Nice to see this issue getting some ink in the major media.

The gap between rich and poor is unfortunately an old story.

It is the stuff of parables and literature. It is a force in social history and political economy, from electoral campaigns to reform movements and revolutions.

But in the United States today, there’s a new twist to the familiar plot. Income inequality used to be about rich versus poor, but now it’s increasingly a matter of the ultra rich and everyone else. The curious effect of the new divide is an economy that appears to be charging ahead, until you realize that the most of the people in it are being left in the dust. President Bush has yet to acknowledge the true state of affairs, though it’s at the root of his failure to convince Americans that the good times are rolling.

The president’s lack of attention may be misplaced optimism, or it could be political strategy. Acknowledging what’s happening would mean having to rethink his policies, not exactly his strong suit.

But the growing income gap - and the rise of the super-rich - demands attention. It is making America a less fair society, and a less stable one.

For more good history and overview of this whole phenomenon, I recommend the Kevin Phillips’ excellent “Wealth and Democracy”.

Another sign of the growing awareness of this uncomfortable reality of wealth and class inequalities is outlined in this piece by William Greider in The Nation.

So it’s a big deal when Robert Rubin changes the subject and begins to talk about income inequality as “a deeply troubling fact of American economic life” that threatens the trading system, even the stability of “capitalist, democratic society.” More startling, Rubin now freely acknowledges what the American establishment for many years denied or dismissed as inconsequential–globalization’s role in generating the thirty-year stagnation of US wages, squeezing middle-class families and below, while directing income growth mainly to the upper brackets. A lot of Americans already knew this. Critics of “free trade” have been saying as much for years. But when Bob Rubin says it, his words can move politicians, if not financial markets.

Of course, the incentive for Rubin and his class of financial lords to confront this problem is not to solve it for all the people of the nation, but because it potentially risks the continuation of the prevailing order of control over our society by the governing financial elites. They don’t want to see things go so far off the rails it results in the return of Paris or St. Petersburg, or the Haymarket of Chicago.

There are a number of references and assumptions in these articles which I would take issue with as not clearly defining the true source and causality of the problems at hand. For instance, notice the glaring and likely disingenuous combination of two unrelated processes, defined as one whole, of equating capitalism with democracy? One is a system of economics, the other of political organization. But as a major media expose on the fact we have a very serious problem on our hands, one that easily equates to the potentially terminal threat the Gilded Age (as dubbed by Mark Twain) of the late 1800’s posed to our society, its value is apparent.

This time, however, let us not fall short in the efforts put forth by movements such as that originally driven by the Populists, which was short circuited and watered down by the Progressives, resulting in inadequate measures being taken to counteract that anti-democratic and republic-threatening policies of the ‘malefactors of great wealth’, as these scions of capital corporatism were aptly defined by Teddy Roosevelt. Those measures, some of which were propagated by the same Roosevelt and his compatriots, were partially instituted to placate rising democratic populism of the time, as well as to regulate and control those same forces of democracy.

It is why those advances in social, political and economic policies did not hold. This time, we must push for rights-based changes and not regulatory-based changes in our nation. For more on what these should look like and how to go about making them happen, check out the work of CELDF.

Another sign of the cancer, potentially terminal, of global corporatism and the privitization of the public commons (or more appropriately, the ‘piratization’ of the commons).

Roads and bridges built by U.S. taxpayers are starting to be sold off, and so far foreign-owned companies are doing the buying.

On a single day in June, an Australian-Spanish partnership paid $3.8 billion to lease the Indiana Toll Road. An Australian company bought a 99-year lease on Virginia’s Pocahontas Parkway, and Texas officials decided to let a Spanish-American partnership build and run a toll road from Austin to Seguin for 50 years.

Few people know that the tolls from the U.S. side of the tunnel between Detroit and Windsor, Canada, go to a subsidiary of an Australian company - which also owns a bridge in Alabama.

So just what are we spending trillions of dollars in so-called “defense” spending to protect America from, when our country’s wealth is being shipped out the door to offshore bank accounts of the corporate rich, and the national infrastructure is being sold of to foreign interests to pay off the debt we’ve racked up to pay these corporatists with?

Read The Full Article Here

This is an interesting editorial, and confronts the myths we live by in America head on.
One comment I should make about the 8th paragraph:

Another reason that the unemployment rate is lower in the US than in some European countries is that the United States has skewed the way it keeps and reports unemployment statistics to artificially produce a lower number. The actual number of people who want to work but do not have jobs is much higher than the official unemployment figure. Additionally, France seen as a part of the EU (which includes areas with much lower unemployment such as Ireland and the Netherlands) is not much different from Michigan seen as a part of the US. And unlike the US, France has an effective infrastructure in place to provide them and their families with health care during their unemployment.

Read the full article from Mark Weisbrot from Knight-Ridder/Tribune Information Services Here

- Ed Lacy
USTV Media

Oh boy, what a surprise. Too bad we can’t actually apply brakes and controls on these animal concentration camps, regardless of the overwhelming amount of evidence compiled to their negative health and environmental impacts. Certainly couldn’t dream of taxing them to help pay for this mess. That would entail actually potentially interfering with the profit margins here, and forcing an end to the externalization of costs by these scions of private enterprise.

Factory farming and the international poultry trade are largely responsible for the spread of bird flu, and wild birds are being unfairly blamed for the disease, a new report says. The report says the deadly H5N1 virus developed inside intensive poultry units in Asia and has proliferated through exports of live birds and the use of chicken droppings as fertiliser. Its publication by Grain , an agricultural pressure group, follows an announcement that the virus has been found in a turkey farm in eastern France. Though the farm was close to where two infected wild ducks were found, all its 11,000 turkeys were kept indoors with no contact with wild birds. Dissident scientists accept that the flu began in wild birds, but say it developed in the cramped conditions of Asian factory farms. Research published in the official journal of the US National Academy of Sciences blames the poultry trade for the virus spreading from China to Vietnam. BirdLife, a charity, says the virus’s spread across Russia last summer - widely attributed to migrating birds - took place when birds were moulting and unable to fly. It adds that an outbreak in Nigeria took place on a factory farm far from migratory routes.

Read Geoffrey Lean’s piece in the Independent UK

Records showing how thoroughly the Internal Revenue Service audits big corporations and the rich, and how much it discounts the additional taxes assessed after audits, are being withheld from the public despite a 1976 court order requiring their disclosure, according to a legal motion filed last week in federal court in Seattle.

So how come author David Cay Johnston isn’t a regular on those talking head shows? This guy has done loads of research on what is really going on behind the economic curtain in this country.

Read The Article

Richest Are Leaving Even The Rich Far Behind
By David Cay Johnston
The New York Times
June 5, 2005

When F. Scott Fitzgerald pronounced that the very rich “are different from you and me,” Ernest Hemingway’s famously dismissive response was: “Yes, they have more money.” Today he might well add: much, much, much more money.

The people at the top of America’s money pyramid have so prospered in recent years that they have pulled far ahead of the rest of the population, an analysis of tax records and other government data by The New York Times shows. They have even left behind people making hundreds of thousands of dollars a year.

Call them the hyper-rich.

They are not just a few Croesus-like rarities. Draw a line under the top 0.1 percent of income earners - the top one-thousandth. Above that line are about 145,000 taxpayers, each with at least $1.6 million in income and often much more.

The average income for the top 0.1 percent was $3 million in 2002, the latest year for which averages are available. That number is two and a half times the $1.2 million, adjusted for inflation, that group reported in 1980. No other income group rose nearly as fast.

The share of the nation’s income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002. The share of income earned by the rest of the top 10 percent rose far less, and the share earned by the bottom 90 percent fell.

Next, examine the net worth of American households. The group with homes, investments and other assets worth more than $10 million comprised 338,400 households in 2001, the last year for which data are available. The number has grown more than 400 percent since 1980, after adjusting for inflation, while the total number of households has grown only 27 percent.

The Bush administration tax cuts stand to widen the gap between the hyper-rich and the rest of America. The merely rich, making hundreds of thousands of dollars a year, will shoulder a disproportionate share of the tax burden.

President Bush said during the third election debate last October that most of the tax cuts went to low- and middle-income Americans. In fact, most - 53 percent - will go to people with incomes in the top 10 percent over the first 15 years of the cuts, which began in 2001 and would have to be reauthorized in 2010. And more than 15 percent will go just to the top 0.1 percent, those 145,000 taxpayers.

The Times set out to create a financial portrait of the very richest Americans, how their incomes have changed over the decades and how the tax cuts will affect them. It is no secret that the gap between the rich and the poor has grown, but the extent to which the richest are leaving everyone else behind is not widely known.

Read the complete article…
http://www.nytimes.com/2005/06/05/national/class/HYPER-FINAL.html

In This Recovery, Corporations Win - Workers Lose
By David R. Francis
The Christian Science Monitor
May 2nd, 2005

By historical standards, the economic recovery in the United States has been unfair. It has devoted too big a share of income growth to corporate profits, too little to workers.

Indeed, in 2004, wages and salaries received the lowest share of total national income ever recorded, with the data going back to 1929, the year the Great Depression began, note Isaac Shapiro and David Kamin, economists at the Center on Budget and Policy Priorities in Washington, in a new study. By contrast, corporate profits’ share of national income last year, at 11.4 percent, was “exceptionally high,” the study found. The trend has both political and economic implications. For example:

Wage earners suffer: Democrats will surely blame Republicans for the weak job and wage scene. “The distribution of earnings is becoming more unequal,” complained Sen. Jack Reed (D) of Rhode Island earlier this month. Since last May, when the economy began creating jobs again, average hourly earnings of nonfarm production workers have actually fallen - by 0.7 percent - after adjusting for inflation.

Investors benefit: High corporate profits are always good news for investors. Last month, the Dow Industrial Average notched its biggest one-day gain since 2003. “There are many factors that affect stock market prices,” notes Mr. Shapiro. “But robust corporate profits always help.”

Social Security weakened: If wages were growing more robustly - and not so inequitably - the financing gap in the Social Security system would not be so big. In fact, economics, more than demographics, are causing a large part of the Social Security gap, says Jack Bivens, an economist at the pro-labor Economic Policy Institute in Washington.

In 1983, the year of the last major reform of the system, payroll taxes were imposed on 90 percent of all earnings. But over the past four years, the cap has covered only an average of 85 percent of earnings. That’s because the cap - $90,000 this year - has not been increased sufficiently to make up for the more rapid growth in income of prosperous Americans.

“This erosion of the taxable base of Social Security, driven by rising earnings inequality, has greatly exacerbated the long-run outlook of the system,” Mr. Bivens notes in a new study. Raising the cap so it again covers 90 percent of earnings would cover 40 percent of the gap in financing over the 75-year planning period used by the Social Security Administration, says Bivens.

Read the rest of the article here…
http://www.csmonitor.com/2005/0502/p17s01-cogn.html

Gambling With Your Retirement
By Paul Krugman
The New York Times

February 4th, 2005

A few weeks ago I tried to explain the logic of Bush-style Social Security privatization: it is, in effect, as if your financial adviser told you that you wouldn’t have enough money when you retire - but you shouldn’t save more. Instead, you should borrow a lot of money, buy stocks and hope for capital gains.

Before President Bush’s big speech, a background briefing by a “senior administration official” made it clear that the plan calls for exactly the “borrow, speculate and hope” strategy I described - not just for the system as a whole, but for each individual.

Here’s the money quote: “In return for the opportunity to get the benefits from the personal account, the person forgoes a certain amount of benefits from the traditional system. Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent rate of return” - after inflation - “which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual’s benefits would be zero if his personal account earned a 3 percent rate of return.”

Translation: If you put part of your payroll taxes into a personal account, your future benefits will be reduced by an amount equivalent to the amount you would have had to repay if you had borrowed the money at a real interest rate of 3 percent.

Peter Orszag of the Brookings Institution got it exactly right: “It’s not a nest egg. It’s a loan.”

For years, privatizers - including Mr. Bush - have claimed that people would do better with private accounts than with traditional Social Security even if they played it safe and invested in U.S. government bonds (which yield 3 percent after inflation).

But the official at the briefing made it clear that his boss was fibbing: if you invested your private account in government bonds, you would face benefit cuts equal in value to your investment, so you would be no better off than under the current system.

The only way to get ahead would be to invest in risky assets like stocks, and hope for higher yields. But if the investment went wrong and you earned less than 3 percent after inflation, your benefit cuts would leave you poorer than if you had never opened that private account.

So people are expected to take a loan from the government and use it to buy stocks, and if that turns out to have been a mistake - well, too bad.

Experts usually tell people to plan for their retirement by investing in a mix of stocks and bonds. They disapprove strongly of speculation on margin: borrowing to buy stocks. Yet Mr. Bush wants tens of millions of Americans to do exactly that.

Meanwhile, what does any of this have to do with the ostensible purpose of the whole thing: saving Social Security?

Here’s the senior official again: “In a long-term sense, the personal accounts would have a net neutral effect on the fiscal situation of Social Security.” The government would have to borrow huge sums up front to create the personal accounts - $4.5 trillion in the first two decades - but it would supposedly make up for all that borrowing with offsetting cuts in account holders’ benefits many decades later.

Color me skeptical: will retirees with private accounts that performed badly really be forced to repay their loans in full? Even if they are, private accounts will at best have a “net neutral effect” - that is, they will do nothing to improve Social Security’s finances. Mr. Bush says the system faces a crisis; what does he propose to do about it?

The answer, presumably, is that his plan will also involve major benefit cuts over and above those associated with private accounts. And it’s true that you can improve Social Security’s finances with privatization, as long as you also slash benefits - just as you can kill a flock of sheep with witchcraft, provided you also feed them arsenic. (Thanks, M. Voltaire.)

Do you believe that we should replace America’s most successful government program with a system in which workers engage in speculation that no financial adviser would recommend? Do you believe that we should do this even though it will do nothing to improve the program’s finances? If so, George Bush has a deal for you.

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.)

Don’t Use FDR To Undermine Social Security
By James Roosevelt Jr.
The Boston Globe

January 31st, 2005

In his inaugural address, President George W. Bush invoked the name of my grandfather, President Franklin D. Roosevelt, as part of his campaign to privatize Social Security. Similarly, a political organization supporting that drastic change recently ran a television commercial using a newsreel clip showing President Roosevelt signing the Social Security Act into law. The implication that FDR would support privatization of America’s greatest national program is an attempt to deceive the American people and an outrage.

President Roosevelt founded Social Security for very basic but important reasons. He believed that the only enemy that could ever defeat the United States was fear itself. He and my grandmother, Eleanor, looked at America and found fear of want — particularly after retirement or loss of a parent. Today, thanks in large part to Social Security, the number of older Americans below the poverty line has dropped from almost 50 percent to only 8 percent.

FDR believed that Social Security should be simple, guaranteed, fair, earned, and available to all Americans. President Roosevelt was adamant that Social Security was an insurance program to provide basic needs in retirement.

As a former Wall Street lawyer, my grandfather fully supported the opportunity of every American to have fair investment opportunities. But Social Security was — and is — something different. It was — and is — the guaranteed basis of a secure retirement. The risk is that future retired Americans will lose that assurance if the guaranteed benefit is eliminated. Drastic changes that divert the payroll tax to privatization will almost certainly eliminate that guaranteed benefit by crippling the ability to pay benefits, imposing trillions of dollars of new costs on the government and creating massive federal debt. Privatization threatens to bring about the collapse of the entire Social Security system.

FDR was realistic about the need to adapt Social Security as the workforce evolved. In my office I have his original handwritten note to my father outlining the principles I’ve just discussed. By the time the program was enacted in 1935, the details were quite different. But the principles remained the same.

Throughout the six successful decades of Social Security, it has been adjusted in both benefits and revenues. But it has continued to observe FDR’s principles of a secure, guaranteed retirement income provided by an insurance system that all workers pay for. Then, as now, the key to taking the fear out of the Social Security debate is speaking truthfully. Instead, the proponents of privatization have not only misused the name and image of my grandfather, they have mischaracterized undisputed facts to create a phony impetus for abandonment of the program.

Those who are seeking immediate, drastic change should recognize that even the Social Security trustees appointed by the president agree that Social Security with no changes could pay full benefits until 2042, even under pessimistic assumptions about economic growth. They should recognize that the Congressional Budget Office says that Social Security with no changes could pay full benefits until 2052. They should recognize that even then benefits would be cut only about 25 percent if there were no changes, not nearly as drastically as most private account proposals would cut them. The lies and half-truths from the proponents of privatization must stop.

Most of all, the creation of fear by the unjustified use of words like “crisis” and “bankruptcy” is destructive of a reasonable debate about what adjustments to Social Security will ensure the payment of full benefits throughout the 21st century. Every honest person knows that there is no crisis, there is no threat of bankruptcy, and that what is needed are adjustments, not drastic measures like privatization. Just as bad is the use of terms like “worthless IOUs” to describe US Treasury bonds held by the trust fund. These are scare tactics designed to create fear.

These attempts to divide grandparents, parents, and children are an attack on the most successful program this country has ever had. Social Security unites the interests of my parents’ generation, my contemporaries, and my children’s generation. It can be strengthened with incremental changes. To achieve that, the Congress and the White House must work together — without ideological agendas. FDR’s goal of freedom from fear can be preserved by truthful, reasonable negotiation that is free of false implications and misrepresentation.

James Roosevelt Jr. is a lawyer and former associate commissioner of Social Security.

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.)

The Free Lunch Bunch
By Paul Krugman
The New York Times

January 21st, 2005

Did they believe they would be welcomed as liberators? Administration plans to privatize Social Security have clearly run into unexpected opposition. Even Republicans are balking; Representative Bill Thomas says that the initial Bush plan will soon be a “dead horse.”
That may be overstating it, but for privatizers the worst is yet to come. If people are rightly skeptical about claims that Social Security faces an imminent crisis, just wait until they start looking closely at the supposed solution.

President Bush is like a financial adviser who tells you that at the rate you’re going, you won’t be able to afford retirement - but that you shouldn’t do anything mundane like trying to save more. Instead, you should take out a huge loan, put the money in a mutual fund run by his friends (with management fees to be determined later) and place your faith in capital gains.

That, once you cut through all the fine phrases about an “ownership society,” is how the Bush privatization plan works. Payroll taxes would be diverted into private accounts, forcing the government to borrow to replace the lost revenue. The government would make up for this borrowing by reducing future benefits; yet workers would supposedly end up better off, in spite of reduced benefits, through the returns on their accounts.

The whole scheme ignores the most basic principle of economics: there is no free lunch.

There are several ways to explain why this particular lunch isn’t free, but the clearest comes from Michael Kinsley, editorial and opinion editor of The Los Angeles Times. He points out that the math of Bush-style privatization works only if you assume both that stocks are a much better investment than government bonds and that somebody out there in the private sector will nonetheless sell those private accounts lots of stocks while buying lots of government bonds.

So privatizers are in effect asserting that politicians are smart - they know that stocks are a much better investment than bonds - while private investors are stupid, and will swap their valuable stocks for much less valuable government bonds. Isn’t such an assertion very peculiar coming from people who claim to trust markets?

When I ask privatizers that question, I get two responses.

One is that the diversion of revenue into private accounts doesn’t have to lead to government borrowing, that the money can come from, um, someplace else. Of course, many schemes look good if you assume that they will be subsidized with large sums shipped in from an undisclosed location.

Alternatively, they point out that stocks on average were a very good investment over the last several decades. But remember the disclaimer that mutual funds are obliged to include in their ads: “past performance is no guarantee of future results.”

Fifty years ago most people, remembering 1929, were afraid of the stock market. As a result, those who did buy stocks got to buy them cheap: on average, the value of a company’s stock was only about 13 times that company’s profits. Because stocks were cheap, they yielded high returns in dividends and capital gains.

But high returns always get competed away, once people know about them: stocks are no longer cheap. Today, the value of a typical company’s stock is more than 20 times its profits. The more you pay for an asset, the lower the rate of return you can expect to earn. That’s why even Jeremy Siegel, whose “Stocks for the Long Run” is often cited by those who favor stocks over bonds, has conceded that “returns on stocks over bonds won’t be as large as in the past.”

But a very high return on stocks over bonds is essential in privatization schemes; otherwise private accounts created with borrowed money won’t earn enough to compensate for their risks. And if we take into account realistic estimates of the fees that mutual funds will charge - remember, in Britain those fees reduce workers’ nest eggs by 20 to 30 percent - privatization turns into a lose-lose proposition.

Sometimes I do find myself puzzled: why don’t privatizers understand that their schemes rest on the peculiar belief that there is a giant free lunch there for the taking? But then I remember what Upton Sinclair wrote: “It is difficult to get a man to understand something when his salary depends on his not understanding it.”

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.)

E-mail: krugman@nytimes.com