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Government Is Largely Responsible for Soaring Inequality
It's Not an Accident ... It's Policy
America is experiencing unprecedented inequality. And a who's who of prominent economists (and investors) say that inequality is hurting the economy.
Defenders of the status quo pretend that this inequality is something outside of our control ... like a force of nature. They argue that it's due to globalization, technological innovation or something else outside of policy-makers' control.
In reality, inequality is rising due to the government policy.
The chairman of the Department of Economics at George Mason University says that it is inaccurate to call politicians prostitutes. Specifically, he says that they are more correct to call them “pimps”, since they are pimping out the American people to the financial giants.
The government has saved the big banks at taxpayer expense, chosen the banks over the little guy, and said no to helping Main Street ... while continuing to throw trillions at the giant banks.
Crony capitalism has gotten even worse under Obama than under Bush.
Obama is prosecuting fewer financial crimes than Bush, or his father, or Ronald Reagan.
Moreover, not only is the cop not cracking down on crime ... he's on the take, and helping carry out and cover up the crimes.
All of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else. See this, this and this.
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Economist Steve Keen says:
“This is the biggest transfer of wealth in history”, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.
Stiglitz said in 2009 that Geithner’s toxic asset plan “amounts to robbery of the American people”.
And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”.
Without the government’s creation of the too big to fail banks (they’ve gotten much bigger under Obama), the Fed’s intervention in interest rates and the markets (most of the quantitative easing has occurred under Obama), and government-created moral hazard emboldening casino-style speculation (there’s now more moral hazard than ever before) … things wouldn’t have gotten nearly as bad.
As I noted in March 2009:
The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:
- Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes
- A lot of the bailout money is going to the failing companies’ shareholders
- Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”
- The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)
Quantitative Easing
It is well-documented that quantitative easing increases inequality (and see this and this.)
Quantitative easing doesn’t help Main Street or the average American. It only helps big banks, giant corporations, and big investors.
The Federal Reserve has been doing quantitative easing for 5 years ... and inequality has shot up over the last 5 years. It's not a coincidence.
Subsidies to Giant, Wealthy Corporations
Massive subsidies to big corporations is also part of the problem. Indeed, some financial analysts say that the taxpayer subsidy to the giant banks alone is $780 billion per year.
The average American family pays $6,000/year in subsidies to giant corporations.
This is a direct transfer of wealth from the little guy to the big guy ... which increases inequality.
Goosing the Stock Market
Moreover, the Fed has more or less admitted that it is putting almost all of its efforts into boosting the stock market.
AP writes:
The recovery has been the weakest and most lopsided of any since the 1930s.After previous recessions, people in all income groups tended to benefit. This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven’t kept up with prices at the grocery store and gas station. The economy’s meager gains are going mostly to the wealthiest.
Workers’ wages and benefits make up 57.5 percent of the economy, an all-time low. Until the mid-2000s, that figure had been remarkably stable — about 64 percent through boom and bust alike.
David Rosenberg points out:
The “labor share of national income has fallen to its lower level in modern history … some recovery it has been – a recovery in which labor’s share of the spoils has declined to unprecedented levels.”
The above-quoted AP article further notes:
Stock market gains go disproportionately to the wealthiest 10 percent of Americans, who own more than 80 percent of outstanding stock, according to an analysis by Edward Wolff, an economist at Bard College.
Indeed, as we reported in 2010:
As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all stocks, bonds and mutual funds in the U.S. On the other hand, the top 1% owned owned 50.9%.***
(Of course, the divergence between the wealthiest and the rest has only increased since 2007.)
Professor G. William Domhoff demonstrated that the richest 10% own 98.5% of all financial securities, and that:
The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.
Tyler Durden notes:
In today’s edition of Bloomberg Brief, the firm’s economist Richard Yamarone looks at one of the more unpleasant consequences of Federal monetary policy: the increasing schism in wealth distribution between the wealthiest percentile and everyone else. … “To the extent that Federal Reserve policy is driving equity prices higher, it is also likely widening the gap between the haves and the have-nots….The disparity between the net worth of those on the top rung of the income ladder and those on lower rungs has been growing. According to the latest data from the Federal Reserve’s Survey of Consumer Finances, the total wealth of the top 10 percent income bracket is larger in 2009 than it was in 1995. Those further down have on average barely made any gains. It is likely that data for 2010 and 2011 will reveal an even higher percentage going to the top earners, given recent increases in stocks.” Alas, this is nothing new, and merely confirms speculation that the Fed is arguably the most efficient wealth redistibution, or rather focusing, mechanism available to the status quo. This is best summarized in the chart below comparing net worth by income distribution for various percentiles among the population, based on the Fed’s own data. In short: the richest 20% have gotten richer in the past 14 years, entirely at the expense of everyone else.
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Lastly, nowhere is the schism more evident, at least in market terms, than in the performance of retail stocks:
Saks chairman Steve Sadove recently remarked, “I’ve been saying for several years now the single biggest determinant of our business overall, is how’s the stock market doing.” Privately-owned Neiman- Marcus reported “In New York City, business at Bergdorf Goodman continues to be extremely strong.”
In contrast, retail giant Wal-Mart talks of its “busiest hours” coming at midnight when food stamps are activated and consumers proceed through the check-outs lines with baby formula, diapers, and other groceries. Wal-Mart has posted a decline in same-store sales for eight consecutive quarters.
As CNN Money pointed out in 2011, “Wal-Mart’s core shoppers are running out of money much faster than a year ago …” This trend has only gotten worse: The wealthy are doing great ... but common folks can no longer afford to shop even at Wal-Mart, Sears, JC Penney or other low-price stores.
Durden also notes:
Another indication of the increasing polarity of US society is the disparity among consumer confidence cohorts by income as shown below, and summarized as follows: “The increase in equity prices has raised consumer spirits, particularly among higher-income consumers. The Conference Board’s Consumer Confidence index for all income levels bottomed in February/March of 2009. The recovery since then has been notable across the board, but nowhere as much as for those making $50,000 or more.”
Business Week notes:
Barry Ritholtz, [CIO of Ritholtz Wealth, and popular financial blogger], says millions of potential investors may conclude, as they did after the Great Depression, that the market is a rigged game for insiders. Such seismic shifts in popular sentiment can have lasting effects. The Dow Jones industrial average didn’t regain its September 1929 peak of 355.95 until 1954. “You’re going to lose a generation of investors,” says Ritholtz. “And that’s how you end up with a 25-year bear market. That’s the risk if people start to think there is no economic justice.”
Americans know that the system is rigged against them. See this. We know that the government is giving Wall Street crooks a pass. 70% of Americans know that the government's economic policies have thrown money at the banks and hosed the people.
In such an environment, the average American has largely gotten out of stocks and other investments.
Over-Financialization
When a country's finance sector becomes too large finance, inequality rises. As Wikipedia notes:
[Economics professor] Jamie Galbraith argues that countries with larger financial sectors have greater inequality, and the link is not an accident.
Government policy has been encouraging the growth of the financial sector for decades:
(Economist Steve Keen has also shown that “a sustainable level of bank profits appears to be about 1% of GDP”, and that higher bank profits leads to a ponzi economy and a depression).
Unemployment and Underemployment
A major source of inequality is unemployment, underemployment and low wages.
Government policy has created these conditions. And the pretend populist Obama - who talks non-stop about the importance of job-creation - actually doesn't mind such conditions at all.
The“jobless recovery” that the Bush and Obama governments have engineered is a redistribution of wealth from the little guy to the big boys.
The New York Times notes:
Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.
In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.
The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.
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The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.
Obama apologists say Obama has created jobs. But the number of people who have given up and dropped out of the labor force has skyrocketed under Obama (and see this).
And the jobs that have been created have been low-wage jobs.
For example, the New York Times noted in 2011:
The median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009.
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Most ordinary Americans aren’t getting raises anywhere close to those of these chief executives. Many aren’t getting raises at all — or even regular paychecks. Unemployment is still stuck at more than 9 percent.
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“What is of more concern to shareholders is that it looks like C.E.O. pay is recovering faster than company fortunes,” says Paul Hodgson, chief communications officer for GovernanceMetrics International, a ratings and research firm.
According to a report released by GovernanceMetrics in June, the good times for chief executives just keep getting better. Many executives received stock options that were granted in 2008 and 2009, when the stock market was sinking.
Now that the market has recovered from its lows of the financial crisis, many executives are sitting on windfall profits, at least on paper. In addition, cash bonuses for the highest-paid C.E.O.’s are at three times prerecession levels, the report said.
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The average American worker was taking home $752 a week in late 2010, up a mere 0.5 percent from a year earlier. After inflation, workers were actually making less.
AP pointed out that the average worker is not doing so well:
Unemployment has never been so high — 9.1 percent — this long after any recession since World War II. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.
– The average worker’s hourly wages, after accounting for inflation, were 1.6 percent lower in May than a year earlier. Rising gasoline and food prices have devoured any pay raises for most Americans.
– The jobs that are being created pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40 percent of the jobs lost from January 2008 to February 2010 but only 27 percent of the jobs created since then.
Money Being Sucked Out of the U.S. Economy ... But Big Bucks Are Being Made Abroad
Part of the widening gap is due to the fact that most American companies’ profits are driven by foreign sales and foreign workers. As AP noted in 2010:
Corporate profits are up. Stock prices are up. So why isn’t anyone hiring?Actually, many American companies are — just maybe not in your town. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.
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The trend helps explain why unemployment remains high in the United States, edging up to 9.8% last month, even though companies are performing well: All but 4% of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.
But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9%, says Robert Scott, the institute’s senior international economist.
“There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott.
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Many of the products being made overseas aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.
Government policy has accelerated the growing inequality. It has encouraged American companies to move their facilities, resources and paychecks abroad. And some of the biggest companies in America have a negative tax rate … that is, not only do they pay no taxes, but they actually get tax refunds.
And a large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. More here and here.
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Yes, decentralizedsc, I think that governments are corporations too. Corporations that assert "sovereignty" are the ultimate corporations, in the sense that they claim a monopoly over the power to use violence to back up their corporate policies. Their corporate security forces are their police and army.
I regard all "corporations" as human organizations. Indeed, I regard all human organizations as being different kinds of organized systems of lies, operating organized robberies. (I would include all churches into that overview too.)
Governments were the corporations that were created, or selected to survive, through the processes of warfare. Those organizations that survived became "sovereign" governments, which had the power to kill, to back up their authority. The primary authority that those kinds of governments had was the power to tax. "Taxation" is simply robbery done by those who have too much power to resist, since they can kill those who attempt to seriously resist being taxed (robbed.)
The current runaway social polarization and inequality is driven to become so extreme because there is a special privileged class which can make "money" out of nothing, while everyone else has to work for it. That kind of fiat money, made out of nothing, as debts, ONLY works because governments ENFORCE legal tender laws, and especially FORCE people to pay their taxes using that kind of fiat money. Otherwise, that kind of "money" made out of nothing would be regarded as nothing more than an absurd joke!
IT IS IMPOSSIBLE FOR PEOPLE WHO HAVE TO WORK FOR THEIR MONEY TO WIN ANY ECONOMIC COMPETITION WITH PEOPLE WHO CAN MAKE THAT MONEY OUT OF NOTHING! AS THEY LOSE, THE INEQUALITIES INCREASE! Since the power of government to tax forces fraud to become effective, AND IRRESISTIBLE, those who are closest to the source of being able to make "money" out of nothing benefit the most from being able to do that! Those who are furthest away from the source of that fiat money suffer the most from that being done. The overall effects of the laws routinely rob the middle and lower classes into oblivion. The game is rigged, the table is tilted, and automatically tilts steeper still.
Clearly, the biggest banks are the primary source of that fiat money, made out of nothing, and they therefore enjoy a runaway advantage to become wealthier, and therefore, more politically powerful. As people get further and further away from that power to make "money" out of nothing, they then are the ones who are effectively being robbed more and more by the effects of that, such as what tends to be a perpetual "tax" through inflation, etc. ...
Ideally, what we should do is have the different kinds of organized crime gangs, in the forms of corporations, countries and churches, negotiate better dynamic equilibria between themselves. However, we are seeing THE FACTS, as this recent series of articles by George Washington have revealed, namely, runaway social polarization, with the USA becoming the most extremely unequal country in the world, and one of the most unequal in history. That risks the paradoxical final failure from too much "success," since history has demonstrated over and over again that extreme inequality tends to have been one of the things that destroyed the societies in which that developed.
My comments are about the powers of government to rob, and to kill to back up that robbery, being effectively PRIVATIZED, by the power to make the public money supply out of nothing being transferred to private banks, which then enabled corporations controlled under that system to grow up around those banks. The extreme inequalities are primarily due to the governmental power to rob being privatized, in order to benefit the ruling classes. The vast majority of the People were reduced to being Zombie Sheeple, in order to make that possible to perpetuate. They were the victims of organized crimes committed against them for many generations, as the People gradually adapted to that by becoming Zombie Sheeple, who were born into that system, and subjected to brainwashing indoctrinations from their schools and the mass media throughout their lives. That overall situation is now such a serious RUNAWAY, picking up speed, as it coasts downhill on what it already accomplished, that there appears no practical way to stop it, other than for it to continue to go faster, until it goes madly out of control, and crashes itself ...
weird... you criticize the status quo in a sound way, as a proper philosophical anarchis would do, but you use a very different language.
i wonder if it's a coincidence or there's something else behind this.
either way, everyone go and read Rothbard! :)
Well said, Radical.
Would you agree that separating government from business with a constitutional firewall, similar to the one that separates church and state, might give society a better legal grip on dealing with corruption ? I think it was Jefferson who said "...because they tend to corrupt each other" in reference to the separation of state and church.
As you say, it's probably too late now, but absent a better solution to the eternal dilema of democratic law, the US Constitution is a good starting point?
My view is that we now must decide between a constitutional republic and a global corpocracy (and the global corpocracy model is failing already) but the masses are too deeply "conditioned" to understand that, or to make a rational choice. Maybe if we tighten the thumbscrews a little longer. (?)
Reading posts like these gives me hope. Let's storm the bastille. All together now.....!!!!
first, statism is just another religion:
“The State is a fundamentalist religion, and patriotism is merely the faith of the religion of statism.” (The State is God, the priests are the intellectuals paid by the state, and young age compulsory education is their Sunday school.)
— Stefan Molyneux
second, constitutions are merely pieces of papers as can be witnessed in contemporary USA:
“But whether the Constitution really be one thing, or another, this much is certain ? that it has either authorized such a government as we have had, or has been powerless to prevent it. In either case it is unfit to exist.”
— Lysander Spooner (1808–1887), 'No Treason, no 6: The Constitution Of No Authority'
Theoretically, I believe that divisions of powers, creating checks and balances, are the best ideas:
Here is a link to discussion of some of those ideas:
https://soundcloud.com/doomstead-diner/monsta-of-doom-david-cobb-2/s-bGbbB
However, in the real world, the almost total triumph of the banksters in taking over control of the world's money supply, and then being able to buy up control over almost everything else with that leverage, has made it seem practically impossible to accomplish anything ... I like to hold on to irrational hope, for some series of political miracles, however, there are no reasonable grounds to believe in those that I am aware of.
In fact, all of the social polarization and increasing inequalities in the USA are getting worse, faster. There is nobody that I am aware of who is remotely close to being in the league of the international banksters, which are collectively a group of trillionaire mass murderers.
Their divide and conquer strategy appears to be too successful, and too well advanced, so that people will be fighting each other, over relatively trivial issues, rather than united to resist the banksters, which are the same enemy for all of them. What I find is that the "opposition" is made of people who agree ONLY that the established systems have gone rotten, BUT, do not agree on what to do instead.
Therefore, while I agree with most of the things on the ideal list of theoretical solutions, to fix problems like corporations becoming "persons" that now have more real legal rights than flesh and blood human beings, and those corporations having more ability to spend money to influence elections, even though they are still not yet allowed to vote, and so on, the overall problems are that nobody can effectively compete with corporations that command trillions of dollars worth of resources to advance their agenda, while most of their opposition barely can spend thousands of dollars to advance any alternative agenda.
As I said in the first reply in this thread of comments, every good theoretical solution is trapped inside the runaway Catch 22 that the actual social inequality is already SO EXTREME, AND GETTING WORSE, FASTER, that none of the theoretical solutions have any way to miraculously solve that problem. Nobody else has enough money to effectively influence the systems that were built on top of the power to make endless money out of nothing!
Come to think of it; are you a corporate shill, too?
And David Cobb is another corporate shill.
I think the most loathsome thing a corporatist can say is "Resistance is futile." And you just said it. Your mother must be very proud.
We the people are responsible. We gave them the power and did not excercise proper oversight. Naturally they did bad things - it's human nature and we werre stupid for not accounting for that. As such, we the people cannot expect those elected to solve these problems. We the people need to solve these problems.
+1
Mark Levin's new book outlines the strategy for using Article 5 to amend the constitution, by-passing the existing Congress altogether.
Although I don't think his proposed amendments will accomplish anything (there's one I think that would make matters worse – letting state legislators amend it (because states are as prone to corporate corruption as the federal gov- maybe more so (ALEC and all) ) ; BUT his procedure for a constitutional convention is spot-on.
government is responsible for doing their job which they haven't done for decades
Preamble to US Constitution: "We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America."
Of course the word 'welfare' has been perverted into meaning something for nothing which I am certain was not the meaning when that document was written. The perversion of language is typical of a corrupt political system. Even th SCOTUS dimisses the preamble as insignificant which is a grave error on their part.
"The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;
...
To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;"
'free trade' and globalization in its current form is a direct violation of Article 1, section 8 of the US Constitution. However globalization has been a very convenient means for the banksters to mask the effects of highly inflationary monetary policy while corporations can earn outsized profits with global labor arbitrage (that do not reflect back into the American workers general welfare, as mandated in preamble) and foreign nations use VAT taxes to maintain their advantage while the productive portions of the US economy decays exponentially and the financial sector grows exponentially to mainain the ponzi.
2,000 page pieces of legislation are not a means of over-regulating some industry except for small businesses who never had any say about it and have abide by inchoerent legislated gibberish, its a means of de-regulating and industry with loopholes and incoherent language destroying competition from small business.
We already have zero govt hidden by mountains of legislation that masks its corruption of the political system and the monopolization of business and industry by those who wirte the legislation. Ask any politician about some section of some mountainous gibberish of legislation that they voted on and I will bet $100 he or she knows nothing about it.
I like "symbiotic".
An examination of the "revolving door" Venn's make that moot. It's hard to find any sunlight between them.
which come first, the chicken or the egg?
Or is the question moot?
Zero it is indeed govenment and large corporations. However when one controls the laws and judicial process, the blame clearly lies with government. These days it is all based on greed, even at the voter level.
Welcome to the corporatist state. It is not 'socialist' in the sense that many believe it is regarding welfare and unemployment checks to people living on the edge of or deeply in poverty and such, but only in the sense that policy is constructed to socialize the relationship between large corporations, bankers and the political system while maintaining, as much as they can, the facade of representation of 'the people'.
Obama will undoubtedly walk out of office to gather his tens of millions of dollars like his predecessors, his presidency is simply his stepping stone to obscene wealth. The mark of a true non-leader
Yes you can look at it like that, but it easier to understand if you just state that this is the same institution, run by the same people. They just move between economic, political and military spheres.
+1
"However when one controls the laws and judicial process, the blame clearly lies with government."
In other news, the statists seem to be going into an apoplectic seizure at the prospect that the federal government might actually shut down.
Does this mean, TSA gropers will be laid off, the NSA cloud will vanish & everyones communications will be secure again, congresscritters salaries/pensions will stop and the Sheriff of IRSNottingham will be thrown from his horse & sprain his ankle?
Sounds like absolute bedlam to me ;-)
GW, this is utter BS ... where we once had three or maybe 4 social classes with varying degrees of wealth and self-reliance, our lords and masters have managed in less than an half century to whittle those down to only two classes (them and the rest of us), and they continue to work furiously to wring out any last vestiges of inequality among the rest of us by driving us to utter poverty and dependency.
4 wealthiest counties in the US are centred on DC ... coincidence?