A few days ago, I read Nicholas Kristof's piece in the NY Times (November 6, 2010) wherein he likens the US, to a "Banana Republic". In these nations the wealthiest one-percent of the population may garner as much as 20 percent of the economic resources leaving only 80% to be divided among the 99% of the rest of the population. The term "banana republic" (think of Honduras or Guatemala as typical examples) are countries where powerful foreign companies exploit a nation for its agricultural output, pay-off elected officials and corrupt the legal government as a means to maximize profits. The United Fruit Company of the 1930s comes readily to mind. In such circumstances it is only to be expected that the chosen few elites who cooperate and collude with the foreigners are those who typically garner the lion's share of the wealth. Thus the hope for a reasonably humane life in such places is restricted --where basic infrastructure, medical care, housing, public transportation and other services are all lacking or severely limited since the elite and the foreigners care little for these benefits. But how can Kristof describe the conditions in OUR country as a banana-republic? Anyone I ask about wealth distribution and banana republics either have no clue about our wealth distribution, see themselves as "quite well off" and see no relationship between the USA and Guatemala. Those that have an opinion indicate that "perhaps the top wealthy 20% of the population may control about that much or a little more of the nation's income and goods. (I did get one interesting comment from a friend who lives in Manhattan. He was one of the few who was even aware of the purchasing power of the super wealthy. He used a count of the number of Christian Louboutin women's shoes he observed on Manhattan sidewalks as a rough measure of the local economy. Since the shoes are easily identifiable by their shiny red-lacquered soles, the exorbitantly priced footwear---some costing well over $2,500 a pair--are easy to spot. He was the only one I encountered who had some remote idea of the disparity in wealth in the City, his own modest economic status and the high level of others.
In an interesting study conducted in 2005, researchers from Duke and Harvard Universities probed the perceptions of wealth distribution in the USA by interviewing a large representative sample and posing the question: how much should the top twenty percent of the population earn?
In an interesting study conducted in 2005, researchers from Duke and Harvard Universities probed the perceptions of wealth distribution in the USA by interviewing a large representative sample and posing the question: how much should the top twenty percent of the population earn?
"The report concludes, that 92 percent of the respondents....believed that the top 20 percent of a population should own only 32 percent of a nation's wealth. More than 90% of the respondents said they'd rather live in a country with a wealth distribution in which the wealthiest should not own more than about a third of the nation's wealth." (See:"Building a Better America -- One Wealth Quintile At A Time" by Dan Ariely of Duke University and Michael I. Norton of Harvard Business School from Huffington Post 9-23-10 http://www.huffingtonpost.com/2010/09/23/americans-support-wealth-redistribution_n_736132.html). (rjkspeaks author's note: In Sweden the top 20% own about 32 % of that nation's wealth, this is not unusual. In France the top 20% control about 40% of the nation's wealth. In Italy the top 20% control 36% of that nation's wealth, while in Germany the top 30% control about 51% of the wealth.)
But today, the USA, the richest nation in the world, is very much unlike Sweden (or other modern democratic industrialized nations for that matter). The way wealth and income are distributed in the US does resemble a banana republic as Kristof claims. Today, the richest Americans--those in the top one-percent take home about 24% of the nation's "pie" leaving only 76% of the wealth for the remaining 99% of the population. If we examine the top 20% of present-day American wage-earners, we learn that they garner about 84% of the total wealth leaving only 16%!!!!!! of the national pie to be divided up by the remaining 80% of the population. That does not seem fair does it? No, it is not fair and even seems un-American! In most modern, western industrialized nations...these USA figures stand out in contrast like a sore thumb.
But things were quite different here in the USA not so long ago. Back in 1976, the same 1%group at the top took home only 9% of the total nation's income (rather than the 24% of today). But since then, in little more than three decades, their "take" increased nearly three-fold. How did this great "condensation of wealth" occur? (See:http://en.wikipedia.org/wiki/Economic_inequality#Social_cohesion)
Paul Krugman of the NY Times states that one cause of inequality of wealth distribution in the USA is globalization (which has resulted in many higher paying jobs to disappear offshore), and to "fragmentation of means of production" where labor-intensive aspects of a manufacture process might be "farmed out" to nations where cheap labor can be used to reduce costs for production aspects, while engineering, marketing and advertising of a product might remain in the home country. Others argue that technological innovation and automation have reduced demand for labor.
How did this happen to the US?
One reason has been the American economic model which has been in place for these last decades. According to an off shore observer--German Finance Minister Wolgang Shauble (responding to a question regarding German export surpluses), states: "The American growth model.........is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, but they don't include German export surpluses." (Der Spiegle: November 6, 2010)
So how did we get here? Is Schauble correct?: Have we inflated our financial sector and neglected our small and medium sized businesses? Our small and medium sized firms are the traditional heart of our economy, the businesses which employ the vast majority of our working population...where decent salaries are earned...where benefits generally are substantial and which help generate the bulk of our federal taxes. But we ignored these firms to favor the more influential US financial sector. This is not good for the USA in general and not too smart.
Favoritism to the financial sector helps to explain why our unemployment figures (formally now at 9.6%) are so difficult to change. By neglecting our small and medium sized businesses the engines of income and employment we have set the stage for the present unhappy employment situation. Now, after decades of neglect, we have fewer of these businesses and fewer places to stimulate for increased employment.
The financial sector which we have favored over the last decades by reducing government oversight and by Reagan-encouraged deregulation have increased questionable loans to home-buyers. They lowered the standards for borrowers. They encouraged banks to make more loans to less qualified lenders. Then they took these mortgages, bundled them together to create "assets" or commodities which they sold as "bank stocks", then, using these created assets, they further diced up the bundled mortgages to create other "products" or derivatives which permitted banks to take bets on the fact that these manufactured assists were going to increase or decrease in value. When the economy faltered, and people defaulted on their loans...many of these mortgages became worthless paper---but where were they? They were sliced and diced into many products and sold to investors by our biggest banks. The result was that the entire house of cards came down around the banker's shoulders. The government responded with a massive bailout of the the banks called the Troubled Asset Relief Program (TARP). But that did not stop them from accepting TARP funds for their erroneous ways-- a program which paid them handsomely for their perfidy. Finally, it did not prevent banks and financial institutions from continuing to give out massive and embarrassing bonuses to their top staff members. These activities only exacerbated the uneven distribution of wealth...
But today, the USA, the richest nation in the world, is very much unlike Sweden (or other modern democratic industrialized nations for that matter). The way wealth and income are distributed in the US does resemble a banana republic as Kristof claims. Today, the richest Americans--those in the top one-percent take home about 24% of the nation's "pie" leaving only 76% of the wealth for the remaining 99% of the population. If we examine the top 20% of present-day American wage-earners, we learn that they garner about 84% of the total wealth leaving only 16%!!!!!! of the national pie to be divided up by the remaining 80% of the population. That does not seem fair does it? No, it is not fair and even seems un-American! In most modern, western industrialized nations...these USA figures stand out in contrast like a sore thumb.
But things were quite different here in the USA not so long ago. Back in 1976, the same 1%group at the top took home only 9% of the total nation's income (rather than the 24% of today). But since then, in little more than three decades, their "take" increased nearly three-fold. How did this great "condensation of wealth" occur? (See:http://en.wikipedia.org/wiki/Economic_inequality#Social_cohesion)
Paul Krugman of the NY Times states that one cause of inequality of wealth distribution in the USA is globalization (which has resulted in many higher paying jobs to disappear offshore), and to "fragmentation of means of production" where labor-intensive aspects of a manufacture process might be "farmed out" to nations where cheap labor can be used to reduce costs for production aspects, while engineering, marketing and advertising of a product might remain in the home country. Others argue that technological innovation and automation have reduced demand for labor.
How did this happen to the US?
One reason has been the American economic model which has been in place for these last decades. According to an off shore observer--German Finance Minister Wolgang Shauble (responding to a question regarding German export surpluses), states: "The American growth model.........is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, but they don't include German export surpluses." (Der Spiegle: November 6, 2010)
So how did we get here? Is Schauble correct?: Have we inflated our financial sector and neglected our small and medium sized businesses? Our small and medium sized firms are the traditional heart of our economy, the businesses which employ the vast majority of our working population...where decent salaries are earned...where benefits generally are substantial and which help generate the bulk of our federal taxes. But we ignored these firms to favor the more influential US financial sector. This is not good for the USA in general and not too smart.
Favoritism to the financial sector helps to explain why our unemployment figures (formally now at 9.6%) are so difficult to change. By neglecting our small and medium sized businesses the engines of income and employment we have set the stage for the present unhappy employment situation. Now, after decades of neglect, we have fewer of these businesses and fewer places to stimulate for increased employment.
The financial sector which we have favored over the last decades by reducing government oversight and by Reagan-encouraged deregulation have increased questionable loans to home-buyers. They lowered the standards for borrowers. They encouraged banks to make more loans to less qualified lenders. Then they took these mortgages, bundled them together to create "assets" or commodities which they sold as "bank stocks", then, using these created assets, they further diced up the bundled mortgages to create other "products" or derivatives which permitted banks to take bets on the fact that these manufactured assists were going to increase or decrease in value. When the economy faltered, and people defaulted on their loans...many of these mortgages became worthless paper---but where were they? They were sliced and diced into many products and sold to investors by our biggest banks. The result was that the entire house of cards came down around the banker's shoulders. The government responded with a massive bailout of the the banks called the Troubled Asset Relief Program (TARP). But that did not stop them from accepting TARP funds for their erroneous ways-- a program which paid them handsomely for their perfidy. Finally, it did not prevent banks and financial institutions from continuing to give out massive and embarrassing bonuses to their top staff members. These activities only exacerbated the uneven distribution of wealth...
That's how we got here.
.
No comments:
Post a Comment