I mean, shit, if anyone has been paying attention to the markets lately, it's like a mechanical bull ride, just volatile as all get out. And why? Because a possible civil war in Libya may disrupt oil shipments to the few, small European countries it ships to? Not trying to diminish at all something deadly serious. But can you imagine how buck wild things would get if something more major went down? If anything, these last few years in the markets have shown us how truly vital it is to have something detached from the ebbs and flows of an increasingly complex global marketplace.
You mean something major like if we stopped creating billions of dollars out of thin air in order to buy our own Treasuries from ourselves in order to prop up a stock market that in absolutely no way resembles underlying economic conditions?
I heard an interesting study about an economist that predicted that if the government didn't extend unemployment benefits again, then unemployment would drop by 2-3%. People would be a bit more more motivated to take any job opportunities they might have (which would suck for many, I'm sure). I'm not saying that they shouldn't have extended unemployment, I just found the study interesting.
Dude.
You "heard" a study? About some anonymous "economist"?
I had a dream once about a cat that could shit gold. I found the dream interesting but I never found the cat.
You sound very angry.
Yes I "heard" something. I learn things by "hearing" and "reading." I didn't have time to dig up the source last night. However, I just tracked it down for you. The "economist" is Robert Barrow. Not sure I spelled the last name right as I "heard" about it on a podcast, but he's from Harvard so you should be able to track it down if interested. The speaker (not the professor) said that the study found that unemployment would drop from the high 9s to the high 6s.
No, I'm not angry. The line about the cat is meant to be funny. Pointed, but funny.
The economist is Robert Barro, and I looked him and his theory up. Calling it a "study" is kind of generous.
I mean, shit, if anyone has been paying attention to the markets lately, it's like a mechanical bull ride, just volatile as all get out. And why? Because a possible civil war in Libya may disrupt oil shipments to the few, small European countries it ships to? Not trying to diminish at all something deadly serious. But can you imagine how buck wild things would get if something more major went down? If anything, these last few years in the markets have shown us how truly vital it is to have something detached from the ebbs and flows of an increasingly complex global marketplace.
You mean something major like if we stopped creating billions of dollars out of thin air in order to buy our own Treasuries from ourselves in order to prop up a stock market that in absolutely no way resembles underlying economic conditions?
I don't, man. Reading some of your posts, I am not sure where you're coming from -- maybe a free-market approach while you're hanging in your underground bunker? I was in favor of putting money in the pockets of these banks... and then laying down a mighty bitch slap that they'd never forget. They got the money; I am not so sure the bitch slap is forthcoming. If you are going to suggest returning to the gold standard, I'll kindly head toward the exit.
I mean, shit, if anyone has been paying attention to the markets lately, it's like a mechanical bull ride, just volatile as all get out. And why? Because a possible civil war in Libya may disrupt oil shipments to the few, small European countries it ships to? Not trying to diminish at all something deadly serious. But can you imagine how buck wild things would get if something more major went down? If anything, these last few years in the markets have shown us how truly vital it is to have something detached from the ebbs and flows of an increasingly complex global marketplace.
You mean something major like if we stopped creating billions of dollars out of thin air in order to buy our own Treasuries from ourselves in order to prop up a stock market that in absolutely no way resembles underlying economic conditions?
I don't, man. Reading some of your posts, I am not sure where you're coming from -- maybe a free-market approach while you're hanging in your underground bunker? I was in favor of putting money in the pockets of these banks... and then laying down a mighty bitch slap that they'd never forget. They got the money; I am not so sure the bitch slap is forthcoming. If you are going to suggest returning to the gold standard, I'll kindly head toward the exit.
i don't recall mentioning anything about a gold standard but since you bring it up, I see absolutely no problem with something that will prevent taxpayers, future and present, from being saddled with a ridiculous amount of debt created out of thin air. I would share your viewpoint on bank bailouts if they actually did anything besides kick the can further down the road and transfer private debt to the public AND if something was done to address underlying issues that caused all this to begin with. And lol at expecting people to go to jail.
No, corporations will do that. They are looking out for our best interests.
Not corporations, but markets. Yes, I think that markets are more efficient at allocating resources than governments. There are also organizations called "charities" too. Thanks for blowing it out to extremes though.
Are you suggesting that charities, rather than governments, should take responsibility for providing a social safety net?
Also, the idea that markets are the best method of allocating resources is demonstrably idiotic. The "market" is constantly being propped up, bailed out or subsidised by governments and has been for many, many years. And yet the staunch defenders of "markets" are the first to decry hand-outs to the poor or sick. Disgusting.
No, I don't think that charities should replace governments. I said above that the government should continue to provide a social safety net.
I'm not saying that markets shouldn't be left unregulated. I found the quote above about corporations looking out for our best interests too simplistic. It reminds me of the South Park where the guys is complaining about the corporations being so "corporationy."
My comments are being blown out of proportion.
If I get you right. You support a social safety net. It just should not be paid for. Or at any rate, the rich shouldn't have to pay for it because that is redistribution of wealth.
The good news is, that is the system we have now. Yeah! Everyone wins.
And you believe in the power of markets. But they should be regulated. Just not vilified. Because that would be too southparkery. Tough. You lose.
I mean, shit, if anyone has been paying attention to the markets lately, it's like a mechanical bull ride, just volatile as all get out. And why? Because a possible civil war in Libya may disrupt oil shipments to the few, small European countries it ships to? Not trying to diminish at all something deadly serious. But can you imagine how buck wild things would get if something more major went down? If anything, these last few years in the markets have shown us how truly vital it is to have something detached from the ebbs and flows of an increasingly complex global marketplace.
You mean something major like if we stopped creating billions of dollars out of thin air in order to buy our own Treasuries from ourselves in order to prop up a stock market that in absolutely no way resembles underlying economic conditions?
I don't, man. Reading some of your posts, I am not sure where you're coming from -- maybe a free-market approach while you're hanging in your underground bunker? I was in favor of putting money in the pockets of these banks... and then laying down a mighty bitch slap that they'd never forget. They got the money; I am not so sure the bitch slap is forthcoming. If you are going to suggest returning to the gold standard, I'll kindly head toward the exit.
i don't recall mentioning anything about a gold standard but since you bring it up, I see absolutely no problem with something that will prevent taxpayers, future and present, from being saddled with a ridiculous amount of debt created out of thin air. I would share your viewpoint on bank bailouts if they actually did anything besides kick the can further down the road and transfer private debt to the public AND if something was done to address underlying issues that caused all this to begin with. And lol at expecting people to go to jail.
It's called "fiat", I think.
Seems to work well.
Makes as much sense to me as gold standard.
The way I understand gold standard:
The market decides what gold is worth.
The valuation of gold is irrational, based on a perceived worth.
The quantity of gold always increases.
The government has a quantity of gold.
It prints pieces of paper that are worth a fraction of their gold.
What you can buy with the paper is based on what the markets say gold is worth that day.
Used to work. The problem today is the value of all the goods in the world is greater than the value of the gold in the world.
Anyway, that is how I understand it. Both systems are based on faith and an intellectual agreement that something worthless (money) is worth what ever goods or services you want to buy.
LaserWolf, I don't want to be an ass but you're kinda misunderstanding how a gold standard works or at least have a very simplified view on how the "market decides what gold is worth." I don't have the time to get into a more detailed explaination right now but will try to post later.
b/w
Plz 2 list successful fiat currencies over the history of civilization.
For sure my understanding is simplified. I know some economists. In fact my father was an economist. They have a more complex understanding. They think gold standard folks should be locked up in the loony bin. Or if not the loony bin, they think gold standard folks have a simplified understanding of how economics work.
A successful fiat is the US dollar. Extremely successful.
For sure my understanding is simplified. I know some economists. In fact my father was an economists. They have a more complex understanding. They think gold standard folks should be locked up in the loony bin. Or if not the loony bin, they think gold standard folks have a simplified understanding of how economics work.
A successful fiat is the US dollar. Extremely successful.
The gold standard folks are Ron Paul and his Merry Wackaloons. Fringe nuts.
There is a much simpler "demolition" of this article based on basic knowledge of macroeconomics:
income = consumption + investment + government spending
Government spending is exactly that, government spending. It can be a larger or smaller proportion of income from year to year. This tells you almost nothing about the stability or growth of an economy.
The portion of wages and salaries spent on consumption goods is exactly that, consumption. That portion spent in markets other than the goods market is considered investment. Money that is not spent period is irrelevant to an economy.
This article merely attempts to conflate government spending with consumption and investment, when they are in fact three distinct parts of income. Taken separately they provide no useful economic information.
You do know that most markets in America are imperfect, meaning there are few sellers which means higher prices and less competition and fewer choices for consumers? Also that imperfect competition has increased in America in the last few decades.
January/February 2011
Foreign Affairs
REVIEW ESSAY
Why the Rich Are Getting Richer
American Politics and the Second Gilded Age
Robert C. Lieberman
ROBERT C. LIEBERMAN is Professor of Political Science and Public Affairs at Columbia University and the author of Shifting the Color Line: Race and the American Welfare State.
The U.S. economy appears to be coming apart at the seams. Unemployment remains at nearly ten percent, the highest level in almost 30 years; foreclosures have forced millions of Americans out of their homes; and real incomes have fallen faster and further than at any time since the Great Depression. Many of those laid off fear that the jobs they have lost -- the secure, often unionized, industrial jobs that provided wealth, security, and opportunity -- will never return. They are probably right.
And yet a curious thing has happened in the midst of all this misery. The wealthiest Americans, among them presumably the very titans of global finance whose misadventures brought about the financial meltdown, got richer. And not just a little bit richer; a lot richer. In 2009, the average income of the top five percent of earners went up, while on average everyone else's income went down. This was not an anomaly but rather a continuation of a 40-year trend of ballooning incomes at the very top and stagnant incomes in the middle and at the bottom. The share of total income going to the top one percent has increased from roughly eight percent in the 1960s to more than 20 percent today.
This is what the political scientists Jacob Hacker and Paul Pierson call the "winner-take-all economy." It is not a picture of a healthy society. Such a level of economic inequality, not seen in the United States since the eve of the Great Depression, bespeaks a political economy in which the financial rewards are increasingly concentrated among a tiny elite and whose risks are borne by an increasingly exposed and unprotected middle class. Income inequality in the United States is higher than in any other advanced industrial democracy and by conventional measures comparable to that in countries such as Ghana, Nicaragua, and Turkmenistan. It breeds political polarization, mistrust, and resentment between the haves and the have-nots and tends to distort the workings of a democratic political system in which money increasingly confers political voice and power.
It is generally presumed that economic forces alone are responsible for this astonishing concentration of wealth. Technological changes, particularly the information revolution, have transformed the economy, making workers more productive and placing a premium on intellectual, rather than manual, labor. Simultaneously, the rise of global markets -- itself accelerated by information technology -- has hollowed out the once dominant U.S. manufacturing sector and reoriented the U.S. economy toward the service sector. The service economy also rewards the educated, with high-paying professional jobs in finance, health care, and information technology. At the low end, however, jobs in the service economy are concentrated in retail sales and entertainment, where salaries are low, unions are weak, and workers are expendable.
Champions of globalization portray these developments as the natural consequences of market forces, which they believe are not only benevolent (because they increase aggregate wealth through trade and make all kinds of goods cheaper to consume) but also unstoppable. Skeptics of globalization, on the other hand, emphasize the distributional consequences of these trends, which tend to confer tremendous benefits on a highly educated and highly skilled elite while leaving other workers behind. But neither side in this debate has bothered to question Washington's primary role in creating the growing inequality in the United States.
IT'S THE GOVERNMENT, STUPID
Hacker and Pierson refreshingly break free from the conceit that skyrocketing inequality is a natural consequence of market forces and argue instead that it is the result of public policies that have concentrated and amplified the effects of the economic transformation and directed its gains exclusively toward the wealthy. Since the late 1970s, a number of important policy changes have tilted the economic playing field toward the rich. Congress has cut tax rates on high incomes repeatedly and has relaxed the tax treatment of capital gains and other investment income, resulting in windfall profits for the wealthiest Americans.
Labor policies have made it harder for unions to organize workers and provide a countervailing force to the growing power of business; corporate governance policies have enabled corporations to lavish extravagant pay on their top executives regardless of their companies' performance; and the deregulation of financial markets has allowed banks and other financial institutions to create ever more Byzantine financial instruments that further enrich wealthy managers and investors while exposing homeowners and pensioners to ruinous risks.
In some cases, these policy changes originated on Capitol Hill: the Ronald Reagan and George W. Bush tax cuts, for example, and the 1999 repeal of the Glass-Steagall Act, a repeal that dismantled the firewall between banks and investment companies and allowed the creation of powerful and reckless financial behemoths such as Citigroup, were approved by Congress, generally with bipartisan support. However, other policy shifts occurred gradually and imperceptibly.
Hacker and Pierson's second important point is that major policy shifts do not always happen in such obvious ways. Many of the policies that have facilitated the winner-take-all economy have just as often come about as a result of what Hacker and Pierson call "drift," which occurs when an enacted policy fails to keep up with changing circumstances and then falls short of, or even subverts, its intended goal. The American system of separated powers -- with its convoluted procedures and bizarre rules, such as vetoes and the filibuster -- is especially conducive to drift, particularly compared to more streamlined parliamentary systems in other countries that afford majorities relatively unimpeded dominance over the policymaking process. Policies in the United States, once made, tend to be hard to overturn or even to modify.
Sometimes drift occurs through simple neglect or inertia. An example is the phenomenon known as "bracket creep," the process by which prior to the indexing introduced in 1981, inflation pushed incomes into higher tax brackets. But Hacker and Pierson particularly zero in on instances of intentional policy drift, when policymakers deliberately sidestepped or resisted available policy alternatives that might have reduced inequality. Allowing corporate executives to be compensated with stock options is one such case; stock-option compensation tends to bend incentives toward the short-term maximization of share prices rather than planning for long-term growth. Consequently, such compensation has allowed top managers to capture jaw-dropping gains despite their companies' often dismal performances. The long-term cost of corporate failure is borne not by CEOs and their executive minions, of course, but by rank-and-file employees, who get laid off when companies need to cut costs and whose pension investments are wiped out when companies' stocks sink.
In the 1990s, the Financial Accounting Standards Board, which regulates accounting practices, noticed this practice, correctly predicted the damage it would do to the economy, and then sought to curtail it. But Congress, spurred on by the lobbying efforts of major corporations, stopped the FASB in its tracks. As a result, Americans spent the 1990s and the first decade of this century living under 1970s accounting rules, which allowed top executives to more or less help themselves and, through the mutual back-scratching habits of corporate boards, help one another.
Similarly, labor law has failed to keep up with the times. Policymakers have repeatedly failed to enact reforms that would have accommodated new union-organizing techniques and empowered unions to counter the growing power of business to resist labor's demands. In this realm, the United States is running a twenty-first-century economy under 1940s rules. A clearheaded understanding of the power of drift in policymaking puts the Republican congressional minority during President Barack Obama's first two years in a fresh light. Obsessive obstructionism is not just a symptom of general crabbiness; it is a shrewd and sensible part of a larger strategy to enrich corporations while gutting long-standing protections for the middle class.
The dramatic growth of inequality, then, is the result not of the "natural" workings of the market but of four decades' worth of deliberate political choices. Hacker and Pierson amass a great deal of evidence for this proposition, which leads them to the crux of their argument: that not just the U.S. economy but also the entire U.S. political system has devolved into a winner-take-all sport. They portray American politics not as a democratic game of majority rule but rather as a field of "organized combat" -- a struggle to the death among competing organized groups seeking to influence the policymaking process. Moreover, they suggest, business and the wealthy have all but vanquished the middle class and have thus been able to dominate policymaking for the better part of 40 years with little opposition.
THE BUSINESS BACKLASH
In pursuing this argument, Hacker and Pierson revive the old academic tradition of pluralism to shine a bright light on some of the pathologies of American politics. The contemporary study of American politics emerged from pluralism, the post-World War II view that in the shadow of the two totalitarianisms of midcentury Europe -- communism and fascism -- democracy could be rendered stable and progressive through a politics of mutual accommodation among relatively evenly matched groups. Rather than titanic conflict between workers and capitalists, so the argument went, pluralist democracy would produce solid incremental policy changes that would inch American society forward toward security and affluence. The dramatic and decidedly nonincremental events of the 1960s and 1970s -- the civil rights movement, the Vietnam War, and broader cultural upheaval -- punctured this view.
Critics of pluralism began to note its limitations, emphasizing the primacy of individual motivations rather than group affiliations. Since then, the study of American politics has largely turned away from questions of organized interests and their role in policymaking and has focused instead on the ways in which individual attitudes and behavior combine to produce policy. Yet if one assumes that people vote based on their economic interests and that election outcomes influence policy through something like majority rule, how can one account for a generation of policies that promoted the interests of the wealthy few at the direct expense of everybody else?
Another critique of pluralism is that it underestimated the lopsidedness of political organization. As the great political scientist E. E. Schattschneider wrote in 1960, "The flaw in the pluralist heaven is that the heavenly chorus sings with a strong upper-class accent." Schattschneider, it turned out, did not know the half of it. To most observers, the 1960s seemed the height of American liberalism, and the decade's policy developments -- upgrading the basic New Deal package of social protection and labor rights to include extensive protection of civil rights and civil liberties and additional benefits such as limited health insurance -- seemed to bear out this view. But to business elites, the 1960s marked the nadir of their influence in American society, and they did not react passively. The era saw the stirrings of a conservative counterrevolution marked by ideological, political, and organizational developments, and particularly by the political awakening of business.
American conservatives, increasingly empowered by effective organization and lavish funding from their patrons in the business community, began to actively resist the politics of pluralist accommodation. Rather than accepting the basic contours of the New Deal and the Great Society and seeking to adjust them step by incremental step, conservatives assumed a newly confrontational posture and turned their efforts toward dismantling the legacies of Franklin Roosevelt and Lyndon Johnson.
The economic crisis of the 1970s, which heralded the end of a generation of U.S. economic dominance, helped their cause by laying bare the limitations of the New Deal order. The country's economic and social policy regime -- which relied heavily on the private provision of important social protections, such as pensions and health insurance -- may have been adequate for a globally dominant industrial economy that generated 30 years of widely shared growth and stable employment for millions of industrial workers. But in the 1970s, it began to prove thoroughly inadequate for an era of globalization, deindustrialization, and economic dislocation, as displaced workers found themselves unable to rely on the government for economic protection. This, in Hacker and Pierson's parlance, was policy drift on a massive scale.
Ascendant conservatives seized on this state of affairs to argue that the whole New Deal edifice of social protection, financial regulation, progressive taxation, and civil rights should be dismantled rather than reinforced. Beginning with the Carter administration, the expanding business lobby successfully defeated proposal after reform proposal and aggressively promoted an opening round of tax cuts and deregulation -- mere down payments on the frenzy to come.
CURING THE DISEASE
If there is a flaw in their telling of this grim tale, it is that Hacker and Pierson perhaps underestimate the actual discontent of the American middle class over the period they discuss. In the 1960s and 1970s, Americans came increasingly to distrust their government, and not without reason. Their leaders had led them into a distant war that proved unwinnable and tore the country apart; a criminally corrupt president was exposed and forced to resign; cities were going up in flames, exposing the deep racial rift that remained in American society despite the triumphs of the civil rights movement. Democrats and Republicans began to diverge on racial issues. The Republicans became the party not only of the wealthy but also of the whites (no Democrat since Johnson has received a majority of the white vote in a presidential election).
Even in the age of Obama, racial inequality remains an acute and intractable problem, and the forces of racial resentment, mingled with legitimate discontent over the government's abandonment of the middle class, infect American politics down to the present day (as the Tea Party movement's more lurid fulminations suggest). So by the late 1970s, dissatisfaction with the state of the government, politics, and policy was rampant across the board, among the wealthy and the middle class alike, and the conditions were ripe for a turn against the political status quo. Conservatives, on behalf of the wealthy, were ready with ideas and organization to seize the moment. Progressives and the middle class were not, and so began the spiral toward the winner-take-all game that Hacker and Pierson describe.
Like many social critics, Hacker and Pierson are long on diagnosis and rather short on treatment. Not surprisingly, they emphasize rebuilding the organizational capacity of the middle and working classes as the place to start repairing the infrastructure of American politics, neither a terribly precise prescription nor a route to a quick cure. But if they are right -- and theirs is a compelling case -- the task of restoring some sense of proportion and balance to the winner-take-all political economy is essential if the American body politic is to recover from its current diseased condition.
Comments
No, I'm not angry. The line about the cat is meant to be funny. Pointed, but funny.
The economist is Robert Barro, and I looked him and his theory up. Calling it a "study" is kind of generous.
http://mediamatters.org/research/201008310023
No one has ever seen anyone exhibit signs of Brian envy.
Dude lives in Hawaii.....I am an envious Haole.
I don't, man. Reading some of your posts, I am not sure where you're coming from -- maybe a free-market approach while you're hanging in your underground bunker? I was in favor of putting money in the pockets of these banks... and then laying down a mighty bitch slap that they'd never forget. They got the money; I am not so sure the bitch slap is forthcoming. If you are going to suggest returning to the gold standard, I'll kindly head toward the exit.
AND YOU KNOW THIS!
If I get you right. You support a social safety net. It just should not be paid for. Or at any rate, the rich shouldn't have to pay for it because that is redistribution of wealth.
The good news is, that is the system we have now. Yeah! Everyone wins.
And you believe in the power of markets. But they should be regulated. Just not vilified. Because that would be too southparkery. Tough. You lose.
It's called "fiat", I think.
Seems to work well.
Makes as much sense to me as gold standard.
The way I understand gold standard:
The market decides what gold is worth.
The valuation of gold is irrational, based on a perceived worth.
The quantity of gold always increases.
The government has a quantity of gold.
It prints pieces of paper that are worth a fraction of their gold.
What you can buy with the paper is based on what the markets say gold is worth that day.
Used to work. The problem today is the value of all the goods in the world is greater than the value of the gold in the world.
Anyway, that is how I understand it. Both systems are based on faith and an intellectual agreement that something worthless (money) is worth what ever goods or services you want to buy.
b/w
Plz 2 list successful fiat currencies over the history of civilization.
A successful fiat is the US dollar. Extremely successful.
The gold standard folks are Ron Paul and his Merry Wackaloons. Fringe nuts.
http://www.thisamericanlife.org/radio-archives/episode/423/the-invention-of-money
http://www.cjr.org/the_audit/cnbc_misleads_on_welfare_state_1.php
Just go done listening. Like all TAL money stories this was great. Recommended.
There is a much simpler "demolition" of this article based on basic knowledge of macroeconomics:
income = consumption + investment + government spending
Government spending is exactly that, government spending. It can be a larger or smaller proportion of income from year to year. This tells you almost nothing about the stability or growth of an economy.
The portion of wages and salaries spent on consumption goods is exactly that, consumption. That portion spent in markets other than the goods market is considered investment. Money that is not spent period is irrelevant to an economy.
This article merely attempts to conflate government spending with consumption and investment, when they are in fact three distinct parts of income. Taken separately they provide no useful economic information.
Foreign Affairs
REVIEW ESSAY
Why the Rich Are Getting Richer
American Politics and the Second Gilded Age
Robert C. Lieberman
ROBERT C. LIEBERMAN is Professor of Political Science and Public Affairs at Columbia University and the author of Shifting the Color Line: Race and the American Welfare State.
The U.S. economy appears to be coming apart at the seams. Unemployment remains at nearly ten percent, the highest level in almost 30 years; foreclosures have forced millions of Americans out of their homes; and real incomes have fallen faster and further than at any time since the Great Depression. Many of those laid off fear that the jobs they have lost -- the secure, often unionized, industrial jobs that provided wealth, security, and opportunity -- will never return. They are probably right.
And yet a curious thing has happened in the midst of all this misery. The wealthiest Americans, among them presumably the very titans of global finance whose misadventures brought about the financial meltdown, got richer. And not just a little bit richer; a lot richer. In 2009, the average income of the top five percent of earners went up, while on average everyone else's income went down. This was not an anomaly but rather a continuation of a 40-year trend of ballooning incomes at the very top and stagnant incomes in the middle and at the bottom. The share of total income going to the top one percent has increased from roughly eight percent in the 1960s to more than 20 percent today.
This is what the political scientists Jacob Hacker and Paul Pierson call the "winner-take-all economy." It is not a picture of a healthy society. Such a level of economic inequality, not seen in the United States since the eve of the Great Depression, bespeaks a political economy in which the financial rewards are increasingly concentrated among a tiny elite and whose risks are borne by an increasingly exposed and unprotected middle class. Income inequality in the United States is higher than in any other advanced industrial democracy and by conventional measures comparable to that in countries such as Ghana, Nicaragua, and Turkmenistan. It breeds political polarization, mistrust, and resentment between the haves and the have-nots and tends to distort the workings of a democratic political system in which money increasingly confers political voice and power.
It is generally presumed that economic forces alone are responsible for this astonishing concentration of wealth. Technological changes, particularly the information revolution, have transformed the economy, making workers more productive and placing a premium on intellectual, rather than manual, labor. Simultaneously, the rise of global markets -- itself accelerated by information technology -- has hollowed out the once dominant U.S. manufacturing sector and reoriented the U.S. economy toward the service sector. The service economy also rewards the educated, with high-paying professional jobs in finance, health care, and information technology. At the low end, however, jobs in the service economy are concentrated in retail sales and entertainment, where salaries are low, unions are weak, and workers are expendable.
Champions of globalization portray these developments as the natural consequences of market forces, which they believe are not only benevolent (because they increase aggregate wealth through trade and make all kinds of goods cheaper to consume) but also unstoppable. Skeptics of globalization, on the other hand, emphasize the distributional consequences of these trends, which tend to confer tremendous benefits on a highly educated and highly skilled elite while leaving other workers behind. But neither side in this debate has bothered to question Washington's primary role in creating the growing inequality in the United States.
IT'S THE GOVERNMENT, STUPID
Hacker and Pierson refreshingly break free from the conceit that skyrocketing inequality is a natural consequence of market forces and argue instead that it is the result of public policies that have concentrated and amplified the effects of the economic transformation and directed its gains exclusively toward the wealthy. Since the late 1970s, a number of important policy changes have tilted the economic playing field toward the rich. Congress has cut tax rates on high incomes repeatedly and has relaxed the tax treatment of capital gains and other investment income, resulting in windfall profits for the wealthiest Americans.
Labor policies have made it harder for unions to organize workers and provide a countervailing force to the growing power of business; corporate governance policies have enabled corporations to lavish extravagant pay on their top executives regardless of their companies' performance; and the deregulation of financial markets has allowed banks and other financial institutions to create ever more Byzantine financial instruments that further enrich wealthy managers and investors while exposing homeowners and pensioners to ruinous risks.
In some cases, these policy changes originated on Capitol Hill: the Ronald Reagan and George W. Bush tax cuts, for example, and the 1999 repeal of the Glass-Steagall Act, a repeal that dismantled the firewall between banks and investment companies and allowed the creation of powerful and reckless financial behemoths such as Citigroup, were approved by Congress, generally with bipartisan support. However, other policy shifts occurred gradually and imperceptibly.
Hacker and Pierson's second important point is that major policy shifts do not always happen in such obvious ways. Many of the policies that have facilitated the winner-take-all economy have just as often come about as a result of what Hacker and Pierson call "drift," which occurs when an enacted policy fails to keep up with changing circumstances and then falls short of, or even subverts, its intended goal. The American system of separated powers -- with its convoluted procedures and bizarre rules, such as vetoes and the filibuster -- is especially conducive to drift, particularly compared to more streamlined parliamentary systems in other countries that afford majorities relatively unimpeded dominance over the policymaking process. Policies in the United States, once made, tend to be hard to overturn or even to modify.
Sometimes drift occurs through simple neglect or inertia. An example is the phenomenon known as "bracket creep," the process by which prior to the indexing introduced in 1981, inflation pushed incomes into higher tax brackets. But Hacker and Pierson particularly zero in on instances of intentional policy drift, when policymakers deliberately sidestepped or resisted available policy alternatives that might have reduced inequality. Allowing corporate executives to be compensated with stock options is one such case; stock-option compensation tends to bend incentives toward the short-term maximization of share prices rather than planning for long-term growth. Consequently, such compensation has allowed top managers to capture jaw-dropping gains despite their companies' often dismal performances. The long-term cost of corporate failure is borne not by CEOs and their executive minions, of course, but by rank-and-file employees, who get laid off when companies need to cut costs and whose pension investments are wiped out when companies' stocks sink.
In the 1990s, the Financial Accounting Standards Board, which regulates accounting practices, noticed this practice, correctly predicted the damage it would do to the economy, and then sought to curtail it. But Congress, spurred on by the lobbying efforts of major corporations, stopped the FASB in its tracks. As a result, Americans spent the 1990s and the first decade of this century living under 1970s accounting rules, which allowed top executives to more or less help themselves and, through the mutual back-scratching habits of corporate boards, help one another.
Similarly, labor law has failed to keep up with the times. Policymakers have repeatedly failed to enact reforms that would have accommodated new union-organizing techniques and empowered unions to counter the growing power of business to resist labor's demands. In this realm, the United States is running a twenty-first-century economy under 1940s rules. A clearheaded understanding of the power of drift in policymaking puts the Republican congressional minority during President Barack Obama's first two years in a fresh light. Obsessive obstructionism is not just a symptom of general crabbiness; it is a shrewd and sensible part of a larger strategy to enrich corporations while gutting long-standing protections for the middle class.
The dramatic growth of inequality, then, is the result not of the "natural" workings of the market but of four decades' worth of deliberate political choices. Hacker and Pierson amass a great deal of evidence for this proposition, which leads them to the crux of their argument: that not just the U.S. economy but also the entire U.S. political system has devolved into a winner-take-all sport. They portray American politics not as a democratic game of majority rule but rather as a field of "organized combat" -- a struggle to the death among competing organized groups seeking to influence the policymaking process. Moreover, they suggest, business and the wealthy have all but vanquished the middle class and have thus been able to dominate policymaking for the better part of 40 years with little opposition.
THE BUSINESS BACKLASH
In pursuing this argument, Hacker and Pierson revive the old academic tradition of pluralism to shine a bright light on some of the pathologies of American politics. The contemporary study of American politics emerged from pluralism, the post-World War II view that in the shadow of the two totalitarianisms of midcentury Europe -- communism and fascism -- democracy could be rendered stable and progressive through a politics of mutual accommodation among relatively evenly matched groups. Rather than titanic conflict between workers and capitalists, so the argument went, pluralist democracy would produce solid incremental policy changes that would inch American society forward toward security and affluence. The dramatic and decidedly nonincremental events of the 1960s and 1970s -- the civil rights movement, the Vietnam War, and broader cultural upheaval -- punctured this view.
Critics of pluralism began to note its limitations, emphasizing the primacy of individual motivations rather than group affiliations. Since then, the study of American politics has largely turned away from questions of organized interests and their role in policymaking and has focused instead on the ways in which individual attitudes and behavior combine to produce policy. Yet if one assumes that people vote based on their economic interests and that election outcomes influence policy through something like majority rule, how can one account for a generation of policies that promoted the interests of the wealthy few at the direct expense of everybody else?
Another critique of pluralism is that it underestimated the lopsidedness of political organization. As the great political scientist E. E. Schattschneider wrote in 1960, "The flaw in the pluralist heaven is that the heavenly chorus sings with a strong upper-class accent." Schattschneider, it turned out, did not know the half of it. To most observers, the 1960s seemed the height of American liberalism, and the decade's policy developments -- upgrading the basic New Deal package of social protection and labor rights to include extensive protection of civil rights and civil liberties and additional benefits such as limited health insurance -- seemed to bear out this view. But to business elites, the 1960s marked the nadir of their influence in American society, and they did not react passively. The era saw the stirrings of a conservative counterrevolution marked by ideological, political, and organizational developments, and particularly by the political awakening of business.
American conservatives, increasingly empowered by effective organization and lavish funding from their patrons in the business community, began to actively resist the politics of pluralist accommodation. Rather than accepting the basic contours of the New Deal and the Great Society and seeking to adjust them step by incremental step, conservatives assumed a newly confrontational posture and turned their efforts toward dismantling the legacies of Franklin Roosevelt and Lyndon Johnson.
The economic crisis of the 1970s, which heralded the end of a generation of U.S. economic dominance, helped their cause by laying bare the limitations of the New Deal order. The country's economic and social policy regime -- which relied heavily on the private provision of important social protections, such as pensions and health insurance -- may have been adequate for a globally dominant industrial economy that generated 30 years of widely shared growth and stable employment for millions of industrial workers. But in the 1970s, it began to prove thoroughly inadequate for an era of globalization, deindustrialization, and economic dislocation, as displaced workers found themselves unable to rely on the government for economic protection. This, in Hacker and Pierson's parlance, was policy drift on a massive scale.
Ascendant conservatives seized on this state of affairs to argue that the whole New Deal edifice of social protection, financial regulation, progressive taxation, and civil rights should be dismantled rather than reinforced. Beginning with the Carter administration, the expanding business lobby successfully defeated proposal after reform proposal and aggressively promoted an opening round of tax cuts and deregulation -- mere down payments on the frenzy to come.
CURING THE DISEASE
If there is a flaw in their telling of this grim tale, it is that Hacker and Pierson perhaps underestimate the actual discontent of the American middle class over the period they discuss. In the 1960s and 1970s, Americans came increasingly to distrust their government, and not without reason. Their leaders had led them into a distant war that proved unwinnable and tore the country apart; a criminally corrupt president was exposed and forced to resign; cities were going up in flames, exposing the deep racial rift that remained in American society despite the triumphs of the civil rights movement. Democrats and Republicans began to diverge on racial issues. The Republicans became the party not only of the wealthy but also of the whites (no Democrat since Johnson has received a majority of the white vote in a presidential election).
Even in the age of Obama, racial inequality remains an acute and intractable problem, and the forces of racial resentment, mingled with legitimate discontent over the government's abandonment of the middle class, infect American politics down to the present day (as the Tea Party movement's more lurid fulminations suggest). So by the late 1970s, dissatisfaction with the state of the government, politics, and policy was rampant across the board, among the wealthy and the middle class alike, and the conditions were ripe for a turn against the political status quo. Conservatives, on behalf of the wealthy, were ready with ideas and organization to seize the moment. Progressives and the middle class were not, and so began the spiral toward the winner-take-all game that Hacker and Pierson describe.
Like many social critics, Hacker and Pierson are long on diagnosis and rather short on treatment. Not surprisingly, they emphasize rebuilding the organizational capacity of the middle and working classes as the place to start repairing the infrastructure of American politics, neither a terribly precise prescription nor a route to a quick cure. But if they are right -- and theirs is a compelling case -- the task of restoring some sense of proportion and balance to the winner-take-all political economy is essential if the American body politic is to recover from its current diseased condition.
http://www.foreignaffairs.com/articles/67046/robert-c-lieberman/why-the-rich-are-getting-richer?page=show