusive economic evidence for its badness is hard to find.

Yes, there are theories: All that wealth sloshing around in the top 1% leads to more bubbles and crashes. Extreme wealth corrupts the political process.  Income inequality may be slowing overall economic growth. And, as my colleague Walter Frick put it in an email when I brought this up, “given the diminishing marginal utility of income, it’s hugely wasteful for the super rich to have so much income.”

I happen to believe there’s some truth to all four of those. But there are also lots of counterarguments and some counterevidence, and big economic studies like the new one by Chetty & Co. don’t seem to be doing much to resolve the debate.

Which leads me to another theory: I think we’re eventually going to have to figure out what if anything to do about exploding high-end incomes without clear guidance from the economists.

It will be interesting to see how the President approaches these problems in the SOTU address. 

Obama has called inequality in America the “defining issue of our time.” And although you may hear the words “opportunity” and “mobility” more than “inequality” in his speech, the intent is the same.

“The address will include a ‘healthy dose’ of the income inequality message the White House has focused on in recent weeks, according to one senior administration official familiar with the text,” The Hill newspaper reports.

“The president, who has yet to add to the big legislative accomplishments of his first term, will call for raising the minimum wage to $10 per hour and extending federal unemployment benefits that expired last month,” according to this report. “He will also discuss energy and college affordability, two other issues that relate to the economic mobility message that is a major White House theme ahead of this year’s midterm elections.”

Of course, it’s easy to talk about these things.  It’s not so easy to get any thing through the Congress these days. Let’s take this idiot at Forbes for example who argues that Wealth Inequality is a sure sign of the success of an economy and country.  You have to read this to believe it. This ass is a gold bug so be assured, this is insane.

When income and wealth inequality are growing, unease in our lives is shrinking. Republicans, as the alleged Party of entrepreneurial capitalism, should understand this well, and stop acting as though success is something to politicize. Wealth inequality is one of the surest signs of economic advancement. It’s time for today’s Republicans to act like adults, and embrace the very inequality that has improved the lives of so many.

Oxfam released a study that shows the problem is really worldwide.

Oxfam calculated that almost half the world’s wealth  – $110trn – is owned by just 1 per cent of its population. It said that 70 per cent of people live in countries where the gap between the rich and poor has widened in the last 30 years.

“This massive concentration of economic resources in the hands of fewer people presents a significant threat to inclusive political and economic systems,” the charity said. “People are increasingly separated by economic and political power, inevitably heightening social tensions and increasing the risk of societal breakdown.”

Winnie Byanyima, Oxfam’s executive director, who will attend Davos, described the gulf between sectors of society as staggering. “We cannot hope to win the fight against poverty without tackling inequality. Widening inequality is creating a vicious circle where wealth and power are increasingly concentrated in the hands of a few, leaving the rest of us to fight over crumbs from the top table,” she said.

Oxfam is calling on the business chiefs gathering at Davos to promise to support progressive taxation and not dodge their own taxes, refrain from using their wealth to seek political favours and demand that companies they own or control pay a living wage. In a report last week the forum warned  that income disparity leading to social unrest could have a significant impact on the world economy over the next 12 months.

There was a “lost” generation of young people coming of age who lacked jobs and the skills for work, the report said. This could easily boil over into protests over inequality and corruption. Jennifer Blanke, the forum’s chief economist, said: “Disgruntlement can lead to the dissolution of the fabric of society, especially if young people feel they don’t have a future. This is something that affects everybody.”

The President is planning to take his policy requests from the SOTU to the American people.  I wonder how that will work out.

President Barack Obama will travel to Prince George’s County Maryland; Pittsburgh; Milwaukee; and Nashville in the next week to talk about proposals outlined in Tuesday’s State of the Union address.

In an email to supporters Saturday, senior adviser Dan Pfeiffer said Obama will lay out “a set of real, concrete, practical proposals to grow the economy, strengthen the middle class, and empower all who hope to join it.”

Obama opens his sixth year with some of the worst job approval ratings since he took office and with a bitterly divided Congress already turning much of its focus to the November election.

The White House will use the high-profile speech to try anew for momentum for the president’s agenda – and perhaps his legacy – as he declares 2014 a “year of action” with or without congressional support.

Tens of millions are expected to watch the 9 p.m. EST address, which Obama will deliver from the U.S. Capitol.

Obama is expected to make the widening income gap between rich and poor a centerpiece of his speech, calling on lawmakers to restore jobless benefits for 1.3 million long-term unemployed Americans, expand preschool initiatives and boost the federal minimum wage.

After he returns to Washington, he will outline new efforts to help the long-term unemployed, the White House says.

“The core idea is as American as they come: If you work hard and play by the rules, you should have the opportunity to succeed,'” Pfeiffer wrote. “Your ability to get ahead should be based on your hard work and ambition and who you want to be, not just the raw circumstance of who you are when you’re born.”

What’s on your reading and blogging list today?