Category Archives: Poverty & Inequality

Education Impossible, Poverty and Inequality, New Zealand’s Neoliberal Legacy – Principal of one of NZ’s most challenging schools.

‘I shut my door and burst into tears’.

I’ve travelled the world. I have seen hard and I have done rough. But this was something else. It was not how a school should function.

Very few of our kids were actually functioning as they should. It broke my heart every single day.

Our teachers are doctors, psychologists, counsellors, behavioural therapists, and, for a small part of their day, educators.

These are beautiful kids, they can be anything they want to be, they just need to know we believe in them.

At 9am on my first day as principal of a small primary school, I shut my office door and burst into tears. After just 30 minutes on the job, I’d been sworn at by a child, abused by a parent, and a teacher had threatened to walk out. It only got worse. I had kids breaking windows. There were four or five fist fights a day. The police were on call.

I’ve travelled the world. I have seen hard and I have done rough. But this was something else. It was not how a school should function.

The behaviour issues meant there was no such thing as learning. For six weeks, I went home crying every night and said ‘I’m not going back.’ But I did. Because nothing has ever beaten me, and I was furious that this was happening to our children.
I wrote a list of every child in our school. We identified all of their needs. Seventy five per cent of our kids had high-level health, wellbeing, behaviour or academic issues. Very few of our kids were actually functioning as they should. It broke my heart every single day.

So our staff meetings weren’t about appraisals or the curriculum, they were about survival. How do we get to day two? How do we get to day three? We had to go back to basics before we could even start teaching.
I began to understand what was going on in the community. In one family, the kids’ clothes were dirty because they had no power. In another, the fridge didn’t work, there were rats in the walls, and the ceiling leaked. Their kids were constantly sick. It was clear the landlord didn’t care: I suspected in his eyes they weren’t “good enough” people to have the house repaired.

Some kids weren’t at school because their parents had no money for petrol. The stress was immense, and there were a lot of mental health issues. Tough, then, to bring your child up with a lust for life.

When I realised that this was bigger than me, I reached out to everyone who could help. The kids lacked resilience. If someone said “boo” to them in the playground there was a fight, or someone was crying. So we ran programmes about friendship and anger management. The kids have learnt to brainstorm, and problem solve, and communicate. Now we don’t have fights. It meant that in term two, we could start teaching the curriculum.

We realised the other big issue was hunger. When you get to the bottom of why a kid is acting up, it’s often because they haven’t eaten anything that day. Now, with KidsCan’s help, I watch 15 to 20 kids sitting around the school’s breakfast table every morning, chatting over a hot meal of baked beans. It’s a really positive start to the day. They know there’s no shame in needing food, if anyone is hungry they can go into the kitchen and help themselves to snacks too.

The change is huge. They have energy. In term one we struggled hugely with exercise. Everyone would opt out. Now, every morning we pump the sound system and everyone walks or runs laps of the field to ready us for learning. They go for it! We don’t have a single kid that opts out of exercise now, because they’ve got food in their bellies, and that makes them feel happier and more secure.

The day we handed out KidsCan’s jackets and shoes was incredible, the kids couldn’t believe that someone would give them something. I’ve never seen them that excited. They said, “oh Miss, this is the coolest thing I own.” They literally walked higher and taller and prouder. The parents were gobsmacked; many said they just couldn’t have afforded them. And because they have that extra money, it seems the families’ out-of-school lives are better too.

In term one we were too terrified to take the kids out of school. But in term three I took them out to the zoo. We all wore our jackets and I said to them, “we’re a team, we’re a unit”. I could not have been more proud. It was an amazing day with not a single behaviour issue. I hardly see students in my office in trouble anymore. I see them for stickers, and pencils for good writing, and for a hug if they need it.

But caring for these kids does take its toll. Our teachers are doctors, psychologists, counsellors, behavioural therapists, and, for a small part of their day, educators. My biggest fear for our kids is that their needs are far greater than the Government recognises. They don’t understand what’s really happening in our schools. They’ve just been setting standards for kids, and comparing them as if they all arrive at school on an equal footing. They don’t.

These are beautiful kids. They just need to know we believe in them. Sometimes I’ll purposefully leave my class and put a child in charge. Once, one boy said “Miss, he’s the worst person to put in charge!”
I said, “No he’s not, I’ve picked him, and he’s going to do it, just you watch.” I came back in and everything was perfect.
We built that child up. He sat there with a full tummy, feeling warm, with us supporting him, all those things together create success. Many of the kids recognise they don’t have as much money as others, so they think they’re not as good as them. I want them to throw all that away and know they can be anything they want to be.

Stuff.co.nz

To sponsor a Kiwi kid in need for $20 a month, visit KidsCan

The Suffocation of Democracy – Christopher R. Browning.

Trump, History Repeats.


In the 1920s, the US pursued isolationism in foreign policy and rejected participation in international organizations like the League of Nations. America First was America alone, except for financial agreements like the Dawes and Young Plans aimed at ensuring that our “free-loading” former allies could pay back their war loans. At the same time, high tariffs crippled international trade, making the repayment of those loans especially difficult. The country witnessed an increase in income disparity and a concentration of wealth at the top, and both Congress and the courts eschewed regulations to protect against the self-inflicted calamities of free enterprise run amok. The government also adopted a highly restrictionist immigration policy aimed at preserving the hegemony of white Anglo-Saxon Protestants against an influx of Catholic and Jewish immigrants. (Various measures barring Asian immigration had already been implemented between 1882 and 1917.) These policies left the country unable to respond constructively to either the Great Depression or the rise of fascism, the growing threat to peace, and the refugee crisis of the 1930s.

New York Review of Books

How shareholder profits conquered capitalism, and how workers can win back its benefits for themselves – Louis Brennan, Trinity College Dublin.

It is past the time that business schools should smarten up, jettison this “dumb” shareholder value dogma, and start teaching a version of capitalism less damaging to the interests of society.

The Conversation

A new Authoritarian Axis demands an international progressive front – Bernie Sanders.

Those of us who believe in democracy, who believe that a government must be accountable to its people, must understand the scope of the challenge if we are to effectively confront it.

There is a global struggle taking place of enormous consequence. Nothing less than the future of the planet economically, socially and environmentally is at stake.

At a time of massive wealth and income inequality, when the world’s top 1% now owns more wealth than the bottom 99%, we are seeing the rise of a new authoritarian axis.

While these regimes may differ in some respects, they share key attributes: hostility toward democratic norms, antagonism toward a free press, intolerance toward ethnic and religious minorities, and a belief that government should benefit their own selflsh flnancial interests. These leaders are also deeply connected to a network of multibillionaire oligarchs who see the world as their economic plaything.

Those of us who believe in democracy, who believe that a government must be accountable to its people, must understand the scope of this challenge if we are to effectively confront it.

It should be clear by now that Donald Trump and the rightwing movement that supports him is not a phenomenon unique to the United States. All around the world, in Europe, in Russia, in the Middle East, in Asia and elsewhere we are seeing movements led by demagogues who exploit people’s fears, prejudices and grievances to achieve and hold on to power.

This trend certainly did not begin with Trump, but there’s no question that authoritarian leaders around the world have drawn inspiration from the fact that the leader of the world’s oldest and most powerful democracy seems to delight in shattering democratic norms.

Three years ago, who would have imagined that the United States would stay neutral between Canada, our democratic neighbor and second largest trading partner, and Saudi Arabia, a monarchic, client state that treats women as third-class citizens? It’s also hard to imagine that Israel’s Netanyahu government would have moved to pass the recent “nation state law”, which essentially codifies the second-class status of Israel’s non-Jewish citizens, if Benjamin Netanyahu didn’t know Trump would have his back.

All of this is not exactly a secret. As the US continues to grow further and further apart from our longtime democratic allies, the US ambassador to Germany recently made clear the Trump administration’s support for rightwing extremist parties across Europe.

In addition to Trump’s hostility toward democratic institutions we have a billionaire president who, in an unprecedented way, has blatantly embeded his own economic interests and those his cronies into the policies of government.

Other authoritarian states are much farther along this kleptocratic process. In Russia, it is impossible to tell where the decisions of government end and the interests of Vladimir Putin and his Circle of oligarchs begin. They operate as one unit. Similarly, in Saudi Arabia, there is no debate about separation because the natural resources of the state, valued at trillions of dollars, belong to the Saudi royal family. In Hungary, far-right authoritarian leader Viktor Orban is openly allied with Putin in Russia. In China, an inner circle led by Xi Jinping has steadily consolidated power, clamping down on domestic political freedom while it aggressively promotes a version of authoritarian capitalism abroad.

We must understand that these authoritarians are part of a common front. They are in close contact with each other, share tactics and, as in the case of European and American rightwing movements, even share some of the same funders. The Mercer family, for example, supporters of the infamous Cambridge Analytica, have been key backers of Trump and of Breitbart News, which operates in Europe, the United States and Israel to advance the same anti-immigrant, anti-Muslim agenda. Republican megadonor Sheldon Adelson gives generously to rightwing causes in both the United States and Israel, promoting a shared agenda of intolerance and illiberalism in both countries.

The truth is, however, that to effectively oppose rightwing authoritarianism, we cannot simply go back to the failed status quo of the last several decades. Today in the United States, and in many other parts of the world, people are working longer hours for stagnating wages, and worry that their children will have a lower standard of living than they do.

Our job is to fight for a future in which new technology and innovation works to benefit all people, not just a few. It is not acceptable that the top 1% 0f the world’s population owns half the planet’s wealth, while the bottom 70% of the working age population accounts for just 2.7% of global wealth.

Together governments of the world must come together to end the absurdity of the rich and multinational corporations stashing over $21tn in offshore bank accounts to avoid paying their fair share of taxes and then demanding that their respective governments impose an austerity agenda on their working families.

It is not acceptable that the fossil fuel industry continues to make huge profits while their carbon emissions destroy the planet for our children and grandchildren.

It is not acceptable that a handful of multinational media giants, owned by a small number of billionaires, largely control the flow of information on the planet.

It is not acceptable that trade policies that benefit large multinational corporations and encourage a race to the bottom hurt working people throughout the world as they are written out of public view.

It is not acceptable that, with the cold war long behind us, countries around the world spend over $1tn a year on weapons of destruction, while millions of Children die of easily treatable diseases.

In order to effectively combat the rise of the international authoritarian axis, we need an international progressive movement that mobilizes behind a vision of shared prosperity, security and dignity for all people, and that addresses the massive global inequality that exists, not only in wealth but in political power.

Such a movement must be willing to think creatively and boldly about the world that we would like to see. While the authoritarian axis is committed to tearing down a post second world war global order that they see as limiting their access to power and wealth, it is not enough for us to simply defend that order as it exists now.

We must look honestly at how that order has failed to deliver on many of its promises, and how authoritarians have adeptly exploited those failures in order to build support for their agenda. We must take the opportunity to reconceptualize a genuinely progressive global order based on human solidarity, an order that recognizes that every person on this planet shares a common humanity, that we all want our children to grow up healthy, to have a good education, have decent jobs, drink Clean water, breathe clean air and live in peace.

Our job is to reach out to those in every corner of the world who share these values, and who are fighting for a better world.

In a time of exploding wealth and technology, we have the potential to create a decent life for all people. Our job is to build on our common humanity and do everything that we can to oppose all of the forces, whether unaccountable government power or unaccountable corporate power, who try to divide us and set us against each other. We know that those forces work together across borders. We must do the same.

Bernie Sanders, US Senator, Vermont

Common sense on Tax. Who said it was meant to be fair? – Brian Fallow.

The major part of a homeowner’s return on investment is the avoided cost of renting a similar property. It falls within the purist definition of income.

But perhaps the most unfortunate restriction on the scope of the Tax Working Group’s task, from the standpoint of fairness, is that it has been instructed not to consider the interaction between the tax system and the transfer (welfare) system.

It is the net effect of both tax and transfers which reduces the stark inequality of market incomes into the (still substantial) inequality of disposable incomes.

The OECD says New Zealand has the fourth least redistributive tax and transfer system among 30 rich countries it looked at.

The Government has given the Tax Working Group chaired by Sir Michael Cullen a well nigh impossible task.

Its terms of reference are peppered with the word “fair”. It occurs seven times. How can the tax system be made ”fair, balanced and efficient”?

But the terms of reference go on to rule out all the obvious ways of making it fairer.

For a start, the working group is not allowed to recommend any increase in income tax rates.

Yet there might well be a case for a more progressive income tax scale on vertical equity grounds. That is, the principle that those with higher incomes, or ability to pay, should pay a greater amount of tax.

And if they wanted to reduce the impact of bracket creep in the middle of the income distribution, the revenue cost could be reduced by introducing a new top rate for those with most ability to pay. Too bad, it is forbidden.

Inheritance tax is also ruled out of consideration, despite the obvious equity argument for having one. Yet legacies fall within economists’ conception of income what can be consumed in a given period while keeping real wealth intact and if you have an income tax, you should tax income. The broader the base, the lower rates can be.

Real capital gains are also income, and the Government has clearly pointed the tax working group’s gaze in that direction.

But the family home is off limits for any capital gains tax, and the ground under it for any land tax.

That is despite the fact that housing equity represents the lion’s share of household wealth, which is distributed even more unequally than income is.

The “third rail” (touch it and you die) status of owner-occupied housing would also rule out any attempt to tax imputed rents, which also count as economic income.

The major part of a homeowner’s return on investment is the avoided cost of renting a similar property. It falls within the purist definition of income, but the electoral fate of Gareth Morgan’s party last year suggests that persuading voters of the merits of such a reform is a forbidding challenge.

But perhaps the most unfortunate restriction on the scope of the Tax Working Group’s task, from the standpoint of fairness, is that it has been instructed not to consider the interaction between the tax system and the transfer (welfare) system.

Victoria University of Wellington economists Simon Chapple and Toby Moore, in a wide ranging and trenchant submission to the Tax Working Group, argue that this makes no sense.

It is the net effect of both tax and transfers which reduces the stark inequality of market incomes into the (still substantial) inequality of disposable incomes.

And, it turns out, less so here than in most other developed countries. Officials, in a background paper for the working group on tax and fairness, point out that the OECD reckons New Zealand has the fourth least redistributive tax and transfer system among 30 rich countries it looked at.

As one example of the incoherence of the tax benefit system, Chapple and Moore cite child support payments.

For someone on one of the main benefits, like Sole Parent Support, every dollar of child support reduces their benefit by $1, an effective tax rate of 100 per cent until the benefit payment is entirely clawed back by the Government.

For someone else who has a job well enough paid not to need a benefit, the same child support is tax-free income. How fair is that?

The tax welfare interface is riddled with such anomalies and perverse incentives.

Research by Patrick Nolan at the Productivity Commission, into the effective marginal tax rates which arise from the targeting of income support policies, indicates it is not uncommon for people to find themselves facing rates as high as 100 per cent. That is, they could significantly increase the number of hours they work and be not one dollar better off, because ofthe thresholds and abatement rates which apply.

These poverty traps are not so much a ditch as a crevasse.

Chapple and Moore also highlight the inconsistency between the tax and benefit systems in terms of the units they apply to individuals or families: “The benefit (or negative tax) system assesses need on the basis of family income. The income tax system assesses ability to pay on the basis of individual income.” We assess fairness or equity issues in terms of families, not individuals’ circumstances.

“Yet we have a tax system which bases income tax, which has as an important goal equity on individuals rather than families.”

They urge the Tax Working Group to look into the pros and cons of a family-based tax system.

“A lot of OECD countries, including the United States, adjust income tax to family circumstances,” says Chapple, a former chief economist at the Ministry of Social Development who now heads the Institute for Governance and Policy Studies.

All this would not be so bad if the newly formed Welfare Expert Advisory Group was going to get to grips with the complexities of the tax/welfare interface.

But it is not clear that it will.

Its brief does include giving “high level” recommendations for improving Working for Families.

And it is instructed to give ”due consideration to interactions between the welfare overhaul and related Government work programmes such as the Tax Working Group”.

So it arguably does have a mandate, should it wish, to get to grips with the often toxic interaction between the tax and welfare systems.

But it is far from clear that the Welfare Expert Advisory Group has the expertise, or for that matter the budget, to do so.

More likely, the issue will fall between the two stools.

For a Government that proclaims the reduction of child poverty to be a central goal, it is a striking omission.

Millennials are struggling. Is it the fault of the baby boomers? – Yvonne Roberts.

The postwar generation, now retiring in luxury, stands accused of a wilful failure to safeguard young people’s interests.

The late 1940s were about bombsites, rationing, loss and mourning, but amid the gloom a new generation was emerging. In the grim, grey aftermath of war, children were born on an unprecedented scale in a population explosion: the baby boomers born between 1946 and the mid 60s had arrived. It was time for a new life. It was time for the young to grow up with faith in a better tomorrow.

When we baby boomers reached adolescence, creating the teenager in the process, it was as if the floodlights had been switched on, revealing a colourful, contrary, anti authoritarian Britain. In our teens, with rock’n’roll if not much cash, we were the lucky, cocky generation.

Anthropologist Helen Fisher inelegantly described the maturing of this huge postwar bulge in the population as “like a pig moving through a python”, changing society as we grew older on a scale never known before. We challenged the Victorian puritanism, censorship, class snobbery and inhibitions of the establishment. Full employment put money in the pockets of managers and factory workers alike. In spanking new houses with inside lavatories and proper bathrooms, hire purchase allowed him (and less so, her) to spend, spend, spend as if, overnight, everyone had become a toff. It could only get better.

Yet today, “baby boomer” is a toxic phrase, shorthand for greed and selfishness, for denying the benefits we took for granted to subsequent generations, notably beleaguered millennials, who reached adulthood in the early years of this century. So, where did it all go so very wrong?

It may have been due partly to our irritating habit of hogging the cultural limelight, with constant references to the swinging 60s serenaded by endless revivals of Lazarus like pop groups who refuse to die. But there are a much more serious set of charges, too. We were and are accused of sabotaging our children’s future, hoarding power and money while expecting those with the least to foot the potentially hefty bills as we march towards our 90s.

Leading the flood of critics has been David Willetts, author in 2010 of The Pinch, a book that sparked a flood of furious debate. Lord Willetts, then a Conservative minister, is now chair of the Resolution Foundation think tank.

“The charge,” he declared, “is that the boomers have been guilty of a monumental failure to protect the interests of future generations.”

Next week, one jury will deliver its verdict: the Resolution Foundation’s intergenerational commission publishes its groundbreaking two -year investigation into millennial Britain on 8 May. The commission rightly says that intergenerational fairness is a major issue, but so too are the troubling inequalities within the generations. “Intergenerational war doesn’t reflect how people feel about the issues or how they live their lives as families,” says Torsten Bell, director of the foundation.

The commission signals that it is time to remodel the welfare state, which was crafted at a time when a pension was only expected to last a handful of years before death took its toll. Young people are deeply anxious about housing, jobs and pensions, while those who are older are concerned about health, social care, the fragility of the welfare state and the future of their own children.

“Everybody wants to fix this,” says Bell. “If we want to keep our promises to the different generations and maintain the welfare state we have to think radically about how we do this.”

The commission has already revealed a profound cross generational pessimism about the prospects of the young. The escalator that for decades ensured the younger generation had a better standard of living than their parents has stalled and that has ramifications for life. Britain along with Greece is now the most pessimistic among the advanced economic countries, a mood that has potentially catastrophic implications for a country’s wellbeing and resilience.

“When an entire cohort is not succeeding, everyone understandably feels a real need to fight tooth and nail to keep what they’ve got. The rich are much better suited to win that war,” Bell warns. “That’s a real challenge for social mobility, and a disaster for politics.”

Pessimism is not new. In the 1970s and 80s, inflation reached 21%, three million people were on the dole, poverty was soaring and Thatcherism had laid waste to manufacturing and industry. On a full grant, and from a working class background, I was one of the 8% who went to university, charged up with notions of (women’s) liberation, revolution and an envy of Mary Quant’s unaffordable wardrobe.

My best friend had left school at 16 and moved up the managerial ladder, earning what our mothers called “a good wage”. Pessimism was the national trait but we all had hope. I was 28 and single when I put a deposit on a tiny flat; my parents were in their late 40s before they took out a hefty mortgage on a modest bungalow. That escalator in action.

Life, money and opportunities had an elasticity that they lack today. A minority of millennials are rich but the majority are definitely not, while almost two million older pensioners, mainly female, the silent generation live in deep poverty.

The Resolution Foundation has provided forensic detail of how this has come about and why. A complex mix of reasons includes the financial crisis, austerity and reluctance by successive governments (albeit ones filled with baby boomers) to radically tackle the challenges of housing, health, social care, employment and a woefully deregulated market at a time when people are living so much longer, but no baby boomer banditry. Politicians have failed to decide equitably, in this different climate, who pays and how and what they receive in return.

We are facing a new set of problems,” says Frances O’Grady, general secretary of the TUC and a member of the commission. “We have people with degrees doing Mickey Mouse jobs and young people who will have no occupational pension and no house to sell to see them through old age. That’s not the fault of mum and dad. If we think that, we are tackling the wrong problems. It’s not about redistributing the crumbs from the rich man’s table but restoring fairness.”

So, according to the foundation, what is life like for the average millennial, in and outside London? For some, including women, ethnic minorities and LGBT groups, progress has come in terms of rights and personal freedoms. However, even at a time when unemployment is at its lowest and inflation minimal, aspirations of having a home, a fulfilling job and a higher income than the generation before are being extinguished.

Only a third of millennials own their own home, compared with almost two thirds of baby boomers at the same age. It will take a millennial on average 19 years to save for a deposit, compared with three years in the 1980s. A third of millennials will, it is predicted, have a lifetime of renting with less space, poorer conditions, longer commutes and more insecurity than the baby boomers experienced.

In the 1960s, those born before the second world war spent 8% of their income on housing that has risen to almost a quarter of net income for millennials. Right to buy has reduced social housing stock 55,000 homes sold in 10 years and house building is at half the annual need required. At the same time, private landlords lack proper regulation, so families can be evicted at two months’ notice, and rents can be astronomic.

Low wages are also endemic. Two out of five non graduate jobs are filled by people with degrees, so the less qualified, who formerly went into proper apprenticeships, are pushed into self employment, zero hours and agency work that suits some but not all. The proportion of low paid work done by young men increased by 45% between 1993 and 2015. Millennials who changed jobs in their mid 20s enjoyed 14% pay rises, higher still if they moving around the country for work. But insecurity reduces the appetite for risk, so many are staying put, receiving minimal salary increases.

“More and more young men have moved into the low paid, part time, service sector jobs that women have traditionally done,” Bell says. “They never expected to do that, and their dads didn’t do it. If a measure of your self esteem is how well you have done compared with your parents, that’s a blow. The good news is that women’s full time employment prospects have significantly improved but the goal wasn’t to improve poor job options for women while making them bad for young men.”

On current trends, given high rents, low wages, Brexit and, for some, the debt of university tuition fees, will millennials have sufficient funds in retirement? Under auto enrolment, 5% of a wage by 2019 will go into a pension pot, but on a low income, will increasing numbers of millennials opt out? In several decades’ time, millions of older people may be dependent on housing benefit, living in rented accommodation, and surviving on a state pension, which currently at £7,000 a year, is already not fit for purpose.

In contrast, some of us baby boomers, newly retired, are apparently living in an experiential paradise cruising the globe, contemplating buying a second home albeit dazed at how good pensions, secure employment and the fluke of buying at the outset of a period of rapid house inflation has catapulted us so much further, financially, than many of us expected to travel.

Some baby boomers are extremely wealthy in assets. We have power insofar as, currently, we are more likely to vote than the young. But we also pay taxes, help with childcare, volunteer and subsidise our grown up children. “Families are doing their bit,” says Lord Willetts. “The state needs to as well.”

The commission heard research carried out by Professor Karen Rowlingson, from the University of Birmingham, on the scale of support given by families. The middle classes, she says, pay for their grandchildren’s education and children’s housing; the working class take out loans and sell possessions to help with their children’s debts and day to day living. It’s self help that further entrenches deep inequality.

“The younger generations, aged 20-45, make up the majority of the electorate. The older voters are dying off,” says Rowlingson. “We can change policies and tackle this as a partnership between the generations.”

According to the Resolution Foundation, the cost of education, health and social security as a slice of GDP is predicted to rise at today’s prices by £24bn each year to 2030 and by £63bn a year to 2040. It’s plain that the tax burden on young people, already struggling to match the living standards of older generations, has to ease.

Ending the triple lock that updates the state pension by the highest of annual inflation, earnings or 2.500 could see 700,000 more pensioners living in poverty by 2040, Age UK has warned. “It’s not who gets the bigger pension,” O’Grady says. “It’s why no state pension is sufficient.”

The report’s proposals will be revealed next month. Options being considered include help with rental deposits, better regulation of the private rented sector, a re-evaluation of council tax (a family in a £100,000 house may pay five times more than a person living in a E 1m property); a look at inheritance and a radical reform of property taxation to help first time buyers.

The intergenerational commission’s invaluable work exposes how urgently capitalism has to be brought under control. It’s time to restore fairness to the contributory principle at the heart of a renewed welfare state, re-establish social justice and repair the damage done to confidence, trust, wellbeing and optimism by a situation where 90% of people manage on increasingly less, while the other 10% rapidly accrue more and more.

“Wealth differences also risk bleeding into other areas of life where they do not belong,” Bell warns. “Wealth status could determine not only where you can live, but the education you can get, the risks you can take and the job you can do. Wealth is profoundly reshaping Britain.”

Populism isn’t a dirty word it’s time for the left to reclaim it * Populism Now! – David McKnight.

When the political class adopted Neoliberalism, it effectively transferred significant amounts of political power, the democratic power of governments, to private corporations.

We need to take it back! (Hans)

David McKnight makes the case for a people power that doesn’t scapegoat immigrants or minorities.

INTRODUCTION

Here’s a quick quiz. What do the following political figures have in common: Pauline Hanson, Bill Shorten, Donald Trump, Jeremy Corbyn and Bernie Sanders?

Answer: all have been accused of populism. Whether they’ve bashed banks, billionaires or boat people, they’ve been damned as populists. Yet these political figures come from wildly different parts of the Left and Right. Can they all be populists?

Mostly, when I hear people damning someone as a populist, they are talking about a right-wing version. But it’s not that simple. In this book, I argue that a progressive version of populism exists too.

A progressive populism takes up the genuine economic grievances of everyday Australians without scapegoating migrants or minorities in the way Donald Trump and the proBrexit forces have done. In fact, a progressive form of populism is the best way of defeating the racist backlash of right-wing populism because it addresses the social and economic problems which partly drive the rise of right-wing populism. As well, it asserts our common humanity, whatever diversity we also express.

I first discovered populism when I began teaching investigative journalism in the late 1990s at university. I had some understanding of the subject already, having worked on the ABC’s investigative TV program Four Corners. Like other journalists, I knew about the role of investigative journalism in the Watergate scandal of the early 1970s. However, to teach it as an academic course I needed to know about its historical origins. I found that investigative journalism (originally called muckraking) began in the United States around 1900 during what Americans call ‘the Progressive Era’. It was called this because it was a period of radical ideas and activism about social reform. One expression of this was the emergence of a new political party, the People’s Party, in 1890-91. It stood for the interests of ordinary people farmers and workers against the ‘robber barons’ in the privately owned banking, oil and railway industries. Friends and enemies alike described the approach of the People’s Party as Populism and its supporters as Populists.

The muckraking journalists were crusaders on issues which they shared with the Populists. For example, in his book The Jungle, writer Upton Sinclair exposed the dangerous and filthy conditions endured by the Chicago meatworkers. Years later his book was recognised as one of the forces behind the introduction of food safety laws. One of the first female muckrakers, Ida Tarbell, exposed the ruthless practices of Standard Oil in crushing rival companies in a series of articles published in McClure’s Magazine, and eventually a book, The History of the Standard Oil Company. Today, Standard Oil is better known as Exxon and remains a ruthless corporation. Lincoln Steffens’ book The Shame of the Cities exposed the corruption of political machines linked to gambling, prostitution and bribery. Other muckrakers attacked the role of big money in government and the power of Wall Street. Their journalism, I realised, was a key contribution to the progressive causes shared with the Populists.

The key idea of the Populists was that the interests of ordinary people were in conflict with those of the elite. Some of the Populists had conspiratorial ideas about money and power but their movement was a powerful challenge to aggressive, unregulated big business. Having been on the Left of politics since my teens, I found this history of a forgotten reform movement fascinating. its goals of economic and social justice for ordinary people are still relevant today.

Years later I rediscovered American populism when I read a book by journalist Thomas Frank, What’s the Matter with Kansas? Published in the wake of the election of George W Bush, his book pointed out that Kansas, now a conservative Republican state, was once a centre of radical activity. One Kansas town produced a socialist newspaper, Appeal to Reason, which sold hundreds of thousands of copies. In the 1890s its farmers, driven to the brink of ruin by years of bad prices and debt, held huge meetings where Kansas radicals like Mary Elizabeth Lease urged the farmers to ‘raise less corn and more hell’. From this situation, the People’s Party emerged as the enemy of the ‘money power’ and as an alternative to both Democrats and Republicans. It advocated publicly owned railways and banks along with a progressive income tax on the rich. For this, Frank tells us, they were reviled ‘for their bumpkin assault on free market orthodoxy’.

In 2015 and 2016 I found myself hearing commentators talk about the rise of modern forms of populism during the looming US presidential election. Both Donald Trump and Bernie Sanders were referred to as populists. Sanders had opened his campaign with the statement: ‘This country and our government belongs to all of us, not just a handful of billionaires’. It was a modern echo of the progressive side of the American populist tradition. Although he didn’t win the Democrats’ presidential nomination, Sanders shifted the political agenda and challenged the untrammelled power of the wealthy in the name of ordinary people.

Trump, a right-wing populist, represented the worst aspects of popular prejudice. Yet he won. Like many others, I was stunned as I read the first online news reports announcing this. How could it have happened? One of the most illuminating insights came from Thomas Frank, who argued that Trump’s populist campaign on economic issues was far more important than most people realised at the time and had been the key to him winning crucial states. The abandoned factories and crumbling buildings in cities devastated by free trade deals had created a ‘heartland rage’ that swamped the Democrats.

All of this was ‘the utterly predictable fruit of the Democrats’ neoliberal turn’, he said. ‘Every time our liberal leaders signed off on some lousy trade deal, figuring that working-class people had “nowhere else to go”, they were making what happened last November, Trump’s win, a little more likely.’

Such sentiments inspired this book. And all of this is relevant to Australia because both our Labor and Liberal politicians have, in recent decades, largely accepted the principles of deregulation, privatisation and small government, together known as neoliberalism. In part, this book is an investigation into the failures of these principles in Australia.

The final reason for writing this book is more personal. I grew up in a single-income, bluecollar family with my mother suffering from a severe mental illness. Yet we survived and thrived thanks in part to a strong public sector, especially in health and education. This public sector was grounded in the major parties’ consensus that it was both morally obligatory and economically sound that important public services should be equally available to all and provided collectively. Now this consensus is being broken apart and discarded. This is not some misty-eyed memory about a non-existent golden age, an error often made by right-wing populists when they equate the White Australia Policy years with better conditions overall. Australia is a better and more open society today, not least because it is more culturally diverse. But in terms of simple practical things such as expecting a secure wellpaid job, social services and a home to live in, we are going backwards.

When I started researching this book in the wake of the shock Trump victory and the vote for Brexit I was already a critic of neoliberalism. But as I probed more deeply I grew angrier and angrier. My research revealed that the orthodoxies of deregulation and privatisation, regarded as supreme common sense by the political and economic elite, are radically transforming Australia. The gulf between billionaires and the poor is widening as old egalitarian Australia crumbles; deregulated banks have become parasitic to the rest of the economy; corporate tax avoidance is out of control; and our pay and conditions are being eroded. As it had with me, this has angered many ordinary Australians. Some falsely blame migrants and refugees while others rightly blame a corporate and political elite. To change things, we need to rebuild a new progressive agenda which unites ordinary Australians against these elitedriven policies.

Of prime importance in such a renewed progressive agenda is genuine action on the biggest danger of all, irreversible climate change, which will hit ordinary Australians first. A progressive populist approach aims to unite Australians in the broadest possible new movement one that will provide the necessary people power to avert the worst kinds of changes in the future. Nothing less than the survival of humanity is at stake.

CHAPTER 1

THE POLITICS OF POPULISM

We forced discussions on issues the establishment had swept under the rug for too long. We brought attention to the grotesque level of income and wealth inequality in this country and the importance of breaking up the large banks, we are stronger when we stand together and do not allow demagogues to divide us by race, gender, sexual orientation or where we were born.

US presidential candidate, Bernie Sanders

*

The establishment complains I don’t play by the rules. By which they mean their rules. We can’t win, they say, because we don’t play their game. We don’t fit in their cosy club. We don’t accept that it is natural for Britain to be governed by a ruling elite, the City and the tax-dodgers, and we don’t accept that the British people just have to take what they’re given.

British Labour leader, Jeremy Corbyn

*

With Donald Trump’s successful campaign to win the US presidency and Britain’s decision to ‘Brexit’ from Europe, we suddenly began to hear a lot of the word ‘populism’ in the political discourse. At first it was used to describe the attack Donald Trump made on illegal Mexican immigration when he announced his candidacy for the Republican nomination in mid 2015. With his trademark bombast, he declaimed, ‘When Mexico sends its people they’re not sending their best They’re sending people who have lots of problems They’re bringing drugs. They’re bringing crime. They’re rapists’. He then added, ‘and some, I assume, are good people’. His call to build a wall on the US-Mexico border (‘which Mexico will pay for’) became a recurrent theme of his campaign and later, his presidency.

Nor was his abuse limited to Mexicans. After a Muslim US citizen committed a terrorist attack in San Bernadino, California, Trump called for a ban preventing Muslims from entering the United States, at one point including those who were American citizens currently abroad. Trump’s campaign received what seemed to be a certain death blow in October 2016, when the Washington Post revealed an audio tape of his boast that, because he was ‘a star’, he could grab women ‘by the pussy’ and get away with it.

By the normal rules of elections in the United States and elsewhere, his popular support should have shrunk. Trump’s coded appeals to racism, crude misogyny and calculated abuse should have fatally wounded his bid for the White House. But his popular support grew and Trump eventually attained the most powerful position in the world. In office, he has confirmed the worst expectations, responding to North Korea’s threat to the United States with a warning that North Korea ‘will be met with fire and fury like the world has never seen before’, a thinly disguised threat to unleash a nuclear war.

How did we get into this situation? Trump’s election victory owed a lot to two factors. One was his economic populism, which criticised free trade and globalisation. This received a warm response from many working Americans. He threatened to withdraw the United States from the North American Free Trade Agreement. He promised to impose high tariffs on runaway US companies which moved production overseas. He threatened restrictions on imported Chinese goods. Globalisation, he said, helped ‘the financial elite’ while leaving ‘millions of our workers with nothing but poverty and heartache’. All the while he targeted the states hardest hit by economic globalisation. Much of this was downplayed or never reported by both social media and the traditional news media, which preferred to concentrate on his more colourful outbursts and tweets.

The second key to his victory was his skilful use of social media, which he credited with being a way to counteract what he called the ‘fake news’ propagated by mainstream news media. On Facebook and Twitter his popularity eclipsed that of Hillary Clinton and it was there that he circulated his own ‘alternative facts’. The algorithms of social media, which suggest news based on past activity, transformed this popularity into self-reinforcing echo chambers of Trump supporters. And all of this was fed by the crisis in traditional journalism, whose capacity to report news had been eroded by the power of that selfsame social media.

The election of Donald Trump has taken us all into a new and dangerous place. If it had been an isolated incident it would not matter so much. But it was far from that. A few months before Trump’s election, Britain went to the polls to decide whether or not to leave the European Union (EU). The vote was voluntary but the turnout was high. More than 30 million people voted, with a majority in favour of Britain’s exit, styled Brexit. Another victory for populism, said the commentators.

The British vote to leave the EU spanned traditional Right and Left and drew support from unexpected places. While the ‘Leave’ vote was highest in traditionally Conservative areas, it was also high in some working-class Labour strongholds. For some, voting to leave the EU was a protest against the economic effects of the globalised economy, with its problems of unemployment and low wages. For others, their main concern was the immigration which had ensued from open borders. ‘We want our country back!’ was a common cry. Donald Trump, then campaigning for president, hailed the Brexit vote as a ‘great victory’ and drew parallels to his own opposition to ‘rule by the global elite’. A new populist Right was on the move globally.

Soon populism seemed to be everywhere. In Europe the established parties saw their dominance challenged by right-wing populism. In France in 2017 the antiimmigrant and anti-Muslim National Front achieved 34 per cent of the presidential vote, its highest yet. That same year the far right Alternative for Germany won an unprecedented 13 per cent of the vote and 90 seats in the Bundestag. In the Netherlands Geert Wilders’ xenophobic Party for Freedom advanced in the 2017 general elections.

In Australia too Trump-style political disaffection is taking hold. A reputable study by academics at the Australian National University (ANU) shows that key indicators, including satisfaction with democracy, trust in government and loyalty to major parties are at record lows among Australians. The study was conducted following the July 2016 election and found that only 26 per cent of Australians think the government can be trusted (the lowest level since it was first measured in 1969). Forty per cent of Australians were not satisfied with democracy (the lowest level since the period after Gough Whitlam was dismissed in 1975); and there was a record low level of interest (30 per cent) in the 2016 election.

The study’s lead researcher, Professor Ian McAllister, said that we are seeing ‘the stirrings among the public of what has happened in the United States of the likes of Trump, Brexit in Britain, in Italy and a variety of other European countries, it’s coming here and I would have thought this a wake-up call for the political class’. Australian conservatives, hoping to take advantage of this disillusion, welcomed Trump’s victory, with Tony Abbott tweeting: ‘Congrats to the new president who appreciates that Middle America is sick of being taken for granted’. Mining magnate Gina Rinehart urged Australia to follow Trump’s lead and Andrew Bolt told his audience: ‘The revolution is on!’ Very much part of this phenomenon, Pauline Hanson’s One Nation party achieved an unprecedented four seats in the Senate in the 2016 election.

But what is populism?

To many, ‘populism’ is a shorthand term for pandering to people’s baser instincts, exemplified in Trump’s campaign and his presidency. It inflames a desire to blame ethnic and religious minorities; it is a lust for cheap popularity and it is a phony hostility to the Establishment and to ‘the elite’, such is the common understanding. Populist leaders are seen to be posing as outsiders and as representatives of the underdog. Above all, populism is regarded as a right-wing phenomenon.

But it’s not that simple. This book argues that a progressive version of populism exists too. A progressive populism fights for the genuine economic grievances of everyday people without blaming minorities or migrants. In fact, a progressive populism is a very good way to neutralise this sort of scapegoating because it addresses the social and economic problems which partly drive the rise of right-wing populism.

Populism is a notoriously loose description of a political stance. In many ways it is a style of doing politics rather than a series of particular policies. Some people think populism means trying to be popular, but this is misleading. The words populist and populism come from the Latin word for ‘the people’ (populus) what today we’d call the public. The meaning survives in the expression vox populi, the voice of the people. Generally speaking, populism is a style of politics which frames politics as a conflict between the people and an elite. But the identity of the people and the nature of the elite can vary widely. On this basis populism can be either a right-wing or a left-wing phenomenon. In some countries today, the traditional battle between right and left is being channelled through a populist filter.

Academic Margaret Canovan conducted one of the early studies of populism. She argues that there are two broad strands to populist movements. The first is rural, based on organisations of peasants or farmers, a kind which typically emerges when these people are confronting modernisation. The second is characterised by highlighted tensions between the elite and the grassroots. This can take the form of ‘idealisations of the man in the street or of politicians’ attempts to hold together shaky coalitions in the name of “the people”’. Canovan concludes that populism can take right-wing or left-wing forms but that ‘all forms of populism without exception involve some kind of exaltation of and appeal to “the people” and all are in one sense or another anti-elitist’.

The American writer John Judis, author of the recent book The Populist Explosion, also argues that populism is ‘not an ideology but a way of thinking about politics’. He too supports the view that populism can exist in both left and right forms. Left-wing populists champion the people against an elite or establishment (as in Occupy Wall Street’s slogan about the One Per Cent versus the 99 per cent). Right-wing populists are against an elite ‘that they accuse of coddling a third group, which can consist, for instance, of immigrants, lslamists or African American militants’.

Judis notes that the original US People’s Party was formed in the 1890s when Kansas farmers united with an early workers’ organisation and challenged the existing establishment of Republicans and Democrats. The People’s Party developed policies against monopolistic railroads and greedy banks and in favour of progressive income tax and expanding public controls. As one populist writer said, they aimed to get rid of ‘the plutocrats, the aristocrats, and all the other rats’. To the Australian Labor Party, emerging in the same tumultuous decade of the 1890s, the US People’s Party was something of a model and there were early proposals to call the new Australian party the People’s Party, rather than the Labour Party.

This progressive strand within American populism re-emerged in 2015-16 when Bernie Sanders competed with Hillary Clinton to become the Democrats’ presidential candidate. At the start of that campaign he was seen as little more than an eccentric, rumpled, 70-plus year old running an unusual campaign. One newspaper described him as a ‘grumpy grandfather type’ who ‘embraces his reputation for being gruff, abrupt and honest and promises to be bold’. As time went on, observers began to note the cheering, youthful crowds that he drew, his calls for a ‘political revolution’ and his strong social media campaign on Facebook.

Although he did not win the Democratic nomination, Sanders surprised everyone by doing well enough in the battle for the presidential nomination to win 23 primary and caucus races to Clinton’s 34. With no big corporate donors, he raised millions of dollars in small donations from a growing support base, especially from the young. Most surprising of all were his campaign’s public statements and appeals. Sanders attacked ‘the One Per Cent’ of super-rich people who had benefitted enormously from the globalised economy while others struggled to survive. In one speech at Liberty University, he said: ‘In my view there is no economic justice when the 15 wealthiest people in this country in the last two years saw their wealth increase by $170 billion’. It was a fact he repeated all through his energetic campaign.

Another Sanders target was the deregulated banking system that had caused the global financial crisis. Sanders charged: ‘Wall Street used their wealth and power to get Congress to do their bidding for deregulation and then, when Wall Street collapsed, they used their wealth and power to get bailed out’.‘ The contrast he pointed out in several speeches was with the 41 per cent of American workers who didn’t take a single day of paid vacation in 2015 and with the third of workers in the private sector who cannot even claim paid sick leave.

Like Trump, Bernie Sanders was also widely regarded as a populist, reviving a long American tradition in which the central conflict is seen to be between the people and the elite.

Sanders happily described himself as a democratic socialist and pointed to the socialdemocratic states of Scandinavia as models. In his platform, Sanders said he supported: a national public healthcare system; an end to corporate welfare; abolishing fees for college degrees; a full employment policy; raising the minimum wage to $15 an hour; and preventing ‘greed and profiteering of the fossil fuel industry’. The money to achieve these aims was to be raised by compelling wealthy individuals and corporations to pay their fair share of tax.

All of these policies, advocating a stronger role for government, effectively rejected the decades-long dominance of the ideology known as neoliberalism the ideology of small government, of globalising in the form of deregulated markets and of faith in market forces to guide and manage the economy.

Progressive populism in the Sanders mould attributes today’s social and economic problems not to migrants or minorities nor to the ‘politically correct’ mainstream media, but to the failure of neoliberal policies. And because progressive populism addresses the forces driving the rise of right-wing populism, it is the most effective antidote.

The political theorist Chantal Mouffe is not surprised by the rise of right-wing populism:

In a context where the dominant discourse proclaims that there is no alternative to the current neoliberal form of globalisation and that we have to submit to its diktats, it is small wonder that more and more workers are keen to listen to those who claim that alternatives do exist, and that they will give back to the people the power to decide.

And this is just what Trump promised. Unlike the campaign of Hillary Clinton, issues of economic injustice featured heavily in his winning campaign. Just a few days before the November election, Trump told a huge crowd in an aircraft hangar in Pittsburgh: ‘When we win, we are bringing steel back, we are going to bring steel back to Pennsylvania, like it used to be. We are putting our steel workers and miners back to work’. Trump touched a raw nerve. No steel mills now exist in Pittsburgh and hundreds of thousands of steelworkers had lost their jobs since the 1980s, in part due to freer global trade. Whether Trump was sincere in (or even capable of delivering) his promise to bring steel jobs back to Pittsburgh is not the point. Identifying economic grievances and blaming them on free trade and globalisation is almost unprecedented by a Republican candidate. More importantly, it was a challenge which Hillary Clinton, as a long time supporter of neoliberal free trade, could not rebut. As it turned out, Trump did win in Pennsylvania. It was one of the three ‘rust belt’ states that made the difference to victory or defeat in the presidential election.

Both Trump and Sanders were outsiders in US politics. Both denounced the domination of big business and the banks and blamed them for much of US economic woes. Both based their campaign on appeals to ordinary Americans and both were described as populists. Unlike Trump, Sanders was a progressive populist. When he talked about the elite and the establishment, he meant the economic elite and the corporate establishment. Unlike Trump, Sanders did not scapegoat immigrants or ethnic minorities.

The groundswell grows

The groundswell of populism soon saw Sanders joined by the leader of the British Labour Party, Jeremy Corbyn. When he began his election campaign in April 2017, Corbyn faced deep opposition from many of his fellow Labour members of parliament. Like most media commentators, they also believed that because of his leftwing history and left-wing policies he could not possibly win. And certainly he was in trouble at the beginning of the campaign, when polls were placing Labour up to 24 points behind the Conservatives.

From the start of the 2017 election campaign Corbyn framed the contest in the language of progressive populism. He described the election as a battle of ‘the establishment versus the people’ and promised to overturn ‘a rigged system’ that favoured the rich and powerful. Under him, Labour would not be part of the ‘cosy club’ whose members think it is natural for Britain to be ‘governed by a ruling elite, the City and the tax dodgers’, he said. His opponents believed such deeply controversial rhetoric was guaranteed to result in a huge loss.

But his message was straightforward and cut through the spin and PR fog of traditional political rhetoric. And these policies proved popular among the British people. Early opinion polling showed that up to 71 per cent of people supported his proposal to raise the minimum wage to ten pounds an hour. A similar proportion of the British public (62 per cent) supported his plan to raise taxes on the rich and high income earners.

Corbyn’s manifesto broke other unspoken rules of the economic consensus of neoliberalism. He argued that the railways and water supply should return to public ownership. He promised to extend free school meals by a tax on private school fees. He also urged increased funding for social housing, and his pledge to abolish university fees helped build a powerful momentum among young people, who registered to vote at unprecedented levels and voted Labour on election day.

The Conservatives had called the election, confident they would increase their majority in parliament, and Corbyn’s campaign of progressive populism destroyed their majority and almost beat them.

There were close parallels between the movements around Bernie Sanders and Jeremy Corbyn. Officials from Sanders’ campaign helped Corbyn with ideas on strategy and fundraising. Sanders himself visited Britain just days before the election campaign and drew comparisons between his own policies and Corbyn’s:

Too many people run away from the grotesque levels of income and wealth inequality that exist in the United States, the UK and all over the world Globalisation has left far too many people behind. Workers all over the world are seeing a decline in their standard of living. Unfettered free trade has allowed multinational companies to enjoy huge profits and make the very rich even richer while workers are sucked into a race for the bottom.

The spread of progressive populist ideas has not been confined to the United States and Britain. In Spain the progressive populist party Podemos emerged in 2014 and grew so rapidly that it secured 20 per cent in the 2015 elections, campaigning on an anti-austerity platform, supporting increased public spending and strong anti-corruption measures. In the 2016 election it retained its electoral support. In Greece, another new progressive party, Syriza, formed out of a coalition of left-wing and environment groups and received 35 per cent of the vote in the 2015 elections, later forming government. While the majority trend within European populism is rightwing, the significance of a new left populism should not be underestimated.

Neoliberal globalisation

Driving the emergence of right and left-wing populism is the set of policies known as neoliberalism.

Neoliberalism became the mindset of the political class in the 1980s and was a very deliberate project to wind back the welfare state, reducing the public sphere with its public goods of health, education, transport and culture, along with the tax system which paid for it.

The neoliberal project is based on the idea that the market is the most efficient distributor of goods because it combines the profit motive and competition. It takes no account of justice, inequality or social cohesion. Ultimately this promotes the transformation of all human relationships (not just economic ones) into commercial transactions.

It was neoliberalism with its floating currencies and deregulated markets which drove the present form of globalisation. But neoliberal globalisation means much more than a loosening of trade. It means the unplanned transfer of blue and white-collar jobs from erstwhile industrial countries to less developed nations. It also means national governments are less able to control what happens in their own society and economy.

When the political class adopted neoliberalism, it effectively transferred significant amounts of political power, the democratic power of governments, to private corporations. While benefitting a corporate elite, the neoliberal experiment demonstrably failed in the global financial crisis and the effects of that failure are still with us.

What had been a crisis of private debt was transformed by government bail-outs into an alleged crisis of public debt. This sleight of hand reinforced the neoliberal dogma that the problem was always governments. The ideology of ‘small government’ meant that governments imposed even more stringent cost-cutting measures.

The failure of neoliberalism in Australia

The populist groundswell in the United States, Britain and Europe and elsewhere is reflected by similar movements in Australia, prompted by similar causes. In the following chapters I examine the ways in which Neo-liberalism has failed to produce a good society, as well as its role in fostering a populist backlash.

First and most significantly, 30 years of neoliberal globalisation and deregulation have produced a polarisation of wealth which has undermined Australia’s egalitarian ethos. The gulf between the super-rich and the rest of us is widening. We are becoming a more divided society with a tiny wealthy elite at one extreme and a significant group of poor at the other.

Nor is it solely a matter of fuelling material inequality. As important as inequality (and more important in the long term) is climate change. The ideology of small government and deregulation is impeding our response to accelerating climate change despite the clear warning signs in record high temperatures and the bleaching of the Great Barrier Reef in Australia. Whatever combination of market and state arrangements is best at fostering renewable energy, it will need tough government action to implement this and to defeat the power of the coal and oil industries. To support such action we need a broad populist coalition of all the diverse forces demanding real action on climate.

And just as it has in the United States and Britain, privatisation is spreading throughout Australian society, changing services that used to be provided to all citizens into profitmaking enterprises. The sale of public assets like seaports, airports and electricity poles and wires has simply created expensive monopolies. Billions have also been wasted in attempting to privatise technical and vocational education. Despite these failures, private companies are now being encouraged to move deeper into education, aged care and disability services.

Likewise, Australia has its own rust belt of closed factories and, for those in employment, jobs are increasingly casual, part time and less secure. The deregulation of Australian workplaces means that for younger workers, jobs with paid holidays and fair wages are becoming less common. And thanks to a variety of temporary overseas visa schemes a casualised, cashinhand underclass is spreading in the agriculture, retail and hospitality sectors. Such workers are exploited and their labour conditions undermine those of local workers. This is not occurring accidentally but because economic orthodoxy (backed by employers) demands this labour deregulation. The resulting job insecurity combined with low wages is one factor stoking a right-wing populist backlash based on xenophobia and hostility to overseas workers.

While low-paid workers are made increasingly vulnerable, at the other end of the scale big corporations do everything they can to avoid paying tax, a practice made easier in the globalised world of neoliberalism. In 2014, the Australian branch of the tech giant Apple paid $80 million in tax just 1 per cent of its total Australian income of $6 billion. Its rival, Microsoft, paid just 5 per cent of its income. Over several years big mining companies like BHP and Rio Tinto shifted billions through Singapore, where tax rates can be a mere 2.5 per cent. Nor is it just corporations. Some of Australia’s richest families and individuals pay little or no tax. When the Panama Papers were leaked, up to 800 wealthy Australians were associated with shell companies in tax havens like Panama. Meanwhile, ordinary Australians are left to pick up the tab for hospitals, roads and schools, effectively subsidising those who refuse to pay their share.

Finally, compounding the problem of wealth inequality, the banking and finance sector has swollen enormously since it was deregulated. In Australia we have some of the biggest and most profitable banks in the world. Together they form a rapacious oligopoly which extracts more than $30 billion in profits each year from the rest of Australia.

In their zeal to lend money, deregulated banks have fuelled a housing price boom, the result of which is that fewer Australians now own their own home than 40 years ago.

It’s now time to look again at regulating banks and the finance industry to ensure that they act in the public interest.

Overall, the spread of neoliberal orthodoxy through society has corroded many of the institutions and relationships on which citizens rely and which offer protection from the vagaries of the market. This orthodoxy has shrunk the democratic space by removing all sorts of functions from the public to the private sphere. The real meaning of ‘small government’ is that we have ended up with a small democracy, because governments are still the only institutions we have for exercising our democratic, collective voice. The zealous advocacy of theories of selfinterest, competition and small government has led to a dead end.

All of this spawns populisms of both the Right and Left. The crucial point of difference between them concerns the meaning of and response to globalisation. Are the problems of globalisation primarily issues of economics and economic justice or are they mainly an issue of immigrants and of changing the ethnic mix? Progressive populists are alarmed by the damage that open economic borders, which import cheap products and export jobs, do to local jobs and the national economy. Right-wing populism dredges the deepest and most dangerous emotions to reject the changing ethnic mix which results after years of relatively open immigration.

When right-wing populists define what they mean by the ‘elite’ they take aim at the progressive middle class, the so-called politically correct, who abhor racism and gender inequality. Progressive populists, by contrast, define the ‘elite’ in economic terms as the super-rich and corporate moguls. When talking about ‘the people’, progressives seek to unify the middle class and working class in an alliance for reform. Progressive populists emphasise the common ground which the majority of people share on issues of economic justice.

By focussing attention on genuine economic grievances, a progressive populist agenda can undercut the way ethnic and religious minorities are demonised.

Some see progressive populism as the natural continuation and revival of social-democratic and labour politics which have been compromised by their turn to ‘third way’ politics. One critic is political theorist Chantal Mouffe. She argues that the neoliberal consensus between conservative and once-radical workers’ parties has created a favourable ground for the rise of populism because many people feel their voices are unheard and ignored in the representative system. The problem is that this often takes the form of a right-wing populism which sees ‘the people’ defined to exclude immigrants and minorities.

On this basis many people criticise ‘populism’ negatively. She responds:

This is a mistake, because populism represents an important dimension of democracy. Democracy understood as ‘the power of the people’ requires the existence of a ‘demos’ a people. Instead of rejecting the term populist, we should reclaim it.

In this book my intention is to reclaim populism by fostering a progressive version of it which puts the interests of the common man and woman first, ahead of the priorities of a wealthy global elite whose interests and priorities have dominated for far too long.

CHAPTER 2

THE RISE AND RISE OF THE SUPER-RICH

There’s class warfare, all right, but it’s my class, the rich class, that’s making war and we ’re winning.

Warren Buffett, billionaire investor

*

With their collective wealth estimated at $US7.7 trillion, the global elite of the super-rich are the natural opponents of progressive populism. Some of that global elite are household names in Australia. In July 2016 over 200 of them gathered for a huge celebration in the dazzling blue waters of the Mediterranean. Trucking billionaire Lindsay Fox was throwing an all expenses paid birthday party and had invited his closest friends to enjoy a cruise from Athens to Venice via Corfu. Fox’s ship of choice was Seabourn Odyssey, renting for over a million dollars a week and containing 225 luxury suites.

Lindsay Fox’s own wealth totals $2.9 billion. His fellow passengers included the mining billionaires Gina Rinehart and Andrew Forrest.

According to the Australian Financial Review’s 2017 Rich List they are worth (in Australian dollars) $10.4 billion and $6.8 billion respectively. Shopping centre king John Gandel ($6.1 billion) and retail giant Solomon Lew ($2.3 billion) also took part in the exclusive celebration on the high seas. Further down the guest list for the stylish cruise were former Liberal Treasurer Joe Hockey, former Liberal Victorian Premier Jeff Kennett, media businessman Harold Mitchell and golfer Greg Norman.‘

This public airing of the details of a party for Australian billionaires is rare. It’s not always easy to get information on the super-rich. A key source is the Financial Review’s annual Rich List. The 2017 edition identified 60 Australian billionaires, headed by the paper manufacturing magnate Anthony Pratt ($12.6 billion). The most modest billionaire (scraping in at just $1 billion) is Melbourne-based Peter Gunn, who owns PGA Group, a private investment business that holds a property empire in office and industrial blocks and is also involved in cattle production. Others among the ten wealthiest are James Packer ($4.75 billion), whose money is in casinos; Harry Triguboff ($11.45 billion), who made a fortune from building tower blocks; and Frank Lowy ($8.26 billion), the Westfield shopping centre magnate. The eighth wealthiest Australian is Hui Wang Mau ($6 billion), who made much of his money in Hong Kong property and took out Australian citizenship after studying in South Australia in the early 1990s.


from

Populism Now!

by David McKnight

get it at Amazon.com

THE FUTURE OF WORK. The Future of Not Working – Annie Lowrey.

As automation reduces the need for human labor some Silicon Valley executives think a universal income will be the answer and the beta test is happening in Kenya.

The village is poor, even by the standards of rural Kenya. To get there, you follow a power line along a series of unmarked roads. Eventually, that power line connects to the school at the center of town, the sole building with electricity. Homesteads fan out into the hilly bramble, connected by rugged paths. There is just one working water tap, requiring many local women to gather water from a pit in jerrycans. There is no plumbing, and some families still practice open defecation, lacking the resources to dig a latrine. There aren’t even oxen strong enough to pull a plow, meaning that most farming is still done by hand. The Village is poor enough that it is considered rude to eat in public, which is seen as boasting that you have food.

In October, I visited Kennedy Aswan Abagi, the village chief, at his small red-earth home, decorated with posters celebrating the death of Osama bin Laden and the lives of African heroes, including JaKogelo, or “the man from Kogelo,” as locals refer to former President Barack Obama. Kogelo, where Obama’s father was born, is just 20 miles from the Village, which lies close to the banks of Lake Victoria.

Abagi told me about the day his town’s fate changed. It happened during the summer, when field officers from an American nonprofit called GiveDirectly paid a visit, making an unbelievable promise: They wanted to give everyone money, no strings attached. “I asked, ‘Why this village?’ ” Abagi recalled, but he never got a clear answer, or one that made much sense to him.

The Villagers had seen Western aid groups come through before, sure, but nearly all of them brought stuff, not money. And because many of these organizations were religious, their gifts came with moral impositions; I was told that one declined to help a young mother whose child was born out of wedlock, for example. With little sense of who would get what and how and from whom and why, rumors blossomed. One Villager heard that GiveDirectly would kidnap children. Some thought that the organization was aligned with the Illuminati, or that it would blight the Village with giant snakes, or that it performed blood magic. Others heard that the money was coming from Obama himself.

But the confusion faded that unseasonably cool morning in October, when a GiveDirectly team returned to explain themselves during a town meeting. Nearly all of the village’s 220 people crowded into a blue-and-white tent placed near the school building, watching nervously as 13 strangers, a few of them white, sat on plastic chairs opposite them. Lydia Tala, a Kenyan GiveDirectly staff member, got up to address the group in Dholuo. She spoke at a deliberate pace, awaiting a hum and a nod from the crowd before she moved on:

“These visitors are from GiveDirectly. GiveDirectly is a nongovernmental organization that is not affiliated with any political party. GiveDirectly is based in the United States. GiveDirectly works with mobile phones. Each person must have his or her own mobile phone, and they must keep their PIN secret. Nobody must involve themselves in criminal activity or terrorism.”

This went on for nearly two hours. The children were growing restless.

Finally, Tala passed the microphone to her colleague, Brian Ouma. “People of the Village,” he said, “are you happy?”

“We are!” they cried in unison.

Then he laid out the particulars. “Every registered person will receive 2,280 shillings” about $22 “each and every month. You hear me?” The audience gasped and burst into wild applause. “Every person we register here will receive the money, I said 2,280 shillings! Every month. This money, you will get for the next 12 years.

How many years?”

“Twelve years!”

Just like that, with peals of ululation and children breaking into dance in front of the strangers, the whole village was lifted out of extreme poverty. (I have agreed to withhold its name out of concern for the Villagers’ safety.) The nonprofit is in the process of registering roughly 40 more villages with a total of 6,000 adult residents, giving those people a guaranteed, 12-year-long, poverty ending income. An additional 80 villages, with 11,500 residents all together, will receive a two-year basic income.

With this initiative, GiveDirectly with an office in New York and funded in no small part by Silicon Valley is starting the world’s first true test of a universal basic income. The idea is perhaps most in vogue in chilly, leftleaning places, among them Canada, Finland, the Netherlands and Scotland. But many economists think it might have the most promise in places with poorer populations, like India and sub-Saharan Africa.

GiveDirectly wants to show the world that a basic income is a cheap, scalable way to aid the poorest people on the planet. “We have the resources to eliminate extreme poverty this year,” Michael Faye, a founder of GiveDirectly, told me. But these resources are often misallocated or wasted. His nonprofit wants to upend incumbent charities, offering major donors a platform to push money to the world’s neediest immediately and practically without cost.

What happens in this Village has the potential to transform foreign-aid institutions, but its effects might also be felt closer to home. A growing crowd, including many of GiveDirectly’s backers in Silicon Valley, are looking at this pilot project not just as a means of charity but also as the groundwork for an argument that a universal basic income might be right for you, me and everyone else around the world too.

The basic or guaranteed income is a curious piece of intellectual flotsam that has washed ashore several times in the past half millennium, often during periods of great economic upheaval. In “Utopia,” published in 1516, Thomas More suggests it as a way to help feudal farmers hurt by the conversion of common land for public use into private land for commercial use. In “Agrarian Justice,” published in 1797, Thomas Paine supports it for similar reasons, as compensation for the “loss of his or her natural inheritance, by the introduction of the system of landed property.” It reappears in the writings of French radicals, of Bertrand Russell, of the Rev. Dr. Martin Luther King Jr.

Silicon Valley has recently become obsessed with basic income for reasons simultaneously generous and self-interested, as a palliative for the societal turbulence its inventions might unleash. Many technologists believe we are living at the precipice of an artificial-intelligence revolution that could vault humanity into a postwork future. In the past few years, artificially intelligent systems have become proficient at a startling number of tasks, from reading cancer scans to piloting a car to summarizing a sports game to translating prose. Any job that can be broken down into discrete, repeatable tasks; financial analytics, marketing, legal work could be automated out of existence.

In this vision of the future, our economy could turn into a funhouse-mirror version of itself: extreme income and wealth inequality, rising poverty, mass unemployment, a shrinking prime-age labor force. It would be more George Saunders than George Jetson. But what does this all have to do with a small village in Kenya?

A universal basic income has thus far lacked what tech folks might call a proof of concept. There have been a handful of experiments, including ones in Canada, India and Namibia. Finland is sending money to unemployed people, and the Dutch city Utrecht is doing a trial run, too. But no experiment has been truly complete, studying what happens when you give a whole community money for an extended period of time when nobody has to worry where his or her next meal is coming from or fear the loss of a job or the birth of a child.

And so, the tech industry is getting behind GiveDirectly and other organizations testing the idea out. Chris Hughes, a Facebook founder and briefly the owner of The New Republic, has started a $10 million, two-year initiative to explore the viability of a basic income. (He has also been a major donor to GiveDirectly.) The research wing of Sam Altman’s start-up incubator, Y Combinator, is planning to pass out money to 1,000 families in California and another yet-to-be determined state. Then there is GiveDirectly itself, which has attracted $24 million in donations for its basic-income effort, including money from founders of Facebook, Instagram, eBay and a number of other Silicon Valley companies. Many donors I spoke with cited their interest in the project as purely philanthropic. But others saw it as a chance to learn more about a universal basic income, a way to prove that it could work and a chance to show people the human face of a hypothetical policy fix.

In December, Altman, the 31-year-old president of Y Combinator, spoke at an antipoverty event hosted by Stanford, the White House and the Chan Zuckerberg Initiative, the charitable institution the Facebook billionaire founded with his wife, Priscilla. Altman discussed the potential for basic income to alleviate poverty, but his speech veered back to the dark questions that hang over all this philanthropy: Is Silicon Valley about to put the world out of work? And if so, do technologists owe the world a solution?

“There have been these moments where we have had these major technology revolutions, the Agricultural Revolution, the Industrial Revolution, for example that have really changed the world in a big way,” Altman said. “I think we’re in the middle or at least on the cusp of another one.”

GiveDirectly may be a charity, but it speaks in the argot of Silicon Valley. It is a platform, connecting donors and recipients, that prides itself on low overhead and superior analytics. It disdains what it sees as the bloated, expensive, stuck-in-their-ways incumbents that dominate the nonprofit space. And it even has a privileged bootstrapping creation story, beginning with its 20-something founders batting the idea around in Harvard Square academic buildings and scraping together money from friends.

The idea for the nonprofit came to Michael Faye and Paul Niehaus, who is now a professor of economics at the University of California, San Diego, when they were graduate students at Harvard. Both were studying development and doing fieldwork overseas, an experience that underlined an Economics 101 lesson: Cash was more valuable to its recipients than the in-kind gifts commonly distributed by aid groups, like food or bed nets or sports equipment. If you’re hungry, you cannot eat a bed net. If your village is suffering from endemic diarrhea, soccer balls won’t be worth much to you. “Once you’ve been there, it’s hard to imagine doing anything but cash,” Faye told me. “It’s so deeply uncomfortable to ask someone if they want cash or something else. They look at you like it’s a trick question.”

But at the time, distributing cash aid in a country with little to no banking infrastructure outside major cities would have required an extraordinary amount of manpower, not to mention introducing the risk of robbery and graft. But dirt-cheap mobile phones with pay-as-you-go minutes began flooding into sub-Saharan African markets in the 2000s. Enterprising Ghanaians, Kenyans and Nigerians started to use their minutes as a kind of currency. In 2007, Vodafone and the British Department for International Development together built a system, called M-Pesa, for Kenyans to transfer actual shillings from cellphone to cellphone. An estimated 96 percent of Kenyan households use the system today.

Faye and Niehaus along with their friends Rohit Wanchoo and Jeremy Shapiro, also graduate students, thought about setting up a website to raise cash in the United States and send it directly to poor Kenyans. But they never found a nonprofit that would distribute that cash abroad. They decided to do it themselves in 2008. “Because it was a start-up, and we started in grad school,” Faye said, “we were open to the idea of it being wrong or failing.”

We have the resources to eliminate extreme poverty this year

The following year, Faye traveled to small Kenyan villages during the summer break, offering cash to whoever seemed poor and would take it. (The money, about $5,000, came out of the foursome’s own pockets.) That, surprisingly, worked well enough to give them the confidence to start a threadbare randomized control trial the year they graduated. It found that the recipients, who received an average of $500, saw excellent outcomes: Their children were 42 percent less likely to go a whole day without eating. Domestic-violence rates dropped, and mental health improved.

In time, the non rofit attracted the attention of Silicon Valley and its deep-pocketed young philanthropists. Two Facebook founders gave six-figure donations. Then, in the spring of 2012, Faye went to a friend’s brunch in Brooklyn and met someone working for Google.org, the tech giant’s giving arm. She liked the sound of GiveDirectly and arranged for Faye and Niehaus to give a presentation at Google’s headquarters in Mountain View, California. The company ended up contributing $2.4 million.

At first, GiveDirectly handed out large lump sums, generally $1,000 spread into three payments over the course of the year. The nonprofit’s field officers would locate low income villages in Kenya, then find the poorest families in each individual Village using a simple asset test (whether a family had a thatched roof or not). The field officers would introduce themselves to the town elders, explain their purpose and return to provide mobile phones and training to recipient families. Then GiveDirecty would push a button and send the money out.

On a steaming October morning, I went with two GiveDirectly executives, Joanna Macrae and Ian Bassin, to visit one of the villages that had received GiveDirectly’s lump-sum payments. We took off at dawn from Kisumu, a bustling industrial city on the banks of Lake Victoria, and followed a twolane highway to Bondo, a small trading city filled with cattle, bicycles and roadside food stands. From there, we turned inland from the lake and drove into a lush agricultural region.

The residents of this village had received money in 2013, and it was visibly better off than the basic-income pilot village. Its clearings were filled with mango plantings, its cows sturdy. A small lake on the outskirts had been lined with nets for catching fish. “Could you imagine sitting in an office in London or New York trying to figure out what this Village needs?” Bassin said as he admired a well-fed cow tied up by the lakeside. “It would just be impossible.”

Perhaps, but delivering money by M-Pesa has some downsides, too. We visited an older woman named Anjelina Akoth Ngalo, her joints painful and swollen with advanced malaria. Sitting in her thatched-roof hut, she told us that she had received only one payment, not the three that she was promised. She had given her phone to a woman in a nearby Village who transferred the money out of it. Ngalo Visited the village elder to try to get her money back, but nothing had come of it. She was now destitute, living on about $5 a week. She had not eaten since the day before, and she had run out of malaria medication. (Bassin said that less than 1 percent of recipients experience theft, crime or conflict.)

By giving money to some but not all, the organization had unwittingly strained the social fabric of some of these tight-knit tribal communities. One man we visited in a separate village nearby, Nicolus Owuor Otin, had acted as a liaison between the community and the GiveDirectly staff, showing them where different families’ houses were, for instance. For that reason, he said, the other villagers thought he was determining who would get what and threatened to burn his house down.

Still, nearly all the recipients described the money as transformative. Fredrick Omondi Akuma, a Burning Spear devotee wearing a Rasta-style hat and bell bottoms when we visited, had been impoverished, drinking too much, abandoned by his wife and living in a mud hut when GiveDirectly knocked on his door. He used his money to buy a motorbike to give taxi rides. He also started a small business, selling soap, salt and paraffin in a local town center; he bought two cows, one of which had given birth; and he opened a barbershop in the coastal city Mombasa. His income had gone from 600 shillings a week to 2,500 shillings roughly $25, a princely sum for the area. His wife had returned. He had even stopped drinking as much. “I used to go out drinking with 1,000 shillings, and I’d wake up in the bar with 100 shillings,” he said. “Now I go out drinking with 1,000 shillings, and I wake up at home with 900.”

“I didn’t imagine I would be living in an ironsheet house,” he said, referring to his roof. “I didn’t imagine I’d be wearing nice shoes. I didn’t imagine I would have a business, and earnings from it. I didn’t imagine I would be a man who owns cattle.”

Many popular forms of aid have been shown to work abysmally. PlayPumps merry-go-round type contraptions that let children pump water from underground wells as they play did little to improve access to clean water. Buy-a-cow programs have saddled families with animals inappropriate to their environment. Skills training and microfinance, one 2015 World Bank study found, “have shown little impact on poverty or stability, especially relative to program cost.”

All across the villages of western Kenya, it was clear to me just how much aid money was wasted on unnecessary stuff. The villagers had too many jerrycans and water tanks, because a nongovernmental organization kept bringing them. There was a thriving trade in Toms canvas slip-ons: People received them free from NGO workers and then turned around and sold them in the market centers. And none of the aid groups that had visited the villages managed to help the very poorest families.

In the pilot-project village, for example, Faye and I paid a visit to a woman named Caroline Akinyi Odhiambo, who lives in a mud hut on the edge of town with her husband, Jack, a laborer, and her two small children. The most expensive thing she ever bought, she told me, was a chicken for 500 shillings, or about $5. Her family was persistently hungry. She knew of three nonprofit groups that had helped the village before GiveDirectly. One aided families with school fees, but it chose not to help her children. “I do not want to talk about it,” she said.

What is worse, Faye told me, walking away from Odhiambo’s hut, was that most nonprofit projects in the region were never subject to anything like an impact assessment, either. There is no way to know how well they are working, or whether that money would be better spent on something else. “The question should always be: Would we be better off just giving this money away as cash?” Faye said. “There usually is not a way to answer that question.”

A vast majority of aid, 94 percent, is noncash. Donor resistance is one reason for this; it is not easy to persuade American oligarchs, British inheritors and Japanese industrialists to fork over their money to the extremely poor to use as they see fit. “There’s the usual worries about welfare dependency, the whole ‘Give a man a fish’ thing,” said Amanda Glassman, a public health and development expert at the Center for Global Development. “It’s so powerful. It’s really a basic psychological feature of the landscape. You’ll start drinking. You’ll start lying around at home because you’re getting paid.”

Cash also seems harder to market. American taxpayers might be perfectly happy to fund education for young women in poor countries or vaccinations for schoolchildren. But they might balk at the idea of showering money on poor, unstable countries. “The Visual of putting a pill in a kid’s mouth is so much more attractive to people,” Glassman said.

Institutional inertia is another factor. “There are a lot of good people working in the system,” Niehaus said. “And there are a lot of organizations pushing to do cash transfers. But the way they are structured and incentivized from the top down they aren’t structured to do it. They have a specific mandate, like health. Cash transfers give choice of what goal to pursue to the recipients.”

Moreover, cash might force aid workers and nongovernmental organizations to confront the fact that they could be doing better by doing things differently often by doing less. “It’s easy to muster evidence that you should be giving cash instead of fertilizer,” said Justin Sandefur of the Center for Global Development. “The harder argument is: You should shut down your U.S.A.I.D. program, which is bigger than the education budget of Liberia, and give the money to Liberians. That’s the radical critique.” Faye put it more bluntly, if half-jokingly:

If cash transfers flourished, “the whole aid industry would have to fire itself.”

There is something to that. One estimate, generated by Laurence Chandy and Brina Seidel of the Brookings Institution, recently calculated that the global poverty gap, meaning how much it would take to get everyone above the poverty line, was just $66 billion. That is roughly what Americans spend on lottery tickets every year, and it is about half of what the world spends on foreign aid.

In the pilot-project village, the residents had just started to work through how transformative the program would be, what they could do with the money and how different their lives could feel in 12 years. Detractors often say that no one would work in a world with a basic income, that the safety net could grow a bit too comfortable. Ultimately, what a universal income would do to workers in the rich world will remain a mystery until someone tries it out.

But here, many Villagers were concerned primarily with procuring the sustenance and basic comforts that their penury had denied them. Odhiambo, the woman who had not been offered aid by the school group, planned to buy corrugated iron sheets for her roof; she considered possibly paying off her dowry. Another Villager, Pamela Aooko Odero, ran a household that had been suffering from hunger, with all eight of them living on just 500 to 1,000 shillings a week. She took her money as soon as she got it and went to buy food.

Many more made plans that were entrepreneurial. Two widowed sister-wives, Margaret Aloma Abagi and Mary Abonyo Abagi, told me they planned to pool their funds together to start a small bank with some friends. Charles Omari Ager, a houseboy for the sister-wives, had his phone turned off and wrapped in a plastic bag in his pocket when the first text came in. He was driving the widows’ goats and cattle from one dried-out, bramble-filled meadow to another when he happened upon an aid worker, who prompted him to pull out his phone, turn it on and wait. The text was there. The money was there. “I’m happy! I’m happy! I’m happy!” he said. He bought himself a goat that day.

When he got his money, Erick Odhiambo Madoho walked to the cow-dotted local highway nearest the village and took a matatu, a shared minibus, overloaded with 20 passengers, down to Lake Victoria. There he found an M-Pesa stand and converted his mobile money into shillings. He used the cash to buy the first of three rounds of filament-thin fishing line that he would need to hand-knot into nets to catch tilapia in the lake.

When the nets were done, he told me, he would rent a boat and hire a day laborer to work with him. He anticipated that his income, after costs, might reach as much as 2,000 shillings on a good day. I asked him why he hadn’t saved money for nets beforehand.

He shrugged, smiled and said, “I could not.”


Annie Lowrey is a contributing writer at The Atlantic and a former economic-policy reporter for The Times. She is writing a book about universal basic income for Crown.

Inequality and Economic Growth – Joseph Stiglitz.

“Even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction – purpose and dignity – that afflicts us all.

Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.
It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.

It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.
It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.
And it can tell us everything about America except why we are proud that we are Americans.
If this is true here at home, so it is true elsewhere in the world

Bobby Kennedy, 1968

*

In the middle of the twentieth century, it came to be believed that ’a rising tide lifts all boats’: economic growth would bring increasing wealth and higher living standards to all sections of society. At the time, there was some evidence behind that claim. In industrialised countries in the 1950s and 1960s every group was advancing, and those with lower incomes were rising most rapidly.

In the ensuing economic and political debate, this ’rising-tide hypothesis’ evolved into a much more specific idea, according to which regressive economic policies, policies that favour the richer classes, would end up benefiting everyone. Resources given to the rich would inevitably ‘trickle down’ to the rest.

It is important to clarify that this version of old-fashioned ‘trickle-down economics’ did not follow from the postwar evidence. The ’rising-tide hypothesis’ was equally consistent with a ’trickle-up’ theory, give more money to those at the bottom and everyone will benefit; or with a ’build-out from the middle’ theory-help those at the centre, and both those above and below will benefit.

Today the trend to greater equality of incomes which characterised the postwar period has been reversed. Inequality is now rising rapidly. Contrary to the rising-tide hypothesis, the rising tide has only lifted the large yachts, and many of the smaller boats have been left dashed on the rocks. This is partly because the extraordinary growth in top incomes has coincided with an economic slowdown.

The trickle-down notion, along with its theoretical justification, marginal productivity theory, needs urgent rethinking. That theory attempts both to explain inequality, why it occurs, and to justify it, why it would be beneficial for the economy as a whole. This essay looks critically at both claims.

It argues in favour of alternative explanations of inequality, with particular reference to the theory of rent-seeking and to the influence of institutional and political factors, which have shaped labour markets and patterns of remuneration. And it shows that:

Far from being either necessary or good for economic growth, excessive inequality tends to lead to weaker economic performance.

In light of this, it argues for a range of policies that would increase both equity and economic well-being.

The great rise of inequality

Let us start by examining the ongoing trends in income and wealth. In the past three decades, those at the top have done very well, especially in the US. Between 1980 and 2014, the richest 1 per cent have seen their average real income increase by 169 per cent (from $469,403, adjusted for inflation, to $1,2b0508) and their share of national income more than double, from 10 per cent to 21 per cent. The top 0.1 per cent have fared even better. Over the same period, their average real income increased by 281 per cent (from $1,597, 080, adjusted for inflation, to $6,087,113) and their share of national income almost tripled, from 3.4 to l0 3 per cent.

Over the same thirty-four years, median household income grew by only 11 per cent. And this growth actually occurred only in the very first years of the period: by 2014 it was only .7 per cent higher than in 1989, after peaking in 1999. But even this underestimates the extent to which those at the bottom have suffered, their incomes have only done as well as they have because hours worked have increased. Median hourly compensation (adjusted for inflation) increased by only 9 per cent from 1973 to 2014, even though at the same time productivity grew by 72.2 per cent.

To understand how significant this divergence of productivity and wages is, consider that from 1948 to 1973 both increased at the same pace, about doubling over the period.

And these statistics underestimate the true deterioration in workers’ wages, for education levels have increased (the percentage of Americans who are college graduates has nearly doubled since 1980, to more than 30 per cent), so that one should have expected a significant increase in wage rates. In fact, average real hourly wages for all Americans with only a high school diploma have decreased in the past three decades.

In the first three years of the so-called recovery from the Great Recession of 2008-2009, in other words, since the US economy returned to growth, fully 91 per cent of the gains in income went to the top 1 per cent.

By 2014, the rest of the income distribution had experienced a bit more of a boost, but even accounting for that, 58 per cent of the gains in total income have gone to the top 1 per cent since 2009. During that period, the income of the bottom 99 per cent has grown by just 4 per cent.

Presidents Bush and Obama both tried a trickle-down strategy, giving large amounts of money to the banks and the bankers. The idea was simple: by saving the banks and bankers, all would benefit. The banks would restart lending: The wealthy would create more jobs. This strategy, it was argued, would be far more efficacious than helping homeowners, businesses or workers directly.

The US Treasury typically demands that when money is given to developing countries, conditions be imposed on them to ensure not only that the money is used well, but also that the country adopts economic policies that, according to the Treasury’s economic theories, will lead to growth. But no conditions were imposed on the banks, not even, for example, requirements that they lend more or stop abusive practices. The rescue worked in enriching those at the top; but the benefits did not trickle down to the rest of the economy.

The Federal Reserve, too, tried trickle-down economics. One of the main channels by which quantitative easing was supposed to rekindle growth was by leading to higher stock market prices, which would generate higher wealth for the very rich, who would then spend some of that, which in turn would benefit the rest.

As Yeva Nersisyan and Randall Wray argue in their chapter in this volume, both the Fed and the Administration could have tried policies that more directly benefited the rest of the economy: helping homeowners, lending to small and medium-sized enterprises and fixing the broken credit channel. These trickle-down policies were relatively ineffective, one reason why seven years after the US slipped into recession, the economy was still not back to health.

Wealth is even more concentrated than income, by one estimate more than ten times so. The wealthiest 1 per cent of Americans hold 41.8 per cent of the country’s wealth; the top 0.1 per cent alone control more than 22 per cent of total wealth. Just one example of the extremes of wealth in America is the Walton family: the six heirs to the Walmart empire command a wealth of $145 billion, which is equivalent to the net worth of 1,782,020 average American families.”

Wealth inequality too is on the upswing. For the four decades before the Great Recession, the rich were getting wealthier at a more rapid pace than everyone else. Between 1978 and 2013 the share of wealth owned by the top I per cent rose dramatically, from less than 25 per cent to its current level above 40 per cent; the share of the top 10 per cent from about two-thirds to well over three-quarters! By 2010, the crisis had depleted some of the richest Americans’ wealth because of the decline in stock prices, but many Americans also had had their wealth almost entirely wiped out as their homes lost value. After the crisis, the average wealthiest l per cent of households still had 165 times the wealth of the average American in the bottom 90 per cent, more than double the ratio of thirty years ago.

In the years of ‘recovery’, as stock market values rebounded (in part as a result of the Fed’s lopsided efforts to resuscitate the economy through increasing the balance sheet of the rich), the rich have regained much of the wealth that they had lost; the same did not happen to the rest of the country.

Inequality plays out along ethnic lines in ways that should be disturbing for a country that had begun to see itself as having won out against racism. Between 2005 and 2009, a huge number of Americans saw their wealth drastically decrease. The net worth of the typical white American household was down substantially, to $113,149 in 2009, a 16 per cent loss of wealth from 2005. But the recession was much worse for other groups.

The typical African American household lost 53 per cent of its wealth, putting its assets at a mere 5 per cent of the median white American’s. The typical Hispanic household lost 66 per cent of its wealth.”

Probably the most invidious aspect of America’s inequality is that of opportunities: in the US a young person’s life prospects depend heavily on the income and education of his or her parents, even more than in other advanced countries. The ’American dream’ is largely a myth.

A number of studies have noted the link between inequality of outcomes and inequality of opportunities. When there are large inequalities of income, those at the top can buy for their offspring privileges not available to others, and they often come to believe that it is their right and obligation to do so. And, of course, without equality of opportunity those born in the bottom of the distribution are likely to end up there: inequalities of outcomes perpetuate themselves. This is deeply troubling: given our low level of equality of opportunity and our high level of inequality of income and wealth, it is possible that the future will be even worse, with still further increases in inequality of outcome and still further decreases in equality of opportunity.

A generalised international trend

While the US has been winning the race to be the most unequal country (at least within developed economies), much of what has just been described for it has also been going on elsewhere. In the past twenty-five to thirty years the Gini index, the widely used measure of income inequality, has increased by roughly 29 per cent in the United States, 17 per cent in Germany, 9 per cent in Canada, 14 per cent in UK, 12 per cent in Italy and ll per cent in Japan.”

The more countries follow the American economic model, the more the results seem to be consistent with what has occurred in the United States. The UK has now achieved the second highest level of inequality among the countries of Western Europe and North America, a marked change from its position before the Thatcher era. Germany, which had been among the most equal countries within the OECD, now ranks in the middle.

The enlargement of the share of income appropriated by the richest 1 per cent has also been a general trend, and in Anglo-Saxon countries it started earlier and it has been more marked than anywhere else. In rich countries, such as the US, the concentration of wealth is even more pronounced than that of income, and has been rising too. For instance, in the UK the income share of the top 1 per cent went up from 5.7 per cent in 1978 to 14.7 per cent in 2010, while the share of wealth owned by the top 1 per cent surged from 22.6 per cent in 1970 to 28 per cent in 2010 and the top 10 per cent’s wealth share increased from 64 per cent to 70.5 per cent over the same period.

Also disturbing are the patterns that have emerged in transition economies, which at the beginning of their movement to a market economy had low levels of inequality in income and wealth (at least according to available measurements). Today, China’s inequality of income, as measured by its Gini coefficient, is roughly comparable to that of the United States and Russia. Across the OECD, since 1985 the Gini coefficient has increased in seventeen of twenty two countries for which data is available, often dramatically.

Moreover, recent research by Piketty and his co-authors has found that the importance of inherited wealth has increased in recent decades, at least in the rich countries for which we have data. After displaying a decreasing trend in the first postwar period, the share of inheritance flows in disposable income has been increasing in the past decades.

Explaining inequality

Marginal Productivity Theory

How can we explain these worrying trends? Traditionally, there has been little consensus among economists and social thinkers on what causes inequality. In the nineteenth century, they strived to explain and either justify or criticise the evident high levels of disparity. Marx talked about exploitation. Nassau Senior, the first holder of the first chair in economics, the Drummond Professorship at All Souls College, Oxford, talked about the returns to capital as a payment for capitalists’ abstinence, for their not consuming. It was not exploitation of labour, but the. just rewards for their forgoing consumption. Neoclassical economists developed the marginal productivity theory, which argued that compensation more broadly reflected different individuals’ contributions to society.

While exploitation suggests that those at the top get what they get by taking away from those at the bottom, marginal productivity theory suggests that those at the top only get what they add. The advocates of this View have gone further: they have suggested that in a competitive market, exploitation (eg. as a result of monopoly power or discrimination) simply couldn’t persist, and that additions to capital would cause wages to increase, so workers would be better off thanks to the savings and innovation of those at the top.

More specifically, marginal productivity theory maintains that, due to competition, everyone participating in the production process earns remuneration equal to her or his marginal productivity.

This theory associates higher incomes with a greater contribution to society. This can justify, for instance, preferential tax treatment for the rich: by taxing high incomes we would deprive them of the ’just deserts’ for their contribution to society, and, even more importantly, we would discourage them from expressing their talent?‘ Moreover, the more they contribute, the harder they work and the more they save, the better it is for workers, whose wages will rise as a result.

The reason why these ideas justifying inequality have endured is that they have a grain of truth in them. Some of those who have made large amounts of money have contributed greatly to our society, and in some cases what they have appropriated for themselves is but a fraction of what they have contributed to society.

But this is only a part of the story: there are other possible causes of inequality. Disparity can result from exploitation, discrimination and exercise of monopoly power. Moreover, in general, inequality is heavily influenced by many institutional and political factors: industrial relations, labour market institutions, welfare and tax systems, for example, which can both work independently of productivity and affect productivity.

That the distribution of income cannot be explained just by standard economic theory is suggested by the fact that the before-tax and transfer distribution of income differs markedly across countries. France and Norway are examples of OECD countries that have managed by and large to resist the trend of increasing inequality. The Scandinavian countries have a much higher level of equality of opportunity, regardless of how that is assessed.

Marginal Productivity Theory is meant to have universal application. Neoclassical theory taught that one could explain economic outcomes without reference, for instance, to institutions. It held that a society’s institutions are simply a facade; economic behaviour is driven by the underlying laws of demand and supply, and the economist’s job is to understand these underlying forces. Thus, the standard theory cannot explain how countries with similar technology, productivity and per capita income can differ so much in their before-tax distribution.

The evidence, though, is that institutions do matter. Not only can the effect of institutions be analysed, but institutions can themselves often be explained, sometimes by history, sometimes by power relations and sometimes by economic forces (like information asymmetries) left out of the standard analysis.

Thus, a major thrust of modern economics is to understand the role of institutions in creating and shaping markets. The question then is: what is the relative role and importance of these alternative hypotheses? There is no easy way of providing a neat quantitathe answer, but recent events and studies have lent persuasive weight to theories putting greater focus on rent-seeking and exploitation. We shall discuss this evidence in the next section, before turning to the institutional and political factors which are at the root of the recent structural changes in income distribution.

Rent-seeking and top incomes

The term ’rent’ was originally used to describe the returns to land, since the owner of the land receives these payments by virtue of his or her ownership and not because of anything he or she does. The term was then extended to include monopoly profits (or monopoly rents), the income that one receives simply from control of a monopoly and, in general returns due to similar ownership claims.

Thus, rent-seeking means getting an income not as a reward for creating wealth but by grabbing a larger share of the wealth that would have been produced anyway. Indeed, rent-seekers typically destroy wealth, as a by-product of their taking away from others. A monopolist who overcharges for her or his product takes money from those whom she or he is overcharging and at the same time destroys value. To get her or his monopoly price, she or he has to restrict production.

Growth in top incomes in the past three decades has been driven mainly in two occupational categories: those in the financial sector (both executives and professionals) and non-financial executives.” Evidence suggests that rents have contributed on a large scale to the strong increase in the incomes of both.

Let us first consider executives in general. That the rise in their compensation has not reflected productivity is indicated by the lack of correlation between managerial pay and firm performance. As early as 1990 Jensen and Murphy, by studying a sample of 2,505 CEOs in 1,400 companies, found that annual changes in executive compensation did not reflect changes in corporate performance. Since then, the work of Bebchuk, Fried and Grinstein has shown that the huge increase in US executive compensation since 1993 cannot be explained by firm performance or industrial structure and that, instead, it has mainly resulted from flaws in corporate governance, which enabled managers in practice to set their own pay. Mishel and Sabadish examined 350 firms, showing that growth in the compensation of their CEOs largely outpaced the increase in their stock market value. Most strikingly, executive compensation displayed substantial positive growth even during periods when stock market values decreased?“

There are other reasons to doubt standard marginal productivity theory. In the United States the ratio of CEO pay to that of the average worker increased from around 20 to 1 in 1965 to 354 to 1 in 2012. There was no change in technology that could explain a change in relative productivity of that magnitude, and no explanation for why that change in technology would occur in the US and not in other similar countries. Moreover, the design of corporate compensation schemes has made it evident that they are not intended to reward effort: typically, they are related to the performance of the stock, which rises and falls depending on many factors outside the control of the CEO, such as market interest rates and the price of oil. It would have been easy to design an incentive structure with less risk, simply by basing compensation on relative performance, relative to a group of comparable companies. The struggles of the Clinton administration to introduce tax systems encouraging so-called performance pay (without imposing conditions to ensure that pay was actually related to performance) and disclosure requirements (which would have enabled market participants to better assess the extent of stock dilution associated with CEO stock option plans) clarified the battle lines: those pushing for favourable tax treatment and against disclosure understood well that these arrangements would have facilitated greater inequalities in income.

For specifically the rise in top incomes in the financial sector, the evidence is even more unfavourable to explanations based on marginal productivity theory. An empirical study by Philippon and Reshef shows that in the past two decades workers in the financial industry have enjoyed a huge ’pay-premium’ with respect to similar sectors, which cannot be explained by the usual proxies for productivity (such as the level of education or unobserved ability). According to their estimates, financial sector compensations have been about 40 per cent higher than the level that would have been expected under perfect competition.

It is also well documented that banks deemed ’too big to fail’ enjoy a rent due to an implicit state guarantee. Investors know that these large financial institutions can count, in effect, on a government guarantee, and thus they are willing to provide them funds at lower interest rates. The big banks can thus prosper not because they are more efficient or provide better service but because they are in effect subsidised by taxpayers.

There are other reasons for the super-normal returns to the large banks and their bankers. In certain of the activities of the financial sector, there is far from perfect competition. Anti competitive practices in debit and credit cards have amplified pro-existing market power to generate huge rents. Lack of transparency (e.g. in over-the-counter Credit Default Swaps (CD55) and derivatives too have generated large rents, with the market dominated by four players. It is not surprising that the rents enjoyed in this way by big banks translated into higher incomes for their managers and shareholders.

In the financial sector even more than in other industries, executive compensation in the aftermath of the crisis provided convincing evidence against marginal productivity theory as an explanation of wages at the top: the bankers who had brought their firms and the global economy to the brink of ruin continued to receive high rates of pay compensation which in no way could be related either to their social contribution or even their contribution to the firms for which they worked (both of which were negative).

For instance, a study that focused on Bear Stems and Lehman Brothers in 2000-2008 has found that the top executive managers of these two giants had brought home huge amounts of ‘performance-based’ compensations (estimated at around $1 billion for Lehman and $1.4 billion for Bear Stearns), which were not clawed back when the two firms collapsed.

Still another piece of evidence supporting the importance of rent-seeking in explaining the increase in inequality is provided by those studies that have shown that increases in taxes at the very top do not result in decreases in growth rates. If these incomes were a result of their efforts, we might have expected those at the top to respond by working less hard, with adverse effects on GDP.

The Increase in rents

Three striking aspects of the evolution of most rich countries in the past thirty-five years are (a) the increase in the wealth-to-income ratio; (b) the stagnation of median wages; and (c) the failure of the return to capital to decline.

Standard neoclassical theories, in which ’wealth’ is equated with ’capital’, would suggest that the increase in capital should be associated with a decline in the return to capital and an increase in wages. The failure of unskilled workers’ wages to increase has been attributed by some (especially in the 1990s) to skill-biased technological change, which increased the premium put by the market on skills. Hence, those with skills would see their wages rise, and those without skills would see them fall. But recent years have seen a decline in the wages paid even to skilled workers. Moreover, as my recent research shows,” average wages should have increased, even if some wages fell. Something else must be going on.

There is an alternative, and more plausible, explanation. It is based on the observation that rents are increasing (due to the increase in land rents. intellectual property rents and monopoly power). As a result, the value of those assets that are able to provide rents to their owners-such as land, houses and some financial claims, is rising proportionately. So overall wealth increases, but this does not lead to an increase in the productive capacity of the economy or in the mean marginal productivity or average wage of workers. On the contrary, wages may stagnate or even decrease, because the rise in the share of rents has happened at the expense of wages.

The assets which are driving the increase in overall wealth, in fact, are not produced capital goods. In many cases, they are not even ’productive’ in the usual sense; they are not directly related to the production of goods and services?” With more wealth put into these assets, there may be less invested in real productive capital. In the case of many countries where we have data (such as France) there is evidence that this is indeed the case:

A disproportionate part of savings in recent years has gone into the purchase of housing, which has not increased the productivity of the ‘real’ economy.

Monetary policies that lead to low interest rates can increase the value of these ’unproductive’ fixed assets, an increase in the value of wealth that is unaccompanied by any increase in the flow of goods and services. By the same token, a bubble can lead to an increase in wealth, for an extended period of time, again with possible adverse effects on the stock of ’real’ productive capital Indeed, it is easy for capitalist economies to generate such bubbles (a fact that should be obvious from the historical record, but which has also been confirmed in theoretical models.) While in recent years there has been a ’correction’ in the housing bubble (and in the underlying price of land), we cannot be confident that there has been a full correction. The increase in the wealth-income ratio may still have more to do with an increase in the value of rents than with an increase in the amount of productive capital. Those who have access to financial markets and can get credit from banks (typically those already well off) can purchase these assets, using them as collateral. As the bubble takes off, so does their wealth and society’s inequality. Again, policies amplify the resulting inequality: favourable tax treatment of capital gains enables especially high after-tax returns on these assets and increases the wealth especially of the wealthy, who disproportionately own such assets (and understandably so, since they are better able to withstand the associated risks).

The role of institutions and politics

The large influence of rent-seeking in the rise of top incomes undermines the marginal productivity theory of income distribution, The income and wealth of those at the top comes at least partly at the expense of others, just the opposite conclusion from that which emerges from trickle-down economics. When, for instance, a monopoly succeeds in raising the price of the goods which it sells, it lowers the real income of everyone else. This suggests that institutional and political factors play an important role in influencing the relative shares of capital and labour.

As we noted earlier, in the past three decades wages have grown much less than productivity, a fact which is hard to reconcile with marginal productivity theory” but is consistent with increased exploitation. This suggests that the weakening of workers’ bargaining power has been a major factor. Weak unions and asymmetric globalisation, where capital is free to move while labour is much less so, are thus likely to have contributed significantly to the great surge of inequality.

The way in which globalisation has been managed has led to lower wages in part because workers’ bargaining power has been eviscerated. With capital highly mobile and with tariffs low, firms can simply tell workers that if they don’t accept lower wages and worse working conditions, the company will move elsewhere. To see how asymmetric globalisation can affect bargaining power, imagine, for a moment, what the world would be like if there was free mobility of labour, but no mobility of capital. Countries would compete to attract workers. They would promise good schools and a good environment, as well as low taxes on workers. This could be financed by high taxes on capital. But that’s not the world we live in.

In most industrialised countries there has been a decline in union membership and influence; this decline has been especially strong in the Anglo-Saxon world. This has created an imbalance of economic power and a political vacuum.

Without the protection afforded by a union, workers have fared even more poorly than they would have otherwise. Unions’ inability to protect workers against the threat of job loss by the moving of jobs abroad has contributed to weakening the power of unions. But politics has also played a major role, exemplified in President Reagan’s breaking of the air traffic controllers” strike in the US in 1981 or Margaret Thatcher’s battle against the National Union of Mineworkers in the UK.

Central bank policies focusing on inflation have almost certainly been a further factor contributing to the growing inequality and the weakening of workers’ bargaining power. As soon as wages start to increase, especially if they increase faster than the rate of inflation, central banks focusing on inflation raise interest rates. The result is a higher average level of unemployment and a downward ratcheting effect on wages: as the economy goes into recession, real wages often fall; and then monetary policy is designed to ensure that they don’t recover.

Inequalities are affected not just by the legal and formal institutional arrangements (such as the strength of unions) but also by social custom, including whether it is viewed as acceptable to engage in discrimination.

At the same time, governments have been lax in enforcing anti-discrimination laws. Contrary to the suggestion of free-market economists, but consistent with even casual observation of how markets actually behave, discrimination has been a persistent aspect of market economies, and helps explain much of what has gone on at the bottom. The discrimination takes many forms-in housing markets, in financial markets (at least one of America’s large banks had to pay a very large fine for its discriminatory practices in the run-up to the crisis) and in labour markets. There is a large literature explaining how such discrimination persists.

Of course, market forces, the demand and supply for skilled workers, affected by changes in technology and education, play an important role as well, even if those forces are partially shaped by politics. But instead of these market forces and politics balancing each other out, with the political process dampening the increase in inequalities of income and wealth in periods when market forces have led to growing disparities, in the rich countries today the two have been working together to increase inequality.

The price of inequality

The evidence is thus unsupportive of explanations of inequality solely focused on marginal productivity. But what of the argument that we need inequality to grow?

A first justification for the claim that inequality is necessary for growth focuses on the role of savings and investment in promoting growth, and is based on the observation that those at the top save, while those at the bottom typically spend all of their earnings. Countries with a high share of wages will thus not be able to accumulate capital as rapidly as those with a low share of wages. The only way to generate savings required for longterm growth is thus to ensure sufficient income for the rich.

This argument is particularly inapposite today, where the problem is, to use Bernanke’s term, a global savings glut. But even in those circumstances where growth would be increased by an increase in national savings, there are better ways of inducing savings than increasing inequality. The government can tax the income of the rich, and use the funds to finance either private or public investment; such policies reduce inequalities in consumption and disposable income, and lead to increased national savings (appropriately measured).

A second argument centres on the popular misconception that those at the top are the job creators, and giving more money to them will thus create more jobs. Industrialised countries are full of creative entrepreneurial people throughout the income distribution. What creates jobs is demand: when there is demand, firms will create the jobs to satisfy that demand (especially if we can get the financial system to work in the way it should, providing credit to small and medium-sized enterprises).

In fact, as empirical research by the IMF has shown, inequality is associated with economic instability. In particular, lMF researchers have shown that growth spells tend to be shorter when income inequality is high. This result holds also when other determinants of growth duration (like external shocks, property rights and macroeconomic conditions) are taken into account:

On average, a 10 percentile decrease in inequality increases the expected length of a growth spell by one half.

The picture does not change if one focuses on medium-term average growth rates instead of growth duration. Recent empirical research released by the OECD shows that income inequality has a negative and statistically significant effect on medium-term growth. It estimates that in countries like the US, the UK and Italy, overall economic growth would have been six to nine percentage points higher in the past two decades had income inequality not risen.”

There are different channels through which inequality harms the economy:

First, inequality leads to weak aggregate demand. The reason is easy to understand: those at the bottom spend a larger fraction of their income than those at the top. The problem may be compounded by monetary authorities’ flawed responses to this weak demand. By lowering interest rates and relaxing regulations, monetary policy too easily gives rise to an asset bubble, the bursting of which leads in turn to recession.

Many interpretations of the current crisis have indeed emphasised the importance of distributional concems. Growing inequality would have led to lower consumption but for the effects of loose monetary policy and lax regulations, which led to a housing bubble and a consumption boom. It was, in short, only growing debt that allowed consumption to be sustained. But it was inevitable that the bubble would eventually break. And it was inevitable that, when it broke, the economy would go into a downturn.

Second, inequality of outcomes is associated with inequality of opportunity. When those at the bottom of the income distribution are at great risk of not living up to their potential, the economy pays a price not only with weaker demand today, but also with lower growth in the future. With nearly one in four American children growing up in poverty?” many of them facing not just a lack of educational opportunity but also a lack of access to adequate nutrition and health, the country’s long-term prospects are being put into jeopardy.

Third, societies with greater inequality are less likely to make public investments which enhance productivity, such as in public transportation, infrastructure, technology and education. If the rich believe that they don’t need these public facilities, and worry that a strong government, which could increase the efficiency of the economy, might at the same time use its powers to redistribute income and wealth, it is not surprising that public investment is lower in countries with higher inequality. Moreover, in such countries tax and other economic policies are likely to encourage those activities that benefit the financial sector over more productive activities.

In the United States today returns on long-term financial speculation (capital gains) are taxed at approximately half the rate of labour, and speculative derivatives are given priority in bankruptcy over workers. Tax laws encourage job creation abroad rather than at home. The result is a weaker and more unstable economy. Reforming these policies-and using other policies to reduce rent-seeking would not only reduce inequality; it would improve economic performance.

It should be noted that the existence of these adverse effects of inequality on growth is itself evidence against an explanation of today’s high level of inequality based on marginal productivity theory. For the basic premise of marginal productivity is that those at the top are simply receiving just deserts for their efforts, and that the rest of society benefits from their activities. lf that were so, we should expect to see higher growth associated with higher incomes at the top. In fact, we see just the opposite.

Reversing inequality

A wide range of policies can help reduce inequality. Policies should be aimed at reducing inequalities both in market income and in the post-traumatic and-transfer incomes. The rules of the game play a large role in determining market distribution, in preventing discrimination, in creating bargaining rights for workers, in curbing monopolies and the powers of CEOs to exploit firms’ other stakeholders and the financial sector to exploit the rest of society. These rules were largely rewritten during the past thirty years in ways which led to more inequality and poorer overall economic performance. Now they must be rewritten once again, to reduce inequality and strengthen the economy, for instance, by discouraging the short-termism that has become rampant in the financial and corporate sector.

Reforms include more support for education, including pre-school; increasing the minimum wage; strengthening earned-income tax credits; strengthening the voice of workers in the workplace, including through unions; and more effective enforcement of anti-discrimination laws. But there are four areas in particular that could make inroads in the high level of inequality which now exists.

First, executive compensation (especially in the US) has become excessive, and it is hard to justify the design of executive compensation schemes based on stock options. Executives should not be rewarded for improvements in a firm’s stock market performance in which they play no part. If the Federal Reserve lowers interest rates, and that leads to an increase in stock market prices, CEOS should not get a bonus as a result. If oil prices fall, and so profits of airlines and the value of airline stocks increase, airline CEOs should not get a bonus.

There is an easy way of taking account of these gains (or losses) which are not attributable to the efforts of executives: basing performance pay on the relative performance of firms in comparable circumstances, the design of good compensation schemes that do this has been well understood for more than a third of a century, and yet executives in major corporations have almost studiously resisted these insights. They have focused more on taking advantage of deficiencies in corporate govemance and the lack of understanding of these issues by many shareholders, to try to enhance their earnings, getting high pay when share prices increase, and also when share prices fall. In the long run, as we have seen, economic performance itself is hurt?

Second, macroeconomic policies are needed that maintain economic stability and full employment. High unemployment most severely penalises those at the bottom and the middle of the income distribution. Today, workers are suffering thrice over: from high unemployment, weak wages and cutbacks in public services, as government revenues are less than they would be if economies were functioning well.

As we have argued, high inequality has weakened aggregate demand. Fuelling asset price bubbles through hyper-expansive monetary policy and deregulation is not the only possible response. Higher public investment, in infrastructures, technology and education, would both revive demand and alleviate inequality, and this would boost growth in the long-run and in the short-run. According to a recent empirical study by the IMF, we’ll designed public infrastructure investment raises output both in the short and long term, especially when the economy is operating below potential. And it doesn’t need to increase public debt in terms of GDP: well implemented infrastructure projects would pay for themselves, as the increase in income (and thus in tax revenues) would more than offset the increase in spending.

Third, public investment in education is fundamental to address inequality. A key determinant of workers’ income is the level and quality of education. If govemments ensure equal access to education, then the distribution of wages will reflect the distribution of abilities (including the ability to benefit from education) and the extent to which the education system attempts to compensate for differences in abilities and backgrounds. If, as in the United States, those with rich parents usually have access to better education, then one generation’s inequality will be passed on to the next, and in each generation, wage inequality will reflect the income and related inequalities of the last.

Fourth, these much needed public investments could be financed through fair and full taxation of capital income. This would further contribute to counteracting the surge in inequality: it can help bring down the net return to capital, so that those capitalists who save much of their income won’t see their wealth accumulate at a faster pace than the growth of the overall economy, resulting in growing inequality of wealth. Special provisions providing for favourable taxation of capital gains and dividends not only distort the economy, but, with the vast majority of the benefits going to the very top, increase inequality.

At the same time they impose enormous budgetary costs: 2 trillion dollars from, 2013 to 2023 in the US, according to the Congressional Budget Office. The elimination of the special provisions for capital gains and dividends, coupled with the taxation of capital gains on the basis of accrual, not just realisations, is the most obvious reform in the tax code that would improve inequality and raise substantial amounts of revenues. There are many others, such as a good system of inheritance and effectively enforced estate taxation.

Conclusion: redefining economic performance

We used to think of there being a trade-off: we could achieve more equality, but only at the expense of overall economic performance. It is now clear that, given the extremes of inequality being reached in many rich countries and the manner in which they have been generated, greater equality and improved economic performance are complements.

This is especially true if we focus on appropriate measures of growth. If we use the wrong metrics, we will strive for the wrong things. As the international Commission on the Measurement of Economic Performance and Social Progress argued, there is a growing global consensus that GDP does not provide a good measure of overall economic performance. What matters is whether growth is sustainable, and whether most citizens see their living standards rising year after year.

Since the beginning of the new millennium, the US economy, and that of most other advanced countries, has clearly not been performing. In fact, for three decades, real median incomes have essentially stagnated. Indeed, in the case of the US, the problems are even worse and were manifest well before the recession: in the past four decades average wages have stagnated, even though productivity has drastically increased.

As this chapter has emphasised, a key factor underlying the current economic difficulties of rich countries is growing inequality. We need to focus not on what is happening on average, as GDP leads us to do, but on how the economy is performing for the typical citizen, reflected for instance in median disposable income. People care about health, fairness and security, and yet GDP statistics do not reflect their decline. Once these and other aspects of societal well-being are taken into account, recent performance in rich countries looks much worse.

The economic policies required to change this are not difficult to identify. We need more investment in public goods; better corporate governance, antitrust and anti-discrimination laws; a better regulated financial system; stronger workers’ rights; and more progressive tax and transfer policies. By ’rewriting the rules’ goveming the market economy in these ways, it is possible to achieve greater equality in both the pre and post tax and transfer distribution of income, and thereby stronger economic performance.

Joseph Stiglitz

What happened when the US last introduced tariffs? – Dominic Rushe.

Anyone?

Willis Hawley and Reed Smoot were reviled for a bill blamed for triggering the Great Depression. Will Trump follow their lead?

America inches towards a potential trade war over steel prices, can Donald Trump hear whispering voices?

Alone in the Oval Office in the wee dark hours, illuminated by the glow of his Twitter app, does he feel the sudden chill flowing from those freshly hung gold drapes? It is the shades of Smoot and Hawley.

Willis Hawley and Reed Smoot have haunted Congress since the 1930s when they were the architects of the Smoot Hawley tariff bill, among the most decried pieces of legislation in US history and a bill blamed by some for not only for triggering the Great Depression but also contributing to the start of the second world war.

Pilloried even in their own time, their bloodied names have been brought out like Jacob Marley’s ghost every time America has taken a protectionist turn on trade policy. And America has certainly taken a protectionist turn.

Successful presidents including Barack Obama and Bill Clinton have campaigned on the perils of free trade only to drop the rhetoric once installed in the White House. Trump called Mexicans “rapists” on the campaign trail. And China? “There are people who wish I wouldn’t refer to China as our enemy. But that’s exactly what they are,” Trump said.

As commander in chief he has shown no signs of softening and this week took major action announcing steel imports would face a 25% tariff and aluminium 10%.

Canada and the EU said they would bring forward their own countermeasures. Mexico, China and Brazil have also said they are considering retaliatory steps.

Trump doesn’t seem worried. “Trade wars are good,” he tweeted even as the usually friendly Wall Street Journal thundered that “Trump’s tariff folly ”is the “biggest policy blunder of his Presidency”.

It is not his first protectionist move. In his first days in office the president has vetoed the Trans Pacific Partnership (TPP), the biggest trade deal in a generation, said he will review the North American Free Trade Agreement (Nafta), a deal he has called “the worst in history”, and had his visit with Mexico’s president cancelled over his plans to make them pay for a border wall.

Free traders may have become complacent after hearing tough talk on trade from so many presidential candidates on the campaign trail only to watch them furiously back pedal when they get into ofhce, said Dartmouth professor and trade expert Douglas Irwin. “Unfortunately that pattern may have been broken,” he says. “It looks like we have to take Trump literally and seriously about his threats on trade.”

Not since Herbert Hoover has a US president been so down on free trade. And Hoover was the man who signed off on Smoot and Hawley’s bill.

Hawley, an Oregon congressman and a professor a history and economics, became a stock figure in the textbooks of his successors thanks to his partnership with the lean, patrician figure of Senator Reed Smoot, a Mormon apostle known as the “sugar senator” for his protectionist stance towards Utah’s sugar beet industry.

Before he was shackled to Hawley for eternity Smoot was more famous for his Mormonism and his abhorrence of bawdy books, a disgust that inspired the immortal headline “Smoot Smites Smut” after he attacked the importation of Lady’s Chatterley’s Lover, Robert Burns’ more risque poems and similar texts as “worse than opium I would rather have a child of mine use opium than read these books.”

But it was imports of another kind that secured Smoot and Hawley’s place in infamy.

The US economy was doing well in the 1920s as the consumer society was being born to the sound of jazz. The Tariff Act began life largely as a politically motivated response to appease the agricultural lobby that had fallen behind as American workers, and money, consolidated in the cities.

Foreign demand for US produce had soared during the first world war, and farm prices doubled between 1915 and 1918. A wave of land speculation followed and farmers took on debt as they looked to expand production. By the early 1920s farmers had found themselves heavily in debt and squeezed by tightening monetary policy and an unexpected collapse in commodity prices.

Nearly a quarter of the American labor force was then employed on the land, and Congress could not ignore heartland America. Cheap foreign imports and their toll on the domestic market became a hot issue in the 1928 election. Even bananas weren’t safe. Irwin quotes one critic in his book Peddling Protectionism: Smoot Hawley and the Great Depression: “The enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States.”

Hoover won in a landslide against Albert E Smith, an out of touch New Yorker who didn’t appeal to middle America, and soon after promised to pass “limited” tariff reforms.

Hawley started the bill but with Smoot behind him it metastasized as lobby groups shoehorned their products into the bill, eventually proposing higher tariffs on more than 20,000 imported goods.

Siren voices warned of dire consequences. Henry Ford reportedly told Hoover the bill was “an economic stupidity”.

Critics of the tariffs were being aided and abetted by “internationalists” willing to “betray American interests”, said Smoot. Reports claiming the bill would harm the US economy were decried as fake news. Republican Frank Crowther, dismissed press criticism as “demagoguery and untruth, scandalous untruth”.

In October 1929 as the Senate debated the tariff bill the stock market crashed. When the bill finally made it to Hoover’s desk in June 1930 it had morphed from his original “limited” plan to the “highest rates ever known”, according to a New York Times editorial.

The extent to which Smoot and Hawley were to blame for the coming Great Depression is still a matter of debate. “Ask a thousand economists and you will get a thousand and five answers,” said Charles Geisst, professor of economics at Manhattan College and author of Wall Street: A History.

What is apparent is that the bill sparked international outrage and a backlash. Canada and Europe reacted with a wave of protectionist tariffs that deepened a global depression that presaged the rise of Hitler and the second world war. A myriad other factors contributed to the Depression, and to the second world war, but inarguably one consequence of Smoot Hawley in the US was that never again would a sitting US president be so avowedly anti trade. Until today.

Franklin D Roosevelt swept into power in 1933 and for the first time the president was granted the authority to undertake trade negotiations to reduce foreign barriers on US exports in exchange for lower US tariffs.

The backlash against Smoot and Hawley continued to the present day. The average tariff on dutiable imports was 45% in 1930; by 2010 it was 5%.

The lessons of Smoot Hawley used to be taught in high schools. Presidents from Lyndon Johnson to Ronald Reagan have enlisted the unhappy duo when facing off with free trade critics. “I have been around long enough to remember that when we did that once before in this century, something called Smoot Hawley, we lived through a nightmare,” Reagan, who came of age during the Great Depression, said in 1984.

They even got a mention in Ferris Bueller’s Day Off when actor Ben Stein’s teacher bores his class with it. “I don’t think the current generation are taught it. It’s in the past and we are more interested in the future.”

But that might be about to change. “The main lesson is that you have to worry about what other countries do. Countries will retaliate,” said Irwin. “When Congress was considering Smoot Hawley in the 1930s they didn’t consider what other countries might do in reaction. They thought other countries would remain passive. But other countries don’t remain passive.”

The consequences of a trade war today are far worse than in the 1930s. Exports of goods and services account for about 13% of US gross domestic product (GDP) the broadest measure of an economy. It was roughly 5% back in 1920.

“The US is much more engaged in trade, it’s much more a part of the fabric of the country, than it was in the 1920s and 1930s. That means the ripple effects are widespread. Many more industries will be hit by it and the scope for foreign retaliation, which in the case of Smoot Hawley was quite limited, is going to be much more widespread if a trade war was to start.”

“When you start talking about withdrawing from trade agreements or imposing tariffs of 35%, if you are doing that as a protectionist measure, that would be blowing up the system.”

That the promise of “blowing up the system” got Trump elected may be why the ghosts of Smoot and Hawley are once again walking the halls of Congress.

The Guardian

The progressive case for replacing the welfare state with Basic Income – Scott Santens.

It appears some establishment voices have picked up on a way of opposing the idea of the monthly citizen dividend of about $1,000 per month, known as universal basic income (UBI), in a way that successfully leaves some progressively minded people afraid.

The fear inspired is that those with the greatest need may be left worse off with UBI compared to the existing status quo of more than 100 government programs that currently comprise the U.S. safety net that UBI has the potential to entirely or mostly replace.

The argument goes that because we currently target money to those in need, by spreading out existing revenue to everyone instead, those currently targeted would necessarily receive less money, and thus would be worse off. Consequently, the end result of basic income could be theoretically regressive in nature by reducing the benefits of the poor and transferring that revenue instead to the middle classes and the rich.

Obviously a bad idea, right?

This new argument has been made most notably by the White House’s own chief economic adviser, Jason Furman, perhaps after himself reading the words of Robert Greenstein of the Center on Budget and Policy Priorities (CBPP).

The problem is that those who make this particular argument are building somewhat of a straw man, not only because of the blanket assumptions they are making around a very specific tax-neutral design, but also because they aren’t publicly acknowledging just how poorly our present means-tested programs are targeted by virtue of their applied conditions, and just how unequal one dollar can be to one dollar, however counterintuitive that may seem.

Assuming things work as we think they work is exactly one of the biggest obstacles we’ve always had to improving anything.

Basically, this particular argument would only make sense if we in no way altered our tax system to achieve UBI, and if our programs worked as we assume they work because that’s how they should work. The problem is they don’t work that way.

Assuming things work as we think they work is exactly one of the biggest obstacles we’ve always had to improving anything, because to fix something we first need to understand it’s broken. If it ain’t broke, don’t fix it, right? Well, guess what? Our safety net is broken, and it’s broken at such a fundamental level, there’s no fixing it, because it is by design.

A net full of holes must be replaced by a floor free of holes and that floor is unconditional basic income.

Nothing but net holes

In the United States today, on average, just about one in four families living underneath the federal poverty line receives what most call welfare, which is actually known as Temporary Assistance for Needy Families, or TANF. It gets worse. Because states are actually just written checks to give out as they please in the form of “block grants,” there are states where far fewer than one in four impoverished families receive cash assistance.

In Oklahoma, seven out of 100 families living in poverty receives TANF. In Wyoming, merely one in 100 of those living in poverty receives TANF.

Where does the money go instead?

It goes to educate the children of those earning over six figures.

It goes to programs trying to convince women to get married.

And it goes directly to state government treasuries so they can cut taxes on the rich.

The fact is that cash welfare, as it exists today, is not given to the overwhelming majority of those living in poverty who need it.

Single adults without children know this better than anyone. They even have their own moniker: ABAWDs (Able-Bodied Adults Without Dependents). ABAWDs have the lone distinction of being the only demographic in the U.S. to be literally taxed into poverty, all 7.5 million of them. Because they earn income and because they do not have the child necessary to qualify for virtually any assistance — even the earned income tax credit (EITC), which is meant as a boost for low-income workers through the tax code — those earning enough to be above the federal poverty line can end up beneath the poverty line after paying taxes. And those already beneath the poverty line are pushed even deeper, effectively punished for being childless and working.

Combine all of those without dependents with all of those with dependents but without sufficient income to qualify for EITC and living in states averse to cash assistance, and the reality is that tens of millions of adults and children fall straight through the net purportedly designed to catch them. Any net is mostly nothing but holes, and nowhere is that more true than in the United States.

Assumption: Everyone living beneath the poverty line receives cash assistance.

Observation: Most don’t.

The same is true of housing assistance. There is a belief that poor people galore are sitting on easy street with affordable living conditions, where housing vouchers are given away like Halloween candy to anyone with a hand out.

The truth is that 24 percent of those who qualify for housing assistance get it, and getting it can mean years of waiting on lists. Here in New Orleans, where I live, the wait list is opened about every seven years or so, and when it is, tens of thousands apply despite fewer than 1,000 people becoming new recipients of vouchers each year.

Additionally, vouchers are not at all “just like cash.” Cash is accepted in payment by all landlords everywhere. Section 8 vouchers, meanwhile, are accepted only by those who choose to accept them, which is few and far between, and certainly not in what are considered to be “high opportunity” neighborhoods. This is true even of “supervouchers” that are specifically designed for that purpose.

Assumption: Everyone living in poverty receives housing assistance.

Observation: Most don’t.

Food stamps, too, are not given to everyone living under the poverty line. About one-quarter of those living in poverty get no government food assistance, and of those who do, a third of them still need to visit food banks for added assistance because the amount given is nowhere close to being sufficient to get people through each month.

Estimates point to food stamps lasting on average about three weeks of every month. Worse yet, food stamps can even have harsh time limits (e.g. three months of SNAP every three years), growing restrictions on how they can be used (sorry, no seafood allowed) and work requirements (30 hours per week).

This is food we’re talking about. Why should any bureaucrat ever exist between the most basic human need of all — the need to eat — and access to food?

Assumption: Everyone living in poverty receives food assistance.

Observation: Some may temporarily, but the amount is insufficient and full of costly strings.

However, one of the best examples of all the vast differences between the assumption and the observation of how government benefits work is how we target those with disabilities. It has been estimated that 22 percent of adults in the U.S. have some form of disability. At the same time, 4.6 percent of adults age 18-64 in the U.S. are receiving disability income. So again, about one-quarter of those we say we should be targeting actually receive anything, while the bulk get nothing.

It’s not just apples and oranges. It’s rotten apples and ripe oranges.The absolute worst thing though, and what too few people seem to know, is that when it comes to disability income, you are essentially not even allowed to earn additional income. If you’re on SSDI and earn one dollar over $1,090 in a month, you are dropped from the program and lose 100 percent of your benefit. That is the steepest of “benefit cliffs” and it’s the equivalent of taxing those with disabilities at rates far greater than 100 percent as a reward for their labor. It’s also the exact opposite of a basic income that is never taken away.

It is this clawback of means-tested benefits with the earning of income that is possibly the single greatest flaw of all targeted assistance, and also the single most ignored detail when people defend the current system over the introduction of a basic income that would replace it.

Simply put, $1,000 per month in welfare is not at all the same thing as $1,000 per month in basic income. It’s not just apples and oranges. It’s rotten apples and ripe oranges.

With welfare, because it is targeted and therefore withdrawn as income is earned, people on welfare are effectively punished for working. Their total incomes don’t really increase with employment. Welfare functions in many ways as a ceiling.

With basic income, because it is unconditional and therefore never withdrawn as income is earned, people with basic incomes are always rewarded for working. Their total incomes always increase with any amount of employment. Basic income therefore functions as a floor.

Do you see the difference?

So when someone says the details matter when it comes to the idea of basic income and suggests the possibility that it could be regressive, and even increase inequality by taking money being targeted at the poor and giving it to the non-poor, understand that the details of the details matter even more than just the details.

Basic income is not some regressive conspiracy of the Silicon Valley elite to create a neo-serfdom. The regressive argument operates on the myth that for every four people living under the poverty line, four people get an amount of assistance that lifts them far above the poverty line, and that $1 of welfare is exactly equivalent to $1 in basic income.

The basic income argument operates on the reality that for every four people living under the poverty line, only about one person gets an amount of assistance that does more to trap them in poverty than to lift them out of it, and that $1 of welfare is worth far less than $1 of basic income.

It’s really important to understand this, so let’s zoom in a bit on a worst-case scenario. Let’s assume we replace all of our programs targeted at the poor with UBI, including even Medicaid (which I don’t recommend unless we replace it with universal healthcare instead), and that we provide the UBI to adults only, with nothing for kids (something else I don’t recommend).

Using an example of a single parent with two kids within the current system, we could regressively replace around $45,000 of benefits (if we also eliminate child care, which is yet another detail I don’t recommend) with $12,000 in cash. That is a worst-design scenario and totally regressive right? No. It’s actually partially regressive and mostly progressive.

Although true that one in four would be worse off in such an inferior UBI design, it’s also true that three of four would be far better off because they would no longer receive little to nothing. As an oversimplified example for the sake of clarity, that means instead of the distribution across four adults being $45,000/$0/$0/$0, it would be $12,000/$12,000/$12,000/$12,000. That is more progressive as a whole than it is regressive, and inequality is reduced overall, not increased, because the total at the bottom went from $45,000 across four people to $48,000 across four people. And that is for basically the worst possible, most unrealistic of UBI designs.

But again, those numbers cannot be compared dollar for dollar. Welfare dollars disappear with work and basic income dollars are kept with work. That same parent receiving $45,000 for nothing, if they got a job paying $30,000 right now would receive $20,000 in benefits. That would be a gain of $30,000 combined with a loss of $25,000. That’s a gain of $5,000 for a $30,000 job, or in other words, an income tax of 83 percent. Who else is taxed at 83 percent? No one. In fact, the richest are taxed the least because their income, which isn’t derived from work, is special. It’s simply capital gains, which is taxed at 20 percent.

Does this sound like a just and equitable system? Or does it sound more like a racist meat-grinder?

Even more troubling, welfare dollars themselves are not equivalent to each other. Despite it being against the law to vary welfare dollars along racial lines, that’s exactly what we do. How? It’s again due to the nature of block grants for states. When Bill Clinton signed his welfare reform into law, he agreed to write checks to the states and let them handle how they dish out welfare. As a result, just five years after welfare was reformed into what it is today, 63 percent of those in the programs with the least-harsh conditions were white and 11 percent were black, while 63 percent of those in the programs with the most-harsh conditions were black and 29 percent were white.

In other words, a dollar in welfare has about three to five times as many strings for someone who is black than someone who is white. These strings absolutely affect end results. Joe Soss, co-author of Disciplining the Poor: Neoliberal Paternalism and the Persistent Power of Race describes his findings thusly:

“The stringency of the rules matter tremendously for outcomes. The tougher the rules — and the more frequently people are punished for breaking them — the worse the outcomes are for people after they finish the program. In fact, in the toughest programs, people actually end up in worse shape after they get through them than they were before they got the benefits to begin with. And remember, they were in such a bad situation that they had to turn to a welfare program that’s been so stigmatized that pretty much everyone wants to avoid it. We also found that people who go through the toughest programs learn lessons about government that lead them to retreat from participating in politics. They become less likely to make their voices heard, and less likely to participate in elections and community organizations.”

Does this sound like a just and equitable system? Or does it sound more like a racist meat-grinder?

The bare naked truth of our present welfare system is a racially biased, overly paternalistic, unnecessarily controlling, grossly exclusionary system of punishment and blame that limits opportunity and taxes working beneficiaries more than any other worker in any income tax bracket.

It doesn’t abolish poverty. It helps sustain it. And this is the system establishment voices wish to improve upon in piecemeal fashion, possibly because they’re not the ones being chewed up and spit out by it, or even neglected by it entirely.

However, even if all of the above is clearly understood, there is one absolutely vital thing remaining to understand about basic income that cannot be replicated in any other way, by any other means.

Because basic income lacks conditions and is paid regardless of work, it provides recipients the power to refuse to work. This is the real fear of those who worry a basic income will result in people working less, but it is also its greatest strength.

The ability to say no to an employer provides people the bargaining power and the choice to determine how they work, where they work, for how much and for how long. No other policy does that. A minimum wage certainly doesn’t. Wage subsidies certainly don’t. Without basic income, the labor market is coercive, and that means people accept what they can get. With basic income, wages for low-demand jobs must go up and/or hours must go down in order to attract people with incomes independent of work to do them, or those same jobs must be automated to be performed by machines instead, whichever is cheaper.

A basic income is most simply a minimum income floor. It’s a new starting point above the poverty level instead of below it. There will still be jobs for people to earn additional income and those jobs can pay more if people hate doing them. Additionally, considering a potential future where there’s half as much employment, that also means just as many can be employed if we all work half as much so as to better share the remaining employment. And with the increased bargaining power basic income provides, that can also mean getting paid more for less work.

Basic income is not some regressive conspiracy of the Silicon Valley elite to create a neo-serfdom where the entire population only earns a maximum of $12,000 per year. That is the exact opposite of how it works. With basic income, $12,000 becomes the new absolute minimum for everyone and no one is a serf because everyone’s basic needs are covered. Poverty is eliminated. Inequality is reduced.

Additionally, everyone is free to earn any additional income, and on their terms. For the first time, everyone will have the individual negotiating power to dictate terms to employers that must be met. People who have this fundamental power are those who can then make further desired changes in the economy, in their businesses, in their governments and in their lives.

So you tell me. Would you prefer conditional welfare nets or would you prefer an unconditional basic income floor? Because one of these options is a relic of history, and the other is a road to the future.

Is this the end of civilisation? We could take a different path – George Monbiot.

Environmental breakdown, coupled with the self-destructive behaviour of governments, has set us on a road to ruin. And we’re blocking off all means of escape.

It’s a good question, but it seems too narrow: “Is western civilisation on the brink of collapse?” the lead article in this week’s New Scientist asks. The answer is, probably.

But why just western? Yes, certain western governments are engaged in a frenzy of self-destruction. In an age of phenomenal complexity and interlocking crises, the Trump administration has embarked on a mass de-skilling and simplification of the state. Donald Trump may have sacked his strategist, Steve Bannon, but Bannon’s professed intention, “the deconstruction of the administrative state”, remains the central – perhaps the only – policy.

Defunding departments, disbanding the teams and dismissing the experts they rely on, shutting down research programmes, maligning the civil servants who remain in post, the self-hating state is ripping down the very apparatus of government. At the same time, it is destroying public protections that defend us from disaster.

A series of studies published in the past few months has started to explore the wider impact of pollutants. One, published in the British Medical Journal, suggests that the exposure of unborn children to air pollution in cities is causing “something approaching a public health catastrophe”. Pollution in the womb is now linked to low birth weight, disruption of the baby’s lung and brain development, and a series of debilitating and fatal diseases in later life.

Another report, published in the Lancet, suggests that three times as many deaths are caused by pollution as by Aids, malaria and tuberculosis combined. Pollution, the authors note, now “threatens the continuing survival of human societies”.

A collection of articles in the journal PLOS Biology reveals that there is no reliable safety data on most of the 85,000 synthetic chemicals to which we may be exposed. While hundreds of these chemicals “contaminate the blood and urine of nearly every person tested”, and the volume of materials containing them rises every year, we have no idea what the likely impacts may be, either singly or in combination.

As if in response to such findings, the Trump government has systematically destroyed the integrity of the Environmental Protection Agency, ripped up the Clean Power Plan, vitiated environmental standards for motor vehicles, reversed the ban on chlorpyrifos (a pesticide now linked to the impairment of cognitive and behavioural function in children), and rescinded a remarkable list of similar public protections.

In the UK, successive governments have also curtailed their ability to respond to crises. One of David Cameron’s first acts was to shut down the government’s early warning systems: the Royal Commission on Environmental Pollution and the Sustainable Development Commission. He did not want to hear what they said. Sack the impartial advisers and replace them with toadies: this has preceded the fall of empires many times before.

Now, as we detach ourselves from the European Union, we degrade our capacity to solve the problems that transcend our borders.

But these pathologies are not confined to “the west”. The rise of demagoguery (the pursuit of simplistic solutions to complex problems, accompanied by the dismantling of the protective state) is everywhere apparent. Environmental breakdown is accelerating worldwide. The annihilation of vertebrate populations, insectageddon, the erasure of rainforests, mangroves, soil and aquifers, and the degradation of entire Earth systems such as the atmosphere and oceans proceed at astonishing rates. These interlocking crises will affect everyone, but the poorer nations are hit first and worst.

The forces that threaten to destroy our wellbeing are also the same everywhere: primarily the lobbying power of big business and big money, which perceive the administrative state as an impediment to their immediate interests. Amplified by the persuasive power of campaign finance, covertly funded thinktanks, embedded journalists and tame academics, these forces threaten to overwhelm democracy. If you want to know how they work, read Jane Mayer’s book Dark Money.

Up to a certain point, connectivity increases resilience. For example, if local food supplies fail, regional or global markets allow us to draw on production elsewhere. But beyond a certain level, connectivity and complexity threaten to become unmanageable. The emergent properties of the system, combined with the inability of the human brain to encompass it, could spread crises rather than contain them. We are in danger of pulling each other down.

New Scientist should have asked: “Is complex society on the brink of collapse?”

Complex societies have collapsed many times before. It has not always been a bad thing. As James C Scott points out in his fascinating book, Against the Grain, when centralised power began to collapse, through epidemics, crop failure, floods, soil erosion or the self-destructive perversities of government, its corralled subjects would take the chance to flee. In many cases they joined the “barbarians”. This so-called secondary primitivism, Scott notes, “may well have been experienced as a marked improvement in safety, nutrition and social order. Becoming a barbarian was often a bid to improve one’s lot.” The dark ages that inexorably followed the glory and grandeur of the state may, in that era, have been the best times to be alive.

But today there is nowhere to turn. The wild lands and rich ecosystems that once supported hunter gatherers, nomads and the refugees from imploding early states who joined them now scarcely exist. Only a tiny fraction of the current population could survive a return to the barbarian life. (Consider that, according to one estimate, the maximum population of Britain during the Mesolithic, when people survived by hunting and gathering, was 5000).

In the nominally democratic era, the complex state is now, for all its flaws, all that stands between us and disaster.

So what do we do?

Next week, barring upsets, I will propose a new way forward. The path we now follow is not the path we have to take.

The Guardian

Inequality gap widens as 42 people hold same wealth as 3.7bn poorest – Larry Elliott.

Oxfam calls for action on gap as wealthiest people gather at World Economic Forum in Davos.

The development charity Oxfam has called for action to tackle the growing gap between rich and poor as it launched a new report showing that 42 people hold as much wealth as the 3.7 billion who make up the poorest half of the world’s population.
In a report published on Monday to coincide with the gathering of some of the world’s richest people at the World Economic Forum in Davos, Oxfam said billionaires had been created at a record rate of one every two days over the past 12 months, at a time when the bottom 50% of the world’s population had seen no increase in wealth. It added that 82% of the global wealth generated in 2017 went to the most wealthy 1%.

The charity said it was “unacceptable and unsustainable” for a tiny minority to accumulate so much wealth while hundreds of millions of people struggled on poverty pay. It called on world leaders to turn rhetoric about inequality into policies to tackle tax evasion and boost the pay of workers.

Mark Goldring, Oxfam GB chief executive, said: “The concentration of extreme wealth at the top is not a sign of a thriving economy, but a symptom of a system that is failing the millions of hardworking people on poverty wages who make our clothes and grow our food.”

Booming global stock markets have been the main reason for the increase in wealth of those holding financial assets during 2017. The founder of Amazon, Jeff Bezos, saw his wealth rise by $6bn (£4.3bn) in the first 10 days of 2017 as a result of a bull market on Wall Street, making him the world’s richest man.

Oxfam said it had made changes to its wealth calculations as a result of new data from the bank Credit Suisse. Under the revised figures, 42 people hold as much wealth as the 3.7 billion people who make up the poorer half of the world’s population, compared with 61 people last year and 380 in 2009. At the time of last year’s report, Oxfam said that eight billionaires held the same wealth as half the world’s population.

The charity added that the wealth of billionaires had risen by 13% a year on average in the decade from 2006 to 2015, with the increase of $762bn (£550bn) in 2017 enough to end extreme poverty seven times over. It said nine out of 10 of the world’s 2,043 dollar billionaires were men.

Goldring said: “For work to be a genuine route out of poverty we need to ensure that ordinary workers receive a living wage and can insist on decent conditions, and that women are not discriminated against. If that means less for the already wealthy then that is a price that we – and they – should be willing to pay.”

An Oxfam survey of 70,000 people in 10 countries, including the UK, showed support for action to tackle inequality. Nearly two-thirds of people – 72% in the UK – said they want their government to urgently address the income gap between rich and poor in their country.

In the UK, when asked what a typical British chief executive earned in comparison with an unskilled worker, people guessed 33 times as much. When asked what the ideal ratio should be, they said 7:1. Oxfam said that FTSE 100 bosses earned on average 120 times more than the average employee.

Goldring said it was time to rethink a global economy in which there was excessive corporate influence on policymaking, erosion of workers’ rights and a relentless drive to minimise costs in order to maximise returns to investors.

Mark Littlewood, director general at the Institute of Economic Affairs, said: “Oxfam is promoting a race to the bottom. Richer people are already highly taxed people – reducing their wealth beyond a certain point won’t lead to redistribution, it will destroy it to the benefit of no one. Higher minimum wages would also likely lead to disappearing jobs, harming the very people Oxfam intend to help.”

The Guardian

DEMOCRACY IN AMERICA? What Has Gone Wrong and What We Can Do about It – Benjamin I. Page and Martin Gilens. 

More Democracy

Today the United States faces a number of daunting problems. Economic inequality has reached levels not seen for a hundred years. While the wealthy keep piling up riches, many Americans are hurting from job losses, low wages, high health-care costs, and deteriorating public services. Whole communities have been devastated by factory closings. Our public schools are neglected. Our highways and bridges are in disrepair.

Well-designed government policies could help deal with these problems. Large majorities of Americans favor specific measures that would be helpful. Yet our national government often appears to ignore the wants and needs of its citizens. It pays more attention to organized interests than to ordinary Americans, and it gets bogged down in gridlock and inaction.

No wonder many Americans are angry and alienated. No wonder there have been populist rebellions on both the Left and the Right: the Tea Party, Occupy Wall Street, Bernie Sanders, Donald Trump.

In this book we argue that gridlock and inaction in Washington result from two main causes: clashes between our two sharply divided political parties and obstructive actions by corporations, interest groups, and wealthy individuals.

The many “veto points” in our complex political system (that is, the many opportunities for one or another political actor to thwart policy change) are used to prevent the enactment of policies that most Americans want. The nonresponsiveness and dysfunction of government are closely related to undemocratic features of our political system. Our laws and institutions make it hard for ordinary citizens to have an effective voice in politics. They permit corporations, interest groups, and the wealthy to exert a great deal of influence over what the government does. And they allow donors and highly ideological political activists to dominate the parties’ nominations of candidates for office, so that the two parties are pushed in sharply contrasting directions—contributing to gridlock.

Both parties often stray from what majorities of Americans want them to do. It follows that our problems can be more effectively addressed if we reform our political system to achieve more democracy: more equal opportunity for all citizens to shape what their government does and policies that better address the needs of all Americans.

If the political parties are democratized, for example, so that each of them is forced to appeal more to the voters and less to the party’s donors and activists, they will differ less sharply from each other. That will reduce gridlock. Both parties will be more responsive to the citizenry and more likely to adopt solutions that Americans favor for the problems we face. Similarly, if we reform elections so that all citizens have an equal voice, and if we mute the influence of political money and organized interests, public officials will more faithfully reflect what ordinary Americans want.

Again, if the Congress and other political institutions are reformed to represent all citizens equally, those institutions will be more harmonious—less prone to clashes with each other that result in gridlock—and more responsive to the citizenry as a whole.

Some impediments to democracy have been with us for a long time. Others have grown worse in recent years. But most, we think, are fixable.

In the course of American history, the health of democracy and the extent of economic equality have tended to rise and fall together. Each has affected the other. In the late nineteenth-century Gilded Age, for example, extreme inequalities of income and wealth—inequalities not unlike those that afflict us today—empowered the wealthy few and undermined democracy. Yet that same extreme economic inequality provoked protests and social movements, which in turn helped bring about reforms that advanced both political and economic equality.

Through such efforts, the United States has enjoyed periods of relatively democratic, harmonious, and effective government, and widely shared prosperity. We believe that we can once again enjoy more vigorous democracy and more widely shared prosperity, if enough citizens mobilize and work hard for effective reforms that promote both economic and political equality. The two types of reform go together. Each facilitates the other. Neither is likely to get very far alone.

In the following chapters we show precisely how undemocratic U.S. government policy making has become. We do our best to diagnose exactly what has gone wrong. Based on that diagnosis, we explain how certain specific political reforms could greatly increase democratic responsiveness. Finally, we explore how the formidable obstacles to reform might be overcome.

Why Democracy.

We define democracy as policy responsiveness to ordinary citizens—that is, popular control of government. Or simply “majority rule.”

This commonsense definition reflects the foundation of our Constitution in the will of “we the people of the United States.” It embodies the fundamental value of political equality, insisting that in a democracy all citizens should have an equal opportunity to influence the making of public policy. It reflects the assertion in the Declaration of Independence that all men (we would now say all human beings) are “created equal.”

It corresponds to Abraham Lincoln’s espousal of government “ of the people, by the people, and for the people.” Yet the fact is that this sort of “majoritarian” democracy—which is widely embraced by ordinary Americans—has been rejected by a number of political theorists and by many social and political elites. So we need to explain why we think majoritarian democracy is desirable.

ELECTIONS ALONE DO NOT GUARANTEE DEMOCRACY.

Some theorists have argued that all that is needed for democracy is elections that create a competitive struggle for citizens’votes. To us, however, a core element of democracy is political equality—an equal voice for each citizen. Just holding elections does not guarantee that citizens will have equal influence.

For example, even if we formally allow each adult citizen one and only one vote, some people may be left out because they are deterred or excluded from voting. (We will see that voters in the United States tend to be quite unrepresentative of the citizenry as a whole.) Other people may, in effect, get many votes—if they provide money or organizational support that is essential to running political campaigns and getting a party’s supporters to the polls. Moreover, election outcomes may not reflect the real preferences of the voters if the choices on the ballot are severely restricted. And policy may diverge sharply from the desires of the public if officials ignore those who elected them and pay attention to lobbyists instead.

One way in which elections can go wrong is if voters’ choices are circumscribed. A stark example: Iran’s Guardian Council, a twelve-member body of jurists and theologians appointed by Iran’s “Supreme Leader,” decides which candidates can get onto the ballot. In Iran’s 2013 presidential election, the Guardian Council disqualified the vast majority of would-be candidates—including all thirty women and the reformist former president. So even though many Iranians (72 percent of them) voted and could exercise a “free” choice among the six candidates on the ballot—and even though the winner of the most votes peacefully took office a few weeks later—we would not want to call that election democratic.

In the United States today, no body of theologians controls who can and who cannot run for office. Yet—as a result of much more subtle and indirect processes—we may actually have something like our own Guardian Council.

In today’s America, a relatively small, unelected set of people exerts a great deal of influence over who appears on the ballot and who has a realistic chance to win: those who supply the money. When the members of this group agree with one another, they have the power to determine that certain kinds of electoral choices are essentially off-limits for voters.

In our electoral system, private money plays a huge part. Neither major party can function without many millions of dollars. And the parties generally select their candidates in obscure, low-visibility primary elections, in which only a small, atypical set of voters participates. This process limits the influence of rank-and file voters. It empowers a few highly ideological activists, organized interest groups, and donors.

In this and many other ways, our system differs from those of most other advanced countries. Since Republican and Democratic activists and donors typically disagree sharply with each other about a number of issues, there are usually very real differences between Republican and Democratic candidates. But the megadonors of both parties tend to agree in opposing certain policies that most Americans favor. These include important policies related to government budgets, international trade, social welfare spending, economic regulation, and taxes (as will be discussed in chapter 4).

On these issues, big-money political donors can act rather like a Guardian Council. They can keep off the ballot candidates, ideas, and policies they disagree with, by giving or withholding the money that is needed to put on a serious campaign.

THE MONEY PROBLEM. 

A crucial part of this picture is that both parties need enormous amounts of money, but—under our current system—that money mostly comes from a very small set of megadonors. In 2012, for example, a tiny sliver of the U.S. population—just one-tenth of one-tenth of 1 percent of Americans—provided almost half of all the money spent in federal elections. Even more remarkably, just 132 donors to huge political action committees (PACs) known as “super PACs,” giving an average of almost $ 10 million each, accounted for more money than all of the 3.7 million small donors to the Barack Obama and Mitt Romney campaigns combined.

It is extremely difficult to win a major government office without the backing of affluent campaign donors. The “preapproval” process by America’s “Guardian Council” of potential donors seems to be remarkably effective at screening out candidates who fundamentally disagree with the preferences of well-funded interest groups and well-to-do contributors. The result: U.S. government policy often reflects the wishes of those with money, not the wishes of the millions of ordinary citizens who turn out every two years to choose among the preapproved, money-vetted candidates for federal office.

To be sure, the 2016 “outsider” campaigns of Bernie Sanders and Donald Trump seemed to demonstrate that—at least under certain circumstances—huge contributions from the usual millionaire and billionaire donors may not be necessary to compete. But of course Sanders did not win the Democratic Party nomination, let alone the general election.

Trump was an extremely unusual case: his celebrity and communication skills markedly lowered his campaign costs by giving him an enormous amount of free media exposure. And Trump had his own fortune to fall back on, if necessary, which also helped make him unusually independent of megadonors.

We will have much more to say in later chapters about the distorting effects of money in politics. For now, the main point is that we should not think about democracy in terms of the mere existence of elections. If we want true majoritarian democracy, what really matters is whether—and to what extent—ordinary citizens can control what their government does.

Elections can effectively ensure democratic control only if a representative set of citizens votes, and only if election outcomes are not excessively influenced by party activists, interest groups, or financial donors.

But do we want true, majority-rule democracy? Not everyone thinks so.

IS THE GENERAL PUBLIC WORTH PAYING ATTENTION TO? 

The most important objection to majoritarian democracy is that ordinary citizens may be too uninterested in politics, too ill informed, too capricious in their political opinions, too selfish, and too subject to demagoguery to have their views taken seriously. What if most Americans do not really know which public policies would be good for them or for the country? Why should we pay any attention to what they think? 

In the nation’s early days, James Madison and Alexander Hamilton worried about alleged “extreme fluctuations,” “passions” and “temporary errors and delusions” of the public. Walter Lippmann bemoaned “stereotypes” or “pictures in [the] heads” of ordinary citizens, who (he said) often fail to comprehend world realities. 

Subsequently, decades worth of polls and surveys have shown that most Americans are not much interested in or informed about politics. Again and again, many or most Americans have failed quizzes about basic political facts, such as which party controls the House of Representatives or how long a term senators have in office. 

Most people have trouble identifying or locating foreign countries. Acronyms and abbreviations that are coin of the realm in Washington, DC—NATO, ICBM, MFN, and the like—are mysteries to many Americans.  

Moreover, many Americans are confused or uncertain about exactly what kinds of government policies they favor or oppose. “Don’t know” responses to poll questions are fairly common, at least when survey researchers don’t make it too embarrassing to give them. 

Repeated surveys of the same individuals over time have showed that their stated opinions about political issues tend to vary from one year to another—sometimes back and forth, for no easily discernable reason. 

Researchers have talked of “non-attitudes”and have called into question the very existence of meaningful public opinion. 

Right up to the present day, scholars continue to write that “widespread political ignorance” is a profound problem for democracy and (in effect) to counsel political leaders to pay no heed to what ordinary citizens say they want. 

An important recent book on “democracy for realists” seems to cast doubt on the idea that the public has meaningful views that should shape government policy.  

There are good reasons for low levels of political information, reasons that can be summed up in the phrase “rational ignorance.” Most people—unless they happen to enjoy being political junkies—have little reason to devote a great deal of time or energy to most political matters. To most people, work, family, and leisure are higher priorities than most aspects of politics. Why make a big investment in acquiring political information? Especially since the odds of one individual having a pivotal effect on a major electoral outcome are usually vanishingly small. 

“Rational ignorance” notwithstanding, a few members of the public are indeed political junkies who enjoy learning about politics. And a larger portion are concerned with and knowledgeable about specific issues such as education, health care, or Middle East politics, depending on their particular occupations or interests. 

Whereas most people lack clear preferences on most issues, many people do have informed views about the few issues that they care about most. And still more have general notions about what sorts of policies are likely to suit them. 

Critics of democracy are certainly right that most individual Americans lack fully informed opinions about most issues. But it does not follow that the collective or aggregate, survey-measured policy preferences of all Americans—such as the percentages of Americans that polls show favoring or opposing various public policies—have the same characteristics as the preferences of a single typical individual. The notion that whole entities must have the same characteristics as their individual parts is a fallacy, known as the “fallacy of composition.”

THE STRENGTH OF COLLECTIVE POLICY PREFERENCES. 

There is plenty of evidence that public opinion as a collective or aggregate phenomenon is very different, much more worth paying attention to, than the day-to-day opinions of a typical individual citizen. How can this be? 

There are two main reasons. The first involves collective deliberation: a society-wide process in which experts and leaders debate public policies, their views are reported in the media, attentive Americans pick up cues from those they trust, and the attentive citizens communicate those views to their families, friends, and coworkers. 

The second reason involves the aggregation process itself: when many uncertain expressions of opinion are combined into a collective whole (for example, into the percentage of Americans favoring a particular policy), random errors and uncertainties among individuals tend to get averaged out. Survey measures of collective preferences cannot overcome systematic, nonrandom errors (we will have more to say about that later), but they do cancel out random variations that occur in “doorstep” opinions offered to survey interviewers. In most cases, the results of well-designed surveys fairly faithfully reflect longer-term, underlying tendencies of collective opinion. 

The process of forming collective opinions about politics is akin to the processes that tend to make verdicts by twelve-person juries, or market judgments by thousands of consumers or investors, much more reliable than the opinion of a typical individual. Each is an example of what can be called the “wisdom of crowds.”

Most Americans do not devote a great deal of thought to politics. But they do have easy, direct access to some information that is highly relevant to public policy: the size of their Social Security checks; what is happening to their jobs and wages; the (perhaps crumbling) condition of roads they drive on; price rises or declines in grocery stores or at gasoline pumps. On some of these day-to-day pocketbook concerns—and on such matters as neighborhood crime, the challenge of holding down a job with no paid sick leave, the difficulty of finding affordable child care, or the (un) reliability of public transportation—ordinary Americans may actually have better firsthand information than elites who live more rarefied, sheltered lives. 

When it comes to many abstract, complex, or distant matters, however—including precisely what sorts of public policy might be best for reducing layoffs and wage cuts, or for curbing price inflation, improving air quality, or avoiding war casualties—collective deliberation becomes crucial. 

Experts debate the merits of alternative public policies. Commentators and politicians express their views through various media. A set of relatively attentive citizens—without having to memorize a lot of facts—can figure out what sorts of policies are favored by leaders whom they trust to have expertise and to share their own values. (This works only if such leaders exist, can be heard, and deserve the trust bestowed upon them.) Attentive citizens adopt those policy preferences for themselves, and—again without needing to learn or recite a lot of facts—communicate them to friends, families, and coworkers who also share similar values. As a result, most Americans—on most major issues—are able to form a general idea about what they want the government to do. They develop underlying tendencies of opinion. When the uncertain beliefs and opinions of millions of people are combined, the random noise is reduced. 

Collective preferences tend to be solid. They tend to reflect the underlying needs and values of the whole body of citizens, in light of the best available information from experts and commentators. This is not just a theory. It is supported by evidence drawn from close examination of Americans’ actual collective policy preferences, as expressed in many polls and surveys conducted over many years. 

An exhaustive study of thousands of survey questions that had been asked over a fifty-year period found that Americans’ collective policy preferences do not in fact suffer from the alarming defects that are often attributed to them. “Violent fluctuations” in collective opinion are a myth. The proportions of Americans favoring or opposing a given policy generally stay stable over time, except that they react in sensible ways to such big events as an armed attack or a nuclear reactor meltdown. And they gradually change to take account of new realities or new information. As unemployment declines, for example, public support for unemployment assistance declines as well; when tax rates are lowered, public support for tax cuts declines. 

Americans as a group make many definite distinctions among policies (for example, which countries should receive economic aid; under what conditions abortions should be allowed; which kinds of assistance to the poor should be expanded or curtailed). Collective policy preferences are generally coherent: they are seldom inconsistent or mutually contradictory.  

Well-designed polls and surveys typically do a good job of revealing collective policy preferences that reflect the worldviews, values, and interests of the average American. In a word, public opinion is generally deliberative—it generally reflects the best available information and the values and interests of the citizenry. It does so not because most individuals are deliberative or aware of the best information but because individuals form their opinions through a collective social process that brings deliberation and information to bear on the issues of the day. 

We need to add certain caveats. First, poll results—especially those based on confusing, biased, or inept questions—have to be interpreted with care. But even poorly worded questions, properly interpreted, can often help reveal the contours of collective opinion.  Another problem is that tabulated poll responses can underrepresent the interests of respondents who are uncertain and give arbitrary answers or say “don’t know.” Such effects (which, however, are not generally large) should be taken into account when possible. 

The more important caveat is that collective opinion sometimes does not reflect the best available information because individuals’ errors do not always “cancel out.” This is particularly true if systematic misinformation is fed to many Americans at once and is not effectively contradicted. Examples include “fake news” transmitted by social media or misleading claims about events abroad (e.g., alleged “weapons of mass destruction” in Iraq) by presidents or executive branch officials who have a near-monopoly on intelligence sources. 

Our view is that successful manipulation of public opinion is not common, at least not concerning the domestic policy issues that we focus on in this book. On such issues, personal experience and competing elites can usually be counted on to help people figure out the truth. 

In later chapters, however—when we describe concrete policies that majorities of Americans favor, and advocate that the public’s wishes should be heeded—we need to be alert for any cases in which public opinion may have been manipulated or misled. As a general matter we believe that the expressed preferences of the American people deserve much more respect from policy makers than they currently get. Respect does not mean slavish adherence. The public is certainly not infallible, and majorities are sometimes shortsighted or misguided in ways that policy makers must try to recognize and resist. But in most cases, we believe that majority rule—even when we ourselves happen to disagree with the majority—tends to produce public policies that benefit the largest number of people and promote the common good. 

We believe that more democracy in the United States today would yield better policies: “better” in the sense that they would advance the interests and preferences of more Americans. 

This conclusion is strengthened when we consider the rather bleak alternatives. Who, exactly, should rule if the people do not? Most modern societies have, for good reasons, rejected rule by hereditary monarchs, landed gentry, dictators, party cadres, or theocrats. Even rule by the best-educated, most successful Americans—if it could somehow be arranged—would suffer from serious flaws. 

Our political and economic elites—who have recently stumbled into costly and futile wars, neglected economic inequality and wage stagnation, caused devastating financial crashes, and snarled up the functioning of government—appear to suffer from their own defects of judgment. Our wealthiest elites, though highly educated and knowledgeable about many things, often seem to know or care rather little about the needs of ordinary citizens. (We will have more to say about this in chapter 4, when we discuss the enormous political clout wielded by wealthy Americans.)

In short: citizens are not perfect guardians of their own values and interests. But they are pretty good guardians. And they are the best we are likely to find. 

WHAT ABOUT MINORITY RIGHTS? 

Even if majority rule does good things for most citizens, a serious problem remains: how to protect minorities. We are not much moved by Madison’s fear that the masses might use democratic control of government to seize property from a well-to-do minority, through such “wicked schemes” as the printing of paper money.  

In our view, U.S. history and, in recent years, survey data have demonstrated that most Americans have no desire to confiscate the property of the wealthy. They have never come close to doing so. In fact, wealthy Americans have been highly successful at resisting or rolling back even mildly redistributive threats to their property, such as the progressive income tax. 

But other minorities—especially racial, ethnic, and religious minorities, and those who have distinctive political interests or hold unpopular views—deserve protection. Surely Madison, the French political observer Alexis de Tocqueville, and others were right that under certain circumstances (fear of terrorism comes to mind), majorities can threaten the rights and interests of minorities who live in their midst. 

We are not absolutist democrats. We accept the desirability of providing minorities with special protections in case majorities of Americans might want to use the power of government against them. We believe the framers of the U.S. Constitution were wise to append a Bill of Rights, including protection for freedoms of speech, assembly, religion, and the press; guarantees of due process; and protection against arbitrary arrest or unreasonable searches and seizures—all provisions that help safeguard minorities from unfair treatment. 

The tricky part is how to guarantee that these freedoms are actually protected. The record of the U.S. Supreme Court is mixed, at best. Until relatively recently the court did little or nothing for enslaved or abused African Americans and Native Americans. It has frequently permitted harsh treatment of political dissenters, especially during wartime—or amid foreign policy crises or “red scares.”

As recently as World War II (1939–45), the Supreme Court went along with the shameful incarceration of Japanese Americans in prison camps, without any evidence that they represented a threat. The court swims in the same political sea as the rest of us. It cannot always be counted on to protect minorities whom majorities of Americans are willing or eager to oppress. 

Still, we cannot think of a superior system of legal protection. The Supreme Court and the Constitution—helped along by vigilant civil liberties lawyers—are probably the best we can do. But we believe that minorities should also be protected in ways that go beyond bare-bones constitutional rights. As we will note in our discussion of democratic reforms of the U.S. Senate, it is worth maintaining certain institutional protections for minorities of any sort who hold intense political views. 

Even the much-despised filibuster, if properly reformed, might be turned into a tool for preventing unjust government actions against minorities—instead of preventing action of almost any kind, as it does now. But that is a topic for a later chapter. 

How This Book Unfolds 

In the next chapter we note certain patterns in American history, from Alexis de Tocqueville’s 1830s onward. Democracy has tended to flourish in times of relative economic equality but has withered when there are big gaps between rich and poor. Yet periods of very high economic inequality have sometimes provoked social movements that have fought for and won amelioration of both economic and political inequality. (The same thing may be starting to happen today.) 

In part 2 of the book we examine more closely what has gone wrong and what is obstructing democratic responsiveness now. 

Chapter 3 shows how undemocratic the United States is today. Ordinary citizens have little or no influence on public policy, while affluent and wealthy Americans and organized interest groups—especially business groups—often get their way. 

When large majorities of Americans want policy changes that would improve their jobs, wages, retirement pensions, or health care—or that would combat climate change, reduce gun violence, improve public schools, or rebuild bridges and highways—they are often thwarted by gridlock and inaction. 

In chapter 4 we examine just how much political clout wealthy Americans have (a great deal), what techniques they use to exercise it, and what sorts of government policies they want and get. 

Chapter 5 documents the substantial political influence of organized interest groups and explains how they exercise it. Corporations and business associations do particularly well, while “mass-based” groups have relatively little clout. 

Chapter 6 explores the vexing problems of highly polarized political parties, gridlock, and policy inaction. It discusses how polarization has increased with geographical and racial realignments, demographic and economic changes (especially the great increase in economic inequality), and certain features of our electoral system. It notes how polarization interacts perniciously with our separation of powers and our multiple “veto points” to produce gridlock and inaction. 

We then turn, in part 3, to the question of what sorts of political reforms might be effective for making government policies more responsive to ordinary citizens. 

Chapter 7 discusses a number of “equal voice” reforms that would move all citizens toward equal political influence. Campaign finance regulation—or (even without such regulation) public funding—could greatly reduce the power of private political money. Other reforms could curtail the impact of interest groups. Still others could encourage voting by citizens who are currently not well represented in the electorate—especially lower-income people and racial and ethnic minorities. 

Chapter 8 considers how to overcome policy gridlock and, more generally, how to make our political institutions more democratic. It notes undemocratic features of Congress that our legislators could easily improve if they felt sufficient pressure to do so. It also discusses undemocratic electoral arrangements that will be harder—but far from impossible—to change. And it mentions certain particularly difficult but important-to-address problems, including the extremely unrepresentative, rural-heavy nature of the Senate, and the tendency of the Supreme Court to overturn (without, in our opinion, sound justification) certain policies backed by large majorities of Americans. 

Part 4, the final section of the book, addresses the difficult question of whether and how major democratic reforms can actually be enacted. Big obstacles stand in the way, especially the need to persuade, pressure, or replace officials who have been elected in an undemocratic system and would be happy to keep it that way. 

Major changes will likely take a long time and a lot of work. But we are optimistic that they can be achieved. 

Chapter 9 addresses the idea of a social movement for Democracy. Some important improvements can be accomplished through simple changes in rules or laws that policy makers might be pushed to adopt through conventional political pressure. Ultimately, however, we believe that the most important major reforms can probably be won only by means of something new: a large-scale, long-term social movement for Democracy. 

The chapter draws lessons from past social movements—especially the Populists, the Progressives, the labor movement, and the civil rights movement—to suggest what sorts of strategies and tactics might lead to success. And it points to groups that are already beginning to work together toward democratic reforms and might help form the core of a Democracy movement. 

Chapter 10 highlights democratic reforms that are currently being achieved on the state and local level. By building on these efforts, we believe that a successful social movement for more Democracy can eventually transform America, enhancing both the quality of our politics and the quality of our lives. 

Now we turn to concrete discussions of what has gone wrong and what we can do about it. 

TWO 

Unequal Wealth Distorts Politics 

“Among the new objects that attracted my attention during my stay in the United States, none struck my eye more vividly than the equality of conditions.  .  .  . The social state of the Americans is eminently democratic. It has had this character since the birth of the colonies; it has it even more in our day.  .  .  . It is of the very essence of democratic governments that the empire of the majority is absolute  .  .  . there is nothing that resists it.” ALEXIS DE TOCQUEVILLE, Democracy in America, 1831. 

To understand what has gone wrong with American democracy, it is helpful to look back at how our economy and our politics have changed since the early days of the United States. One historical pattern stands out. Economic inequality—the concentration of wealth and income in a few hands, with a big gap between rich and poor—has risen and fallen at various times. 

And democracy—popular control of government—has tended to move in the opposite direction. When citizens are relatively equal, politics has tended to be fairly democratic. When a few individuals hold enormous amounts of wealth, democracy suffers. 

The reason for this pattern is simple. Through campaign contributions, lobbying, influence over public discourse, and other means, wealth can be translated into political power. When wealth is highly concentrated—that is, when a few individuals have enormous amounts of money—political power tends to be highly concentrated, too. The wealthy few tend to rule. Average citizens lose political power. Democracy declines. 

This pattern underlies a key theme of this book: that the extreme economic inequality afflicting the United States today is a major cause of our loss of democracy. Only if we reduce economic inequality—and/ or break the links between money and political power—can we hope to make our government responsive to the citizenry

In this chapter we take a quick look at the historical relationship between economic inequality and political inequality in the United States. 

When Americans have been relatively equal economically—as they were in the early years of our country and were again during our post–World War II “golden age”—democracy has generally flourished. But when the gaps between the rich and everyone else have grown too great—as in the Gilded Age of the 1890s and again during recent decades of low, stagnant wages for most Americans but soaring wealth at the top—democracy has suffered. 

American history also shows, however, that we are not helpless in the face of impersonal forces that exacerbate economic inequality. Public policy matters. At several key moments in American history, extreme economic inequality has led to anger, protests, social movements, and government action to remedy the situation. Average citizens, working together, have been able to make important strides toward moderating economic inequality and enhancing democracy.  

Tocqueville’s Relatively Equal America In 1831, when the young French aristocrat Alexis de Tocqueville visited the newly founded United States, he was deeply impressed by the high level of economic and social equality among Americans. He was also struck by the extent to which government policies—especially in the states—were responsive to the will of the majority of citizens. He called the majority “omnipotent” and declared that nothing could resist it.  F

rom today’s vantage point, the America of the 1830s was certainly no utopia. Equality and democracy were far from complete. As Tocqueville was well aware, the slave system in the South treated most African Americans as property, exploited their labor, deprived them of personal freedom, and excluded them from any voice in politics. 

Women were stuck in a patriarchal society, with subordinate status and no right to vote. Native Americans were being driven from their lands, conquered, and killed—under the leadership of (among others) the democratic hero Andrew Jackson. No utopia, for sure. 

Still, among white males, equality and democracy were indeed highly advanced during the Jacksonian period—much more so than in any European country at that time, and much more so than in the United States today. In the 1830s many white male Americans were farmers who owned a small piece of land and grew or raised their own food. These farmers, along with craftsmen and small merchants who lived in towns and cities, enjoyed fairly similar standards of living and had much the same modest levels of wealth. 

Only a few big merchants, manufacturers, and (especially) Southern plantation owners stood out as notably more affluent, while slaves and landless urban laborers stood out as deprived. 

Economic historians calculate that U.S. inequalities of income and wealth were substantially lower in Tocqueville’s time than they are today—though there was a sharp distinction between the highly equal North and the very unequal South, and much depends on how the calculations treat slaves. 

For the country as a whole in 1810, if one considers only the free (nearly all white) population, some estimates indicate that the top 1 percent of wealth holders owned less than 15 percent of all the wealth, much less than the 35 percent figure for the United States in 2010. 

Consider those numbers for a moment. Today, 1 percent of Americans hold fully one-third of all the wealth in the country. The distribution of wealth in early nineteenth-century America was much more equal than today. Indeed, it was much more equal than in most other times and places. If slaves—who owned virtually nothing—are included in the population, and if the market value of slaves is attributed to their owners (a grim but useful calculation), Tocqueville’s America looks considerably less egalitarian—but still more equal than Europe at that time or the United States now.  

Much the same was true of incomes. In colonial times (and presumably in the Jacksonian period as well), U.S. incomes were distributed much more equally than those in England or Holland, and much more equally than in the late nineteenth-century United States. 

THE RISE OF DEMOCRACY IN THE UNITED STATES. 

As to politics, we cannot be sure exactly how responsive the state or federal governments were to citizens in the 1830s. (There were no opinion polls to tell us which policies citizens favored or opposed.) But the judgment of most historians, bolstered by evidence on voting turnout and other matters, is that among white men, American politics were in fact relatively democratic in the age of Jackson. 

In the earliest years of the United States, the right to vote had been severely restricted. The U.S. Constitution provided direct elections only to the House of Representatives. Presidential candidates were to be proposed and winnowed down by “electors,” who were chosen “in such manner as the [state legislatures] may direct”; House congressional delegations were expected to do the final picking of presidents. Senators were chosen “by”(emphasis added) state legislatures, and Supreme Court justices were appointed. Only a small minority of Americans could vote at all. The states controlled voting qualifications. 

Most states allowed only white males who were owners of substantial amounts of property to vote, and some states imposed religious or other qualifications as well. As a result, in 1790 only about two-thirds of adult white men—and few others—were legally eligible to vote. And far fewer did so. 

By 1828, however, when Andrew Jackson won his first term as president in an outburst of popular participation, presidential and House elections had become more democratic. All but two states let their voters choose presidential electors, who were generally pledged to back a particular candidate—in effect allowing citizens a more or less direct vote for president. And more white males could take part. 

Several of the original states had loosened their voting restrictions, and many new, more democratically oriented states had joined the union, so that in 1830 only eight of the then-total twenty-four states imposed property requirements for voting.  

Levels of voting turnout rose markedly. Turnout for the first election for the U.S. House of Representatives, in 1788—as a proportion of the people who were potentially eligible to vote in terms of their age, sex, race, and citizenship—was only about 12 percent, an astoundingly low figure. It rose to 38 percent by 1812 and, after a decline, jumped up to about 56 percent in Jackson’s two elections of 1828 and 1832. 

The establishment of political parties and active campaigning made a big difference, by offering citizens choices and mobilizing them to get to the polls. The highly democratic society that Tocqueville observed reflected strong popular mobilization for the 1828 election, when frontiersman and military hero Andrew “Old Hickory”Jackson of Tennessee, and his key ally, Martin Van Buren of New York, assembled a broad political coalition drawn from much of the Northeast, South, and West. 

A sophisticated party committee worked with Van Buren’s congressional caucus in Washington, DC, to set up state campaign committees, local Hickory Clubs, and a vigorous network of partisan newspapers around the country. Rallies, parades, and get-out-the-vote efforts delivered a large, enthusiastic popular vote for Jackson, who defeated the incumbent president, John Quincy Adams.  

In office, Jackson set a tone for popular democratic control of government. His inauguration brought an outpouring of people from hundreds of miles around Washington, who lined the route to the Capitol. 

Jackson opened his White House reception to citizens of modest background, who were scornfully described by a society matron as “a rabble, a mob, of boys, negros [sic], women, children, scrambling, fighting, romping. What a pity, what a pity.” 

Conservative Supreme Court Justice Joseph Story wrote to his wife that “the reign of KING MOB seemed triumphant.” 

At least in electoral and symbolic terms, then, the American politics of Tocqueville’s time were relatively democratic. 

Inequality after Tocqueville As the nineteenth century proceeded, however, the relatively equal, small-farm, agrarian America of Tocqueville’s time turned into something else. Settlers moved West. Millions of immigrants arrived from Ireland, Germany, and then southern and eastern Europe. The U.S. population doubled, doubled again, and then nearly doubled once more, from thirteen million in 1830 to ninety-two million in 1910.

Millions of people moved into big cities. While agriculture continued to expand and move westward, manufacturing surged, with more and more big mills and factories coming into existence, owned by wealthy individuals and—increasingly—by large corporations. Economic productivity soared. The United States launched into a post–Civil War “special century” of rapidly increasing standards of living. Railroads and (later) automobiles provided swift transportation. Electricity lit up people’s evenings and later began to power remarkable new consumer appliances. The telegraph, telephone, and national newspapers (and, in the twentieth century, radio and television) revolutionized communications. Nutrition, medical care, and life expectancies all improved. 

At the same time, however, millions of urban workers suffered from dismal living and working conditions, while the owners and managers of big businesses thrived. Inequality of wealth and income grew markedly. 

In a prescient chapter on “How Aristocracy Could Issue from Industry,” Tocqueville himself foresaw that industrialization and economic development might well undermine the high level of equality that he had observed among Americans. Increased division of labor would do it. Workers, he said, become “weaker, more limited, and more dependent,” while very wealthy men come forward to exploit industries. 

“At the same time that industrial science constantly lowers the class of workers, it elevates that of masters.”

Yes, indeed. As industrialization proceeded, the U.S. population became more and more sharply divided between a few very wealthy captains of industry and millions of low-wage workers. 

During the Gilded Age of the late nineteenth century, inequality of income and wealth reached extreme heights. Government policies that placed the interests of businesses above those of citizens, along with Supreme Court decisions that rejected progressive taxation or regulation of business, contributed to economic inequality. 

Extreme economic inequality, in turn, created a wealth-dominated, undemocratic politics. The English scholar James Bryce, who retraced some of Tocqueville’s steps in the 1870s and 1880s (and wrote a lengthy tome on American government) found that the inequality of material conditions in the United States had become greater than that of Europe. The United States had more “gigantic fortunes” than anywhere else in the world and a remarkable “crowd of millionaires.” 

By 1910, the top 10 percent of U.S. wealth holders owned the vast bulk—fully 80 percent—of all the wealth in the country. 

That left only 20 percent of the wealth to be divided among the whole other 90 percent of Americans. Nearly half of all the wealth (45 percent of it) was owned by the top 1 percent of Americans. 

Americans’ annual incomes were quite unequal as well. The top 1 percent of U.S. income earners got almost one-fifth of all the income in 1910, and almost one-quarter of it at the end of the 1920s. 

These numbers are worth thinking about. They imply big differences between the lives of people at the top and everyone else.  

During the Gilded Age of the late nineteenth century that laid the groundwork for those early twentieth-century economic disparities, the huge, unregulated “trusts” that dominated many industries extracted monopolistic prices from consumers and paid enormous profits to stockholders. Meat-packers sold adulterated food. Rapacious railroads charged farmers exorbitant rates to ship their grain to market. Workers labored long hours for low wages. Even professionals and people running small to-middle-size businesses resented the conspicuous consumption of the “plutocrats.”

An emblem of Gilded Age excess was Cornelia Bradley Martin’s lavish Waldorf-Astoria costume ball in the midst of the depression of 1897. While many Americans were struggling to make ends meet, six to seven hundred wealthy New Yorkers joined Cornelia—who was dressed as a queen and greeted her guests from a raised dais under a canopy of rare tapestries—to display their jewels, silks, and brocades, and to enjoy the Versailles-like scene of mirrors and tables laden with food. 

THE DECLINE OF DEMOCRACY. 

The extreme economic inequality of the Gilded Age brought with it a high degree of political inequality. Democracy declined. “Muckraker” journalists wrote of the “treason of the Senate”; they showed that key senators were on the payrolls of wealthy bankers or industrialists and did the bidding of their employers. 

The Senate became a graveyard for popular reforms. In an eerie foreshadowing of today’s politics, wealthy individuals, business firms, and institutional gridlock combined to prevent Congress from passing laws that large majorities of Americans undoubtedly wanted them to pass.  

The decline in democracy was also manifested in a sharp decline in voter turnout. After the pivotal election of 1896—in which the industrial conservatism of William McKinley decisively defeated the agrarian populism of William Jennings Bryan—a series of changes in election laws curtailed citizens’ participation: new, onerous requirements for personal registration; disenfranchisement of working-class immigrants; barriers against party labels on ballots or party mobilization of voters. (Many of these “reforms”were supported by Progressives, who sought to reduce corruption and shift power away from the wealthy toward middle-class professionals, not ethnic urban masses.) 

Also, voters were discouraged by a narrowing of political choices under the business-dominated politics of the day. The high, 80 percent or so presidential-election turnout levels of most of the nineteenth century fell sharply, to just 59 percent in 1912. 

THE REBIRTH OF EQUALITY AND DEMOCRACY. 

The extremely high levels of economic and political inequality during and after the Gilded Age were eventually moderated, however. Inequality itself provoked protests and social movements that pressed for reforms and—after a long struggle—enjoyed considerable success. 

The Populist and Progressive victories of the early twentieth century (which are discussed further in chapter 9) included two fundamental democratic reforms: direct election of U.S. senators (rather than selection by corrupt state legislators) and the right of women to vote. They also brought more popular participation in party nominations; government regulation of business monopolies; limits on long working hours and bad working conditions; and the beginnings of a progressive federal income tax. 

After a relapse into economic and political inequality during the 1920s, the Great Depression led to the political mobilization of millions of citizens and to Franklin Roosevelt’s New Deal policies of the 1930s, which more closely regulated business, imposed more progressive income taxes, and provided social welfare programs including Social Security. 

Most important for reviving democracy, the New Deal facilitated the organization of workers into unions that could mobilize their members and exert countervailing power against business.  

New Deal policies, together with the economic leveling effects of World War II and its aftermath, produced a “great compression” (much more equality) of income and wealth and a substantial restoration of democracy.  

THE “GOLDEN AGE.”

For a period of twenty to thirty years after World War II (from about 1946 to 1973)—which is sometimes referred to as a “golden age,” though it was certainly not golden in every respect—income and wealth were much more widely shared. By 1950, the share of wealth owned by the top 1 percent of wealth holders had fallen from 45 percent to 30 percent. The income share of the most affluent Americans was also down markedly from the late-1920s peak.  

As the economy grew rapidly during the 1950s and 1960s, the American Dream seemed realizable. Average workers could expect ever-increasing prosperity for themselves and their children. Real incomes were doubling each generation. Living standards soared. The most economically successful Americans did not seem to be impossibly far ahead; one could imagine that—with hard work and luck—one might possibly join them.

As to democracy: we cannot be sure exactly how responsive to the citizenry the federal government was during the 1950s. (Available survey data are too scanty to judge how well public policies reflected citizens’preferences.) But indications are that policy making was much more democratic during the Eisenhower administration (1953–61) than it is today. Certainly the political parties were less polarized; there was more bipartisan cooperation, less gridlock, more legislative accomplishment—including clearly popular measures like the development of the interstate highway system and the maintenance or expansion of a number of social programs.  

Today’s Explosion of Inequality 

Then, in the 1970s, things began to go badly wrong. Already during the golden age, other countries had started to undermine the global economic dominance of the United States. Germany and Japan recovered from the ravages of World War II and built vigorous new economies. Volkswagens and then Hondas began to undersell Detroit cars in the U.S. market, and inexpensive Japanese electronic goods began to appear on our shelves. 

Suddenly, in 1973–74, an embargo by the Organization of Petroleum Exporting Countries (OPEC) doubled the price of oil. Wages, salaries, and the U.S. economy as a whole stagnated, while prices rose. At first nearly all Americans suffered. Then the wealthiest began to leap ahead while nearly everyone else stayed stuck, and a period of sharply rising inequality began. 

WAGE AND INCOME STAGNATION AMONG AVERAGE AMERICANS. 

American workers’ wages stopped rising. Since 1973—including many years of substantial economic growth—median hourly wages have barely risen at all. (Half of all workers earn more than the median, while half earn less. The median wage tells more about typical workers than does the mean or average wage, which can be misleadingly high because of a few extremely high-wage earners. If Bill Gates walks into a bar, the “average”income of the customers jumps way up in terms of the mean, but there is little or no effect on the median income, nor—unless Gates buys the drinks—on anybody’s actual welfare.) 

Even now, median wages remain stuck around $16 per hour, where they have been (in “real,” inflation-adjusted terms) ever since the early 1970s. Wage stagnation is a fundamental feature of contemporary America. 

For a while, family incomes (though not necessarily families’well-being) did a bit better than wages, but only because more family members began working harder and for longer hours. And soon family incomes stagnated too. Between 1947 and 1979, in terms of real dollars, the total incomes of American families in the bottom two thirds of the income distribution more than doubled. But since 1979, they have stayed nearly flat.  

Pundits and pontificators sometimes attribute this wage and income stagnation to workers’ alleged lack of skills or effort. Nonsense. American workers did not suddenly lose their ambition, their energy, or their skills at the end of the golden age. They continue to work hard and work well. Their productivity rose markedly for many years. Between 1979 and 2011, in fact—while wages were staying flat—average productivity nearly doubled, from $36.03 of goods produced per hour worked, to $60.83. 

The problem is not that the typical American worker is not working hard enough or not producing enough; it is that factors beyond his or her control—chiefly labor-saving technology and wage competition from low-wage countries—have reduced the market value of that work. 

A bigger share of revenue now goes to managers and stockholders. So a small number of wealthy people with very high incomes now get most of the gains from increased production. No wonder that many Americans feel that they have been marching up a steep hill but getting nowhere. No wonder that many resent those who seem to have leapt ahead—whether they focus on wealthy corporate executives and hedge fund managers or on immigrants and minorities. 

Wage and income stagnation tell us something about why there were so many antiestablishment Trump and Sanders voters in the 2016 elections. Americans can no longer take much consolation from hopes and dreams of upward mobility, even in relative terms. 

The American Dream promises that hard work, creative thinking, risk taking, and thrift can get anyone—or at least anyone’s children—to the top of the heap. In actual fact, however, Americans who are born into lower-income families tend to stay in the lower income ranges all their lives. So do their children. 

Those born at the top mostly stay near the top. For example, a recent study found that about half of Americans who had been in the bottom fifth of income-earning households in 1987 and were aged thirty-five to forty at the time remained in the bottom fifth twenty years later, despite the normal expectation of rising earnings over the life cycle. Those who did move generally did not move far. Fewer than one out of twenty made it into the top fifth, and fewer than one in forty into the top tenth.  

Americans enjoy somewhat more mobility between generations than within them, but less than we might like to think. High-earning parents tend to have high-earning children, and low earners tend to have low earners. The sons of fathers in the bottom tenth of income earners have just a paltry 4.5 percent chance of making it into the top fifth. (If parents’income did not matter, everyone would have a 20 percent chance of making it into the top fifth.)  

A moment’s thought about the importance of family in early childhood nurturance and in schooling, personal networks, college attendance, and financial help with homes and businesses helps us understand why it is rare to leap from the bottom to the top. More startling is the fact that the United States now appears to have less, rather than more, intergenerational mobility than several other countries that we sometimes sneer at as stultified: especially the egalitarian Scandinavians (Denmark, Norway, Finland, Sweden), but also Australia, New Zealand, Germany, and Japan. 

The most striking contrast is with our neighbor Canada, which resembles us in many ways but has some government policies that are very different from ours. Canada enjoys one of the highest rates of intergenerational mobility among advanced countries, while we suffer from one of the lowest. 

*

from

DEMOCRACY IN AMERICA? What Has Gone Wrong and What We Can Do about It 

Benjamin I. Page and Martin Gilens.

get it at Amazon.com

The Tax Bill That Inequality Created – NYTimes. 

THE EDITORIAL Board, December 16, 2017

Most Americans know that the Republican tax bill will widen economic inequality by lavishing breaks on corporations and the wealthy while taking benefits away from the poor and the middle class. What many may not realize is that growing inequality helped create the bill in the first place.

As a smaller and smaller group of people cornered an ever-larger share of the nation’s wealth, so too did they gain an ever-larger share of political power. They became, in effect, kingmakers; the tax bill is a natural consequence of their long effort to bend American politics to serve their interests.

As things stand now, the top 1 percent of the population by wealth — the group that would primarily benefit from the tax bill — controls nearly 40 percent of the country’s wealth. The bottom 90 percent has just 27 percent, according to the economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman.  Just three decades ago these numbers were almost exactly the reverse: The bottom 90 percent owned nearly 40 percent of all wealth. To find a time when such a tiny minority was so dominant, you have to go back to the Great Depression.

As kingmakers, rich families have supported candidates who share their hostility to progressive taxation, welfare programs and government regulation of any kind. These big-money donors have pushed the Republican Party in particular further to the right by threatening well-funded primary challenges against anybody who doesn’t toe the line on tax cuts for the rich and other pro-aristocracy policies. The power of donors has contributed to political polarization and made the federal government less responsive to the needs of most voters, a new book by Benjamin Page of Northwestern University and Martin Gilens of Princeton University argues.

The power of the one-percenters may help explain why President Trump, who ran as a populist, has not only abandoned any pretense of fighting for the working class but also joined Republicans in Congress in ripping up regulations that protect families and the environment — in order to help business tycoons. Together, they’ve tried to repeal the Affordable Care Act. Its repeal would have deprived millions of people of health insurance while trimming taxes for high-income families. Now, they want to cut taxes on corporations and offer new loopholes to the rich, even if that means hurting their own constituents by limiting the ability of middle-class families to deduct state and local taxes on their tax returns.

Most political campaigns now rely on a small group of wealthy donors who give tens of thousands of dollars or more per election cycle. About 40 percent of contributions to campaigns during the 2016 federal election came from an elite group of 24,949 donors, equivalent to 0.01 percent of the adult population. In 1980, the top 0.01 percent accounted for only 15 percent of all contributions, according to an analysis by Adam Bonica, a Stanford professor, and his collaborators.

Of course, the growing importance of wealthy donors is not exclusively a Republican phenomenon. Democratic candidates have also benefited from the largess of wealthy donors like George Soros, Tom Steyer and James Simons. But on economic and tax issues, big-money liberal donors have not really shoved their party to the far left. Donations from Wall Street and corporate America have, in fact, pushed many Democrats to the center or even to the right on issues like financial regulation, international trade, antitrust policy and welfare reform.

Further, liberal donors have been nowhere near as skillful at coordinating their giving as conservative donors have been. No liberal organization comes close to rivaling the network of donors and political activists created by the conservative Koch brothers, says Theda Skocpol, a professor at Harvard, who has written extensively about these issues. The Koch network has spent years methodically pushing state and federal lawmakers to cut regulations, taxes and government programs for the poor and the middle class. The leading donor network on the left, the Democracy Alliance, is smaller and much less successful.

Even allowing for money “wasted” on losing candidates and failed causes, the donor class has notched many impressive wins. Tax rates have fallen substantially, with the top marginal income tax rate now just below 40 percent, from 70 percent when Ronald Reagan won the presidency. The top corporate tax rate has dropped to 35 percent, from 46 percent in 1980, and many businesses pay an effective rate that is much lower than that. While supply-side economics remain mostly a Republican fiction, politicians from both parties have supported the effort to reduce taxes on capital — profits, capital gains and dividends — on the grounds that this would spur investment and make American businesses more competitive.

But the cuts have done little to bolster the economy or the working class. In fact, incomes have stagnated, and workers have been forced to part with a larger share of their pretax earnings in the form of payroll taxes.

Meanwhile, where are the political champions of poor Americans? Whoever they are, they haven’t been producing results. Wages for the poorest have languished, partly because Congress has been so slow to raise the minimum wage — $7.25 an hour since 2009 — that its purchasing power is now about 10 percent less than it was in 1968. Lawmakers and conservative judges have also undermined workers by making it harder for them to unionize, so they are not in a position to demand better pay and better working conditions.

This tax bill would exacerbate all these trends. The Urban-Brookings Tax Policy Centre and the Joint Committee on Taxation. both respected, both nonideological, say the bill would primarily benefit the wealthy and would leave most poor and middle-class Americans worse off over the long run. That’s without Congress doing anything else to widen the gap. But even now, Mr. Trump and Republicans in Congress are talking about cutting government programs like Medicare, Medicaid and Social Security next year to help make up for the more than $1 trillion the tax bill would add to the federal deficit.

Inequality in America does not have to be self-perpetuating. When people turn up at the polls, as they did recently in Alabama, they can produce unexpected results. That’s why Republican lawmakers might want to think again about whether they want to be the means through which their wealthy donors pull off this heist.

New York Times

Statement on Visit to the USA, by Professor Philip Alston, United Nations Special Rapporteur on extreme poverty and human rights. 

Washington, December 15, 2017 

I. Introduction

I have spent the past two weeks visiting the United States, at the invitation of the federal government, to look at whether the persistence of extreme poverty in America undermines the enjoyment of human rights by its citizens.  In my travels through California, Alabama, Georgia, Puerto Rico, West Virginia, and Washington DC I have spoken with dozens of experts and civil society groups, met with senior state and federal government officials and talked with many people who are homeless or living in deep poverty.  I am grateful to the Trump Administration for facilitating my visit and for its continuing cooperation with the UN Human Rights Council’s accountability mechanisms that apply to all states.

My visit coincides with a dramatic change of direction in US policies relating to inequality and extreme poverty. The proposed tax reform package stakes out America’s bid to become the most unequal society in the world, and will greatly increase the already high levels of wealth and income inequality between the richest 1% and the poorest 50% of Americans.  The dramatic cuts in welfare, foreshadowed by the President and Speaker Ryan, and already beginning to be implemented by the administration, will essentially shred crucial dimensions of a safety net that is already full of holes.  It is against this background that my report is presented.

The United States is one of the world’s richest, most powerful and technologically innovative countries; but neither its wealth nor its power nor its technology is being harnessed to address the situation in which 40 million people continue to live in poverty.

I have seen and heard a lot over the past two weeks.  I met with many people barely surviving on Skid Row in Los Angeles, I witnessed a San Francisco police officer telling a group of homeless people to move on but having no answer when asked where they could move to, I heard how thousands of poor people get minor infraction notices which seem to be intentionally designed to quickly explode into unpayable debt, incarceration, and the replenishment of municipal coffers, I saw sewage filled yards in states where governments don’t consider sanitation facilities to be their responsibility, I saw people who had lost all of their teeth because adult dental care is not covered by the vast majority of programs available to the very poor, I heard about soaring death rates and family and community destruction wrought by prescription and other drug addiction, and I met with people in the South of Puerto Rico living next to a mountain of completely unprotected coal ash which rains down upon them bringing illness, disability and death.

Of course, that is not the whole story.  I also saw much that is positive.  I met with State and especially municipal officials who are determined to improve social protection for the poorest 20% of their communities, I saw an energized civil society in many places, I visited a Catholic Church in San Francisco (St Boniface – the Gubbio Project) that opens its pews to the homeless every day between services, I saw extraordinary resilience and community solidarity in Puerto Rico, I toured an amazing community health initiative in Charleston (West Virginia) that serves 21,000 patients with free medical, dental, pharmaceutical and other services, overseen by local volunteer physicians, dentists and others (WV Health Right), and indigenous communities presenting at a US-Human Rights Network conference in Atlanta lauded Alaska’s advanced health care system for indigenous peoples, designed with direct participation of the target group.

American exceptionalism was a constant theme in my conversations.  But instead of realizing its founders’ admirable commitments, today’s United States has proved itself to be exceptional in far more problematic ways that are shockingly at odds with its immense wealth and its founding commitment to human rights.  As a result, contrasts between private wealth and public squalor abound.

In talking with people in the different states and territories I was frequently asked how the US compares with other states.  While such comparisons are not always perfect, a cross-section of statistical comparisons provides a relatively clear picture of the contrast between the wealth, innovative capacity, and work ethic of the US, and the social and other outcomes that have been attained. 

 By most indicators, the US is one of the world’s wealthiest countries.  It spends more on national defense than China, Saudi Arabia, Russia, United Kingdom, India, France, and Japan combined.

– US health care expenditures per capita are double the OECD average and much higher than in all other countries. But there are many fewer doctors and hospital beds per person than the OECD average.

– US infant mortality rates in 2013 were the highest in the developed world.

– Americans can expect to live shorter and sicker lives, compared to people living in any other rich democracy, and the “health gap” between the U.S. and its peer countries continues to grow.

– U.S. inequality levels are far higher than those in most European countries.

– Neglected tropical diseases, including Zika, are increasingly common in the USA.  It has been estimated that 12 million Americans live with a neglected parasitic infection. A 2017 report documents the prevalence of hookworm in Lowndes County, Alabama.

– The US has the highest prevalence of obesity in the developed world.

– In terms of access to water and sanitation the US ranks 36th in the world.

– America has the highest incarceration rate in the world, ahead of Turkmenistan, El Salvador, Cuba, Thailand and the Russian Federation. Its rate is nearly 5 times the OECD average.

– The youth poverty rate in the United States is the highest across the OECD with one quarter of youth living in poverty compared to less than 14% across the OECD.

– The Stanford Center on Inequality and Poverty ranks the most well-off countries in terms of labor markets, poverty, safety net, wealth inequality, and economic mobility. The US comes in last of the top 10 most well-off countries, and 18th amongst the top 21.

– In the OECD the US ranks 35th out of 37 in terms of poverty and Inequality. According to the World Income Inequality Database, the US has the highest Gini rate (measuring inequality) of all Western Countries

– The Stanford Center on Poverty and Inequality characterizes the US as “a clear and constant outlier in the child poverty league.” US child poverty rates are the highest amongst the six richest countries – Canada, the United Kingdom, Ireland, Sweden and Norway.

– About 55.7% of the U.S. voting-age population cast ballots in the 2016 presidential election. In the OECD, the U.S. placed 28th in voter turnout, compared with an OECD average of 75%.

– Registered voters represent a much smaller share of potential voters in the U.S. than just about any other OECD country. Only about 64% of the U.S. voting-age population (and 70% of voting-age citizens) was registered in 2016, compared with 91% in Canada (2015) and the UK (2016), 96% in Sweden (2014), and nearly 99% in Japan (2014).

    II. The human rights dimension

    Successive administrations, including the present one, have determinedly rejected the idea that economic and social rights are full-fledged human rights, despite their clear recognition not only in key treaties that the US has ratified (such as the Convention on the Elimination of All Forms of Racial Discrimination), and in the Universal Declaration of Human Rights which the US has long insisted other countries must respect.  But denial does not eliminate responsibility, nor does it negate obligations.  International human rights law recognizes a right to education, a right to healthcare, a right to social protection for those in need, and a right to an adequate standard of living.  In practice, the United States is alone among developed countries in insisting that while human rights are of fundamental importance, they do not include rights that guard against dying of hunger, dying from a lack of access to affordable healthcare, or growing up in a context of total deprivation.

    Since the US has refused to recognize economic and social rights agreed by most other states (except for the right to education in state constitutions), the primary focus of the present report is on those civil and political rights reflected in the US Bill of Rights and in the International Covenant on Civil and Political Rights which the US has ratified.

    III. Who are ‘the poor’?

    I have been struck by the extent to which caricatured narratives about the purported innate differences between rich and poor have been sold to the electorate by some politicians and media, and have been allowed to define the debate.  The rich are industrious, entrepreneurial, patriotic, and the drivers of economic success.  The poor are wasters, losers, and scammers.  As a result, money spent on welfare is money down the drain.  To complete the picture we are also told that the poor who want to make it in America can easily do so: they really can achieve the American dream if only they work hard enough. 

    The reality that I have seen, however, is very different.  It is a fact that many of the wealthiest citizens do not pay taxes at the rates that others do, hoard much of their wealth off-shore, and often make their profits purely from speculation rather than contributing to the overall wealth of the American community. 

    Who then are the poor?  

    Racist stereotypes are usually not far beneath the surface.  The poor are overwhelmingly assumed to be people of color, whether African Americans or Hispanic ‘immigrants’.  The reality is that there are 8 million more poor Whites than there are Blacks.  Similarly, large numbers of welfare recipients are assumed to be living high on the hog.  Some politicians and political appointees with whom I spoke were completely sold on the narrative of such scammers sitting on comfortable sofas, watching color TVs, while surfing on their smart phones, all paid for by welfare.  I wonder how many of these politicians have ever visited poor areas, let alone spoken to those who dwell there. There are anecdotes aplenty, but evidence is nowhere to be seen.  In every society, there are those who abuse the system, as much in the upper income levels, as in the lower.  But the poor people I met from among the 40 million living in poverty were overwhelmingly either persons who had been born into poverty, or those who had been thrust there by circumstances largely beyond their control such as physical or mental disabilities, divorce, family breakdown, illness, old age, unlivable wages, or discrimination in the job market.

    The face of poverty in America is not only Black, or Hispanic, but also White, Asian, and many other colors.  Nor is it confined to a particular age group.  Automation and robotization are already throwing many middle-aged workers out of jobs in which they once believed themselves to be secure.  In the economy of the twenty-first century, only a tiny percentage of the population is immune from the possibility that they could fall into poverty as a result of bad breaks beyond their own control.  The American Dream is rapidly becoming the American Illusion as the US since the US now has the lowest rate of social mobility of any of the rich countries.

    IV. The current extent of poverty in the US

    There is considerable debate over the extent of poverty in the US, but for the purposes of this report principal reliance is placed upon the official government statistics, drawn up primarily by the US Census Bureau.

    In order to define and quantify poverty in America, the Census Bureau uses ‘poverty thresholds’ or Official Poverty Measures (OPM), updated each year. In September 2017, more than one in every eight Americans were living in poverty (40 million, equal to 12.7% of the population). And almost half of those (18.5 million) were living in deep poverty, with reported family income below one-half of the poverty threshold.

    V. Problems with existing policies

    There is no magic recipe for eliminating extreme poverty, and each level of government must make its own good faith decisions.  But at the end of the day, particularly in a rich country like the USA, the persistence of extreme poverty is a political choice made by those in power.  With political will, it could readily be eliminated.

    What is known, from long experience and in light of the government’s human rights obligations, is that there are indispensable ingredients for a set of policies designed to eliminate poverty.  They include: democratic decision-making, full employment policies, social protection for the vulnerable, a fair and effective justice system, gender and racial equality and respect for human dignity, responsible fiscal policies, and environmental justice.

    Currently, the United States falls far short on each of these issues.

    1. The undermining of democracy

    The foundation stone of American society is democracy, but it is being steadily undermined.  The principle of one person one vote applies in theory, but it is far from the reality.  In a democracy, the task of government should be to facilitate political participation by ensuring that all citizens can vote and that their votes will count equally.  In the US there is overt disenfranchisement of vast numbers of felons, a rule which predominantly affects Black citizens since they are the ones whose conduct is often specifically targeted for criminalization.  In addition, there are often requirement that persons who have paid their debt to society still cannot regain their right to vote until they paid off all outstanding fines and fees.  Then there is covert disenfranchisement, which includes the dramatic gerrymandering of electoral districts to privilege particular groups of voters, the imposition of artificial and unnecessary voter ID requirements, the blatant manipulation of polling station locations, the relocating of DMVs to make it more difficult for certain groups to obtain IDs, and the general ramping up of obstacles to voting especially by those without resources. The net result is that people living in poverty, minorities, and other disfavored groups are being systematically deprived of their voting rights.

    A common explanation is that people see no improvement in their well-being regardless of who they elect, so that voting is pointless.  But the most compelling and dispiriting explanation I received came in answer to my question as to why voting rates are so extraordinarily low in West Virginia. A state official pointed to apathy, which he explained by saying that “when people are poor they just give up on the electoral system.”  If this is the case, as seems likely, some political elites have a strong self-interest in keeping people in poverty.  As one politician remarked to me, it would be instructive to undertake a survey of the campaign appearances of politicians in overwhelmingly poor districts.

    2. An illusory emphasis on employment

    Proposals to slash the meager welfare arrangements that currently exist are now sold primarily on the basis that the poor need to get off welfare and back to work.  The assumption is that there are a great many jobs out there waiting to be filled by individuals with low educational standards, often suffering disabilities of one kind or another, sometimes burdened with a criminal record (perhaps for the crime of homelessness or not being able to pay a traffic ticket), and with no training or meaningful assistance to obtain employment.  It also assumes that the jobs they could get will make them independent of state assistance. Yet I spoke to workers from Walmart and other large stores who could not survive on a full-time wage without also relying on food stamps.  It has been estimated that as much as $6 billion dollars go from the SNAP program to support such workers, thus providing a huge virtual subsidy to the relevant corporations.

    In terms of the employment market, the reality is very different from that portrayed by the welfare to work proponents.  There has been a long-term decline in employment rates.  For example, by 2017, only 89% of males from 25 to 54 years were employed.  While ‘supply’ factors such as growing rates of disability, increasing geographic immobility, and higher incarceration rates are relevant, a 2016 report by the White House Council of Economic Advisors concluded that reductions in labor supply are far less important than reductions in labor demand in accounting for the long-run trend1.  Factors such as automation and new technologies such as self-driving cars, 3D printers, and robot-staffed factories and warehouses will see a continuing decline in demand for low-skilled labor.

    Reflecting on these developments, leading poverty experts have concluded that:

    Because of this rising joblessness, the U.S. poverty population is becoming a more deprived and destitute class, one that’s disconnected from the economy and unable to meet basic needs. … 40 percent of the 1999 poverty population was in deep poverty … [compared to 46 percent of the 2015 poverty population … . Likewise, rates of extreme poverty (i.e., living on less than $2 per day per person) are also increasing, again because of declining employment as well as growing “disconnection” from the safety net2.

    3. Shortcomings in basic social protection

    There are a great many issues that could be covered under this heading.  In view of space limitations I will focus on three major concerns.

    (i) Indigenous peoples

    Chiefs and representatives from both recognized and non-recognized tribes presented me with evidence of widespread extreme poverty in indigenous communities in the USA.  They called for federal recognition as an essential first step to address poverty, indicating that without it their way of life is criminalised, they are disempowered, and their culture is destroyed – all of which perpetuate poverty, poor health, and shockingly high suicide rates. Living conditions in Pine Ridge, Lakota, were described as comparable to Haiti, with annual incomes of less than $12 000 and infant mortality rates three times higher than the national rate. Nine lives have been lost there to suicide in the last three months, including one six year old. Nevertheless, federally funded programmes aimed at suicide prevention have been de-funded.

    Testimony also revealed an urgent need for data collection on poverty in all indigenous communities, greater access to healthcare, and stronger protection from private and corporate abuse. The Red Water Pond Navajo tribe spoke about predatory loans involving 400% interest rates, and a high incidence of kidney, liver and pancreatic cancers.

    (ii) Children in poverty

    A shockingly high number of children in the US live in poverty. In 2016, 18% of children – some 13.3 million – were living in poverty, with children comprising 32.6% of all people in poverty.  Child poverty rates are highest in the southern states, with Mississippi, New Mexico at 30% and Louisiana at 29%.

    Contrary to the stereotypical assumptions, 31% of poor children are White, 24% are Black, 36% are Hispanic, and 1% are indigenous.  When looking at toddlers and infants, 42% of all Black children are poor, 32% of Hispanics, and 37% of Native American infants and toddlers are poor. The figure for Whites is 14%.

    Poor children are also significantly affected by America’s affordable and adequate housing crisis. Around 21% of persons experiencing homelessness are children.  While most are reportedly experiencing sheltered homelessness, the lack of financial stability, high eviction rates, and high mobility rates negatively impact education, and physical and mental health.

    On a positive note, most children living in poverty do have medical insurance. Due to the expansion of Medicaid and the creation of the Children’s Health Insurance Program in 1997, as of 2016, some 95% of all children had health insurance.  Medicaid and CHIP have lowered the rate of children without health coverage from 14% in 1997 to 5.3% in 2015.

    Other support programs are also important, such as the Supplemental Nutrition Assistance Program (SNAP) which is estimated to lift some five million children out of poverty annually, while in 2015 the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) lifted a further five million children out of poverty.  By contrast, TANF is not getting to enough children, with less than 25% of all poor families that are eligible for cash assistance under TANF actually receiving it.  Proposed cutbacks to most of these programs would have dramatic consequences.

    (iii) Adult dental care

    The Affordable Care Act greatly expanded the availability of dental care to children, but the situations of adults living in poverty remains lamentable.  Their only access to dental care is through the emergency room, which usually means that when the pain becomes excruciating or disabling, they are eligible to have the tooth extracted.  Poor oral hygiene and disfiguring dental profiles lead to unemployability in many jobs, being shunned in the community, and being unable to function effectively.  Yet there is no national program, and very few state programs, to address these issues which fundamentally affect the human dignity and ultimately the civil rights of the persons concerned.

    4. Reliance on criminalization to conceal the problem

    Homeless estimates published by the Department of Housing and Urban Development in December 2017 show a nationwide figure of 553,742, which includes 76,500 in New York, 55,200 in Los Angeles, and 6,900 in San Francisco3.  These figures are widely considered to be an undercount, as illustrated by estimates of 21,000 in San Francisco provided by various experts with whom I met.

    In many cities, homeless persons are effectively criminalized for the situation in which they find themselves.  Sleeping rough, sitting in public places, panhandling, public urination (in cities that provide almost zero public toilets) and myriad other offences have been devised to attack the ‘blight’ of homelessness.  Ever more demanding and intrusive regulations lead to infraction notices, which rapidly turn into misdemeanors, leading to the issuance of warrants, incarceration, the incurring of unpayable fines, and the stigma of a criminal conviction that in turn virtually prevents subsequent employment and access to most housing.  Yet the authorities in cities like Los Angeles and San Francisco often encourage this vicious circle.  In Skid Row, LA., 6,696 arrests of homeless persons were reported to have been made between 2011 and 2016.  Rather than responding to homeless persons as affronts to the senses and to their neighborhoods, citizens and local authorities should see in their presence a tragic indictment of community and government policies.  Homelessness on this scale is far from inevitable and again reflects political choices to see law enforcement rather than low cost housing, medical treatment, psychological counselling, and job training as the solutions.  But the futility of many existing approaches was all too evident as I walked around some of the worst affected areas.

    In many cities and counties the criminal justice system is effectively a system for keeping the poor in poverty while generating revenue to fund not only the justice system but diverse other programs.  The use of the legal system, not to promote justice, but to raise revenue, as documented so powerfully in the Department of Justice’s report on Ferguson, is pervasive around the country.  So-called ‘fines and fees’ are piled up so that low level infractions become immensely burdensome, a process that affects only the poorest members of society who pay the vast majority of such penalties.  State, county and municipal police and law enforcement agencies are not always forces for change in such settings. While they play an indispensable role in keeping the citizenry secure, they sometimes also pressure legislatures to maintain high staffing and overtime levels, at the expense of less expensive approaches which would address the social challenges constructively and effectively and eliminate the need for a law enforcement response.

    Another practice which affects the poor almost exclusively is that of setting large bail bonds for a defendant who seeks to go free pending trial.  Some 11 million people are admitted to local jails annually, and on any given day there are more than 730,000 people are being held, of whom almost two-thirds are awaiting trial, and thus presumed to be innocent. Yet judges have increasingly set large amounts of bail, which mean that wealthy defendants can secure their freedom, whole poor defendants are likely to stay in jail, with all of the consequences in terms of loss of their jobs, disruption of their childcare, inability to pay rent, and a dive into deeper destitution. A major movement to eliminate bail bonds is gathering steam, and needs to be embraced by anyone concerned about the utterly disproportionate impact of the justice system upon the poor.

    Finally, mention must be made of the widespread practice of suspending drivers’ licenses for a wide range of non-driving related offences, such as a failure to pay fines.  This is a perfect way to ensure that the poor, living in communities which have steadfastly refused to invest in serious public transport systems, are unable to earn a living which might have helped to pay the outstanding debt.  Two paths are open: penury, or driving illegally, thus risking even more serious and counter-productive criminalization.

    5. The gendered nature of poverty

    Many statistics could be cited to demonstrate the extent to which women shoulder a particularly high burden as a result of living in poverty. They are, for example, more exposed to violence, more vulnerable to sexual harassment, discriminated against in the labor market.  Luke Shafer and Kathryn Edin conclude that the number of children in single-mother households living in extreme poverty for an entire year has ballooned from fewer than 100,000 in 1995 to 895,000 in 2011 and 704,000 in 2012.  But perhaps the least recognized harm is that austerity policies that shrink the services provided by the state inevitably mean that the resulting burden is imposed instead upon the primary caregivers within families, who are overwhelmingly women.  Male-dominated legislatures rarely pay any heed to this consequence of the welfare cutbacks they impose.

    6. Racism, disability, and demonization of the poor

    Demonization of the poor can take many forms.  It has been internalized by many poor people who proudly resist applying for benefits to which they are entitled and struggle valiantly to survive against the odds.  Racism is a constant dimension and I regret that in a report that seeks to cover so much ground there is not room to delve much more deeply into the phenomenon. Racial disparities, already great, are being entrenched and exacerbated in many contexts.  In Alabama, I saw various houses in rural areas that were surrounded by cesspools of sewage that flowed out of broken or non-existent septic systems.  The State Health Department had no idea of how many households exist in these conditions, despite the grave health consequences.  Nor did they have any plan to find out, or devise a plan to do something about it.  But since the great majority of White folks live in the cities, which are well served by government built and maintained sewerage systems, and most of the rural folks in areas like Lowndes County, are Black, the problem doesn’t appear on the political or governmental radar screen.

    The same applies to persons with disabilities.  In the rush to claim that many beneficiaries are scamming the system, it is often asserted, albeit with little evidence, that large numbers of those receiving disability allowances are undeserving.  When I probed the very high rates of persons with disabilities in West Virginia, government officials explained that most recipients had attained low levels of education, worked in demanding manual labor jobs, and were often exposed to risks that employers were not required to guard against.

    7. Confused and counter-productive drug policies

    The opioid crisis has drawn extensive attention, as it should.  It has devastated many communities and the addiction often leads to heroin, methamphetamine, and other substance abuse.  Many states have introduced highly punitive regimes directed against pregnant women, rather than trying to provide sympathetic treatment and to maximize the well-being of the fetus.  

    As one submission put it:

    Mothers in Alabama face criminal prosecutions which can result in years of incarceration, as well as civil child welfare proceedings that have the power to separate families and sever a person’s parental rights. Families living in poverty are already disproportionately the subject of child welfare investigations in the United States. Experts have found that poor children disproportionately suffer impositions of the child welfare system, and families who receive public assistance are four times more likely than others to be investigated and have their children removed from the family home on the basis of alleged child maltreatment4.

    Similarly, states are increasingly seeking to impose drug tests on recipients of welfare benefits, with programs that lead to expulsion from the program for repeat offenders.  Such policies are entirely counter-productive, highly intrusive, and punitive where care is required instead.  The justification offered to me in West Virginia was that the state should not be supporting someone who is addicted to drugs.  It would be interesting to see if the same rationale were accepted if it was proposed that legislators and senior officials, who must keep the public trust, should also be regularly drug-tested, and punished for failure to go clean in a short time.

    Similarly, the contrast between the huge sentences handed down to those using drugs such as crack cocaine, contrasts dramatically and incomprehensibly with the approach applied in most cases of opioid addiction.  The key variable seems to be race.  The lesson to be learned is that the generally humane and caring response to opioid users should be applied to most cases of substance addiction.

    8. The use of fraud as a smokescreen

    Calls for welfare reform take place against a constant drumbeat of allegations of widespread fraud in the system.  The contrast with tax reform is instructive.  In that context immense faith is placed in the goodwill and altruism of the corporate beneficiaries, while with welfare reform the opposite assumptions apply.  The poor are inherently lazy, dishonest, and care only about their own interests.  And government officials with whom I met insisted that the states are gaming the system to defraud the federal government, individuals are constantly coming up with new lurks to live high on the welfare hog, and community groups are exaggerating the numbers. The reality, of course, is that there are good and bad corporate actors and there are good and bad welfare claimants.  But while funding for the IRS to audit wealthy taxpayers has been reduced, efforts to identify welfare fraud are being greatly intensified.  The answer is nuanced governmental regulation, rather than an abdication in respect to the wealthy, and a doubling down on intrusive and punitive policies towards the poor.  Revelations of widespread tax avoidance by companies and high-wealth individuals draw no rebuke, only acquiescence and the maintenance of the loopholes and other arrangements designed to facilitate such arrangements.  Revelation of food stamps being used for purposes other than staying alive draw howls of outrage from government officials and their media supporters.

    9. Privatization 

    Solutions to major social challenges in the US are increasingly seen to lie with privatization.  While the firms concerned have profited handsomely, it is far from clear that optimum outcomes have been achieved for the relevant client populations.  In particular, greater consideration needs to be given to the role of corporations in preventing rational policy-making and advocating against reforms in order to maintain their profits at the expense of the poorest members of society. During my visit I was told of many examples.  For example, bail bond corporations which exist in only one other country in the world, precisely because they distort justice, encourage excessive and often unnecessary levels of bail, and fuel and lobby for a system that by definition penalizes the poor.  The rich can always pay, and can avoid the 10% or even more that bail bond companies demand as a non-refundable down-payment. I heard cases of individuals who paid thousands of dollars to post bail, and lost it all when charges were dropped a day later. If they were subsequently charged with a different offence, the whole process begins again and all previous payments are lost.  Other examples include the corporations running private for-profit prisons, as well as bounty-hunters.

    10. Environmental sustainability 

    In Alabama and West Virginia I was informed of the high proportion of the population that was not being served by public sewerage and water supply services.  Contrary to the assumption in most countries that such services should be extended systematically and eventually comprehensively to all areas by the government, in neither state was I able to obtain figures as to the magnitude of the challenge or details of any government plans to address the issues in the future.

    VI. Principal current governmental responses 

    The analysis that follows is primarily focused on the Federal level.  Federalism complicates questions of responsibility but one irony that emerged clearly from my visit is that those who fight hardest to uphold State rights, also fight hard to deny city and county rights.  If the rhetoric about encouraging laboratories of innovation is to be meaningful, the freedom to innovate cannot be restricted to state politicians alone.

    1. Tax reform

    Deep and dramatic changes look likely to be adopted in the space of the next few days as Congress considers a final unified version of the Tax Bill.  From a human rights perspective, the lack of public debate, the closed nature of the negotiation, the exclusion of the representatives of almost half of the American people from the process, and the inability of elected representatives to know in any detail what they are being asked to vote for, all raise major concerns.  Similarly, the proposed immediate upending of many longstanding arrangements on the basis of which citizens have planned their futures, raises important issues relating to the need for a degree of predictability and respect for reasonable expectations in adopting tax reform. 

    One of the overriding concerns however is the enormous impetus given to income and wealth inequality by the proposed reforms. While most other nations, and all of the major international institutions such as the OECD, the World Bank, and the IMF have acknowledged that extreme inequalities in wealth and income are economically inefficient and socially damaging, the tax reform package is essentially a bid to make the US the world champion of extreme inequality.  As noted in the World Inequality Report 2018, in both Europe and the US the top 1% of adults earned around 10% of national income in 1980. In Europe that has risen today to 12%, but in the US it has reached 20%. In the same time period in the US annual income earnings for the top 1% have risen by 205%, while for the top 0.001% the figure is 636%. By comparison, the average annual wage of the bottom 50% has stagnated since 1980.

    At the state level, the demonizing of taxation, as though it is inherently evil, means that legislature effectively refuse to levy taxes even when there is a desperate need.  Instead they impose fees and fines through the back door, some of which fund the justice system and others of which go to fund the pet projects of legislators.  This sleight of hand technique is a winner, in the sense that the politically powerful rich do not have to pay any more taxes, while the politically marginalized poor bear the burden but can do nothing about it.

    2. Welfare reform

    In calculating how the proposed tax cuts can be paid for, the Treasury has explicitly listed welfare reform as an important source of revenue5.  Indeed, various key officials have made the same point that major cuts will need to be made in welfare provision.  Given the extensive, and in some cases unremitting, cuts that have been made in recent years, the consequences for an already overstretched and inadequate system of social protection are likely to be fatal for many programs, and possibly also for those who rely upon them.

    3. Healthcare reform

    The Senate majority leader recently wrote that “the Senate also voted to deliver relief to low- and middle-income Americans by repealing Obamacare’s individual mandate tax. For too long, families have suffered under this unpopular and unfair tax imposed under an unworkable law.” Many observers with whom I spoke consider that this move will, over time, make the rest of the ACA unviable, thus removing many millions of persons from the ranks of the insured.

    There have also been many references in statements by senior officials to the desirability of reducing Medicare and Medicaid expenditures.  When I asked state officials what they thought the consequences would be of repealing the ACA’s Medicaid expansion, the unanimous response was that it would be disastrous, not just for the individuals concerned but also for state health care systems.

    In addition, there is considerable uncertainty surrounding the funding of the Children’s Health Insurance Program (CHIP), on which almost 9 million low-income children depend for their primary health and dental care6. If long-term funding is not secured, those children could be left unprotected. If funding is secured, but threats to gradually decrease funding for the program over the short-term eventuate, this would also have devastating on the health of millions of poor children in America. 
    Similarly, Federally Qualified Health Centers (FQCHs) are federally-funded, “safety-net” providers of comprehensive primary and preventive health care, regardless of the insurance status or ability to pay7. The health center program has been able to grow due to expanded Medicaid eligibility and increases in federal grant funding, including under the Affordable Care Act8. The future of these centers is, however, uncertain, with a re-funding bill having passed the House but Senate consideration being delayed. If the funding is lost, some 2,800 health centers across the country could close9, 9 million patients could lose access to primary and preventive care, more than 51,000 providers and staff could lose their jobs, and $7.5 billion revenue will be foregone in economically distressed communities10. If the funding is decreased, one can only presume the effects will be commensurately devastating.

    4. New information technologies

    The term ‘new information technology’ or ‘new technology’ is not well-defined, despite its frequent use. It is commonly used for such widely different but interrelated phenomena as the spectacular increase in computing power, ‘Big Data’, machine learning, algorithms, artificial intelligence and robotization, among other things. These separate terms often also lack a clear definition11.  There are clear benefits to the rapid development of new information technology. A 2016 White House Report, for example, highlights the major benefits of new artificial intelligence technology “to the public in fields as diverse as health care, transportation, the environment, criminal justice, and economic inclusion” in artificial intelligence12. But the risks are also increasingly clear.  Much more attention needs to be given to the ways in which new technology impacts the human rights of the poorest Americans13.  This inquiry is of relevance to a much wider group since experience shows that the poor are often a testing ground for practices and policies that may then be applied to others.  These are some relevant concerns.

    (i) Coordinated entry systems

    A coordinated entry system (CES) is, in essence, a system set up to match the homeless population with available homeless services. Such systems are gaining in popularity and their human rights impact has not yet been studied extensively14. I spoke to a range of civil society organizations and government officials in Los Angeles and San Francisco about CES.

    In Los Angeles, CES is one of the pillars of mayor Garcetti’s strategy15 to tackle the homelessness crisis in the city. The system is administered by the Los Angeles Homeless Service Authority (LAHSA). Tens of thousands of Los Angeles’ homeless population have been included in the system since it was first set up in 2013.  It works as follows. A homeless service caseworker or volunteer interviews a homeless individual using a survey called the Vulnerability Index-Service Priority Decision Assistance Tool (VI-SPDAT). This data is stored in a Homeless Management Information System (HMIS) that stores the data. A ranking algorithm gives the homeless respondent a vulnerability score between 1 and 17 and a second, matching, algorithm, matches the most vulnerable homeless to appropriate housing opportunities.

    The CES replaces a previous system of matching the homeless to housing that was described to me by various interlocutors as dysfunctional. It is based on the principle of ‘Housing First’, which focuses on providing housing before anything else. But despite the good intentions of officials in Los Angeles, there is an Orwellian side to CES. Similar concerns were expressed to me about the San Francisco CES.

    A first, and major, concern is that the VI-SPDAT survey asks homeless individuals to give up the most intimate details of their lives. Among many other questions, the VI-SPDAT survey requires homeless individuals to answer whether they engage in sex work, whether they have ever stolen medications, how often they have been in touch with the police and whether they have “planned activities each day other than just surviving that bring [them] happiness and fulfillment”. One researcher I met with who has interviewed homeless individuals that took the VI-SPDAT survey explained that many feel they are giving up their human right to privacy in return for their human right to housing.

    A civil society organization in San Francisco explained that many homeless individuals feel deeply ambivalent about the millions of dollars that are being spent on new technology to funnel them to housing that does not exist. According to some of my interlocutors, only a minority of those homeless individuals being interviewed actually acquire permanent housing, because of the chronic shortage of affordable housing and Section 8 housing vouchers in California. As one participant in a civil society town hall in San Francisco put it: “Computers and technology cannot solve homelessness”.

    A third concern related to access to and sharing of the wealth of data collected via coordinated entry systems and stored in HMIS. According to 2004 data standards by the Department of Housing and Urban Development, homeless organizations that record, use or process Protected Personal Information on homeless clients for a HMIS may share that information with law enforcement in a number of circumstances, including in response to “an oral request for the purpose of identifying or locating a suspect, fugitive, material witness or missing person” without the need for a warrant or any other form of judicial oversight16.

    I understood from civil society organizations that homeless individuals who have been interviewed for VI-SPDAT have expressed a fear, a fear that does not seem unjustified in light of the current legal regime, that the police would access the very sensitive personal data stored in HMIS.  When I met with the Executive Director of LAHSA, he assured me that LAHSA is working on a policy decision to deny the LAPD access to HMIS, which would be an important step in safeguarding the human right to privacy and other civil rights of the homeless. Other local and county officials have also assured me that the LAPD is currently not allowed access to HMIS.

    However, since federal standards allow such access and given the fact that the LAPD informed me that it is “unfortunate” that they currently have no access to CES data, it is likely there will be continued pressure on LAHSA and similar agencies in other municipalities to give access to the police to this ‘gold mine’ of information. Access by the police to HMIS is only one policy decision away.

    (ii) Risk assessment tools in the pre-trial phase

    Across the United States, a movement is underway to reform the pretrial system. At the heart of the reform is an effort to disconnect pretrial detention from wealth and to tie it to risk instead. And to accomplish that goal, a growing number of jurisdictions are adopting risk assessment tools (also called actuarial tools, or Actuarial Pretrial Risk Assessment Instruments -APRAIs17) to assist in pretrial release and custody decisions18. This move from pretrial detention and money bail to risk assessment is widely supported, but new risks to the human rights of the poor in the United States arise with the use of risk assessment tools.

    Automated risk assessment tools, take “data about the accused, feed it into a computerized algorithm, and generate a prediction of the statistical probability the person will commit some future misconduct, particularly a new crime or missed court appearance.”19 The system will generally indicate whether the risk for the particular defendant, compared to observed outcomes among a population of individuals who share certain characteristics, is ‘high’, ‘moderate’, or ‘low’. Judges maintain discretion, in theory, to ignore the risk score.

    One fundamental critique is that risk assessments are based on turning individual circumstances into risk categories. The overwhelmingly poor defendants who are confronted with these new practices are turned into ‘high’, ‘medium’ or ‘low’ risk classes, a demeaning process for those involved which goes directly against the principle of an individualized criminal justice system.

    Several interlocutors warned that these tools may seem to produce objective scores, but that the decision what risk level to qualify as ‘high’ or ‘low’ is not an objective, but a political choice, that should ultimately be decided by voters, not the, often private, developers of these tools.

    Risk assessment tools pose the same risks associated with privatizing public functions that currently plague the money bail system. I met with a Division Chief in the Public Defender’s Office of Los Angeles County who explained the pressure court systems are under to buy risk assessment tools ‘off the shelf’ from private vendors. As in other contexts, the inner workings of such tools as proprietary to the company that sells it, which leads to serious due process concerns that affect the civil rights of the poor in the criminal justice system20.

    (iii) Access to high-speed broadband access in West Virginia

    Civil society organizations have urged me to focus on obstacles to internet connectivity in impoverished communities in West Virginia21. This is a persistent problem in the state, where an estimated 30% of West Virginians lack access to high speed broadband (compared to 10% nationally) and 48% of rural West Virginians lack access (compared to 39% of the rural population nationally)22. But when I asked the Governor’s office in West Virginia about efforts to expand broadband access in poor, rural communities, it could only point to a 2010 broadband expansion effort. It downplayed the extent of the problem by claiming that there were “some issues” with access to Internet in West Virginia’s valleys.

    5. Puerto Rico

    I spent two days of the nine days I traveled outside of Washington, DC, in Puerto Rico. I witnessed the devastation of hurricane Irma and Maria in Salinas and Guayama in the south of the island, as well as in the poor Caño Martin Peña neighborhood in San Juan. Both in the south and in San Juan I listened to individuals in poverty and civil society organizations on how these natural disasters are just the latest in a series of bad news for Puerto Ricans, which include an economic crisis, a debt crisis, an austerity crisis and, arguably, a structural political crisis.

    Political rights and poverty are inextricably linked in Puerto Rico. If it were a state, Puerto Rico would be the poorest state in the Union. But Puerto Rico is not a state, it is a mere ‘territory.’ Puerto Ricans have no representative with full voting rights in Congress and, unless living stateside, cannot vote for the President of the United States. In a country that likes to see itself as the oldest democracy in the world and a staunch defender of political rights on the international stage, more than 3 million people who live on the island have no power in their own capital.

    Puerto Rico not only has a fiscal deficit, it also has a political rights deficit, and the two are not easily disentangled. I met with the Executive Director of the Financial Oversight and Management Board that was imposed by Congress on Puerto Rico as part of PROMESA. This statement is not the place to challenge the economics of the Board’s proposed polices, but there is little indication that social protection concerns feature in any significant way in the Board’s analyses.  At a time when even the IMF is insisting that social protection should be explicitly factored into prescriptions for adjustment (i.e. austerity) it would seem essential that the Board take account of human rights and social protection concerns as it contemplates far-reaching decision on welfare reform, minimum wage and labor market regulation.

    It is not for me to suggest any resolution to the hotly contested issue of Puerto Rico’s constitutional status.  But what is clear is that many, probably most, Puerto Ricans believe deeply that they are presently colonized and that the US Congress is happy to leave them in the no-man’s land of no meaningful Congressional representation and no ability to really move to govern themselves.  In light of recent Supreme Court jurisprudence and Congress’s adoption of PROMESA there would seem to be good reason for the UN Decolonization Committee to conclude that the island is no longer a self-governing territory.

    I am grateful for the superb research and analysis undertaken by Christiaan van Veen, Anna Bulman, Ria Singh Sawhney, and staff of the UN Office of the High Commissioner for Human Rights, as well as the many inputs made by civil society groups, including those organized by the US Human Rights Network, and by leading scholars in the field.

    Notes

    1. Council of Economic Advisers, The Long-Term Decline in Prime-Age Male Labor Force Participation (2016).

    2. Charles Varner, Marybeth Mattingly, & David Grusky, ‘The Facts Behind the Visions,’ Pathways, Spring 2017, p. 2.

    3. https://www.hudexchange.info/resources/documents/2017-AHAR-Part-1.pdf

    4. Poverty and Human Rights in Alabama.

    5. https://www.treasury.gov/press-center/press-releases/Documents/TreasuryGrowthMemo12-11-17.pdf

    6. https://ccf.georgetown.edu/2017/08/03/what-every-policy-maker-needs-to-know-about-the-childrens-health-insurance-program-chip-a-refresher/https://www.medicaid.gov/chip/downloads/fy-2016-childrens-enrollment-report.pdf;

    7. National Association of Community Health Centers, http://www.nachc.org/about-our-health-centers/find-a-health-center/

    8. Julia Paradise et al, Community Health Centers: Recent Growth and the Role of the ACA (18 January 2017),

    9. National Association of Community Health Centers, http://www.nachc.org/wp-content/uploads/2016/02/NACHC-2017-Policy-Paper-Funding.pdf.

    10. National Association of Community Health Centers, The Health Center Funding Cliff and its Impact, September 2017; Peter Shin et al, What are the Possible Effects of Failing to Extend the Community Health Center Fund?, RCHN Community Health Foundation Research Collaborative
    Policy Research Brief # 49 (21 September 2017), https://publichealth.gwu.edu/sites/default/files/images/GG%20Health%20Center%20Fund%20Brief_9.18_Final.pdf

    11. In a written submission received by the Special Rapporteur from researchers at the Princeton University Center for Information Technology Policy, they write: “The concept of AI has been proven to be notoriously difficult to define. A basic though popular definition of AI refers to “intelligence exhibited by machines” or “the science and engineering of making intelligent machines.” These definitions assume that ‘intelligence’ is clearly defined itself, though it, too, is ambiguous. No commonly agreed upon definition of artificial intelligence currently exists.” Available here: http://www.ohchr.org/EN/Issues/Poverty/Pages/Callforinput.aspx

    12. Executive Office of the President National Science and Technology Council Committee on Technology’, ‘Preparing for the Future of Artificial Intelligence’, October 2016, p.1.

    13. Cathy O’Neil, ‘The Ivory Tower Can’t Keep Ignoring Tech’, 14 November 2017, available from: https://www.nytimes.com/2017/11/14/opinion/academia-tech-algorithms.html

    14. One important exception is an excellent book that will be published in January: Virginia Eubanks, Automating Inequality: Automating Inequality How High-Tech Tools Profile, Police, and Punish the Poor (Forthcoming, 2018)

    15. https://www.lamayor.org/comprehensive-homelessness-strategy

    16. https://www.hudexchange.info/resources/documents/2004HUDDataandTechnicalStandards.pdf

    17. The Criminal Justice Policy Program (CJPP) at Harvard Law School, ‘Moving Beyond Money: A Primer on Bail Reform’, October 2016, p. 18.

    18. Sandra G. Mayson, ‘Bail Reform and Restraint for Dangerousness: Are Defendants a Special Case?’ Public Law Research Paper No. 16-30 Yale Law Journal (Forthcoming DO NOT CITE WITHOUT AUTHOR’S PERMISSION), p.1, available from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2826600; Human Rights Watch, ‘Not in it for Justice: How California’s Pretrial Detention and Bail System Unfairly Punishes Poor People’, April 2017, p. 87-88.

    19. Human Rights Watch, ‘Not in it for Justice: How California’s Pretrial Detention and Bail System Unfairly Punishes Poor People’, April 2017, p. 88.

    20. Written submission from the AI Now Institute: http://www.ohchr.org/EN/Issues/Poverty/Pages/Callforinput.aspx

    21. Written submission from Access Now: http://www.ohchr.org/EN/Issues/Poverty/Pages/Callforinput.aspx

    22. West Virginia Center on Budget and Policy & American Friends Service Committee, ‘2016 State of Working West Virginia: Why is West Virginia so Poor?’, p. 55.

    United Nations 

    Institute For New Economic Thinking: Why Stopping Tax “Reform” Won’t Stop Inequality – Lance Taylor. 

    The past four decades, American household incomes have become strikingly more unequal, along an unsustainable path. But as of late 2017, prospects for attacking inequality are bleak, whether or not the Republican-controlled U.S. Congress manages to pass a tax cut favoring businesses and high-income households. 

    Fundamental changes in income and wealth distribution will require equally fundamental changes in the way the economy generates and distributes pre-tax incomes.

    What is required are policies that go beyond the tax code to shift the very balance of power between workers and employers. Doing so would allow real wages to catch up to productivity and capital gains to be more equitably shared among the population. It would shrink inequality for years to come. 

    This paper looks at several key topics that relate to our country’s growing inequality and the ways in which it can be remedied.

    First, it’s worth examining the likely macroeconomic effects of the tax package. They will be visible but small. Republican efforts will push up the federal deficit as a means to transfer funds to business and rich households. Growth dynamics sketched below suggest that the deficit and incomes of the rich cannot rise indefinitely. This analysis also shows how, over time, rising income inequality creates greater concentration of wealth, which is almost certainly on the cards. For rich households, wealth accumulation is driven by high saving rates from high incomes, capital gains on existing assets, and receipts from initial public offerings which are highly visible but quantitatively not so important. Over the past few decades, capital gains have been a main driver for wealth concentration.

    Crucially, this analysis looks to answer why inequality has grown so steadily since around 1980. The principal cause is that wealthy “capitalist” households have benefitted from rising business profits while wage-earning “worker” households have fallen behind. Are higher profits the consequence of greater power of firms to raise prices against wages, or else their ability to hold down wages against prices? Analysis of producing sectors suggests the latter based upon the creation and extension of a vast low wage labor market. 

    Growth of Income Inequality

    The Cambridge University economist José Gabriel Palma has proposed a helpful measure of inequality – the ratio of the average household income for a wealthy group (for example, the wealthiest one percent) over that of a poorer group (or groups). Based on data from the well-known 2016 Congressional Budget Office study of inequality, rescaled to fit the national accounts, Figure 1 shows Palma ratios for the top one percent vs. households between the 61st and 99th percentiles of the size distribution (the “middle class”) and the sixty percent at the bottom.

    The upper diagram presents ratios for total (or pre-tax) income; the lower focuses on disposable income. Either way, rising inequality stands out, although taxes and transfers cut back on the extreme ratios shown in the diagram at the top. Even for disposable income, the ratio of the rich against the middle class grew at 3.85% per year. Against the bottom group, the growth rate was 3.54%. Such rising inequality is unprecedented. These rates are a full percentage point higher than output growth, and are not sustainable in the long run. The reason is that the share of any variable (say the income of the top one percent) in the total cannot increase indefinitely. Herbert Stein’s Law “that if something cannot grow forever, it will stop” always applies in macroeconomics. 

    Minimal Macro Impacts

    As of this writing, precise estimates of the effects of the Republican tax cuts on household incomes are not available. Ballpark numbers show an increase of more than five percent of mean disposable income for the top one percent (more for the top 0.1 percent) with blips of less than one percent for most of the rest, all front-loaded toward early years of a ten-year program. The 2014 Palma ratio of 13 for the middle class might rise above 14, an insulting jump atop an inglorious trend. 

    In round numbers, the annual disposable income of all rich households is $2 trillion. Their consumption is $1 trillion in an economy with overall demand of $20 trillion. Their extra consumption from the tax windfall might be less than $40 billion, about 0.2% of total demand. Through this channel at least, the macroeconomic boost from upper income tax reduction would be barely visible.

    Business tax reductions have been sold as a means to stimulate economic growth. One way to assess possibilities is to look at how much firms are willing to spend on new capital goods (“net investment” in economists’ jargon). The US output/capital ratio is stable in the medium run so that the level of the capital stock regulates the size of the macro system. In other words, output increases track capital. Its growth also stimulates increasing labor productivity, with effects on employment and the real wage. 

    Will the Republicans’ ballyhooed corporate tax cuts boost net investment? Business net acquisition of new assets (capital, cash, reduction in debt, etc.) runs in the range of a few percent of the existing capital stock. Figure 2 shows data on profits and changes in assets beginning in 1998 (the first year for which capital estimates consistent with the national accounts are readily available).

    In the national accounts, “profits”’ (or “operating surplus” or “earnings’) are the difference between corporate revenue and costs of intermediate inputs, direct taxes, and labor pay. They are an income flow originating from production, as opposed to returns to holding financial claims such as stocks and bonds as discussed below. The relevant rates of return do not move together, contrary to much mainstream economic doctrine. 

    Overall business profits relative to capital run between 15% and 20% (plotted in red). The green schedule shows profits net of depreciation (also called a capital consumption allowance or CCA). The yellow illustrates a further subtraction from operating surplus due to corporate taxes. Compared to depreciation, the tax bite is minimal, one or two percent of capital or four percent of value-added. Finally, payments of interest and dividends, over 40% of which flow to rich households, limit net asset accumulation (blue) to one or two percent of capital, especially in wake of the financial crisis. 

    Will reducing the corporate tax bite strongly boost the ratio of net business investment to capital and so feed into higher output? No doubt a substantial proportion of higher available profits would be distributed as interest, dividends, and share buybacks. In Figure 2, the band between the green and yellow schedules represents the corporate tax burden. The yellow might shift upward by 0.01 from proposed tax cuts, shrinking the band. If in response net investment relative to capital increases by 0.005 (very much on the high side), then medium-term output expansion could go up by a similar amount – well less than the growth rate increases touted by tax cutters. 

    Finally, a word on deficits and debt. Again in round numbers, Federal debt is $20 trillion and the deficit is $500 billion. The ratio implies a debt growth rate of 2.5%, similar to output growth. If the tax package initially reduces receipts by $150 billion per year but (optimistically) draws in $50 billion in extra revenue due to higher output, then the growth rate of debt would rise by 0.3%. If the output growth rate does not rise as much (as is likely) and/or interest rates go up, Stein’s Law for the debt/GDP ratio could kick in. An unsustainable debt burden would match unsustainably rising inequality. 

    Root causes of Inequality 

    In sum, in the short to medium run, regressive Republican tax reductions would have barely visible macroeconomic effects while providing an income fillip at the top. In the longer run, the weight of the debt burden could rise. 

    As discussed later, the other side of the coin is that progressive tax/transfer policies would not strongly affect the macro situation but could ameliorate income inequality slightly. They would stimulate consumer demand because lower income households have low or negative saving rates. The trends illustrated in Figure 1 will not easily be reversed. 

    To explore the possibilities, we need background on sources of pre-tax income. The upper diagram in Figure 1 shows that rich households, with a mean income exceeding $2 million per year, have 40 times the income of the bottom 60% and 13.5 times payments going to the middle class. Figure 3 shows where the one percent’s money has been coming from. 

    Starting from the bottom of the bars, labor compensation has increased dramatically. It is not the main source for the top one percent, although earnings exceeding $500,000 per year in Figure 3 are not be sneezed at. To a degree they represent income from capital because they include bonuses and stock options. In the macroeconomic scheme of things, the top one percent’s labor income is not of central importance because it amounts to “only” nine percent of the total. For the top 1% it is also less than income of business proprietors, rents, CCA, etc. (second from the bottom). 

    The third major component of incomes in Figure 3 is made up of financial transfers including interest and dividends deriving from holdings of financial claims. They are nourished by business profits but as noted above the linkage is not necessarily close. Labor pay, profits, and proprietors’ income etc. all enter into the national accounts. Capital gains also put money into households’ pockets but because they are not a cost of production they do not enter the national accounts. Figure 3 shows that they have added substantially to income since the 1990s (see further discussion below). 

    The middle class and households with lower incomes are in different economic boats. Over 70% of middle class mean income of $180,000 comes from wages and salaries. Labor earnings and transfers each provide around 45% of the lower group’s $65,000 per year. To use traditional terms, the top one percent are close to being “capitalists;” the rest of us are “workers” subsidized by fiscal transfers. 

    After the 1970s profits moved upward, as shown in Figure 4 which is based on total capital stock (periods of recession are shaded). As noted above, the output/capital ratio is fairly stable over business cycles. Both the profit share and profit rate have trended steadily up since the Reagan recession of the early 1980s. Given that the bulk of income of the top one percent comes from profits through one channel or another, the obvious inference is that the rising Palma ratios in Figure 1 were fueled by an ongoing shift away from wages in the “functional” income distribution between labor and capital. 

    Lagging Real Wages 

    One common explanation for the distributional shift is that real wages have not grown as fast as labor productivity. Figure 5 is an illustration. Clearly, growth of output per household has outpaced labor income. The increases in payments to labor that did occur flowed predominantly to high income households. 

    The question is why wages of ordinary households lagged. Changes in institutional norms (laws, unionization and other of the game) surely played a role. Robert Solow (2015) from MIT, the doyen of mainstream macroeconomics, observes that labor suffered for reasons including “the decay of unions and collective bargaining, the explicit hardening of business attitudes, the popularity of right-to-work laws, and the fact that the wage lag seems to have begun at about the same time as the Reagan presidency all point in the same direction: the share of wages in national value added may have fallen because the social bargaining power of labor has diminished.” 

    Divide-and-rule in a “fissuring” labor market, as described by David Weil (2014) is one aspect of this process. Globalization, which came to the forefront in the 2016 Presidential election, also played a role. Perhaps one-quarter of job losses in US manufacturing (the sector most open to international trade) can be explained by import competition. It bears note, however, that manufacturing provides less than ten percent of total employment. 

    Goods and Services Markets vs. Labor Markets 

    In macroeconomics, the crucial big market involves labor and capital. On the“sell-side,” business firms may have power to push up prices of goods and services against wages as the main source of demand. On the “buy-side,” they can hold down wages against prices. Solow, Weil, and other commentators adopt a buy-side interpretation. Many mainstream economists, however, concentrate on firms’ “monopoly power” to set prices. Looking at behavior of profits and rents in detail provides a means to assess their position 

    Presumably, monopoly would show up in different profit performances across broad sectors of the economy – they would have different levels of power. The buy-side interpretation suggests that profits across sectors would trend up together. Eschewing econometrics for present purposes, we can look at the evidence graphically. 

    Figure 6 shows ratios of total and sectoral business profits to total capital and value-added. The main sources of profits are manufacturing and services, trailed by trade and transport. The widely discussed information and finance and insurance sectors are lesser contributors to total profits.

    Figure 7 shows ratios of the total and sectors to their own levels of capital and value-added. Ratios to capital for manufacturing and trade and transport cluster in the same range. They have an upward trend, consistent with the wage-lag interpretation of rising inequality. Finance and insurance was obviously affected strongly by the Great Recession but its ratio at the end of the period was higher than at the start. The information sector includes an anachronistic mix of publishing, movies, internet portals, and data processing. Its steady increase in profits after the dotcom crash probably does incorporate an element of monopoly power.

    Compared to value-added, manufacturing, trade and transport, and (recession aside) finance and insurance show consistent upward trends. Information has enjoyed hearty profits growth. Services lag, possibly reflecting a lack of monopoly power. Taken together, at the broad sectoral level the diagrams do not provide strong support for the monopoly hypothesis. 

    Real Estate and Rents 

    A second strand of mainstream discussion attributes inequality to higher rents. If you want to confront that idea with macroeconomic data, you have to look at real estate. 

    Somewhat confusingly, the national accounts include separate treatments of commercial real estate on one hand and consumers’ “housing services” on the other. The former shows up in the accounts for production and the latter is included in personal consumption expenditure. As noted in footnote 6, profits in real estate are estimated as a residual. They amount to about 95% of the sector’s value-added. An upward trend is consistent with wage repression. The ratio of profits to capital fell with the recession, but then recovered to a bit less than 10%. 

    “Consumption of housing services” is fairly stable at a GDP share of a bit more than ten percent, trending slowly upward. Its level is inferred from visible real estate data. Three-quarters of the total is made up of “imputed” costs of owner-occupied housing. Subtracting costs gives an estimate of rents. Because it is estimated as a residual the rental share of GDP went up by around two percentage points in wake of the financial crisis due to the sharp reduction in interest payments that the Fed engineered. 

    For more than two centuries, economists have recognized that rents (as well as housing services) respond to demand derived from other income flows. American income has become highly concentrated but the bulk still goes to the lower classes, explaining why ratios of real estate profits and housing consumption to capital and GDP are stable (billionaires’ towers along Manhattan’s 58th street notwithstanding). But we are talking about big numbers here, on the order of 10% of GDP, far larger than any proposed tax cuts. Over time their accumulation contributes to more concentration of wealth. 

    Rising Wealth 

    Wealth or net worth is the difference between the values of an economic actor’s assets and liabilities. It rises in response to positive saving and increases in prices of assets or decreases in prices of liabilities (“capital gains,” in a phrase). The accounting underlying GDP and financial tabulations sets private sector net worth equal to the sum of the value of capital, government debt, and a country’s net foreign assets. Private sector wealth can be further split between households and corporate business. Claims (stocks and bonds) issued by business are its “liabilities” and households’ or the rest of the world’s assets.

    The share of wealth held by affluent households is the topic at hand. Putting together time series on the distribution of wealth is not easy. The share of the top one percent of households as estimated from expenditure survey or income tax data was around 50% just prior to the Great Depression, fell to 25% in the 1960s, and is now in the vicinity of 40%.

    As shown in Figure 3, in the recent period, a main source of growth for household income has been capital gains. They feed into rising wealth. The impact can be seen from a couple of angles. One is the time path of the ratio of a share price index to business capital, emphasized by the late Yale economist James Tobin and conventionally called q. Figure 8 shows how q has varied over time. Its increase beginning in the early 1990s contributed to the large capital gains of the top one percent of households shown in Figure 3. One reason why Stein’s Law may apply to household wealth is that qwill “revert to mean” or a value close to one.

    The other viewpoint is from the side of business. Because of the accounting conventions described above, households’ capital gains are corporations’ capital losses. Recall that after-tax business profits break down into financial transfers to households, CCA, and net saving (there is also a “discrepancy” due to minor transfers). Figure 9 illustrates this decomposition over time. The discrepancy is small, and takes both signs. As we have seen net business saving is also “small” – well less than a trillion dollars per year.

    The Federal Reserve publishes estimates of business “holding losses” on outstanding liabilities, basically equity. The solid line shows their levels over almost 30 years. Pretty clearly, business holding losses have exceeded net saving so there has been a substantial transfer of corporate wealth to households. That is, households got more money to save while corporations suffered paper losses. 

    What Is To Be Done? 

    Figure 1 shows clearly it took 30 or 40 years for the present distributional mess to emerge. It may well take a similar span of time to clean it up. Progressive tax changes of $100 billion here or $50 billion there are not going to impact overall inequality. The same is true of once-off interventions such as raising the minimum wage by a few dollars per hour. 

    Long-term improvement requires changes to the present situation that can cumulate over time. Following a simulation model described in an earlier paper, it is clear that the growth rate of the real wage will have to exceed productivity growth (pegged at 1.4% per year) if Palma ratios are to be forced downward. In a baseline simulation, setting wage and productivity growth rates equal holds Palmas constant. The baseline also assumes that capital gains are equal to business net asset accumulation, holding q constant. 

    To do better, we can assume that real wage growth is 1.75% per year for the bottom two household groups with zero growth for the top one percent. 

    Shifting economic power from business toward labor would be essential to make these changes happen.

    An additional assumption is that there is a one percent annual decrease in the coefficient tying rich proprietors’ incomes to output. Tax reform would be needed to assure this result. 

    Similarly, there is a one percent annual decrease in the coefficient relating financial transfers to the upper one percent to profits, i.e. firms invest more and distribute less. 

    These numbers are arbitrary, but illustrative. Over 40 years, such changes would reduce disposable income Palmas by about 50%, more or less reversing the trends in Figure 1. Their effect on wealth, however, would be minimal. 

    As we have seen, owners of wealth maintain their positions because their large stocks of assets generate big capital gains along with interest and dividend payments from which their saving rate is high. 

    A public wealth fund could become an alternative vehicle for accumulation. Perhaps the best-known proposal is still the one put forward 65 years ago by the Swedish trade union economists Gösta Rehn and Rudolf Meidner, who wanted to extract money from firms to support workers’ pensions. An American version might be financed by a 50% tax on capital gains. It could transfer two percent of its assets each year to households with low incomes. 

    The transfer would mimic a GUARANTEED MINIMUM INCOME, subject over time to asset price fluctuations. 

    Figure 10 shows how the institutional changes mentioned above combined with a wealth fund would affect the economy over time. Palma ratios would steadily shift downward. With its high saving rate, an aggressive public fund could make a real dent in the concentration of wealth.

    It is by no means obvious that all these progressive changes could come into place. If not, and if Republican tax plans for the rich materialize, the distributional mess will only get worse.

    Final Word 

    Congress’s budget and legislative proposals could only work for President Donald Trump’s “struggling families” and “forgotten people” if they would generate strong trickle-down growth. 

    Structural constraints on income distribution and wealth dynamics won’t let trickle-down happen. Trump’s slogan about making America great again is for the top one percent of the income distribution – effectively a “capitalist” class – not for “workers” in the middle of the distribution or the struggling, forgotten households further down. 

    I have outlined a feasible progressive alternative, which would generate broad-based progress. Progressive changes may not take hold. If not, and if Trump-style interventions materialize, the distributional mess and his “American carnage” will only get worse until Stein’s Law enters into force.

    Institute for New Economic Thinking 

    Rescuing Economics from Neoliberalism – Dani Rodrik. 

    As even its harshest critics concede, neoliberalism is hard to pin down. In broad terms, it denotes a preference for markets over government, economic incentives over social or cultural norms, and private entrepreneurship over collective or community action. It has been used to describe a wide range of phenomena—from Augusto Pinochet to Margaret Thatcher and Ronald Reagan, from the Clinton Democrats and Britain’s New Labour to the economic opening in China and the reform of the welfare state in Sweden. 

    The term is used as a catchall for anything that smacks of deregulation, liberalization, privatization, or fiscal austerity. Today it is reviled routinely as a short-hand for the ideas and the practices that have produced growing economic insecurity and inequality, led to the loss of our political values and ideals, and even precipitated our current populist backlash.

    We live in the age of neoliberalism, apparently. But who are neoliberalism’s adherents and disseminators—the neoliberals? Oddly, you would almost have to go back to the early 1980s to find anyone explicitly embracing neoliberalism. In 1982, Charles Peters, the longtime editor of The Washington Monthly, published an essay called “A Neo-Liberal’s Manifesto.” It makes for interesting reading thirty-five years later, since the neoliberalism it describes bears little resemblance to today’s target of derision. The politicians whom Peters names as exemplifying the movement are not Thatcher and Reagan, but Bill Bradley, Gary Hart, and Paul Tsongas. The journalists and academics whom he lists include James Fallows, Michael Kinsley, and Lester Thurow. Peters’s neoliberals are liberals (in the U.S. sense of the word) who have dropped their prejudices in favor of unions and big government and against markets and the military.

    The use of the term “neoliberal” exploded in the 1990s, when it became closely associated with two developments, neither of which Peters mentions. One was financial deregulation, which would culminate in the 2008 financial crash—the first that the United States had experienced since the interwar period—and in the still-lingering euro debacle. The second was economic globalization, which accelerated thanks to free flows of finance and to a new, more ambitious type of trade agreement. Financialization and globalization have become the most overt manifestations of neoliberalism in today’s world.

    That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders, does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift toward markets from the 1980s on? Or that center-left politicians—Democrats in the United States, Socialists and Social Democrats in Europe—enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatization, financial liberalization, and individual enterprise? Much of our contemporary policy discussion remains infused with norms and principles supposedly grounded in homo economicus.

    But the looseness of the term neoliberalism also means that criticism of it often misses the mark. There is nothing wrong with markets, private entrepreneurship, or incentives—when deployed appropriately. Their creative use lies behind the most significant economic achievements of our time. As we heap scorn on neoliberalism, we risk throwing out some of neoliberalism’s useful ideas.

    The real trouble is that mainstream economics shades too easily into ideology, constraining the choices that we appear to have and providing cookie-cutter solutions. A proper understanding of the economics that lies behind neoliberalism would allow us to identify—and to reject—ideology when it masquerades as economic science. Most importantly it would help us develop the institutional imagination we badly need to redesign capitalism for the twenty-first century.   

    Neoliberalism is typically understood as based on key tenets of mainstream economic science. To see those tenets, without the ideology, consider a thought experiment.

    A well-known and highly regarded economist lands in a country he has never visited and knows nothing about. He is brought to a meeting with the country’s leading policymakers. “Our country is in trouble,” they tell him. “The economy is stagnant, investment is low, and there is no growth in sight.” They turn to him expectantly: “Please tell us what we should do to make our economy grow.”

    The economist pleads ignorance and explains that he knows too little about the country to make any recommendations. He would need to study the history of the economy, to analyze the statistics, and to travel around the country before he could say anything. But his hosts are insistent. “We understand your reticence and we wish you had the time for all that,” they tell him. “But isn’t economics a science, and aren’t you one of its most distinguished practitioners? Even though you do not know much about our economy, surely there are some general theories and prescriptions you can share with us to guide our economic policies and reforms.”

    The economist is now in a bind. He does not want to emulate those economic gurus he has long criticized for peddling their favorite policy advice. But he feels challenged by the question. Are there universal truths in economics? Can he say anything valid (and possibly useful)?

    So he begins. The efficiency with which an economy’s resources are allocated is a critical determinant of the economy’s performance, he says. Efficiency, in turn, requires aligning the incentives of households and businesses with social costs and benefits. The incentives faced by entrepreneurs, investors, and producers are particularly important when it comes to economic growth. Growth needs a system of property rights and contract enforcement that will ensure those who invest can retain the returns on their investments. And the economy must be open to ideas and innovations from the rest of the world.

    But economies can be derailed by macroeconomic instability, he goes on. Governments must therefore pursue a sound monetary policy, which means restricting the growth of liquidity to the increase in nominal money demand at reasonable inflation. They must ensure fiscal sustainability, so that the increase in public debt does not outpace national income. And they must carry out prudential regulation of banks and other financial institutions to prevent the financial system from taking excessive risk.

    Now he is warming up to his task. Economics is not just about efficiency and growth, he adds. Economic principles also carry over to equity and social policy. Economics has little to say about how much redistribution a society should seek. But it does tell us that the tax base should be as broad as possible and that social programs should be designed in a way that does not encourage workers to drop out of the labor market.

    By the time the economist stops, it appears as if he has laid out a full-fledged neoliberal agenda. A critic in the audience will have heard all the code words: efficiency, incentives, property rights, sound money, fiscal prudence. Yet the universal principles that the economist describes are in fact quite open-ended. They presume a capitalist economy—one in which investment decisions are made by private individuals and firms—but not much beyond that. They admit—indeed they require—a surprising variety of institutional arrangements.

    So has the economist just delivered a neoliberal screed? We would be mistaken to think so, and our mistake would consist of associating each abstract term—incentives, property rights, sound money—with a particular institutional counterpart. And therein lies the central conceit, and the fatal flaw, of neoliberalism: the belief that first-order economic principles map onto a unique set of policies, approximated by a Thatcher–Reagan-style agenda.  

    Consider property rights. They matter insofar as they allocate returns on investments. An optimal system would distribute property rights to those who would make the best use of an asset and afford protection against those most likely to expropriate the returns. Property rights are good when they protect innovators from free riders, but they are bad when they protect them from competition. Depending on the context, a legal regime that provides the appropriate incentives can look quite different from the standard U.S. style regime of private property rights.

    This may seem like a semantic point with little practical import; but China’s phenomenal economic success is largely due to its orthodox-defying institutional tinkering. China turned to markets, but did not copy Western practices in property rights. Its reforms produced market-based incentives through a series of unusual institutional arrangements that were better adapted to the local context. Rather than move directly from state to private ownership, for example, which would have been stymied by the weakness of the prevailing legal structures, the country relied on mixed forms of ownership that provided more effective property rights for entrepreneurs in practice. Township and Village Enterprises (TVEs), which spearheaded Chinese economic growth during the 1980s, were collectives owned and controlled by local governments. Even though they were publicly owned, entrepreneurs received the protection against expropriation they needed. Local governments had a direct stake in the profits of the firms and hence did not want to kill the goose that lays the golden eggs.

    China relied on a range of such innovations, each delivering the economist’s higher-order economic principles in unfamiliar institutional arrangements. Dual-track pricing, which retained compulsory grain deliveries to the state but allowed farmers to sell excess produce in free markets, provided supply-side incentives while insulating public finances from the adverse effects of full liberalization. The so-called Household Responsibility System gave farmers the incentive to invest in and improve the land they worked on, while obviating the need for explicit privatization. Special economic zones provided export incentives and attracted foreign investors without removing protection for state firms (and hence safeguarding domestic employment). In view of such departures from orthodox blueprints, calling China’s economic reforms a neoliberal turn, as critics are inclined to do, distorts more than it reveals. If we are to call this neoliberalism, we must surely look more kindly on the ideas behind the most dramatic poverty reduction in history.

    One might protest that China’s institutional innovations were purely transitional. Perhaps it will have to converge on Western-style institutions to sustain its economic progress. But this common line of thinking overlooks the diversity of capitalist arrangements that still prevails among advanced economies, despite the considerable homogenization of our policy discourse.

    What, after all, are Western institutions? The importance of the public sector, for example, in the club of rich Organization For Economic Cooperation and Development (OECD) countries varies from a third of the economy in Korea to nearly 60 percent in Finland. In Iceland, 86 percent of workers are members of a trade union; the comparable number in Switzerland is just 16 percent. In the United States firms can fire workers almost at will; French labor laws require employers to jump through many hoops first. Stock markets have grown to nearly one-and-a-half times national income in the United States; in Germany, they are only a third as large, representing one-half of national income.

    The idea that any one of these models of taxation, labor relations, or financial organization is inherently superior to the others is belied by the varying economic fortunes that each of these economies have experienced over recent decades. The United States has gone through successive periods of angst in which its economic institutions were judged inferior to those in Germany, Japan, China, and now possibly Germany again. Certainly comparable levels of wealth and productivity can be produced under very different models of capitalism. We might even go a step further: today’s prevailing models probably come nowhere near exhausting the range of what might be possible (and desirable) in the future. 

    The visiting economist in our thought experiment knows all this and recognizes that the principles he has enunciated need to be filled in with institutional detail before they become operational. Property rights? Yes, but how? Sound money? Of course, but how? It would perhaps be easier to criticize his list of principles for being vacuous than to denounce it as a neoliberal screed.

    Still, these principles are not entirely content free. China, and indeed all countries that managed to develop rapidly, demonstrate their utility once they are properly adapted to local context. Conversely, too many economies have been driven to ruin courtesy of political leaders who chose to violate them. We need look no further than Latin American populists or Eastern European communist regimes to appreciate the practical significance of sound money, fiscal sustainability, and private incentives.

    Of course economics goes beyond a list of abstract, largely common sense principles. Much of the work of economists consists of developing stylized models of how actual economies work and then confronting those models with evidence. Economists tend to think of what they do as progressively refining their understanding of the world: their models are supposed to get better and better as they are tested and revised over time. But progress in economics happens differently.

    Economists study a social reality that is unlike the physical universe of natural scientists. It is completely man-made, highly malleable, and operates according to different rules across time and space. Economics advances not by settling on the right model or theory to answer such questions, but by improving our understanding of the diversity of causal relationships. Neoliberalism and its customary remedies—always more markets, always less government—are in fact a perversion of mainstream economics. Good economists know that the correct answer to any question in economics is: it depends.

    Does an increase in the minimum wage depress employment? Yes, if the labor market is really competitive and employers have no control over the wage they must pay to attract workers; but not necessarily otherwise. Does trade liberalization increase economic growth? Yes, if it increases the profitability of industries where the bulk of investment and innovation takes place; but not otherwise. Does more government spending increase employment? Yes, if there is slack in the economy and wages do not rise; but not otherwise. Does monopoly harm innovation? Yes and no, depending on a whole host of market circumstances.

    In economics, new models rarely supplant older models. The basic competitive-markets model dating back to Adam Smith has been modified over time by the inclusion, in rough historical order, of monopoly, externalities, scale economies, incomplete and asymmetric information, irrational behavior, and many other real world features. Yet the older models remain as useful as ever. Understanding how real markets operate necessitates different lenses at different times.

    Perhaps maps offer the best analogy. Just like economic models, maps are highly stylized representations of reality. They are useful precisely because they abstract from many real world details that would get in the way. Realistic full-scale maps would be hopelessly impractical artifacts, as Jorge Luis Borges described in a short story that remains the best and most succinct explication of the scientific method. But abstraction also implies that we need a different map depending on the nature of our journey. If we are traveling by bike, we need a map of bike trails. If we are to go on foot, we need a map of foot paths. If a new subway is constructed, we will need a subway map—but we wouldn’t throw out the older maps.      

    Economists tend to be very good at making maps, but not good enough at choosing the one most suited to the task at hand. When confronted with policy questions of the type our visiting economist faces, too many of them resort to “benchmark” models that favor laissez-faire. Knee-jerk solutions and hubris replace the richness and humility of the discussion in the seminar room. John Maynard Keynes once defined economics as the “science of thinking in terms of models joined to the art of choosing models which are relevant.” Economists typically have trouble with the “art” part.

    I have illustrated this too with a parable. A journalist calls an economics professor for his view on whether free trade is a good idea. The professor responds enthusiastically in the affirmative. The journalist then goes undercover as a student in the professor’s advanced graduate seminar on international trade. He poses the same question: Is free trade good? This time the professor is stymied. “What do you mean by ‘good?’” he responds. “And good for whom?” The professor then launches into an extensive exegesis that will ultimately culminate in a heavily hedged statement: “So if the long list of conditions I have just described are satisfied, and assuming we can tax the beneficiaries to compensate the losers, freer trade has the potential to increase everyone’s well being.” If he is in an expansive mood, the professor might add that the effect of free trade on an economy’s long-term growth rate is not clear either and would depend on an altogether different set of requirements.

    This professor is rather different from the one the journalist encountered previously. On the record, he exudes self-confidence, not reticence, about the appropriate policy. There is one and only one model, at least as far as the public conversation is concerned, and there is a single correct answer regardless of context. Strangely, the professor deems the knowledge that he imparts to his advanced students to be inappropriate (or dangerous) for the general public. Why?

    The roots of such behavior lie deep in the sociology and the culture of the economics profession. But one important motive is the zeal to display the profession’s crown jewels in untarnished form—market efficiency, the invisible hand, comparative advantage—and to shield them from attack by self-interested barbarians, namely the protectionists. Unfortunately, these economists typically ignore the barbarians on the other side of the issue—financiers and multinational corporations whose motives are no purer and who are all too ready to hijack these ideas for their own benefit.

    As a result, economists’ contributions to public debate are often biased in one direction, in favor of more trade, more finance, and less government. That is why economists have developed a reputation as cheerleaders for neoliberalism, even if mainstream economics is very far from a paean to laissez-faire. The economists who let their enthusiasm for free markets run wild are in fact not being true to their own discipline.

    *

    How then should we think about globalization in order to liberate it from the grip of neoliberal practices? We must begin by understanding the positive potential of global markets. Access to world markets in goods, technologies, and capital has played an important role in virtually all of the economic miracles of our time. China is the most recent and powerful reminder of this historical truth, but it is not the only case. Before China, similar miracles were performed by South Korea, Taiwan, Japan, and a few non-Asian countries such as Chile and Mauritius. All of these countries embraced globalization rather than turn their backs on it, and they benefited handsomely.

    Defenders of the existing economic order will quickly point to these examples when globalization comes into question. What they will fail to say is that almost all of these countries joined the world economy by violating neoliberal strictures. China shielded its large state sector from global competition, establishing special economic zones where foreign firms could operate with different rules than in the rest of the economy. South Korea and Taiwan heavily subsidized their exporters, the former through the financial system and the latter through tax incentives. All of them eventually removed most of their import restrictions, long after economic growth had taken off. But none, with the sole exception of Chile in the 1980s under Pinochet, followed the neoliberal recommendation of a rapid opening­-up to imports. Chile’s neoliberal experiment eventually produced the worst economic crisis in all of Latin America. While the details differ across countries, in all cases governments played an active role in restructuring the economy and buffeting it from a volatile external environment. Industrial policies, restrictions on capital flows, and currency controls—all prohibited in the neoliberal playbook—were rampant.

    By contrast, countries that stuck closest to the neoliberal model of globalization were sorely disappointed. Mexico provides a particularly sad example. Following a series of macroeconomic crises in the mid-1990s, Mexico embraced macroeconomic orthodoxy, extensively liberalized its economy, freed up the financial system, sharply reduced import restrictions, and signed the North American Free Trade Agreement (NAFTA). These policies did produce macroeconomic stability and a significant rise in foreign trade and internal investment. But where it counts—in overall productivity and economic growth—the experiment failed. Since undertaking the reforms, overall productivity in Mexico has stagnated, and the economy has underperformed even by the undemanding standards of Latin America.

    These outcomes are not a surprise from the perspective of sound economics. They are yet another manifestation of the need for economic policies to be attuned to the failures to which markets are prone, and to be tailored to the specific circumstances of each country. No single blueprint fits all.

    *

    Before globalization took a turn towards what we might call hyper-globalization, the rules were flexible and recognized this fact. Keynes and his colleagues viewed international trade and investment as a means for achieving domestic economic and social goals—full employment and broad-based prosperity—when they designed the global economic architecture in Bretton Woods in 1944. From the 1990s on, however, globalization became an end in itself. Global economic arrangements were now driven by a single-minded focus on reducing impediments to the flows of goods, capital, and money across national borders—though not of workers, where the economic gains in fact would have been much larger. 

    This perversion of priorities revealed itself in the way trade agreements began to reach behind borders and remake domestic institutions. Investment regulations, health and safety rules, environmental policies, and industrial promotion schemes all became potential targets for abolition if they were deemed to stand in the way of foreign trade and investment. Large international firms, rendered footloose by the new rules, acquired special privileges. Corporate taxes had to be lowered to attract investors (or prevent them from leaving). Foreign enterprises and investors were given the right to sue national governments in special offshore tribunals when changes in domestic regulations threatened to reduce their profits. Nowhere was the new deal more damaging than in financial globalization, which produced not greater investment and growth, as promised, but one painful crash after another.

    Just as economics must be saved from neoliberalism, globalization has to be saved from hyper-globalization. An alternative globalization, more in keeping with the Bretton Woods spirit, is not difficult to imagine: a globalization that recognizes the multiplicity of capitalist models and therefore enables countries to shape their own economic destinies. Instead of maximizing the volume of trade and foreign investment and harmonizing away regulatory differences, it would focus on traffic rules that manage the interface of different economic systems. It would open up policy space for advanced countries as well as developing ones—the former so they can reconstruct their social bargains through better social, tax, and labor market policies, and the latter so they can pursue the restructuring they need for economic growth. It would require more humility on the part of economists and policy technocrats about appropriate prescriptions, and hence a much greater willingness to experiment.

    *

    As Peters’s early manifesto attests, the meaning of neoliberalism has changed considerably over time as the label has acquired harder-line connotations with respect to deregulation, financialization, and globalization. But there is one thread that connects all versions of neoliberalism, and that is the emphasis on economic growth. Peters wrote in 1982 that the emphasis was warranted because growth is essential to all our social and political ends—community, democracy, prosperity. Entrepreneurship, private investment, and removing obstacles (such as excessive regulation) that stand in the way were all instruments for achieving economic growth. If a similar neoliberal manifesto were penned today, it would no doubt make the same point.

    Critics often point out that this emphasis on economics debases and sacrifices other important values such as equality, social inclusion, democratic deliberation, and justice. Those political and social objectives obviously matter enormously, and in some contexts they matter the most. They cannot always, or even often, be achieved by means of technocratic economic policies; politics must play a central role.

    But neoliberals are not wrong when they argue that our most cherished ideals are more likely to be attained when our economy is vibrant, strong, and growing. Where they are wrong is in believing that there is a unique and universal recipe for improving economic performance to which they have access. The fatal flaw of neoliberalism is that it does not even get the economics right. It must be rejected on its own terms for the simple reason that it is bad economics.

    Boston Review 

    Inequality Is a Bigger Threat to Our Democracy Than Putin Is – Eric Levitz.

    Democrats and Republicans can’t agree on much, these days. But the profound threat that Vladimir Putin poses to our republic is one. John McCain has suggested that Russian interference in the 2016 campaign was an attack on “the foundation of democracy.” Hillary Clinton has called it a “a cyber 9/11” and “a direct attack on our institutions.” Senators, congressmen, and commentators — from both sides of the aisle — have voiced similar sentiments.

    This rhetoric might be a tad hyperbolic, but it isn’t wildly so. A large (and growing) body of evidence suggests that Russian agents aided the campaign of an American presidential candidate, in hopes of furthering their own special interests — and, perhaps, gaining a sympathetic ear at 1600 Pennsylvania Avenue. In pursuit of this end, the Kremlin disseminated mendacious propaganda over American social media and cable news, while using stolen emails to discredit their preferred candidate’s opponent. It’s possible that Putin might have even explored leveling an attack on our electoral infrastructure itself — thereby directly barring some Americans from having their voices heard at the ballot box.

    In a liberal democracy, the legitimacy of a state is founded on the integrity of its elections. Spread doubt about the latter, and the former starts to fall away. If Americans believe that their leaders do not derive their power from the popular will, but merely from the favor of shadowy puppet-masters, then civic engagement and social trust will decay. Voter participation will decline, along with confidence in public institutions. And these developments will, in turn, make it easier for bad actors to manipulate the democratic process. Eventually, cynicism about democracy could make some voters welcome the prospect of authoritarian rule. This is why it’s so vital that Russian interference in our elections is investigated and deterred.

    That’s also why Congress must not pass President’s Trump’s regressive tax cuts.

    That may sound like a non sequitur. The debate over tax policy in the United States is generally framed as a conflict between rival economic theories. Democrats may claim that cutting taxes on the rich will slow the economy, or drive up the debt, or force cuts to popular domestic programs. But few would put supply-side cuts on a list of threats to liberal democracy in the United States.

    And yet, the idea that increasing economic inequality and sustaining popular sovereignty are incompatible endeavors wasn’t always alien to our politics. In fact, as the Roosevelt Institute’s Marshall Steinbaum recently noted, the New Deal reformers who brought robustly progressive taxation to the United States understood the policy as a means of altering the distribution of power in society. That the rich can easily convert their wealth into political dominance was a common-sense proposition for Americans born into a Gilded Age. Thus, the point of confiscatory top marginal rates wasn’t to maximize efficiency or growth — but to limit the monied elite’s capacity to shape the American political economy to their whims.

    This argument for soaking the rich is just as salient now as it was in the robber barons’ heyday: In 2016, American billionaires aided the campaigns of their preferred presidential candidates, in hopes of furthering their special interests — and perhaps, gaining a sympathetic ear at 1600 Pennsylvania Avenue. In pursuit of this end, well-heeled donors funded propaganda campaigns through social media and television advertisements, while a few sought to use stolen emails to discredit their preferred candidate’s opponent. Some right-wing plutocrats even financed efforts to impose voting restrictions and felon disenfranchisement laws — thereby directly barring some Americans from having their voices heard at the ballot box.

    Some may take exception to this (implicit) analogy: American elites attempting to influence our elections through political speech — and Russian operatives trying to do so through cyberattacks — are categorically different phenomena. This is certainly true; but it also does nothing to negate the premise that the political influence of American multi-millionaires, billionaires, and corporations undermines the integrity of our democracy, in many of the same ways that Russian interference does.

    Does anyone really believe that RT has done more to distort Americans’ understanding of — and faith in — their political system than Rupert Murdoch’s Fox News? Or that Sputnik has had a more corrosive influence on American discourse than Robert Mercer’s Breitbart? Or that Putin’s oligarchs have done more to disconnect American policy from the popular will than the funders of the Koch network? Or that the Kremlin’s interference in our politics has done more to damage public confidence in our institutions than K Street’s?

    Such claims are facially absurd. The furor over Russia’s election hacking is justified. But the discrepancy between how seriously our political elites take the threat that Russian meddling poses to our democracy — and how blithe they are about the one that concentrated wealth poses to it — is not.

    It’s true that discussions of big money’s corrosive influence aren’t wholly absent from the American political conversation. But they are typically confined to debates over campaign finance laws. This is unfortunate — and not merely because the Supreme Court has erected a mountainous roadblockon the path to federal reforms. So long as the wealthiest 0.1 percent of Americans own as much as the bottom 90 percent, the threat of creeping plutocracy in the U.S. will remain — even if Citizens United and Buckley v. Valeowere somehow overturned. After all, campaign donations are just one of the many ways that well-heeled elites influence the political process — and not necessarily the most effective. Charles and David Koch’s most fruitful investments weren’t made in discrete presidential campaigns, but in funding a political network that cultivates and mobilizes conservative activists throughout the United States — and think tanks and lobbies that shape elite opinion in D.C.

    It is hard to see how one can impose tight restrictions on political organizing and policy research in a free and open society — let alone, one with constitutional protections of speech as robust as our own. Pushing for more public financing of elections should be part of any plan for limiting the influence of big money in politics. But steeply progressive taxation is just as essential to that goal — and liberals would do well to emphasize this point in the upcoming debate over Donald Trump’s tax plan.

    The president’s initial framework for tax “reform” would deliver 80 percent of its benefits to the top one percent of American earners, according to a preliminary analysis from the nonpartisan Tax Policy Center. It’s possible that the Republicans’ final plan will be a bit less regressive than that — but not much less so. The heart of Trump’s package is a giant tax cut for corporations, which will deliver the bulk of its (figurative and literal) dividends to wealthy shareholders and corporate executives. Other core provisions of the plan include the abolition of the tax on estates worth more than $5.5 million and a giant cut in the rate paid by wealthy “small business” owners (including the owner of a little mom-and-pop shop called “the Trump Organization”).

    The stakes of these regressive cuts might strike some Americans as abstract. After all, as they raid the federal treasury for their billionaire benefactors, Republicans do intend to set aside a bit of hush money for the witnesses in the middle class. And since the GOP does not (currently) plan to attach spending cuts to their tax package, most American households will come out ahead in the near-term. Progressives can (and should) argue that these tax cuts will threaten popular domestic programs down the road. But Democrats shouldn’t rely exclusively on decrying the tax cuts’ second-order effects; not when the first-order one is to exacerbate economic inequalities that are strangling our democracy.

    And there is no question that reducing the tax burden of the wealthy will swell those inequalities. Conservatives maintain that such disparities in income are a worthy price for the economic growth that supply-side tax cuts will provide to all Americans. But as the economists Thomas Piketty and Emanuel Saez have documented (along with countless other members of their profession) the correlation between regressive tax cuts and economic growth exists in Republican dogma, not empirical reality:

    [D]ata show that there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. For example, countries that made large cuts in top tax rates, such as the United Kingdom or the United States, have not grown significantly faster than countries that did not, such as Germany or Denmark.

    While the Reagan tax cuts did not give the U.S. a significant edge over its peers in economic growth, they did give America’s economic elite a far larger share of growth than their peers in other Western countries. Crucially, this is not solely due to a predictable increase in the American rich’s post-tax income: Between the 1970s and 2013, the top one percent’s share of pre-taxincome more than doubled from under 10 percent to over 20. This is not because globalization and automation inevitably create a winner-take-all economy. Japan and continental Europe have been reshaped by those forces, and yet saw no similar explosion in the income share of their rich.

    Conservatives might attribute the growth in the one percent’s share to the beneficent incentives of low income-tax rates: Wealthy Americans responded to tax cuts by producing more, and thus increased their pre-tax income. And yet, if growth in the one percent’s paychecks wildly outpaces growth in the broader economy, then the rich probably aren’t getting richer by creating more value — but by extracting it. As Piketty and Saez write:

    [W]hile standard economic models assume that pay reflects productivity, there are strong reasons to be sceptical, especially at the top of the income distribution where the actual economic contribution of managers working in complex organisations is particularly difficult to measure. Here, top earners might be able to partly set their own pay by bargaining harder or influencing compensation committees.

    Naturally, the incentives for such “rent-seeking” are much stronger when top tax rates are low. In this scenario, cuts in top tax rates can still increase top income shares, but the increases in top 1% incomes now come at the expense of the remaining 99%. In other words, top rate cuts stimulate rent-seeking at the top but not overall economic growth – the key difference with the…supply-side, scenario.

    Thus, even if tax cuts for the rich aren’t financed by spending cuts, ordinary Americans have nothing to gain from them — and much to lose. Since the Reagan tax cuts, workers have seen their share of productivity gains plummet; the gap between the wealth of rich and poor households — along with that between white and black ones — has exploded; the middle class has become more reliant on debt to finance their homes, automobiles, and children’s educations; the amount of money that corporations and wealthy individuals invest in influencing American politics has skyrocketed; and policy-making has become ever-more tilted to the needs of these economic elites as a result.

    Virtually everything that we fear Russian interference could do to our democracy, these inequities have done already. Over the past four decades, Americans have become increasingly convinced that their nation’s political and economic systems are rigged against them. In November 2015, a Public Religion Research Institute (PRRI) survey found 64 percent of Americans agreeing with the statement, my “vote does not matter because of the influence that wealthy individuals and big corporations have on the electoral process.” One year later, 75 percent of 2016 voters told Reuters/Ipsos that they were looking for a “strong leader who can take the country back from the rich and powerful.”

    Meanwhile, social trust, civic engagement, voter participation, and confidence in public institutions have all fallen precipitously. Polls show Americans are losing faith in democracy itself, and are growing more sympathetic to authoritarian appeals.

    Absent this context of disillusion and distrust, it’s unlikely that Trump’s demagogic campaign (or the Kremlin’s attempts to aid it) would have stood much chance of success.

    “The economic royalists complain that we seek to overthrow the institutions of America,” Franklin Roosevelt famously said at the 1936 Democratic convention. “What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power.”

    As Republicans work to consolidate the power of those royalists in the coming months, Democrats should (once again) call for their overthrow.

    New York Mag

    New Economics Foundation. Miatta Fahnbulleh: People’s tolerance for an unfair economic model has hit a buffer – Dawn Foster.

    Miatta Fahnbulleh, a former academic turned policy wonk who has worked for three prime ministers and the Labour party, is not your typical thinktank chief.

    Fahnbulleh arrived in the UK from Liberia in 1986 and her family successfully claimed asylum in the UK, settling in Tunbridge Wells, Kent. “My childhood in Liberia had a massive impact,” says the 38-year-old. “You see abject poverty and extreme wealth, you see how the family you were born into affects your life and you understand why inequality is wrong. It’s not just that it perpetuates itself, it’s that it’s fundamentally wrong and it needs to be changed. And that’s my core, that pursuit of economic justice.

    “Coming from two of the poorest countries in the world [Fahnbulleh also witnessed the deprivation in her mother’s home country, Sierra Leone] and seeing kids forced to fight in the civil war and being robbed of their childhood can’t help but colour your values,” she says. But while the economic and social injustices in Liberia are extreme, the UK is far from an egalitarian oasis, she says. “Whether you take the Brexit vote, or whether you take the shock results of the last election – you know there is something happening in the country. My read on it is that people are fed up. They are frustrated by an economic model that they think doesn’t work for them. The social contract defined the postwar period: if you worked hard, if you did the right thing, you would get on – but more importantly, your kids would do better than you. The fact is, that is now crumbling. And people have said, ‘we’ve had enough and we want change’.”

    Fahnbulleh joins the New Economics Foundation(Nef) as its chief executive in mid-November from another thinktank, the Institute for Public Policy Research (IPPR), where she was director of policy and research. “For progressive politics, both are really important, but they play two different roles,” she explains. “IPPR has worked within the system and secured some really great changes and wins on social justice – on issues around the minimum wage, for example. Nef has always been the outlier, the radical outsider proposing ideas long before they become the status quo. And you need both for societal transformation: within-system change and without-system change.”

    Nef also spends a considerable amount of time on community organising – helping community groups, workplaces and local people both run campaigns and feed into policy reports. This bottom-up approach also attracted Fahnbulleh to the job. “We’ve just done a big piece of work on housing, and new models of ownership and how we can drive that – but also on tenant voice. And we’ve been working on the Blue New Dealfor coastal towns, looking at how we can empower local – often really deprived – communities to bring in new, sustainable jobs. It’s about economic and social justice. We need an economic model that puts the environment front and centre in the fight against inequality.”

    Fahnbulleh thinks the election has heralded Nef’s moment. “The fact that every single party went into the last election and said the economy doesn’t work for all signals a massive shift. I think that creates the space for the kind of change that we haven’t seen in a really long time. If you look across the political spectrum, the big questions are: what’s the alternative to this broken system – and how do we get there?”

    The living standards crisis, which became integral to Labour’s 2015 general election campaign, still hasn’t been resolved and is key to political apathy and disgruntlement, she argues. “There are reasons why the public are so cheesed off. We’ve basically had a sustained period of declining wages: between 2008 and 2021, we will have seen the longest period of earnings stagnation for 150 years. And people are just fed up with that. You then add the fact that we’re also seeing huge increases in inequality. From 1979 to 2012, the share of income growth that went to the bottom 50% was 10%. The share of income growth that went to the top 10% was 40%.

    “My sense is that people are willing to put up with that if they are seeing incremental improvements in their living standards. But as soon as you get to the stage where we see our wages flatline, it means you have these huge divides in wealth and people are feeling poorer, year after year. Their tolerance for a system that is fundamentally wrong has hit a buffer.”

    If Labour is a government in waiting, Nef will clearly have a huge role in influencing the economic policy put forward by the shadow chancellor, John McDonnell. And Fahnbulleh will be key to steering that ship. “We have got an opportunity, in the next five years, to be at the forefront of a lively debate about what kind of economy we want – and what an economy that actually works for the many and not the few looks like. Nef should be leading that debate, because, quite frankly, we started it.”

    Curriculum vitae

    Age: 38.

    Family: Married, one three-year old son.

    Lives: South-east London.

    Education: Beechwood Sacred Heart school, Tunbridge Wells; PPE BA Lincoln College, Oxford; master’s in economic development, London School of Economics; PhD in economic development, London School of Economics.

    Career: 13 November 2017: chief executive, New Economics Foundation; December 2016 to November 2017: director of policy and research, IPPR; October 2015 to December 2016: consultant on devolution and local economic growth; May 2013 to September 2015: policy adviser to the leader of opposition, Labour party; July 2011 to May 2013: head of cities in the policy unit, Cabinet Office; June 2008 to July 2011: deputy director and previously senior policy adviser, prime minister’s strategy unit; December 2006 to 2008: consultant, International Projects Group, PKF (UK); October 2005 to November 2006: Post-doctoral research fellow and lecturer, LSE.

    Interests: Reading, travelling and basketball.

    The Guardian

    Why we can’t afford the rich – Andrew Sayer.

    “The ideology that the rich shower on us is meant to justify their privilege, but it turns the truth completely inside out.
    When inequality reaches the insane levels it has done, the rich depend on hoodwinking us all into thinking that they are the source of jobs, prosperity and everything we value.
    But once we stop believing this, either governments have to tackle inequality or revolutions arise.
    Rich developed societies are very inefficient producers of well-being – particularly those with bigger income differences between rich and poor. Twenty per cent of the populations of the more unequal rich countries are likely to suffer forms of mental illness – such as depression, anxiety disorders, drug or alcohol addiction – each year. Rates may be three times as high as in the most equal countries.
    At the same time, measures of the strength of community life and whether people feel they can trust others also show that more equal societies do very much better.
    Tackling inequality is an important step towards achieving sustainability and high levels of well-being.
    Large material inequalities mean that status becomes more important and social life is increasingly impoverished by status competition and status insecurities.
    Social anxieties and our worries about how we are seen and judged are exacerbated. The result is that people start to feel that social life is more of an ordeal than a pleasure and gradually withdraw from social life, as the data show.
    By intensifying status insecurities, inequality also drives consumerism, which is the biggest obstacle to sustainability. Any idea that we should consume less will be opposed as if it were an assault on our social standing and quality of life. But by reducing inequality, we not only reduce the importance of social status but, at the same time, we also improve social relations and the real quality of life. Reducing inequality is the first step towards combining sustainability with higher levels of well-being.
    The super-rich now see themselves as superior beings who are doing us a kindness by living amongst us.
    If we are to reduce inequality and stop the zombie-like extraction of more and more fossil fuel, we have to bring the economic and political dominance of the rich to a close.”

    .

    Richard Wilkinson Emeritus Professor of Social Epidemiology, University of Nottingham

    ***

    There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.
    Warren Buffett, estimated ‘worth’ $44 billion, Chairman and CEO of Berkshire Hathaway, New York Times, 26 November 2006

    .

    We are seeing an extraordinary phenomenon: for years the rich have been pulling away from the rest, with the top 1% taking an increasing share of national wealth, while those on low to middling incomes have got progressively less. And the rich continue to get richer, even in the worst crisis for 80 years – they can still laugh all the way to their banks and tax havens as the little people bail out banks that have failed.

    Meanwhile a new kind of bank is multiplying – providing food for those who can no longer make ends meet. Austerity policies fall most heavily on those at the bottom while the top 10%, and particularly the top 1%, are protected. Generally, the less you had to do with the crisis, the bigger the sacrifices – relative to your income – you have had to make.

    Youth unemployment has soared – in Spain and Greece to over 50%; this is an outrageous waste of young lives, and in many countries it’s become clear that young people are unlikely to experience the prosperity their parents enjoyed. How ridiculous that the answer to our economic problems is seen as wasting more of our most important asset – people.

    Meanwhile a political class increasingly dominated by the rich continues to support their interests and diverts the public’s attention by stigmatising and punishing those on welfare benefits and low incomes, cheered on by media overwhelmingly controlled by the super-rich.

    But, while the divide between the rich and the rest has certainly grown, how can it be claimed that we can’t afford the rich?

    Here’s a short answer

    Their wealth is mostly dependent ultimately on the production of goods and services by others and siphoned off through dividends, capital gains, interest and rent, and much of it is hidden in tax havens. They are able to control much of economic life and the media and dominate politics, so their special interests and view of the world come to restrict what democracies can do.

    Their consumption is excessive and wasteful and diverts resources away from the more needy and deserving. Their carbon footprints are grotesquely inflated and many have an interest in continued fossil fuel production, threatening the planet.

    Of course, this brief summary leaves out many qualifications, not to mention the actual argument and evidence. Some readers may agree straightaway, some may have a few objections, but others may respond with incredulity, perhaps outrage, for to claim that we can’t afford the rich is to imply that they are a cost to the rest of us, a burden. Aren’t the rich wealth creators, job creators, entrepreneurs, investors – indeed, just the kind of people we need? Don’t entrepreneurs like Bill Gates deserve their wealth for having introduced products that benefit millions? Aren’t the rich entitled to spend what they have earned how they like? What right has anyone to say their consumption is excessive?

    Couldn’t the rich cut their carbon footprints by switching to low-carbon consumption? Wouldn’t the world miss their philanthropy and the ‘trickle-down effects’ of their spending? In fact, isn’t this book just an example of ‘the politics of envy’ – directed at those whom former UK Prime Minister Tony Blair used to call ‘the successful’? Shouldn’t we thank, rather than begrudge, these ‘high net worth individuals’?

    It’s the objections regarding the alleged role of the rich in wealth extraction, as opposed to wealth creation, that present the biggest challenge and occupy the bulk of this book, though I’ll attempt to answer other objections too. In the process it will become clear that this is not about the politics of envy – a cheap slur used by those who want to duck the arguments and evidence – but the politics of injustice. I don’t envy the rich, in fact I regard such envy as thoroughly misguided. But I resent the unjust system by which the rich are allowed to extract wealth that others produce and to dominate society for their own interests.

    What’s more, this is not only unjust but profoundly dysfunctional and inefficient, and it creates inhumane, rat-race societies. The time is ripe for examining where the wealth of the rich comes from. The Occupy movement has very successfully highlighted the growing split between the top 1% and the 99%, and the dominance of politics by the 1%.

    The rich have made a remarkable comeback since the 1970s – the end of the post-war boom – rapidly increasing their share of national income in a large number of countries, Britain included. We are now getting back to early 20th-century levels of inequality between the rich and the rest. Having cornered ‘only’ 5.9–9% of total income before tax in the UK in the early 1950s through to 1978 – ‘The Golden Age of Capitalism’ – the top 1% of ‘earners’ now hoover up 13%.

    The early post-war period was a time when the majority of the population shared in the post-war boom, with low-income households doing slightly better than others and the top 5% growing at slower rates, albeit from a higher base. But from 1979 the majority of incomes stagnated or grew only slowly, while the poorest fifth suffered a substantial loss and the rich roared ahead, swallowing up most of the spoils of economic growth, with the top 0.01% enjoying a 685% rise in real income!

    This divergence has continued since the crash; indeed the gulf is widening as a result of austerity policies, which disproportionately hit those on low to middle incomes, contrary to the rhetoric of ‘We’re all in it together’.

    In fact, the inequalities within the top 1% are much greater than between them and the 99%. Those in the top 1% in the UK have incomes ranging from just under £100,000 to billions. What’s more, the richer they are, the faster their income has grown: the top 0.5% have increased their share faster than the rest of the 1%, but not as fast as the top 0.1%, while the top 0.01% (ten-thousandth) have enriched themselves even faster.

    Inequalities in wealth – the monetary value of individuals’ accumulated assets minus their liabilities (debts) – are even wider than income inequalities, and increasing. In the US, the top 1% own 35% of the nation’s wealth and the bottom 40% a mere 0.2%! In the UK in 2008–10, the members of the top 1% each had £2.8 million or more (14% of the nation’s wealth), though, given the opportunities for the rich to hide their wealth, this is almost certainly an underestimate. Twenty-eight per cent of wealth in the UK is inherited, not earned. Half of the population had wealth of less than £232,400, and the poorest 10% had less than £12,600.

    In the US, the top 0.01% have gone from having less than 3% of national wealth in the mid-1970s to over 11% in 2013.

    The richest one-thousandth – currently those with more than $20 million – own over a fifth of the country’s wealth.

    Oxfam 2014 data:

    • The richest 85 people in the world own as much as the poorest half of the world’s population, all 3.5 billion of them!

    • 46% of the world’s wealth is now owned by just 1% of the population.

    • The wealth of the richest 1% in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.

    • Seven out of ten people live in countries where economic inequality has increased in the last 30 years.

    Have the rich got richer because those at the top have become more enterprising, dynamic wealth creators? Are today’s capitalists – or entrepreneurs, as they like to call themselves – so much better at leading economic development than their more moderately paid predecessors of the post-war boom?

    The economic data suggests the opposite. Growth rates have been slower than in the post-war boom. The rich are clearly not taking the same share of faster growth, but an increasing share of slower growth. So how have they done it?

    The rich are not only getting a bigger proportion of nations’ gross incomes, but keeping more of it, thanks to massive drops in top rates of taxation.

    From the 1930s onwards, tax rates on the rich soared, topping 90% in the UK, US, France and, briefly, Germany. It’s hard to believe this now when they have fallen to less than 50%, with many governments repeatedly trying to drive them down still lower. The sky did not fall down when top rates of tax were high, indeed the economies of these countries boomed, yet we are now told in severe tones that taxing the rich merely restrains growth.

    To show why we can’t afford the rich we need to do more than find out just how rich they are and describe how they got their money and spend it. We need to do something that most books on the rich and the financial crisis fail to do – question the legitimacy of their wealth. But it is important to realise just how rich the rich are. I don’t want to put readers off with an indigestible mass of figures, but some are needed, especially as few people realise how unequal our society is and just how wealthy the rich are.

    In the US the boundary isn’t quite so sharp, with the 4% below the top 1% getting a slight increase in share of national income since the post-war boom, though nothing like as big an increase as those above them, but it’s at the top of the 1% where the big gains have been made.

    The richer people are, the higher the proportion of their income is likely to be unearned, through being based on power rather than some kind of contribution.

    The UK has 63.9 million people and yet many of their most important needs could be met several times over just by the collective wealth of the richest 1,000. (Could there be a solution here?) When people worry about the effect of an ageing population on the pension bill and the NHS bill, we need to remember that just the annual growth of the wealth of the super-rich could easily pay for it. This is a ridiculous and obscene misallocation of resources. And why should we celebrate the growth of the financial sector, but see the growth of the health sector as a problem? Globally, according to the Bloomberg Billionaires website, the top 100 billionaires controlled $1.9 trillion in 2012, adding $240 billion that year. Oxfam calculates that just over a quarter of this – $66 billion – would have been enough to have raised everyone in the world over the $1.25 per day poverty line.

    With a ‘net worth’ of $76 billion, Bill Gates of Microsoft is the richest person in the world, according to the 2013 Forbes list of billionaires. Second, with $72 billion, and for many years the first, is Carlos Slim Helu, a Mexican who took over his country’s telecommunications industry when it was privatised – a nice example of the consequences of privatising state monopolies.

    Warren Buffett, whose candid statement about class war heads up this introduction, is fourth.

    The richest woman, at ninth, with $52.5 billion, is Christy Walton, who inherited part of the Walmart fortune. Three other members of the Walton family are in the top 20. Rupert Murdoch, the media mogul, with $13.5 billion, comes in at 78th.

    Very few of the rich and super-rich are celebrities. The wealthiest, Steven Spielberg, with $3 billion, is 337th on the Forbes list. Next is Oprah Winfrey, at 442nd with $2.7 billion.

    In the UK, the Sunday Times often uses a montage of photos of celebrities to publicise its Rich List, but as in the US, few of them reach the upper levels. The highest (2012), Paul McCartney, with £665 million, owes his high position partly to marrying Nancy Shevell, an American heiress. Author J.K. Rowling, came in at 148th, the Beckhams at 395th. Most of the super-rich above them are unknown to the vast majority of British people.

    The top six in the UK are all foreign nationals resident in the UK, attracted by special tax deals open to them: Alisher Usmanov (first, with £13.3 billion) owns Russia’s biggest iron ore producer; second is another Russian, Leonard Blavatnik, who’s involved in a range of industries including music, aluminium, oil and chemicals; in third place, the Hinduja brothers inherited their father’s conglomerate, with interests in power, automotive and defence industries in India and overseas; Lakshmi Mittal, in fourth place, is an Indian-born steel magnate who owes much of his wealth to buying up former Soviet state enterprises when they were privatised; Roman Abramovich (fifth), from Russia, best known in the UK for his ownership of Chelsea football club, owns an investment company with interests in a wide range of sectors, particularly oil; Norwegian-born Cypriot citizen John Frederiksen (shipping and oil) is sixth.

    ‘Non domiciles’, like these individuals, take advantage of a rule unique to the UK and Ireland that allows those who can claim to be linked to some other domicile to escape UK tax on their income and capital gains in all of the rest of the world, providing they do not bring the money into the country.

    At eighth, the richest British-born person on the list is the Duke of Westminster, with £7.8 billion, who inherited property in Lancashire, Cheshire, Scotland and Canada and prime sites in London.

    Although only a minority of the super-rich around the world list their speciality as finance, most of those in non-finance business are nevertheless also heavily involved in finance, in playing the markets and making deals25 and, of course, steel, power or telecommunications companies and the like are chosen for financial gain.

    Why have the rich got a bigger share?

    The return of the rich over the last four decades has been closely associated with developments in capitalism. Most important has been the rise of a new political economic orthodoxy, called neoliberalism.

    Initiated aggressively by Margaret Thatcher and Ronald Reagan in the 1980s, it was consolidated with more stealth by their successors, New Labour as well as Conservative, Democrat as well as Republican.

    Now, after the crash of 2007–08 and in the ensuing recession – exactly when it has most clearly failed – it is being imposed with renewed vigour. It has three key features.

    1.

    Markets are assumed to be the optimal or default form of economic organisation, and to work best with the minimum of regulation. Competitive markets supposedly reward efficiency and penalise inefficiency and thereby ‘incentivise’ us to improve. Governments and the public sector, by comparison, are claimed to be inferior at organising things – monopolistic and prone to complacency, inefficiency and cronyism. Governments should therefore privatise as much as possible.

    Financial markets should be deregulated and there should be ‘flexible labour markets’ – political code language for jobs in which pay can fall as well as rise and in which there is little security. Where parts of the public sector can’t be privatised, league tables should be established and individuals, schools, universities, hospitals, museums, and so on should be made to compete for funds and be rewarded or penalised according to their placing.

    Democracy needs to be reined in because the ballot box can’t match markets in governing complex economies; people can express themselves better through what they buy and sell.

    Unsurprisingly, neoliberals keep their anti-democracy agenda under wraps.

    2.

    The rise of neoliberalism also involves a political and cultural shift compatible with its market fundamentalism. Through a host of small changes in everyday life, we are increasingly nudged towards thinking and acting in ways that fit with a market rationality.

    More and more, the media address us as self-seeking consumers, savvy investors, ever pursuing new ways of supplementing our incomes through ‘smart investments’.

    Risk and responsibility are transferred to the individual. Job shortages are no longer acknowledged, let alone seen as a responsibility of the state: there are just inadequate individuals unable to find work: ‘skivers’, ‘losers’. No injustice, just bad choices and hapless individuals. The word ‘loser’ now evokes contempt, not compassion.

    Those unable to find jobs that pay enough to allow them to cope and who still need the welfare state are marginalised, disciplined and stigmatised as actual or potential cheats. State health services and pensions are run down and replaced by private health insurance and private pensions.

    You’re on your own, free to choose, free to lose, depending on how you navigate through the world of opportunities and dangers.

    Instead of seeing ourselves as members of a common society, contributing what we can, sharing in its growth, pooling risks and providing mutual support, we are supposed to see ourselves as competing individuals with no responsibility for anyone else.

    Want to jump the queue for medical services? Click here. Want to give your child an advantage? Pay for private tuition. We should compete for everything and imagine that what is actually only possible for the better off is possible for everyone; everyone can win simultaneously if they try.

    We are expected to see ourselves as commodities for sale on the labour market, but also as ‘entrepreneurs of the self’. Hence the rise of the cult of the curriculum vitae (résumé) and self-promotional culture.

    Education is increasingly debased by efforts to turn it into a means for making young people in this mould.

    Some people – probably many readers of this book – may want to resist these tendencies, but in a neoliberal society it is impossible to avoid them totally, not least because in so much of life using markets (disguised as ‘choice’) and competing in league tables have become the only choices we can make.

    3.

    Neoliberalism has ushered in a shift in the economic class structure of the countries it has most affected.

    It involves not only a shift of power and wealth towards the rich, marked most clearly by the weakening of organised labour in industrialised economies and the enrichment of the 1%, but a shift of power within the rich: from those whose money comes primarily from control of the production of goods and services, to those who get most of their income from control of existing assets that yield rent, interest or capital gains, including gains from speculation on financial products.

    The traditional term for members of this latter group is ‘rentier’. Many of the changes noted in 1 and 2 above benefit them.

    Neoliberalism as a political system supports rentier interests, particularly by making the 99% indebted to the 1%.

    .

    A different approach: ‘moral economy’

    The deregulation and spectacular growth of finance are central to neoliberalism and the rise of the rich – and to the biggest economic crisis since the Great Crash of 1929.

    There has been a small avalanche of books on the financial crisis of 2007, some of them illuminating, many merely providing superficial narratives of successive financial disasters and the key players in them, served up with journalistic brio. Some critiques have targeted the hubris of the financial sector, identifying mismanagement, poor judgement and questionable legality.

    But some have seen the credit crunch and recession as evidence of something more basic – capitalism’s crisis-prone nature.

    Why We Can’t Afford the Rich isn’t just about the financial crisis, dire though it is. It’s about what underpins and generates such crises – the very architecture of our economy. It treats the economy not merely as a machine that sometimes breaks down, but as a complex set of relationships between people, increasingly stretched around the world, in which they act as producers of goods and services, investors, recipients of various kinds of income and as taxpayers and consumers.

    The problems it identifies are as old as capitalism, though they have become much more serious with the rise of finance over the last 40 years. It goes beyond a focus on irrationality and systemic breakdown, to injustice and the moral justifications of taken-for-granted rights and practices. It’s not only about how much people in different positions in the economy should get paid for what they do, but about whether those positions are legitimate in the first place.

    Is it right that they’re allowed to do what they’re doing?

    There is of course a long history of critiques of capitalism aimed at different targets: alienation, insecurity and poverty; the treadmill of working and consuming; economic contradictions and irrationalities; and environmental destruction. There are useful things to learn from all of these critiques, but at the current time, when the rich have increased their power so much, and inequalities have widened, I believe we need a new line of attack, one that focuses on the institutions and practices that allow this to happen.

    Too many books on economic justice, and especially on the economic crisis, take as given the very institutions and practices that need questioning. This book is about the injustices of some long-standing economic relations that have come to a head in the crisis. It could be described as an example of ‘moral economy’. By this I mean not moralising about greed but assessing the moral justifications of basic features of economic organisation. It’s about the huge differences between what some are able to get and what they do, need and deserve.

    What people should get is a difficult issue, particularly where it’s a matter of what we think people deserve or merit, but in the case of the rich, it can be shown that what they actually get has more to do with power. I shall argue that basically, the rich get most of their income by using control of assets like land and money to siphon off wealth that others produce. Much of their income is unearned. What’s more, over the last 35 years, particularly with the increasing dominance of the economy by finance – ‘financialisation’, as it’s sometimes called – the rich have become far richer than before by expanding these sources of unearned income.

    This book is not only about money and goods, but about the very language of economic life, for the history of our modern economy is partly one of struggles over how to describe or categorise economic practices, as this affects what we see as acceptable or unacceptable: words like ‘investment’, ‘speculation’ or ‘gambling’ invite different evaluations. Who wouldn’t prefer to be called an ‘investor’ rather than a speculator or gambler? But what do such terms mean and what practices fit them? When a top banker is described as having ‘earned’ £x million, we might question what ‘earned’ means in such a context: is it just what they’ve managed to extract from the economy?

    This struggle over words has been largely won by the rich and powerful, so how we speak about economic life systematically conceals their activities. Mainstream economics has proved to be a helpful if largely unwitting accomplice to this process, fearful of anything that might be construed as critical of capitalism.

    To show why we can’t afford the rich we need to go into some basic economic matters, but in a different and yet simpler way than usual. Most basically, we need to remember something that has been forgotten in modern mainstream economics: economics is about provisioning. As anthropologists and feminist economists have reminded us, it’s about how societies provide themselves with the wherewithal to live. Provisioning requires work – producing goods, from food and shelter through to clothes and newspapers, and services, such as teaching, providing advice and information, and care work. Almost all provisioning involves social relations between people, as producers, consumers, owners, lenders, borrowers and so on. It’s through these relations that provisioning is organised.

    Some kinds of provisioning take place through markets; some do not. The market/non-market boundary does not define the edge of the economy: unpaid work in preparing a meal for someone is as much an economic act as preparing pizzas for sale – or selling computers or insurance. Most economists and political theorists think of economic actors only as independent, able-bodied adults, forgetting that they all started off as helpless babies, unable to provide for themselves and dependent on others, and who sooner or later reach a stage where, whether for reasons of illness, disability or age, they become unable to contribute to provisioning themselves and others.

    There is nothing exceptional about these conditions. We all go through them: they are universals. We can never pay back our parents for all the work they did for us, just as future generations will never be able to pay their parents back. Dependence on others, particularly across generations, is part of being human; it derives from the fact that we are social animals, ‘dependent rational animals’, as the philosopher Alasdair MacIntyre put it; we cannot survive on our own.

    Robinson Crusoe depended on having been brought up in society; the newborn Crusoe wouldn’t have lasted more than a few hours on his own. And like Crusoe we depend on the resources of the earth to survive; we cannot flourish if we damage the planet.

    No one would deny the right of children to be fed (‘subsidised’) by their parents when they are too young to contribute anything in return. But would it be OK for me to buy up the company that currently provides your water and slap an extra 10% on your bills so that in effect you subsidise me, enriching me greatly? Would that be a defensible form of dependence?

    Or if I seized a park or beach that you had visited regularly all your life and charged you for access, would that be all right? Dependence can be defensible or indefensible; it depends.

    Because we are so dependent on each other, there are always likely to be questions of fairness and justice where economic activities are concerned. Are you being paid fairly? Is it right that some get so much/little, and pay so much/little tax? Should students pay for their university courses? Should you get interest on your savings? Should there be more/less/no child benefit? More money for carers, or none? Who should pick up the bill when a company goes bankrupt, and who should pay for clearing up a derelict site left by deindustrialisation? Who should pay for pollution?

    These and other such questions are about moral economy. I believe we need to think much more about them – about whether our familiar economic arrangements are fair and justifiable, instead of taking them simply as immutable facts of life – or equally bad, as matters of mere subjective ‘preferences’, or ‘values’, beyond the scope of reason.

    Individuals may sometimes give more than they get, or get more than they give, for justifiable reasons, as in the case of parent–child relations, but sometimes they do so for no good reason other than power. Sexist men free-ride on the domestic labour of women for no good reason. This free-riding is particularly likely where people or organisations are very unequal in power. Minority control of key assets that others need is a crucial source of power and inequalities.

    Because they can.

    Important though it is to think about moral economy, it’s different from explaining economic arrangements. Few of our ways of doing things in economic matters are arrived at through democratic decision or careful deliberation on what is good and fair. Most are products of power. Usually, the best explanation of what people do and what they get in economic matters is because they can.

    Why do chief executive officers (CEOs) of big companies pay themselves such vast amounts? Because they can. They may offer justifications, but these are not only invariably feeble but redundant. They can get their pay rises even if the majority of people think they’re unjustifiable. And usually the fuss over their pay hikes dies down in a week or two anyway.

    Equally, when we ask why care workers get so little for doing work that clearly benefits people, the answer is because that’s all they can get, given their limited power. What we think people should justifiably get or contribute is one thing, and what they can actually get is another. Justifications and explanations are usually different.

    Many of the defences of existing economic institutions are surprisingly weak, but particularly if people start treating those arrangements as natural – as ‘just how things are’ – they can persist on the basis of power.

    The landowner and the stranger

    Here’s an example of a taken-for-granted economic institution – private ownership of land by a minority.

    You may know the story of the stranger who trespassed on a landowner’s land and was told to ‘get off my land’, whereupon the stranger asked the owner how he got this land. ‘From my father’, was the answer. ‘And where did he get it from then?’ ‘From his father’ . . . , who got it from his father, and so on. ‘So how did one of your ancestors get this land in the first place?’ asked the stranger. ‘By fighting someone for it’, said the landlord. ‘Right’, said the stranger, ‘I’ll fight you for it. If it was all right for your ancestor to seize the land in the first place, it must be all right to seize it back now. And if it wasn’t all right for them to seize it, it should be seized back now!’

    The story is striking but it’s not clear what a better alternative might be. Would private ownership of land be OK if it was divided up equally so everyone had some? Or should land be publicly owned with individuals renting plots from the state, with the use of the rent revenue to be decided democratically? What the story does, at least, is jolt us out of our uncritical acceptance of the institution of minority land ownership. At this time of crisis we need much more jolting.

    Mainstream economics takes the particular features of capitalism – a very recent form of economic organisation in human history – as if they were universal, timeless and rational. It treats market exchange as if it’s the essential feature of economic behaviour and relegates production or work – a necessity of all provisioning – to an afterthought.

    It also focuses primarily on the relationship between people and goods (what determines how many oranges we buy?) and pays little attention to the relationships between people that this presupposes. It values mathematical models based on if-pigs-could-fly assumptions more than it values empirical research; so it pays little attention to real economies, having little to say about money and debt, for example!

    Predictably, the dismal science failed to predict the crisis. When the UK’s Queen Elizabeth asked why no one saw the crisis coming, the economists’ embarrassment was palpable.

    I’ll be drawing on the work of thinkers who had a more critical view, including, in chronological order, Aristotle, Adam Smith, Karl Marx, John Maynard Keynes, the Christian socialist R.H. Tawney and many recent so-called ‘heterodox economists’ and political commentators. Significantly, many of the latter did predict the current crisis.

    Capitalism: a mixed bag

    While this is as much a critique of capitalism as a critique of the rich, capitalism is both good and bad in a host of ways. There is no doubt, in particular, that it has produced unprecedented growth in technology and science and led to the integration of formerly largely separate parts of the world, as eulogised by Marx and Engels in The Communist Manifesto.

    Marx and Engels were less prescient as regards the improvement in living standards for many workers, who turned out to be better off being exploited than not being exploited, though that does not mean there were no losers or that there cannot be better alternatives to capitalism.

    The media have a depressing tendency to favour simple stories of good versus bad over ones that portray the world as a complex mix of good and bad. This book should not be seen as ignoring the benefits capitalism has brought; nor, in criticising it, to be legitimising the state socialism of the former Soviet Bloc.

    ‘Neither Washington nor Moscow (former or contemporary!)’ would be my slogan. A recent Russian saying goes: ‘Marx was completely wrong about communism, but damn, it turns out he was right about capitalism!’

    I don’t think he was entirely right about capitalism by any means, though his thinking on its dynamics and on its generation of inequalities was more illuminating than most. But I’ll draw on plenty of other thinkers too, many of them in varying degrees critical of Marx. If you’re wondering whether I’m a Smithian, Marxist or Keynesian or whatever, my answer in each case is yes and no: yes where I think they’re right, no where I think they’re wrong.

    The belief in a just world

    For New Labour and Conservatives it’s become an article of faith to deny that the rich are rich because others are poor. To get ahead, any career politician has to parrot this claim; it helps to keep corporate funders of their political parties happy, as well as media owned by the super-rich. No evidence or argument is needed, apparently; they just have to profess the belief, as if swearing on the Bible.

    This book shows that whatever they might want to believe, the rich are indeed rich largely at the expense of the rest. How tempting it is for not only the rich but also the merely comfortably-off to imagine that, through their own efforts and special qualities, they deserve what they have, disregarding the fact that by the accident of birth they were born into an already rich country and in many cases an already well-off family within it that gives them significant advantages. How easy to overlook that they rely on getting cheap products made and grown by people from poor countries, who are no less hard-working or deserving but can be paid much less because they have little alternative.

    But it’s not only the rich who believe that they deserve their wealth. Many in the rest of the population think so too: ‘they’ve earned it so they’re entitled to it’ is a common sentiment, even among those on low incomes. This is an example of what US psychologist Melvin Lerner called ‘the belief in a just world’. In economic matters, it’s the idea that, roughly speaking, we get paid what we deserve and deserve what we get paid.

    Believing the rich deserve their wealth may seem a pleasingly generous sentiment, though assuming the poor also deserve their lot does not. It produces an unwarranted deference to the rich. As Lerner noted, the belief in a just world is a delusion, a kind of wishful thinking. Who wouldn’t want to live in a just world, where need was recognised and effort and merit rewarded, while their opposites were not? But it doesn’t follow that we do.

    Understandably, since the 2007 crash, people have become more critical of the rich, especially those identified as bankers. Yet, according to recent surveys of public attitudes, they are even more critical of those at the bottom, scorned as ‘welfare mothers’, ‘chavs’, ‘trailer trash’, ‘scroungers’ and so on. What’s more, it seems that as societies become more unequal, their members become less critical of inequality!

    The rule of the rich Economic power is also political power. The very control of assets like land and money is a political issue. Those who control what used to be called ‘the commanding heights of the economy’ – and increasingly that means the financial sector – can pressure governments, including democratically elected ones, to do their bidding. They can threaten to take their money elsewhere, refuse to lend to governments except at crippling rates of interest, demand minimalist financial regulation, hide their money in tax havens and demand tax breaks in return for political funding.

    Investigative journalists have revealed the circulation of individuals between political posts and positions in key financial institutions, and the role of powerful lobby groups in maintaining the dominance of unregulated finance, even after the crash. Prominent financial institutions have been involved in illegal money laundering, insider dealing and manipulation of interest rates, yet in the UK no one has been prosecuted and, where banks have been fined, the fines have not been imposed but arrived at by negotiation, as ‘settlements’! They have infamously pocketed gains while the losses they have incurred have been dumped on the public, who have suffered substantial drops in income and services as a result.

    Of course, many politicians are already from an upper-class background in which supporting the rich is as natural as breathing, but even if they are not, ‘our representatives’ have become increasingly unrepresentative of the majority of the population at large.

    Even if they want to resist, they face an environment dominated by financial interests.

    Spending it

    The problem of the rich goes beyond issues of how they get their money, to how they spend it. Their massive spending on luxuries distorts economies, diverting producers from providing goods and services for the more needy. It’s a waste of labour and scarce resources.

    In some cases, it makes things worse for those on low incomes, for example, by driving up house prices beyond their reach. The super-rich have so much that there is no way they can spend all of it on things they can use, so they recycle the rest into further rounds of speculation, buying up property, companies and financial assets that generate little or no productive investment, and merely siphon off more wealth that others have produced.

    No one treads more heavily on the earth than the rich. Private jets and multiple mansions mean massive carbon footprints. Yet the inconvenient fact is of course that even though most of us have smaller footprints, in the rich countries they are still seriously in excess of what the planet can absorb. Even if we could afford them in money terms, we cannot afford high-carbon, high-consumption life-styles if we are to stop runaway global warming.

    We are in deep trouble, not just because of the economic crisis, but because it’s overshadowed by a bigger and more threatening crisis – climate change. The solution to the economic crisis is widely thought to be growth. But that will only accelerate global warming.

    The rich countries need to switch to steady-state or ‘degrowth’ economies to save the planet, but capitalism needs growth to survive; it’s in its DNA.

    Soviet state socialism proved no better environmentally. We need a different model. If that seems a gloomy conclusion, there is a very important and positive counter message: that beyond a certain level, attained already by most people in rich countries, well-being is not improved much by further increases in wealth, and well-being tends to be higher in more equal countries.

    Above this threshold, well-being is improved by greater equality, reductions in stress, exercise, being with others, both caring for and being cared for, developing interests and skills and projects and experiencing the world at large beyond the confines of narrowly defined jobs.

    Ending the rat race will do us, and the planet, a lot of good.

    ***

    Why we can’t afford the rich.

    by Andrew Sayer

    get it at Amazon.com

    .

    Don’t let the rich get even richer on the assets we all share – George Monbiot.

    Are you a statist or a free marketeer? Do you believe that intervention should be minimised or that state ownership and regulation should be expanded? This is our central political debate. But it is based on a mistaken premise.

    .

    Both sides seem to agree that state and market are the only sectors worth discussing: politics should move one way or the other along this linear scale. In fact, there are four major economic sectors: the market, the state, the household and the commons. The neglect of the last two by both neoliberals and social democrats has created many of the monstrosities of our times.

    .

    Both market and state receive a massive subsidy from the household: the unpaid labour of parents and other carers, still provided mostly by women. If children were not looked after – fed, taught basic skills at home and taken to school – there would be no economy. And if people who are ill, elderly or have disabilities were not helped and supported by others, the public care bill would break the state.

    .

    There’s another great subsidy, which all of us have granted. I’m talking about the vast wealth the economic elite has accumulated at our expense, through its seizure of the fourth sector of the economy: the commons.

    .

    That it is necessary to explain the commons testifies to their neglect (despite the best efforts of political scientists such as the late Elinor Ostrom). A commons is neither state nor market. It has three main elements. First a resource, such as land, water, minerals, scientific research, hardware or software. Second a community of people who have shared and equal rights to this resource, and organise themselves to manage it. Third the rules, systems and negotiations they develop to sustain it and allocate the benefits.

    .

    A true commons is managed not for the accumulation of capital or profit, but for the steady production of prosperity or wellbeing. It belongs to a particular group, who might live in or beside it, or who created and sustain it. It is inalienable, which means that it should not be sold or given away. Where it is based on a living resource, such as a forest or a coral reef, the commoners have an interest in its long-term protection, rather than the short-term gain that could be made from its destruction.

    .

    The commons have been attacked by both state power and capitalism for centuries. Resources that no one invented or created, or that a large number of people created together, are stolen by those who sniff an opportunity for profit. The saying, attributed to Balzac, that “behind every great fortune lies a great crime” is generally true. “Business acumen” often amounts to discovering novel ways of grabbing other people’s work and assets.

    .

    The theft of value by people or companies who did not create it is called enclosure. Originally, it meant the seizure – supported by violence – of common land. The current model was pioneered in England, spread to Scotland, then to Ireland and the other colonies, and from there to the rest of the world. It is still happening, through the great global land grab.

    .

    Enclosure creates inequality. It produces a rentier economy: those who capture essential resources force everyone else to pay for access. It shatters communities and alienates people from their labour and their surroundings. The ecosystems commoners sustained are liquidated for cash. Inequality, rent, atomisation, alienation, environmental destruction: the loss of the commons has caused or exacerbated many of the afflictions of our age.

    .

    You can see enclosure at work in the Trump administration’s attempt to destroy net neutrality. Internet service providers want to turn salience on the internet – now provided freely by a system created through the work of millions – into something you have to pay for. To ensure there is no choice, they have also sought to shut down a genuine internet commons, by lobbying states to prohibit community broadband. In the crazy plutocracy the US has become, four states have made this form of self-reliance a criminal offence, while others have introduced partial bans.

    .

    Communities should be allowed to take back control of resources on which their prosperity depends
    Another example is the extension of intellectual property through trade agreements, allowing biotech companies to grab exclusive rights to genetic material, plant varieties and natural compounds. Another is the way in which academic publishers capture the research freely provided by communities of scientists, then charge vast fees for access to it.

    .

    I’m not proposing we abandon either market or state, but that we balance them by defending and expanding the two neglected sectors. I believe there should be wages for carers, through which the state and private enterprise repay part of the subsidy they receive. And communities should be allowed to take back control of resources on which their prosperity depends. For example, anyone who owns valuable land should pay a local community land contribution (a form of land value tax): compensation for the wealth created by others. Part of this can be harvested by local and national government, to pay for services and to distribute money from richer communities to poorer ones. But the residue should belong to a commons trust formed by the local community. One use to which this money might be put it is to buy back land, creating a genuine commons and regaining and sharing the revenue. I expand on this idea and others in my recently published book Out of the Wreckage.

    .

    A commons, unlike state spending, obliges people to work together, to sustain their resources and decide how the income should be used. It gives community life a clear focus. It depends on democracy in its truest form. It destroys inequality. It provides an incentive to protect the living world. It creates, in sum, a politics of belonging.

    .

    To judge by the speeches at this week’s Labour conference, the party could be receptive to this vision. The emphasis on community and cooperatives (which in some cases qualify as commons), the interest in broadening ownership and fighting oppressive trade agreements, point towards this destination.

    .

    I hope such parties can take the obvious step, and recognise that the economy has four sectors, not two. That’s the point at which it can begin: the social and environmental transformation for which so many of us have been waiting.

    .

    The Guardian

    .

    Forget the future of workers. What about the future of consumers? – Scott Santens. 

    Universal basic income as a response to both falling demand and the rising sharing economy.

    Discussing the future of work is all the rage these days. Some say we’re on the verge of the robot apocalypse of jobs. Others say jobs will always be created in sufficient numbers (and at sufficient rates) and that everything will be fine. Regular readers know where I fall on this particular question, that either way, our goal should be eliminating as many of the jobs as possible that we as humans don’t enjoy doing.

    However, what doesn’t tend to get discussed is the flip side of all of this, which is the fruits of the all the work by humans and machines, the limited amounts any of us as humans can consume them simply because of limited time, and how our consumer preferences are being permanently and irrevocably altered by short-sighted greed.

    … continued at Steemit



    How to Use Fiscal and Monetary Policy to Make Us Rich Again – Tom Streithorst. 

    The easiest way to return to Golden Age tranquility and equality is to empower fiscal policy.

    During the post war Golden Age, from 1950 to 1973, US median real wages more than doubled. Today, they are lower than they were when Jimmy Carter was president. If you want an explanation why Americans are pessimistic about their future, that is as good a reason as any. In a recent article, Noah Smith examines the various causes of the slide in labor’s share of national income and finds most explanations wanting. With a blind spot common amongst economists he doesn’t even investigate the most obvious: politics.

    Take a look at this chart. From the end of World War II, productivity rose steadily. Until the 1972 recession wages went up alongside it. Both dipped, both recovered and then, right around the time Ronald Reagan became President, productivity continued its upward trajectory but wages stopped following. If wages had continued to track productivity increases, the average American would earn twice as much as he does today and America would undoubtedly be a calmer and happier nation.

    Collectively we are richer than we were 40 years ago, as we should be, considering the incredible advances in technology since them, but today the benefits of productivity increases no longer go to workers but rather to owners of stocks, bonds, and real estate. Wages don’t go up, but asset prices do. Rising productivity, that is to say the ability to make more goods and services with fewer inputs of labor and capital should make us all more prosperous. That it hasn’t can only be a distributional issue.

    The timing suggests Ronald Reagan had something to do stagnating wages. That makes sense. Reagan cut taxes on the rich, deregulated the economy, eviscerated the labor unions and created the neoliberal order that still rules today. But perhaps an even more significant change is the tiny, technical and tedious shift from fiscal to monetary policy.

    Government has two ways of affecting the economy: monetary and fiscal policy. The first involves the setting of interest rates, the other government tax and spending policy. Both fiscal and monetary policy work by putting money in people’s pockets so they will spend and thereby stimulate the economy but fiscal focuses on workers while monetary mostly benefits the already rich. Since Ronald Reagan, even under Democratic presidents, monetary has been the policy of choice. No wonder wages stopped going up but real estate, stock and bond prices have gone through the roof. During the Golden Age we shared the benefits of technological progress through wages gains. Since Reagan, we have allocated them through asset price inflation.

    Fiscal policy, by increasing government spending, creates jobs and so raises wages even in the private sector. Monetary policy works mostly through the wealth effect. Lower interest rates almost automatically raise the value of stocks, bonds, and other real assets. Fiscal policy makes workers richer, monetary policy makes rich people richer. This, I suspect, explains better than anything else why monetary policy, even extreme monetary policy remains more respectable than even conventional monetary policy.

    During the Golden Age, fiscal was king. Wages rose steadily and everybody was richer than their parents. Recessions were short and shallow. Economic policy makers’ primary task was insuring full unemployment. Anytime unemployment rose over a certain level, a government spending boost or tax cut would get the economy going again. And since firms were confident the government would never allow a steep downturn, they were ready and willing to invest in new technology and increased productive capacity. The economy grew faster (and more equitably) than it ever has before or since.

    During the 1960s, Keynesian economists thought they could “fine tune” the economy, using Philips curve trade offs between inflation and unemployment. Stagflation in the 1970s shattered that optimism. Inflation went up but so did unemployment. New Classical economists decided in the long run, Keynesian stimulus couldn’t increase GDP, it could only accelerate inflation. Keynesianism stopped being cool. According to Robert Lucas, graduate students, would “snicker” whenever Keynesian concepts were mentioned.

    In policy circles, Keynesians were replaced by monetarists, acolytes of Milton “Inflation is always and everywhere a monetary phenomenon” Friedman. Volcker in America and Thatcher in Britain decided the only way to stomp out inflationary expectations was to cut the money supply. This, despite their best efforts, they were unable to do. Controlling the money supply proved almost impossible but monetarism gave Volcker and Thatcher the cover to manufacture the deepest recession since the Great Depression.

    By raising interest rates until the economy screamed Volcker and Thatcher crushed investment and allowed unemployment to rise to levels unthinkable just a few years before. Businessmen, union leaders, and politicians pleaded for a rate cut but the central bankers were implacable. Ending inflationary expectations was worth the cost, they insisted. Volcker and Thatcher succeed in crushing inflation, not by cutting the money supply, but rather with an old fashioned Phillips curve trade off. Workers who fear for their jobs don’t ask for cost of living increases. Inflation was history.

    The Federal Funds Rate hit 20% in 1980. Now even after a few hikes, it is barely over 1%. The story of the past 30 years is of the most stimulative monetary policy in history. Anytime the economy stumbled, interest rate cuts were the automatic response. Other than military Keynesianism and tax cuts, fiscal policy was relegated to the ash heap of history. Reagan of course combined tax cuts with increased military spending but traditional peacetime infrastructure stimulus was tainted by the 1970s stagflation and for policymakers remained beyond the pale.

    Fiscal stimulus came back, momentarily, at the peak of the financial crisis. China’s investment binge combined with Obama’s stimulus package probably stopped the Great Recession from being as catastrophic as the Great Depression but by 2010, fiscal stimulus was replaced by its opposite, austerity. According to elementary macroeconomics, when the private sector is cutting back its spending, as it was still doing in the wake of the financial crisis, government should increase its spending to take up the slack. But Obama in America, Cameron in Britain and Merkel in the EU insisted that government cut spending, even as the private sector continued to retrench.

    It is rather shocking, for anyone who has taken Econ 101 that in 2010, when the global economy had barely recovered from the worst recession since the Great Depression, politicians and pundits were calling for lower deficits, higher taxes and less government spending even as monetary policy was maxed out. Rates were already close to zero so central banks had no more room to cut.

    So, instead of going to the tool box and taking out their tried and tested fiscal kit, which would have created jobs and had the added benefit of improving infrastructure, policymakers instead invented Quantitative Easing, which in essence is monetary policy on steroids. Central Banks promised to buy bonds from the private sector, increasing their price, thereby shoveling money towards bond owners. The idea was that by buying safe assets they would push the private sector to buy riskier assets and by increasing bank reserves they would stimulate lending but the consequence of all the Quantitative Easings is that all of the benefits of growth since the financial crisis have gone to the top 5% and most of that to the top 0.1%.

    A feature or a bug? The men who rule the planet are happy that most of us think economics is boring, that we would much rather read about R Kelly’s sexual predilections than about the difference between fiscal and monetary policy but were we to remember that spending money on infrastructure or health care or education would create jobs, raise wages, and create demand which the economy craves, we would have a much more equitable world.

    One cogent objection to stimulative fiscal policy is that it has the potential to be inflationary. Indeed the fundamental goal of macroeconomic policy is to match the economy’s demand to its ability to supply. If fiscal policy gets out of hand (as arguably it did in the 1960s when Lyndon Johnson tried to fund both his Great Society and the Vietnam war without raising taxes), demand could outstrip supply, creating inflation. But should that happen, we have the monetary tools to cure any inflationary pressure. Rates today are still barely above zero. Should inflation threaten, central banks can raise interest rates and nip it in the bud.

    Fiscal and monetary policy both have a place in policymakers’ toolkits. Perhaps the ideal combination would be to use fiscal to stimulate the economy and monetary to cool it down. Both Brexit and Trump should have told elites that unless they share the benefits of growth, a populist onslaught could threaten all our prosperity. The easiest way to return to Golden Age tranquility and equality is to empower fiscal policy to invest in our future and create jobs today.

    2017 August 6

    Evonomics.com

    Poverty-traps and pay-gaps: Why single mothers need basic income – Dr Petra Bueskens. 

    Harper discovered she wasn’t alone when she packed up her house, stopped paying rent and took her four-year-old son, Finn, on a six month “holiday” up north to warmer climes.

    “I found in every camp site, especially the show grounds as they’re the cheapest ones that still have facilities, there were a couple of other single mums and their kids. I was also travelling with a friend and her son, so there were often five or six of us and a bunch of kids at each campsite. Up north there’s even more. Over time we became familiar with each other.”

    Harper gave up her home because she couldn’t afford the rent and have any quality of life. Paid work put her in a double bind: if she worked, she lost most of her Centrelink payments; if she didn’t work there wasn’t quite enough to make ends meet. So, she worked and stayed poor. These are the poverty-traps that keep many single mothers working-poor and unable to dig out.

    In Australia now, there is a clandestine group of mobile single parents, mostly mothers, who have found they cannot, on Centrelink benefits and low-paid casual work, meet the cost of living. They have chosen instead to travel and live with their children in camping grounds and caravan parks around Australia, particularly in Northern NSW and Queensland, where living outdoors is relatively easy. For as little as $10 a night at national parks and showgrounds and up to $25 at caravan parks that have showers, washing machines and other facilities, they live on the move. 

    continued … Basic Income.org

    ***

    Dr Petra Bueskens is an Honorary Fellow in Social and Political Sciences at the University of Melbourne, a psychotherapist in private practice at PPMD Therapy and a columnist at news media site New Matilda. She is the author of Mothering and Psychoanalysis: Clinical, Sociological and Feminist Perspectives. 



    New Zealand’s political leadership has failed for decades on housing policy – Shamubeel Eaqub. 

    New Zealand’s political leadership has failed for decades on housing policy, leading to the rise of a Victorian-style landed gentry, social cohesion coming under immense pressure and a cumulative undersupply of half a million houses over the last 30 years.

    House prices are at the highest level they have ever been. And they have risen really, really fast since the 90s, but more so since the early 2000s and have far outstripped every fundamental that we can think of.

    After nearly a century of rising home ownership in New Zealand, since 1991 home ownership has been falling. In the last census, the home ownership rate was the lowest level since 1956. And for my estimate for the end of 2016, it’s the lowest level since 1946.

    We’ve gone back a long way in terms of the promise and the social pact in New Zealand that home ownership is good, and if you work hard you’re going to be able to afford a house.

    The reality is that that social pact, that right of passage has not been true for many, many decades. The solutions are going to be difficult and they are going to take time.

    Before you come and tell me that you paid 20% interest rates, the reality is that, yes interest rates are much lower. But the really big problem is, house prices have risen so much that it’s almost impossible in fact to save for the deposit. People could have saved a deposit and paid it off in about 20-30 years in the early 1990s. Fast forward to today, and that’s more like 50 years. How long do you want to work to pay off your mortgage?

    What we’re talking about is the rise of Generation Rent. Those who manage to buy houses are in mortgage slavery for a long period of time.

    There is a widening societal gap. If younger generations want to access housing, it’s not enough to have a job, nor enough to have a good job. You must now have parents that are wealthy, and home-owners too. The idea of New Zealand being an egalitarian country is no longer true. The kind of societal divide we’re talking about is very Victorian. We’re in fact talking about the rise of a landed gentry.

    For those who are born after the 1980s, the chance of you doing better than your parents are less than 50%.

    What we’re creating is a country where opportunities are going to be more limited for our children and when it comes to things like housing, than ourselves. I worry that what we’re creating in New Zealand is a social divide that is only going to keep growing. This is only one manifestation of this divide.

    There has been a change in philosophy in what underpins the housing market. One very good example is what we have done with our social housing sector.

    Housing NZ started building social housing in the late 1930s and stock accumulated over the next 50-60 years to a peak in 1991.

    Since then we have not added more social housing. On a per capita basis we have the lowest number of social housing in New Zealand since the 1940s.

    This is an ideological position where we do not want to create housing supply for the poor. We don’t want to. This is not about politicians. This is a reflection on us. It is our ideology, it is our politics. Our politicians are doing our bidding. The society that we’re living in today does not want to invest in the bottom half of our society.

    The really big kicker has been credit. Significant reductions in mortgage rates over time have driven demand for housing. But we have misallocated our credit. We’re creating more and more debt, but most of that debt is chasing the existing houses. We’re buying and selling from each other rather than creating something new. The housing boom could not have happened on its own. The banking sector facilitated it. We have seen more and more credit being created and more of that credit is now more likely to go towards buying and selling houses from each other rather than funding businesses or building houses.

    One of the saddest stories at the moment is, even though we have an acute housing shortage in Auckland, the most difficult to find funding for now is new developments. When the banks pull away credit, the first thing that goes is the riskiest elements of the market.

    Seasonally adjusted house sales in Auckland are at the lowest level since 2011. This is worrying because what happens in the property market expands to the economy, consents and the construction sector.

    I fully expect a construction bust next year. We are going to have a construction bust before we have a housing bust. We haven’t built enough houses for a very long period of time. And if we’re going to keep not building enough houses, I’m not confident that whatever correction we have in the housing market is going to last.

    New money created in the economy is largely chasing the property market. Household debt to GDP has been rising steadily since the 1990s. People were now taking on more debt, but banks have started to cut back on the amount of credit available overall.

    For every unit of economic growth over the course of the last 10, 20 years, we needed more and more debt to create that growth. We are more and more addicted to debt to create our economic growth.

    Credit is now going backwards. If credit is not going to be available in aggregate, we know the biggest loses are in fact going to be businesses and property development.

    It means we are not going to be building a lot of the projects that have been consented, and we know the construction cycle is going to come down. I despair.

    I despair that we still talk so much more about buying and selling houses than actually starting businesses. The cultural sclerosis that we see in New Zealand has as much to do with the problem of the housing market as to do with our rules around the Resource Management Act, our banking sector.

    On demand, we know there’s been significant growth in New Zealand’s population. Even though it feels like all of that population growth has come from net migration, the reality is that it’s actually natural population growth that’s created the bulk of the demand.

    But net migration has created a volatility that we can’t deal with. A lot of the cyclicality in New Zealand’s housing market and demand, comes from net migration and we simply cannot respond.

    We do know that there is money that’s global that is looking for a safe haven, and New Zealand is part of that story. We don’t have very good data in New Zealand because we refuse to collect it. There is a lack of leadership regarding our approach to foreign investment in our housing market.

    Looking at what’s happening in Canada and Australia would indicate roughly 10% of house sales in Auckland are to foreign buyers. Yes it matters, but when 90% of your sales are going to locals, I think it’s a bit of a red herring.

    Historical context of where demand for housing comes from shows the biggest chunk is from natural population growth. The second biggest was from changes in household size as families got smaller – more recently that has stopped, ie kids refusing to leave home.

    There has been a massive variation in what happens with net migration.

    New Zealand needs about 21,000 houses a year to keep up with population growth and changes that are taking place. But over the course of the last four years, we’ve needed more like 26,000. We’re nowhere near building those kinds of houses.

    This means we need to think about demand management from a policy perspective. It’s more about cyclical management rather than structural management.

    Population growth has always been there. Whether it’s from migration or not doesn’t matter. The problem is our housing market, our land supply, our infrastructure supply, can’t keep up with any of it.

    While immigration was a side problem it nevertheless was an important conversation to have due to the volatility that can be created. I struggle with the fact that we have no articulated population strategy in New Zealand. We have immigration because we have immigration. That’s not a very good reason.

    Why do we want immigration, how big do we want to be, do you want 15 million people or do you want five?

    What sort of people do we want? Are we just using immigration as shorthand for not educating our kids because we can’t fill the skills shortages that we have in our industries?

    Let’s not pretend that it’s all about people wanting to live in houses.

    You’d be very hard pressed to argue that people want to buy houses in Epsom at a 3% rental yield for investment purposes. They want to buy houses in Epsom at 3% rental yield because they want to speculate on the capital gains. Let’s be honest with ourselves.

    If your floating mortgage rate is 5.5% and you’re getting 3% from your rent, what does that tell you about your investment? It tells you that you’re not really doing it for cash-flow purposes. You’re doing because you expect capital gains, and you expect those capital gains to compensate you.

    The real story in Auckland is that a lot of additional demand is coming from investment.

    Land supply in New Zealand is slow, particularly in places like Auckland. But it’s not just in terms of sections, it’s also about density. The Unitary Plan was a win for Auckland. The reality is that if we only do greenfields, we will just see more people sitting out in traffic at the end of Drury.

    The majority of New housing supply are large houses, when the majority of new households being formed are 1-2 person households.

    Between the last two censuses, most of the housing stock built in New Zealand were four bedrooms or more. In contrast, the majority of households that were created were people that were single or couples. We have ageing populations, we have the empty nesters, we have young people who are having kids later…and we’re building stand-alone houses, with four bedrooms.

    We have to think very hard about how to create supply not just for the top end, even though we know in theory building just enough houses is good for everybody, when you’re starting from a point of not enough houses, it means the bottom end gets screwed for longer. We have to think very hard about whether we want to use things like inclusionary zoning; we have to think very hard about what we want to do with social housing.

    Right now we’re not building houses for everybody in our community. We are failing by building the wrong sorts of houses in our communities.

    Right at the top is land costs. If we think about what has been driving up the cost of housing, the biggest one is the value of land. It’s true that we should also look at what’s happening in the rental market and what was happening with the costs of construction. But those are not the things that have been the majority driver of the very unaffordable house prices that we see in New Zealand today.

    The biggest constraint is in land, and that is where the speculation is taking place.

    We know we’re not building enough. In the 1930s to 1940s we had very different types of governments and ideology. We actually built more houses per capita back then than we have in the last 30 years.

    In the late 40s-early 70s, with the rise of the welfare state and build-up of infrastructure. On a per capita basis, we built massive amounts of houses.

    But since the oil shock and the 1980s reforms, we have never structurally managed to build as many houses as we did pre-1980. That cumulative gap between the trend that we have seen in the last 30 years, versus what we had seen in the 40s, 50s and 60s, is around half a million houses.

    So there is something that is fundamentally and structurally different in what we have done in terms of housing supply in New Zealand over a very long period of time.

    The changes in the way that we do our planning rules, the advent of the RMA, the way that we fund and govern our local government. All these things have changed. So the nature of the provision of infrastructure, the provision of land, then provision of consents, all of these things have changed massively. But the net result is we’re not building as many houses, and that is a fundamental problem.

    In Auckland there is a massive gap between targets set by government for house building over the past three years and the amount of consents issued. On top of this, the targets themselves were still not high enough.

    Somehow we’re still not able to respond to the growth that Auckland is facing. Consistently we have underestimated how many people want to live in a place like Auckland.

    But it’s not just Auckland. Carterton surprises every year, it’s because they’ve got a fantastic train line and people live there, it’s not surprising.

    But we are failing. We have been failing and we continue to fail. We have to be far more responsive and we have to have a much longer time horizon to have the provision for housing that’s needed.

    There is in fact no real plan. The Unitary Plan is fantastic in that it actually plans for just enough houses for the projections for population. We can confidently say that projection is going to be pessimistic, we’re going to have way more people in Auckland.

    Trump and Brexit have marked a shift in politics and a polarisation in the public’s view of politics. In New Zealand I think one of the catalysts could be Generation Rent. In the last census, 51% of adults, over 15 year olds, rented. It is no longer the minority that rent, but the majority of individuals that rent.

    I’m not saying we’ll see the same kind of uprising in New Zealand, but what we saw in Brexit was that discontent was the majority of voters. If young people had actually turned up to vote, Brexit wouldn’t have happened. The same is true for New Zealand.

    It is strange that there was no sense of crisis or urgency. For a lot of the voters, things are just fine. For the people for whom it’s not fine, they’re not voting and they feel disengaged.

    The kind of politics that we will start to see in the next 10 years is something much more activist, the ‘urgency of now’.

    The promise of democracy is to create an economy that is fit for everyone. It is about creating opportunities for everyone. Right now, particularly when it comes to housing, we are failing. We are not creating a democratic community when it comes to our housing supply because young people are locked out, because young people are going to suffer, and we know there are some big differences across the different parts of New Zealand.

    It’s not going to be enough, when we’re starting from a position of crisis, to simply create more housing that will appease the public. We have to make sure that we’re far more activist in making sure that we’re creating housing that is fit for purpose, not just for the general populous, but for the bottom half who are clearly losing out from what is going on.

    We know what the causes are. I’m sick of arguing why we’re here. We know why we’re here, because we haven’t ensured enough political leadership to deal with the problems that are there.

    We can’t implement the solutions unless we have political leadership, political cohesion, and endurance over the political cycle. This is a big challenge, but a big opportunity.

    Shamubeel Eaqub

    ***

    • There has been a cumulative 500,000 gap in housing supply over the last 30 years.
    • Eaqub predicted a construction bust next year, led by banks tightening lending.
    • It’s remarkable NZ authorities do not have proper data on foreign buyers. While he estimates 10% of purchases in Auckland are made by foreign investors, he said the main focus should be on the other 90% by local.
    • However, migration creates cyclical volatility that we can’t deal with; it is unbelievable that New Zealand doesn’t have a stated population policy.
    • New Zealand is still not building the right sized houses – the majority of properties being built in recent years have had four-plus bedrooms, while household sizes have grown smaller
    • The majority of New Zealand’s adult population is now renting. This could be the catalyst for a Brexit/Trump-style rising up of formerly disengaged voters – young people in our case – to engage at this year’s election.
    • New Zealand’s home ownership level is now at its lowest point since 1946.
    • We have a cultural sclerosis of buying and selling existing houses to one another.

    interest.co.nz

    Undoing poverty’s negative effect on brain development with cash transfers – Cameron McLeod. 

    An upcoming experiment into brain development and poverty by Kimberly G Noble, associate professor of neuroscience and education at Columbia University’s Teachers College, asks whether poverty may affect the development, “the size, shape, and functioning,” of a child’s brain, and whether “a cash stipend to parents” would prevent this kind of damage.

    Noble writes that “poverty places the young child’s brain at much greater risk of not going through the paces of normal development.” Children raised in poverty perform less well in school, are less likely to graduate from high school, and are less likely to continue on to college. Children raised in poverty are also more likely to be underemployed when adults. Sociological research and research done in the area of neuroscience has shown that a childhood spent in poverty can result in “significant differences in the size, shape and functioning” of the  brain. Can the damage done to children’s brains  be negated  by the intervention of a subsidy for brain health?

    This most recent study’s fundamental difference from past efforts is that it explores what kind of effect “directly supplementing” the incomes of families will have on brain development. “Cash transfers, as opposed to counseling, child care and other services, have the potential to empower families to make the financial decisions they deem best for themselves and their children.” Noble’s hypothesis is that a “cascade of positive effects” will follow from the cash transfers, and that if proved correct, this has implications for public policy and “the potential to…affect the lives of millions of disadvantaged families with young children.”

    Brain Trust, Kimberly G. Noble

    • Children who live in poverty tend to perform worse than peers in school on a bevy of different tests. They are less likely to graduate from high school and then continue on to college and are more apt to be underemployed once they enter the workforce.
    • Research that crosses neuroscience with sociology has begun to show that educational and occupational disadvantages that result from growing up poor can lead to significant differences in the size, shape and functioning of children’s brains.
    • Poverty’s potential to hijack normal brain development has led to plans for studying whether a simple intervention might reverse these injurious effects. A study now in the planning stages will explore if a modest subsidy can enhance brain health.

    BasicIncome.org

    ***

    The goal of Dr. Noble’s research is to better characterize socioeconomic disparities in children’s cognitive and brain development. Ongoing studies in her lab address the timing of neurocognitive disparities in infancy and early childhood, as well as the particular exposures and experiences that account for these disparities, including access to material resources, richness of language exposure, parenting style and exposure to stress. Finally, she is interested in applying this work to the design of interventions that aim to target gaps in school readiness, including early literacy, math, and self-regulation skills. She is honored to be part of a national team of social scientists and neuroscientists planning the first clinical trial of poverty reduction, which aims to estimate the causal impact of income supplementation on children’s cognitive, emotional and brain development in the first three years of life.

    Columbia University

    ***

    A short review on the link between poverty, children’s cognition and brain development, 13th March 2017

    In the latest issue of the Scientific American, Kimberly Noble, associate professor in neuroscience and education, reviews her work and introduces an ambitious research project that may help understand the cause-and-effect connection between poverty and children’s brain development.

    For the past 15 years, Noble and her colleagues have gathered evidence to explain how socioeconomic disparities may underlie differences in children’s cognition and brain development. In the course of their research they have found for example that children living in poverty tend to have reduced cognitive skills – including language, memory skills and cognitive control (Figure 1).

    Figure 1. Wealth effect

    More recently, they published evidence showing that the socio-economic status of parents (as assessed using parental education, income and occupation) can also predict children’s brain structure.

    By measuring the cortical surface area of children’s brains (ie the area of the surface of the cortex, the outer layer of the brain which contains all the neurons), they found that lower family income was linked to smaller cortical surface area, especially in brain regions involved in language and cognitive control abilities (Figure 2 – in magenta).

    Figure 2. A Brain on Poverty

    In the same research, they also found that longer parental education was linked to increased hippocampus volume in children, a brain structure essential for memory processes.

    Overall, Noble’s work adds to a growing body of research showing the negative relation between poverty and brain development and these findings may explain (at least in part) why children from poor families are less likely to obtain good grades at school, graduate from high-school or attend college.

    What is less known however, is the causal mechanism underlying this relationship. As Noble describes, differences in school and neighbourhood quality, chronic stress in the family home, less nurturing parenting styles or a combination of all these factors might explain the impact of poverty on brain development and cognition.

    To better understand the causal effect of poverty, Noble has teamed up with economists and developmental psychologists and together, they will soon launch a large-scale experiment or “randomised control trial”. As part of this experiment, 1000 US women from low-income backgrounds will be recruited soon after giving birth and will be followed over a three-year period. Half of the women will receive $333 per month (if they are part of the “experimental” group) and the other half will receive $20 per month (if they are part of the “control” group). Mothers and children will be monitored throughout the study, and mothers will be able to spend the money as they wish, without any constrains.

    By comparing children belonging to the experimental group to those in the control group, researchers will be able to observe how increases in family income may directly benefit cognition and brain development. They will also be able to test whether the way mothers use the extra income is a relevant factor to explain these benefits.

    Noble concludes that “although income may not be the only factor that determines a child’s developmental trajectory, it may be the easiest one to alter” through social policy. And given that 25% of American children and 12% of British children are affected by poverty (as reported by UNICEF in 2012), policies designed to alleviate poverty may have the capacity to reach and improve the life chances of millions of children.

    NGN is looking forward to see the results of this large-scale experiment. We expect that this project, in association with other research studies, will improve our understanding of the link between poverty and child development, and will help design better interventions to support disadvantaged children.

    Nature Groups

    ***

    Socioeconomic inequality and children’s brain development. 

    Research addresses issues at the intersection of psychology, neuroscience and public policy.

    By Kimberly G. Noble, MD, PhD

    Kimberly Noble, MD, PhD, is an associate professor of neuroscience and education at Teachers College, Columbia University. She received her undergraduate, graduate and medical degrees at the University of Pennsylvania. As a neuroscientist and board-certified pediatrician, she studies how inequality relates to children’s cognitive and brain development. Noble’s work has been supported by several federal and foundation grants, and she was named a “Rising Star” by the Association for Psychological Science. Together with a team of social scientists and neuroscientists from around the United States, she is planning the first clinical trial of poverty reduction to assess the causal impact of income on cognitive and brain development in early childhood.

    Kimberley Noble website.

    What can neuroscience tell us about why disadvantaged children are at risk for low achievement and poor mental health? How early in infancy does socioeconomic disadvantage leave an imprint on the developing brain, and what factors explain these links? How can we best apply this work to inform interventions? These and other questions are the focus of the research my colleagues and I have been addressing for the last several years.

    What is socioeconomic status and why is it of interest to neuroscientists?

    The developing human brain is remarkably malleable to experience. Of course, a child’s experience varies tremendously based on his or her family’s circumstances (McLoyd, 1998). And so, as neuroscientists, we can use family circumstance as a lens through which to better understand how experience relates to brain development.

    Family socioeconomic status, or SES, is typically considered to include parental educational attainment, occupational prestige and income (McLoyd, 1998); subjective social status, or where one sees oneself on the social hierarchy, may also be taken into account (Adler, Epel, Castellazzo & Ickovics, 2000). A large literature has established that disparities in income and human capital are associated with substantial differences in children’s learning and school performance. For example, socioeconomic differences are observed across a range of important cognitive and achievement measures for children and adolescents, including IQ, literacy, achievement test scores and high school graduation rates (Brooks-Gunn & Duncan, 1997). These differences in achievement in turn result in dramatic differences in adult economic well-being and labor market success.

    However, although outcomes such as school success are clearly critical for understanding disparities in development and cognition, they tell us little about the underlying neural mechanisms that lead to these differences. Distinct brain circuits support discrete cognitive skills, and differentiating between underlying neural substrates may point to different causal pathways and approaches for intervention (Farah et al., 2006; Hackman & Farah, 2009; Noble, McCandliss, & Farah, 2007; Raizada & Kishiyama, 2010). Studies that have used a neurocognitive framework to investigate disparities have documented that children and adolescents from socioeconomically disadvantaged backgrounds tend to perform worse than their more advantaged peers on several domains, most notably in language, memory, self-regulation and socio-emotional processing (Hackman & Farah, 2009; Hackman, Farah, & Meaney, 2010; Noble et al., 2007; Noble, Norman, & Farah, 2005; Raizada & Kishiyama, 2010).

    Family socioeconomic circumstance and children’s brain structure

    More recently, we and other neuroscientists have extended this line of research to examine how family socioeconomic circumstances relate to differences in the structure of the brain itself. For example, in the largest study of its kind to date, we analyzed the brain structure of 1099 children and adolescents recruited from socioeconomically diverse homes from ten sites across the United States (Noble, Houston et al., 2015). We were specifically interested in the structure of the cerebral cortex, or the outer layer of brain cells that does most of the cognitive “heavy lifting.” We found that both parental educational attainment and family income accounted for differences in the surface area, or size of the “nooks and crannies” of the cerebral cortex. These associations were found across much of the brain, but were particularly pronounced in areas that support language and self-regulation — two of the very skills that have been repeatedly documented to show large differences along socioeconomic lines.

    Several points about these findings are worth noting. First, genetic ancestry, or the proportion of ancestral descent for each of six major continental populations, was held constant in the analyses. Thus, although race and SES tend to be confounded in the U.S., we can say that the socioeconomic disparities in brain structure that we observed were independent of genetically-defined race. Second, we observed dramatic individual differences, or variation from person to person. That is, there were many children and adolescents from disadvantaged homes who had larger cortical surface areas, and many children from more advantaged homes who had smaller surface areas. This means that our research team could in no way accurately predict a child’s brain size simply by knowing his or her family income alone. Finally, the relationship between family income and surface area was nonlinear, such that the steepest gradient was seen at the lowest end of the income spectrum. That is, dollar for dollar, differences in family income were associated with proportionately greater differences in brain structure among the most disadvantaged families.

    More recently, we also examined the thickness of the cerebral cortex in the same sample (Piccolo, et al., 2016). In general, as we get older, our cortices tend to get thinner. Specifically, cortical thickness decreases rapidly in childhood and early adolescence, followed by a more gradual thinning, and ultimately plateauing in early- to mid-adulthood (Raznahan et al., 2011; Schnack et al., 2014; Sowell et al., 2003). Our work suggests that family socioeconomic circumstance may moderate this trajectory. 

    Specifically, at lower levels of family SES, we observed relatively steep age-related decreases in cortical thickness earlier in childhood, and subsequent leveling off during adolescence. In contrast, at higher levels of family SES, we observed more gradual age-related reductions in cortical thickness through at least late adolescence. We speculated that these findings may reflect an abbreviated period of cortical thinning in lower SES environments, relative to a more prolonged period of cortical thinning in higher SES environments. It is possible that socioeconomic disadvantage is a proxy for experiences that narrow the sensitive period, or time window for certain aspects of brain development that are malleable to environmental influences, thereby accelerating maturation (Tottenham, 2015).

    Are these socioeconomic differences in brain structure clinically meaningful? Early work would suggest so. In our work, we have found that differences in cortical surface area partially accounted for links between family income and children’s executive function skills (Noble, Houston et al., 2015). Independent work in other labs has suggested that differences in brain structure may account for between 15 and 44 percent of the family income-related achievement gap in adolescence (Hair, Hanson, Wolfe & Pollak, 2015; Mackey et al., 2015). This line of research is still in its infancy, however, and several outstanding questions remain to be addressed.

    How early are socioeconomic disparities in brain development detectable?

    By the start of school, it is apparent that dramatic socioeconomic disparities in children’s cognitive functioning are already evident, and indeed, several studies have found that socioeconomic disparities in language (Fernald, Marchman & Weisleder, 2013; Noble, Engelhardt et al., 2015; Rowe & Goldin-Meadow, 2009) and memory (Noble, Engelhardt et al., 2015) are already present by the second year of life. But methodologies that assess brain function or structure may be more sensitive to differences than are tests of behavior. This raises the question of just how early we can detect socioeconomic disparities in the structure or function of children’s brains.

     One group reported socioeconomic differences in resting electroencephalogram (EEG) activity — which indexes electrical activity of the brain as measured at the scalp — as early as 6–9 months of age (Tomalski et al., 2013). Recent work by our group, however, found no correlation between SES and the same EEG measures within the first four days following birth (Brito, Fifer, Myers, Elliott & Noble, 2016), raising the possibility that some of these differences in brain function may emerge in part as a result of early differences in postnatal experience. Of course, a longitudinal study assessing both the prenatal and postnatal environments would be necessary to formally test this hypothesis. Furthermore, another group recently reported that, among a group of African-American, female infants imaged at 5 weeks of age, socioeconomic disadvantage was associated with smaller cortical and deep gray matter volumes (Betancourt et al., 2015). It is thus also likely that at least some socioeconomic differences in brain development are the result of socioeconomic differences in the prenatal environment (e.g., maternal diet, stress) and/or genetic differences.

    Disentangling links among socioeconomic disparities, modifiable experiences and brain development represents a clear priority for future research. Are the associations between SES and brain development the result of differences in experiences that can serve as the targets of intervention, such as differences in nutrition, housing and neighborhood quality, parenting style, family stress and/or education? Certainly, the preponderance of social science evidence would suggest that such differences in experience are likely to account at least in part for differences in child and adolescent development (Duncan & Magnuson, 2012). However, few studies have directly examined links among SES, experience and the brain (Luby et al., 2013). In my lab, we are actively focusing on these issues, with specific interest in how chronic stress and the home language environment may, in part, explain our findings.

    How can this work inform interventions?

    Quite a few interventions aim to reduce socioeconomic disparities in children’s achievement. Whether school-based or home-based, many are quite effective, though frequently face challenges: High-quality interventions are expensive, difficult to scale up and often suffer from “fadeout,” or the phenomenon whereby the positive effects of the intervention dwindle with time once children are no longer receiving services.

    What about the effects of directly supplementing family income? Rather than providing services, such “cash transfer“ interventions have the potential to empower families to make the financial decisions they deem best for themselves and their children. Experimental and quasi-experimental studies in the social sciences, both domestically and in the developing world, have suggested the promise of direct income supplementation (Duncan & Magnuson, 2012).

    To date, linkages between poverty and brain development have been entirely correlational in nature; the field of neuroscience is silent on the causal connections between poverty and brain development. As such, I am pleased to be part of a team of social scientists and neuroscientists who are currently planning and raising funds to launch the first-ever randomized experiment testing the causal connections between poverty reduction and brain development.

    The ambition of this study is large, though the premise is simple. We plan to recruit 1,000 low-income U.S. mothers at the time of their child’s birth. Mothers will be randomized to receive a large monthly income supplement or a nominal monthly income supplement. Families will be tracked longitudinally to definitively assess the causal impact of this unconditional cash transfer on cognitive and brain development in the first three years following birth, when we believe the developing brain is most malleable to experience.

    We hypothesize that increased family income will trigger a cascade of positive effects throughout the family system. As a result, across development, children will be better positioned to learn foundational skills. If our hypotheses are borne out, this proposed randomized trial has the potential to inform social policies that affect the lives of millions of disadvantaged families with young children. While income may not be the only or even the most important factor in determining children’s developmental trajectories, it may be the most manipulable from a policy perspective.

    American Psychological Association

    Getting Basic Income Right – Kemal Dervis.  

    Universal basic income (UBI) schemes are getting a lot of attention these days. Of course, the idea – to provide all legal residents of a country a standard sum of cash unconnected to work – is not new. The philosopher Thomas More advocated it back in the sixteenth century, and many others, including Milton Friedman on the right and John Kenneth Galbraith on the left, have promoted variants of it over the years. But the idea has lately been gaining much more traction, with some regarding it as a solution to today’s technology-driven economic disruptions. Can it work?

    The appeal of a UBI is rooted in three key features: it provides a basic social “floor” to all citizens; it lets people choose how to use that support; and it could help to streamline the bureaucracy on which many social-support programs depend. A UBI would also be totally “portable,” thereby helping citizens who change jobs frequently, cannot depend on a long-term employer for social insurance, or are self-employed.

    Viewing a UBI as a straightforward means to limit poverty, many on the left have made it part of their program. Many libertarians like the concept, because it enables – indeed, requires – recipients to choose freely how to spend the money. Even very wealthy people sometimes support it, because it would enable them to go to bed knowing that their taxes had finally and efficiently eradicated extreme poverty.

    The UBI concept also appeals to those who focus on how economic development can replace at least some of the in-kind aid that is now given to the poor. Already, various local social programs in Latin America contain elements of the UBI idea, though they are targeted at the poor and usually conditional on certain behavior, such as having children regularly attend school.

    But implementing a full-blown UBI would be difficult, not least because it would require answering a number of complex questions about goals and priorities. Perhaps the most obvious balancing act relates to how much money is actually delivered to each citizen (or legal resident).

    In the United States and Europe, a UBI of, say, $2,000 per year would not do much, except perhaps alleviate the most extreme poverty, even if it was added to existing social-welfare programs. An UBI of $10,000 would make a real difference; but, depending on how many people qualify, that could cost as much as 10% or 15% of GDP – a huge fiscal outlay, particularly if it came on top of existing social programs.

    Even with a significant increase in tax revenue, such a high basic income would have to be packaged with gradual reductions in some existing public spending – for example, on unemployment benefits, education, health, transportation, and housing – to be fiscally feasible. The system that would ultimately take shape would depend on how these components were balanced.

    In today’s labor market, which is being transformed by digital technologies, one of the most important features of a UBI is portability. Indeed, to insist on greater labor-market flexibility, without ensuring that workers, who face a constant need to adapt to technological disruptions, can rely on continuous social-safety nets, is to advocate a lopsided world in which employers have all the flexibility and employees have very little.

    Making modern labor markets flexible for employers and employees alike would require a UBI’s essential features, like portability and free choice. But only the most extreme libertarian would argue that the money should be handed out without any policy guidance. It would be more advisable to create a complementary active social policy that guides, to some extent, the use of the benefits.

    Here, a proposal that has emerged in France is a step in the right direction. The idea is to endow each citizen with a personal social account containing partly redeemable “points.” Such accounts would work something like a savings account, with their owners augmenting a substantial public contribution to them by working, studying, or performing certain types of national service. The accounts could be drawn upon in times of need, particularly for training and re-skilling, though the amount that could be withdrawn would be guided by predetermined “prices” and limited to a certain amount in a given period of time.

    The approach seems like a good compromise between portability and personal choice, on the one hand, and sufficient social-policy guidance, on the other. It contains elements of both US social security and individual retirement accounts, while reflecting a commitment to training and reskilling. Such a program could be combined with a more flexible retirement system, and thus developed into a modern and comprehensive social-solidarity system.

    The challenge now – for the developed economies, at least – is to develop stronger and more streamlined social-solidarity systems, create room for more individual choice in the use of benefits, and make benefits portable. Only by striking the right balance between individual choice and social-policy guidance can modern economies build the social-safety programs they need.

    Social Europe

    Abuse breeds child abusers – Jarrod Gilbert. 

    Often when I’m doing research I dance a silly jig when I gleefully unearth a gem of information hitherto unknown or long forgotten. In studying the violent deaths of kids that doesn’t happen.

    There was no dance of joy when I discovered New Zealanders are more likely to be homicide victims in their first tender years than at any other time in their lives. But nothing numbs you like the photographs of dead children.

    Little bodies lying there limp with little hands and little fingers, covered in scratches and an array of bruises some dark black and some fading, looking as vulnerable dead as they were when they were alive.

    James Whakaruru’s misery ended when he was killed in 1999. He had endured four years of life and that was all he could take. He was hit with a small hammer, a jug cord and a vacuum cleaner hose. During one beating his mind was so confused he stared blankly ahead. His tormentor responded by poking him in the eyes. It was a stomping that eventually switched out his little light. It was a case that even the Mongrel Mob condemned, calling the cruelty “amongst the lowest of any act”.

    An inquiry by the Commissioner for Children found a number of failings by state agencies, which were all too aware of the boy’s troubled existence. The Commissioner said James became a hero because changes made to Government agencies would save lives in the future. Yet such horrors have continued. My colleague Greg Newbold has found that on average nine children (under 15) have been killed as a result of maltreatment since 1992 and the rate has not abated in recent years. In 2015, there were 14 such deaths, one of which was three-year-old Moko Rangitoheriri, or baby Moko as we knew him when he gained posthumous celebrity.

    Moko’s life was the same as James’s, and he too died in agony; he endured weeks of being beaten, kicked, and smeared with faeces. That was the short life he knew. Most of us will struggle to comprehend these acts but we are desperate to stop them. Desperate to ensure state agencies are capable of intervening to protect those who can not protect themselves and, through no fault of their own, are subjected to cruelty by those who are meant to protect them.

    The reasons for intervening don’t stop with the imperative to save young lives. For every child killed there are dozens who live wretched existences and from this cohort of unfortunates will come the next generation of abusers.  Solving the problems of today, then, is not just a moral imperative but is also about producing a positive ripple effect.

    And this is why, In the cases of James Whakaruru and baby Moko the best and most efficient time for intervention was not in the period leading up to their abuse, but rather many years before they were born. The men involved in each of those killing came from the same family. And it seems their lives were transient and tragic: one spent time in the now infamous Epuni Boys home, which is ground zero for calls for an inquiry into state care abuse (and incidentally the birth place of the Mongrel Mob).

    Once young victims themselves, those boys crawled into adulthood and became violent men capable of imparting cruelty onto kids in their care.

    This cycle of abuse is well known, yet state spending on the problem is poorly aligned to it, and our targeting of the problem is reactionary and punitive rather than proactive and preventative.

    Of the $1.4 billion we spend on family and sexual violence annually, less than 10 per cent is spent on interventions, of which just 1.5 per cent is spent on primary prevention. The morality of that is questionable, the economics even more so.

    Not only must things be approached differently but there needs to be greater urgency in our thinking. It’s perhaps trite to say, but if nine New Zealanders were killed every year in acts of terrorism politicians would never stop talking about it and it would be priority number one.

    In an election year, that’s exactly where this issue should be. If the kids in violent homes had a voice, that’s what they’d be saying.

    But if the details of such deaths don’t move our political leaders to urgent action, I rather fear nothing will. Maybe they should be made to look at the photographs.

    • Dr Jarrod Gilbert is a sociologist at the University of Canterbury and the lead researcher at Independent Research Solutions.

    The 1930s were humanity’s darkest, bloodiest hour. Are you paying attention? – Jonathan Freedland. 

    Even to mention the 1930s is to evoke the period when human civilisation entered its darkest, bloodiest chapter. No case needs to be argued; just to name the decade is enough. It is a byword for mass poverty, violent extremism and the gathering storm of world war. “The 1930s” is not so much a label for a period of time than it is rhetorical shorthand – a two-word warning from history.

    Witness the impact of an otherwise boilerplate broadcast by the Prince of Wales last December that made headlines. “Prince Charles warns of return to the ‘dark days of the 1930s’ in Thought for the Day message.” Or consider the reflex response to reports that Donald Trump was to maintain his own private security force even once he had reached the White House. The Nobel prize-winning economist Paul Krugman’s tweet was typical: “That 1930s show returns.”

    Because that decade was scarred by multiple evils, the phrase can be used to conjure up serial spectres. It has an international meaning, with a vocabulary that centres on Hitler and Nazism and the failure to resist them: from brownshirts and Goebbels to appeasement, Munich and Chamberlain. And it has a domestic meaning, with a lexicon and imagery that refers to the Great Depression: the dust bowl, soup kitchens, the dole queue and Jarrow. It was this second association that gave such power to a statement from the usually dry Office for Budget Responsibility, following then-chancellor George Osborne’s autumn statement in 2014. The OBR warned that public spending would be at its lowest level since the 1930s; the political damage was enormous and instant.

    In recent months, the 1930s have been invoked more than ever, not to describe some faraway menace but to warn of shifts under way in both Europe and the United States. The surge of populist, nationalist movements in Europe, and their apparent counterpart in the US, has stirred unhappy memories and has, perhaps inevitably, had commentators and others reaching for the historical yardstick to see if today measures up to 80 years ago.

    Why is it the 1930s to which we return, again and again? For some sceptics, the answer is obvious: it’s the only history anybody knows. According to this jaundiced view of the British school curriculum, Hitler and Nazis long ago displaced Tudors and Stuarts as the core, compulsory subjects of the past. When we fumble in the dark for a historical precedent, our hands keep reaching for the 30s because they at least come with a little light.

    The more generous explanation centres on the fact that that period, taken together with the first half of the 1940s, represents a kind of nadir in human affairs. The Depression was, as Larry Elliott wrote last week, “the biggest setback to the global economy since the dawn of the modern industrial age”, leaving 34 million Americans with no income. The hyperinflation experienced in Germany – when a thief would steal a laundry-basket full of cash, chucking away the money in order to keep the more valuable basket – is the stuff of legend. And the Depression paved the way for history’s bloodiest conflict, the second world war which left, by some estimates, a mind-numbing 60 million people dead. At its centre was the Holocaust, the industrialised slaughter of 6 million Jews by the Nazis: an attempt at the annihilation of an entire people.

    In these multiple ways, then, the 1930s function as a historical rock bottom, a demonstration of how low humanity can descend. The decade’s illustrative power as a moral ultimate accounts for why it is deployed so fervently and so often.

    Less abstractly, if we keep returning to that period, it’s partly because it can justifiably claim to be the foundation stone of our modern world. The international and economic architecture that still stands today – even if it currently looks shaky and threatened – was built in reaction to the havoc wreaked in the 30s and immediately afterwards. The United Nations, the European Union, the International Monetary Fund, Bretton Woods: these were all born of a resolve not to repeat the mistakes of the 30s, whether those mistakes be rampant nationalism or beggar-my-neighbour protectionism. The world of 2017 is shaped by the trauma of the 1930s.

    The international and economic architecture that still stands today was built in reaction to the havoc of the 1930s

    One telling, human illustration came in recent global polling for the Journal of Democracy, which showed an alarming decline in the number of people who believed it was “essential” to live in a democracy. From Sweden to the US, from Britain to Australia, only one in four of those born in the 1980s regarded democracy as essential. Among those born in the 1930s, the figure was at or above 75%. Put another way, those who were born into the hurricane have no desire to feel its wrath again.

    Most of these dynamics are long established, but now there is another element at work. As the 30s move from living memory into history, as the hurricane moves further away, so what had once seemed solid and fixed – specifically, the view that that was an era of great suffering and pain, whose enduring value is as an eternal warning – becomes contested, even upended.

    Witness the remarks of Steve Bannon, chief strategist in Donald Trump’s White House and the former chairman of the far-right Breitbart website. In an interview with the Hollywood Reporter, Bannon promised that the Trump era would be “as exciting as the 1930s”. (In the same interview, he said “Darkness is good” – citing Satan, Darth Vader and Dick Cheney as examples.)

    “Exciting” is not how the 1930s are usually remembered, but Bannon did not choose his words by accident. He is widely credited with the authorship of Trump’s inaugural address, which twice used the slogan “America first”. That phrase has long been off-limits in US discourse, because it was the name of the movement – packed with nativists and antisemites, and personified by the celebrity aviator Charles Lindbergh – that sought to keep the US out of the war against Nazi Germany and to make an accommodation with Hitler. Bannon, who considers himself a student of history, will be fully aware of that 1930s association – but embraced it anyway.

    That makes him an outlier in the US, but one with powerful allies beyond America’s shores. Timothy Snyder, professor of history at Yale and the author of On Tyranny: Twenty Lessons from the Twentieth Century, notes that European nationalists are also keen to overturn the previously consensual view of the 30s as a period of shame, never to be repeated. Snyder mentions Hungary’s prime minister, Viktor Orban, who avowedly seeks the creation of an “illiberal” state, and who, says Snyder, “looks fondly on that period as one of healthy national consciousness”.

    The more arresting example is, perhaps inevitably, Vladimir Putin. Snyder notes Putin’s energetic rehabilitation of Ivan Ilyin, a philosopher of Russian fascism influential eight decades ago. Putin has exhumed Ilyin both metaphorically and literally, digging up and moving his remains from Switzerland to Russia.

    Among other things, Ilyin wrote that individuality was evil; that the “variety of human beings” represented a failure of God to complete creation; that what mattered was not individual people but the “living totality” of the nation; that Hitler and Mussolini were exemplary leaders who were saving Europe by dissolving democracy; and that fascist holy Russia ought to be governed by a “national dictator”. Ilyin spent the 30s exiled from the Soviet Union, but Putin has brought him back, quoting him in his speeches and laying flowers on his grave.

    European nationalists are keen to overturn the view of the 1930s as a period of shame, never to be repeated.

    Still, Putin, Orbán and Bannon apart, when most people compare the current situation to that of the 1930s, they don’t mean it as a compliment. And the parallel has felt irresistible, so that when Trump first imposed his travel ban, for example, the instant comparison was with the door being closed to refugees from Nazi Germany in the 30s. (Theresa May was on the receiving end of the same comparison when she quietly closed off the Dubs route to child refugees from Syria.)

    When Trump attacked the media as purveyors of “fake news”, the ready parallel was Hitler’s slamming of the newspapers as the Lügenpresse, the lying press (a term used by today’s German far right). When the Daily Mail branded a panel of high court judges “enemies of the people”, for their ruling that parliament needed to be consulted on Brexit, those who were outraged by the phrase turned to their collected works of European history, looking for the chapters on the 1930s.

    The Great Depression

    So the reflex is well-honed. But is it sound? Does any comparison of today and the 1930s hold up?

    The starting point is surely economic, not least because the one thing everyone knows about the 30s – and which is common to both the US and European experiences of that decade – is the Great Depression. The current convulsions can be traced back to the crash of 2008, but the impact of that event and the shock that defined the 30s are not an even match. When discussing our own time, Krugman speaks instead of the Great Recession: a huge and shaping event, but one whose impact – measured, for example, in terms of mass unemployment – is not on the same scale. US joblessness reached 25% in the 1930s; even in the depths of 2009 it never broke the 10% barrier.

    The political sphere reveals another mismatch between then and now. The 30s were characterised by ultra-nationalist and fascist movements seizing power in leading nations: Germany, Italy and Spain most obviously. The world is waiting nervously for the result of France’s presidential election in May: victory for Marine Le Pen would be seized on as the clearest proof yet that the spirit of the 30s is resurgent.

    There is similar apprehension that Geert Wilders, who speaks of ridding the country of ‘Moroccan scum”, has led the polls ahead of Holland’s general election on Wednesday. And plenty of liberals will be perfectly content for the Christian Democrat Angela Merkel to prevail over her Social Democratic rival, Martin Schulz, just so long as the far-right Alternative Fur Deutschland makes no ground. Still, so far and as things stand, in Europe only Hungary and Poland have governments that seem doctrinally akin to those that flourished in the 30s.

    That leaves the US, which dodged the bullet of fascistic rule in the 30s – although at times the success of the America First movement which at its peak could count on more than 800,000 paid-up members, suggested such an outcome was far from impossible. (Hence the intended irony in the title of Sinclair Lewis’s 1935 novel, It Can’t Happen Here.)

    Donald Trump has certainly had Americans reaching for their history textbooks, fearful that his admiration for strongmen, his contempt for restraints on executive authority, and his demonisation of minorities and foreigners means he marches in step with the demagogues of the 30s.

    But even those most anxious about Trump still focus on the form the new presidency could take rather than the one it is already taking. David From, a speechwriter to George W. Bush, wrote a much-noticed essay for the Atlantic titled, “How to build an autocracy”. It was billed as setting out “the playbook Donald Trump could use to set the country down a path towards illiberalism”. He was not arguing that Trump had already embarked on that route, just that he could (so long as the media came to heel and the public grew weary and worn down, shrugging in the face of obvious lies and persuaded that greater security was worth the price of lost freedoms).

    Similarly, Trump has unloaded rhetorically on the free press – castigating them, Mail-style, as “enemies of the people” – but he has not closed down any newspapers. He meted out the same treatment via Twitter to a court that blocked his travel ban, rounding on the “so-called judge” – but he did eventually succumb to the courts’ verdict and withdrew his original executive order. He did not have the dissenting judges sacked or imprisoned; he has not moved to register or intern every Muslim citizen in the US; he has not suggested they wear identifying symbols.

    These are crumbs of comfort; they are not intended to minimise the real danger Trump represents to the fundamental norms that underpin liberal democracy. Rather, the point is that we have not reached the 1930s yet. Those sounding the alarm are suggesting only that we may be travelling in that direction – which is bad enough.

    Two further contrasts between now and the 1930s, one from each end of the sociological spectrum, are instructive. First, and particularly relevant to the US, is to ask: who is on the streets? In the 30s, much of the conflict was played out at ground level, with marchers and quasi-military forces duelling for control. The clashes of the Brownshirts with communists and socialists played a crucial part in the rise of the Nazis. (A turning point in the defeat of Oswald Mosley, Britain’s own little Hitler, came with his humbling in London’s East End, at the 1936 battle of Cable Street.)

    But those taking to the streets today – so far – have tended to be opponents of the lurch towards extreme nationalism. In the US, anti-Trump movements – styling themselves, in a conscious nod to the 1930s, as “the resistance” – have filled city squares and plazas. The Women’s March led the way on the first day of the Trump presidency; then those protesters and others flocked to airports in huge numbers a week later, to obstruct the refugee ban. Those demonstrations have continued, and they supply an important contrast with 80 years ago. Back then, it was the fascists who were out first – and in force.

    Snyder notes another key difference. “In the 1930s, all the stylish people were fascists: the film critics, the poets and so on.” He is speaking chiefly about Germany and Italy, and doubtless exaggerates to make his point, but he is right that today “most cultural figures tend to be against”. There are exceptions – Le Pen has her celebrity admirers, but Snyder speaks accurately when he says that now, in contrast with the 30s, there are “few who see fascism as a creative cultural force”.

    Fear and loathing

    So much for where the lines between then and now diverge. Where do they run in parallel?

    The exercise is made complicated by the fact that ultra-nationalists are, so far, largely out of power where they ruled in the 30s – namely, Europe – and in power in the place where they were shut out in that decade, namely the US. It means that Trump has to be compared either to US movements that were strong but ultimately defeated, such as the America First Committee, or to those US figures who never governed on the national stage.

    In that category stands Huey Long, the Louisiana strongman, who ruled that state as a personal fiefdom (and who was widely seen as the inspiration for the White House dictator at the heart of the Lewis novel).

    “He was immensely popular,” says Tony Badger, former professor of American history at the University of Cambridge. Long would engage in the personal abuse of his opponents, often deploying colourful language aimed at mocking their physical characteristics. The judges were a frequent Long target, to the extent that he hounded one out of office – with fateful consequences.

    Long went over the heads of the hated press, communicating directly with the voters via a medium he could control completely. In Trump’s day, that is Twitter, but for Long it was the establishment of his own newspaper, the Louisiana Progress (later the American Progress) – which Long had delivered via the state’s highway patrol and which he commanded be printed on rough paper, so that, says Badger, “his constituents could use it in the toilet”.

    All this was tolerated by Long’s devotees because they lapped up his message of economic populism, captured by the slogan: “Share Our Wealth”. Tellingly, that resonated not with the very poorest – who tended to vote for Roosevelt, just as those earning below $50,000 voted for Hillary Clinton in 2016 – but with “the men who had jobs or had just lost them, whose wages had eroded and who felt they had lost out and been left behind”. That description of Badger’s could apply just as well to the demographic that today sees Trump as its champion.

    Long never made it to the White House. In 1935, one month after announcing his bid for the presidency, he was assassinated, shot by the son-in-law of the judge Long had sought to remove from the bench. It’s a useful reminder that, no matter how hate-filled and divided we consider US politics now, the 30s were full of their own fear and loathing.

    “I welcome their hatred,” Roosevelt would say of his opponents on the right. Nativist xenophobia was intense, even if most immigration had come to a halt with legislation passed in the previous decade. Catholics from eastern Europe were the target of much of that suspicion, while Lindbergh and the America Firsters played on enduring antisemitism.

    This, remember, was in the midst of the Great Depression, when one in four US workers was out of a job. And surely this is the crucial distinction between then and now, between the Long phenomenon and Trump. As Badger summarises: “There was a real crisis then, whereas Trump’s is manufactured.”

    And yet, scholars of the period are still hearing the insistent beep of their early warning systems. An immediate point of connection is globalisation, which is less novel than we might think. For Snyder, the 30s marked the collapse of the first globalisation, defined as an era in which a nation’s wealth becomes ever more dependent on exports. That pattern had been growing steadily more entrenched since the 1870s (just as the second globalisation took wing in the 1970s). Then, as now, it had spawned a corresponding ideology – a faith in liberal free trade as a global panacea – with, perhaps, the English philosopher Herbert Spencer in the role of the End of History essayist Francis Fukuyama. By the 1930s, and thanks to the Depression, that faith in globalisation’s ability to spread the wealth evenly had shattered. This time around, disillusionment has come a decade or so ahead of schedule.

    The second loud alarm is clearly heard in the hostility to those deemed outsiders. Of course, the designated alien changes from generation to generation, but the impulse is the same: to see the family next door not as neighbours but as agents of some heinous worldwide scheme, designed to deprive you of peace, prosperity or what is rightfully yours. In 30s Europe, that was Jews. In 30s America, it was eastern Europeans and Jews. In today’s Europe, it’s Muslims. In America, it’s Muslims and Mexicans (with a nod from the so-called alt-right towards Jews). Then and now, the pattern is the same: an attempt to refashion the pain inflicted by globalisation and its discontents as the wilful act of a hated group of individuals. No need to grasp difficult, abstract questions of economic policy. We just need to banish that lot, over there.

    The third warning sign, and it’s a necessary companion of the second, is a growing impatience with the rule of law and with democracy. “In the 1930s, many, perhaps even most, educated people had reached the conclusion that democracy was a spent force,” says Snyder. There were plenty of socialist intellectuals ready to profess their admiration for the efficiency of Soviet industrialisation under Stalin, just as rightwing thinkers were impressed by Hitler’s capacity for state action. In our own time, that generational plunge in the numbers regarding democracy as “essential” suggests a troubling echo.

    Today’s European nationalists exhibit a similar impatience, especially with the rule of law: think of the Brexiters’ insistence that nothing can be allowed to impede “the will of the people”. As for Trump, it’s striking how very rarely he mentions democracy, still less praises it. “I alone can fix it” is his doctrine – the creed of the autocrat.

    The geopolitical equivalent is a departure from, or even contempt for, the international rules-based system that has held since 1945 – in which trade, borders and the seas are loosely and imperfectly policed by multilateral institutions such as the UN, the EU and the World Trade Organisation. Admittedly, the international system was weaker to start with in the 30s, but it lay in pieces by the decade’s end: both Hitler and Stalin decided that the global rules no longer applied to them, that they could break them with impunity and get on with the business of empire-building.

    If there’s a common thread linking 21st-century European nationalists to each other and to Trump, it is a similar, shared contempt for the structures that have bound together, and restrained, the principal world powers since the last war. Naturally, Le Pen and Wilders want to follow the Brexit lead and leave, or else break up, the EU. And, no less naturally, Trump supports them – as well as regarding Nato as “obsolete” and the UN as an encumbrance to US power (even if his subordinates rush to foreign capitals to say the opposite).

    For historians of the period, the 1930s are always worthy of study because the decade proves that systems – including democratic republics – which had seemed solid and robust can collapse. That fate is possible, even in advanced, sophisticated societies. The warning never gets old.

    But when we contemplate our forebears from eight decades ago, we should recall one crucial advantage we have over them. We have what they lacked. We have the memory of the 1930s. We can learn the period’s lessons and avoid its mistakes. Of course, cheap comparisons coarsen our collective conversation. But having a keen ear tuned to the echoes of a past that brought such horror? That is not just our right. It is surely our duty.

    The Guardian

    Why we should all have a basic income | World Economic Forum – Scott Santens. 

    Consider for a moment that from this day forward, on the first day of every month, around $1,000 is deposited into your bank account – because you are a citizen. This income is independent of every other source of income and guarantees you a monthly starting salary above the poverty line for the rest of your life. What do you do? Possibly of more importance, what don’t you do? How does this firm foundation of economic security and positive freedom affect your present and future decisions, from the work you choose to the relationships you maintain, to the risks you take?

    The idea is called unconditional or universal basic income, or UBI.

    It’s like social security for all, and it’s taking root within minds around the world and across the entire political spectrum, for a multitude of converging reasons Rising inequality, decades of stagnant wages, the transformation of lifelong careers into sub-hourly tasks, exponentially advancing technology like robots and deep neural networks increasingly capable of replacing potentially half of all human labour, world-changing events like Brexit and the election of Donald Trump – all of these and more are pointing to the need to start permanently guaranteeing everyone at least some income.

    A promise of equal opportunity

    “Basic income” would be an amount sufficient to secure basic needs as a permanent earnings floor no one could fall beneath, and would replace many of today’s temporary benefits, which are given only in case of emergency, and/or only to those who successfully pass the applied qualification tests. UBI would be a promise of equal opportunity, not equal outcome, a new starting line set above the poverty line.

    It may surprise you to learn that a partial UBI has already existed in Alaska since 1982, and that a version of basic income was experimentally tested in the United States in the 1970s. The same is true in Canada, where the town of Dauphin managed to eliminate poverty for five years. Full UBI experiments have been done more recently in places such as Namibia, India and Brazil. Other countries are following suit: Finland, the Netherlands and Canada are carrying out government-funded experiments to compare against existing programmes. Organizations like Y-Combinator and GiveDirectly have launched privately funded experiments in the US and East Africa respectively.

    I know what you’re thinking. It’s the same thing most people think when they’re new to the idea. Giving money to everyone for doing nothing? That sounds both incredibly expensive and a great way to encourage people to do nothing. Well, it may sound counter-intuitive, but the exact opposite is true on both accounts. What’s incredibly expensive is not having basic income, and what really motivates people to work is, on one hand, not taking money away from them for working, and on the other hand, not actually about money at all.

    Basic income in numbers

    What tends to go unrealized about the idea of basic income, and this is true even of many economists – but not all – is that it represents a net transfer. In the same way it does not cost $20 to give someone $20 in exchange for $10, it does not cost $3 trillion to give every adult citizen $12,000 and every child $4,000, when every household will be paying varying amounts of taxes in exchange for their UBI.

    Instead it will cost around 30% of that, or about $900 billion, and that’s before the full or partial consolidation of other programmes and tax credits immediately made redundant by the new transfer. In other words, for someone whose taxes go up $4,000 to pay for $12,000 in UBI, the cost to give that person UBI is $8,000, not $12,000, and it’s coming from someone else whose taxes went up $20,000 to pay for their own $12,000. However, even that’s not entirely accurate, because the consolidation of the safety net and tax code UBI allows could drive the total price even lower.

    Now, this idea of replacing existing programmes can scare some just as it appeals to others, but the choice is not all or nothing: partial consolidation is possible. As an example of partial consolidation, because most seniors already effectively have a basic income through social security, they could either choose between the two, or a percentage of their social security could be converted into basic income. Either way, no senior would earn a penny less than now in total, and yet the UBI price tag could be reduced by about $220 billion. Meanwhile, just a few examples of existing revenue that could and arguably should be fully consolidated into UBI would likely be food and nutrition assistance ($108 billion), wage subsidies ($72 billion), child tax credits ($56 billion), temporary assistance for needy families ($17 billion), and the home mortgage interest deduction (which mostly benefits the wealthy anyway, at a cost of at least $70 billion per year). That’s $543 billion spent on UBI instead of all the above, which represents only a fraction of the full list, none of which need be healthcare or education.

    So what’s the true cost?

    The true net cost of UBI in the US is therefore closer to an additional tax revenue requirement of a few hundred billion dollars – or less – depending on the many design choices made, and there exists a variety of ideas out there for crossing such a funding gap in a way that many people might prefer, that would also treat citizens like the shareholders they are (virtually all basic research is taxpayer funded), and that could even reduce taxes on labour by focusing more on capital, consumption, and externalities instead of wages and salaries. Additionally, we could eliminate the $540 bill in tax expenditures currently being provided disproportionately to the wealthiest, and also some of the $850 billion spent on defence. 

    Universal basic income is thus entirely affordable and essentially Milton Friedman’s negative income tax in net outcome (and he himself knew this), where those earning below a certain point are given additional income, and those earning above a certain point are taxed additional income. UBI does not exist outside the tax system unless it’s provided through pure monetary expansion or extra-governmental means. In other words, yes, Bill Gates will get $12,000 too but as one of the world’s wealthiest billionaires he will pay far more than $12,000 in new taxes to pay for it. That however is not similarly true for the bottom 80% of all US households, who will pay the same or less in total taxes.

    To some, this may sound wasteful. Why give someone money they don’t need, and then tax their other income? Think of it this way: is it wasteful to put seat belts in every car instead of only in the cars of those who have gotten into accidents thus demonstrating their need for seat belts? Good drivers never get into accidents, right? So it might seem wasteful. But it’s not because we recognize the absurd costs of determining who would and wouldn’t need seat belts, and the immeasurable costs of being wrong. We also recognize that accidents don’t only happen to “bad” drivers. They can happen to anyone, at any time, purely due to random chance. As a result, seat belts for everyone.

    The truth is that the costs of people having insufficient incomes are many and collectively massive. It burdens the healthcare system. It burdens the criminal justice system. It burdens the education system. It burdens would-be entrepreneurs, it burdens both productivity and consumer buying power and therefore entire economies. The total cost of all these burdens well exceeds $1 trillion annually, and so the few hundred billion net additional cost of UBI pays for itself many times over. That’s the big-picture maths.

    The real effects on motivation

    But what about people then choosing not to work? Isn’t that a huge burden too? Well that’s where things get really interesting. For one, conditional welfare assistance creates a disincentive to work through removal of benefits in response to paid work. If accepting any amount of paid work will leave someone on welfare barely better off, or even worse off, what’s the point? With basic income, all income from paid work (after taxes) is earned as additional income so that everyone is always better off in terms of total income through any amount of employment – whether full time, part time or gig. Thus basic income does not introduce a disincentive to work. It removes the existing disincentive to work that conditional welfare creates.

    Fascinatingly, improved incentives are where basic income really shines. Studies of motivation reveal that rewarding activities with money is a good motivator for mechanistic work but a poor motivator for creative work. Combine that with the fact that creative work is to be what’s left after most mechanistic work is handed off to machines, and we’re looking at a future where increasingly the work that’s left for humans is not best motivated extrinsically with money, but intrinsically out of the pursuit of more important goals. It’s the difference between doing meaningless work for money, and using money to do meaningful work.

    Basic income thus enables the future of work, and even recognizes all the unpaid intrinsically motivated work currently going on that could be amplified, for example in the form of the $700 billion in unpaid work performed by informal caregivers in the US every year, and all the work in the free/open source software movement (FOSSM) that’s absolutely integral to the internet.

    There is also another way basic income could affect work incentives that is rarely mentioned and somewhat more theoretical. UBI has the potential to better match workers to jobs, dramatically increase engagement, and even transform jobs themselves through the power UBI provides to refuse them.

    A truly free market for labour

    How many people are unhappy with their jobs? According to Gallup, worldwide, only 13% of those with jobs feel engaged with them. In the US, 70% of workers are not engaged or actively disengaged, the cost of which is a productivity loss of around $500 billion per year. Poor engagement is even associated with a disinclination to donate money, volunteer or help others. It measurably erodes social cohesion.

    At the same time, there are those among the unemployed who would like to be employed, but the jobs are taken by those who don’t really want to be there. This is an inevitable result of requiring jobs in order to live. With no real choice, people do work they don’t wish to do in exchange for money that may be insufficient – but that’s still better than nothing – and then cling to that paid work despite being the “working poor” and/or disengaged. It’s a mess.

    Basic income – in 100 people

    Take an economy without UBI. We’ll call it Nation A. For every 100 working-age adults there are 80 jobs. Half the work force is not engaged by their jobs, and half again as many are unemployed with half of them really wanting to be employed, but, as in a game of musical chairs, they’re left without a chair.

    Basic income fundamentally alters this reality. By unconditionally providing income outside of employment, people can refuse to do the jobs that aren’t engaging them. This in turn opens up those jobs to the unemployed who would be engaged by them. It also creates the bargaining power for everyone to negotiate better terms. How many jobs would become more attractive if they paid more money or required fewer hours? How would this reorganizing of the labour supply affect productivity if the percentage of disengaged workers plummeted? How much more prosperity would that create?

    Consider now an economy with basic income. Let’s call it Nation B. For every 100 working age adults there are still 80 jobs, at least to begin with. The disengaged workforce says “no thanks” to the labour market as is, enabling all 50 people who want to work to do the jobs they want. To attract those who demand more compensation or shorter work weeks, some employers raise their wages. Others reduce the required hours. The result is a transformed labour market of more engaged, more employed, better paid, more productive, workers. Fewer people are excluded. 

    Simply put, a basic income improves the market for labour by making it optional. The transformation from a coercive market to a free market means that employers must attract employees with better pay and more flexible hours. It also means a more productive work force that potentially obviates the need for market distorting minimum wage laws. Friction might even be reduced, so that people can move more easily from job to job, or from job to education/retraining to job, or even from job to entrepreneur, all thanks to more individual liquidity and the elimination of counter-productive bureaucracy and conditions.

    Perhaps best of all, the automation of low-demand jobs becomes further incentivized through the rising of wages. The work that people refuse to do for less than a machine would cost to do it becomes a job for machines. And thanks to those replaced workers having a basic income, they aren’t just left standing in the cold in the job market’s ongoing game of musical chairs. They are instead better enabled to find new work, paid or unpaid, full-time or part-time, that works best for them.

    The tip of a big iceberg

    The idea of basic income is deceivingly simple sounding, but in reality it’s like an iceberg with far more to be revealed as you dive deeper. Its big picture price tag in the form of investing in human capital for far greater returns, and its effects on what truly motivates us are but glimpses of these depths. There are many more. Some are already known, like the positive effects on social cohesion and physical and mental health as seen in the 42% drop in crime in Namibia and the 8.5% reduction in hospitalizations in Dauphin, Manitoba. Debts tend to fall. Entrepreneurship tends to grow. Other effects have yet to be discovered by further experiments. But the growing body of evidence behind cash transfers in general point to basic income as something far more transformative to the future of work than even its long history of consideration has imagined.

    It’s like a game of Monopoly where the winning teams have rewritten the rules so players no longer collect money for passing Go. The rule change functions to exclude people from markets. Basic income corrects this. But it’s more than just a tool for improving markets by making them more inclusive; there’s something more fundamental going on.

    Humans need security to thrive, and basic income is a secure economic base – the new foundation on which to transform the precarious present, and build a more solid future. That’s not to say it’s a silver bullet. It’s that our problems are not impossible to solve. Poverty is not a supernatural foe, nor is extreme inequality or the threat of mass income loss due to automation. They are all just choices. And at any point, we can choose to make new ones.

    Based on the evidence we already have and will likely continue to build, I firmly believe one of those choices should be unconditional basic income as a new equal starting point for all.

    World Economic Forum

    How economic boom times in the West came to an end – Marc Levinson. 

    Unprecedented growth marked the era from 1948 to 1973. Economists might study it forever, but it can never be repeated. Why? 

    The second half of the 20th century divides neatly in two. The divide did not come with the rise of Ronald Reagan or the fall of the Berlin Wall. It is not discernible in a particular event, but rather in a shift in the world economy, and the change continues to shape politics and society in much of the world today.

    The shift came at the end of 1973. The quarter-century before then, starting around 1948, saw the most remarkable period of economic growth in human history. In the Golden Age between the end of the Second World War and 1973, people in what was then known as the ‘industrialised world’ – Western Europe, North America, and Japan – saw their living standards improve year after year. They looked forward to even greater prosperity for their children. Culturally, the first half of the Golden Age was a time of conformity, dominated by hard work to recover from the disaster of the war. The second half of the age was culturally very different, marked by protest and artistic and political experimentation. Behind that fermentation lay the confidence of people raised in a white-hot economy: if their adventures turned out badly, they knew, they could still find a job.

    The year 1973 changed everything. High unemployment and a deep recession made experimentation and protest much riskier, effectively putting an end to much of it. A far more conservative age came with the economic changes, shaped by fears of failing and concerns that one’s children might have it worse, not better. Across the industrialised world, politics moved to the Right – a turn that did not avert wage stagnation, the loss of social benefits such as employer-sponsored pensions and health insurance, and the secure, stable employment that had proved instrumental to the rise of a new middle class and which workers had come to take for granted. At the time, an oil crisis took the blame for what seemed to be a sharp but temporary downturn. Only gradually did it become clear that the underlying cause was not costly oil but rather lagging productivity growth – a problem that would defeat a wide variety of government policies put forth to correct it.

    The great boom began in the aftermath of the Second World War. The peace treaties of 1945 did not bring prosperity; on the contrary, the post-war world was an economic basket case. Tens of millions of people had been killed, and in some countries a large proportion of productive capacity had been laid to waste. Across Europe and Asia, tens of millions of refugees wandered the roads. Many countries lacked the foreign currency to import food and fuel to keep people alive, much less to buy equipment and raw material for reconstruction. Railroads barely ran; farm tractors stood still for want of fuel.

    Everywhere, producing enough coal to provide heat through the winter was a challenge. As shoppers mobbed stores seeking basic foodstuffs, much less luxuries such as coffee and cotton underwear, prices soared. Inflation set off waves of strikes in the United States and Canada as workers demanded higher pay to keep up with rising prices. The world’s economic outlook seemed dim. It did not look like the beginning of a golden age.

    As late as 1948, incomes per person in much of Europe and Asia were lower than they had been 10 or even 20 years earlier. But 1948 brought a change for the better. In January, the US military government in Japan announced it would seek to rebuild the economy rather than exacting reparations from a country on the verge of starvation. In April, the US Congress approved the economic aid programme that would be known as the Marshall Plan, providing Western Europe with desperately needed dollars to import machinery, transport equipment, fertiliser and food. In June, the three occupying powers – France, the United Kingdom and the US – rolled out the deutsche mark, a new currency for the western zones of Germany. A new central bank committed to keeping inflation low and the exchange rate steady would oversee the deutsche mark.

    Postwar chaos gave way to stability, and the war-torn economies began to grow. In many countries, they grew so fast for so long that people began to speak of the ‘economic miracle’ (West Germany), the ‘era of high economic growth’ (Japan) and the 30 glorious years (France). In the English-speaking world, this extraordinary period became known as the Golden Age.

    What was it that made the Golden Age exceptional? Part of the answer is that economies were making up for lost time: after years of depression and wartime austerity, enormous needs for housing, consumer goods, equipment for farms, factories, railroads and electric generating plants stood ready to drive growth. But much more lay behind the Golden Age of economic growth than pent-up demand. Two factors deserve special attention.

    First, the expanding welfare state. The Second World War shook up the social structures in all the wealthy countries, fundamentally altering domestic politics, in particular exerting an equalising force. As societies embarked on reconstruction, no one could deny that citizens who had been asked to sacrifice in war were entitled to share in the benefits of peace. In many cases, labour unions became the representatives of working people’s claims to peacetime dividends. Indeed, union membership reached historic highs, and union leaders sat alongside business and government leaders to hammer out social policy. Between 1944 and 1947, one country after another created old-age pension schemes, national health insurance, family allowances, unemployment insurance and more social benefits. These programmes gave average families a sense of security they had never known. Children from poor families could visit the doctor without great expense. The loss of a job or the death of a wage-earner no longer meant destitution.

    Second, in addition to the growing welfare state, strong productivity growth contributed to rising living standards. Rising productivity – increasing the efficiency with which an economy uses labour, capital and other resources – is the main force that makes an economy grow. Because new technologies and better ways of doing business take time to filter through the economy, productivity improvements are usually slow. But in the postwar years, productivity grew very quickly. A unique combination of circumstances propelled it. In just a few years, millions of people moved from low-productivity farm work – more than 3 million mules still plowed furrows on US farms in 1945 – to construction and factory jobs that used the latest machinery.

    In 1940, the average working-age adult in western Europe had less than five years of formal education. As governments invested heavily in high schools and universities after the war, they produced a more educated and literate workforce with the skills to produce far more wealth. Advances in national infrastructure gave direct boosts to national productivity. High-speed motorways enabled truck drivers to carry bigger loads over longer distances at higher speeds, greatly expanding markets for farms and factories. Six rounds of trade negotiations between 1947 and 1967, ultimately involving nearly 50 countries that signed the General Agreement on Tariffs and Trade (GATT), brought a massive increase in cross-border trade, forcing manufacturers to modernise or give up. Firms moved to take advantage of technological innovations to operate more productively, such as jet aircraft and numerically controlled machinery.

    Between 1951 and 1973, propelled by strong productivity gains, the world economy grew at an annual rate of nearly 5 per cent. The impact on living standards was dramatic. Jobs were just for the asking; in 1966, West Germany’s unemployment rate touched an unprecedented 0.5 per cent. Electricity, indoor plumbing and television sets became common. Stoves burning coal or peat were replaced by central heating systems. Homes grew larger, and tens of millions of families acquired refrigerators and automobiles. The higher living standards did much more than simply bring new material goods. Retirement by 65, or even earlier, became the norm. Life expectancy jumped. Importantly, in Western Europe, North America and Japan, people across society shared in those gains. Prosperity was not limited to the urban elite. Most people began to live better, and they knew it. In the span of a quarter-century, living standards doubled and then, in many countries, doubled again.

    The good times rolled on so long that people took them for granted. Between 1948 and 1973, Australia, Japan, Sweden and Italy had not a single year of recession. West Germany and Canada did almost as well. Governments and the economists who advised them happily claimed the credit. Careful economic management, they said, had put an end to cyclical ups and downs. Governments possessed more information about citizens and business than ever before, and computers could crunch the data to help policymakers determine the best course of action. In a lecture at Harvard University in 1966, Walter Heller, formerly chief economic adviser to presidents John F Kennedy and Lyndon B Johnson, trumpeted the success of what he called the ‘new economics’. ‘Conceptual advances and quantitative research in economics,’ he declared, ‘are replacing emotion with reason.’

    Wages and investment were private decisions, but Schiller hoped government guidelines would contribute to ‘collective rationality’

    The most influential proponent of such ideas was Karl Schiller, who became economy minister of West Germany, Europe’s largest economy, in 1966. A former professor at the University of Hamburg, where his students included the future West German Chancellor Helmut Schmidt, Schiller was a centrist Social Democrat. He stood apart from those on the Left who favoured state ownership of industry, but also from extreme free-market conservatives. His advice called for ‘a synthesis of planning and competition’. Schiller defined his philosophy thus: ‘As much competition as possible, as much planning as necessary.’

    Most fundamentally, Schiller believed that government should commit itself to maintaining high employment, steady growth and stable prices. And it should do this all while keeping its international account in balance, within the framework of a free-market economy. These four commitments made the corners of what he called the ‘magic square’. In December 1966, when Schiller became economy minister in a new coalition government, the magic square became official policy. Following Schiller’s version of Keynesian economics, his ministry’s experts advised federal and state governments how to adjust their budgets to achieve ‘equilibrium of the entire economy’. The ministry’s advice was based on an elaborate planning exercise that churned out five-year projections. In the spring of 1967, the finance ministry was told to adjust taxes and spending plans to increase business investment while slowing the growth of consumer spending. These moves, Schiller’s economic models promised, would bring economic growth averaging 4 per cent through 1971, along with 0.8 per cent unemployment, 1 per cent annual inflation and a 1 per cent current account surplus.

    But in an economy that was overwhelmingly privately run, government alone could not reach perfection. Four or five times a year, Schiller summoned corporate executives, union presidents and the heads of business organisations to a conference room in the ministry. There he described the economic outlook and announced how much wages and investment could rise without compromising his national economic targets. Of course, he would add, wages and investment were private decisions, but he hoped that the government’s guidelines would contribute to ‘collective rationality’. Such careful stage management cemented Schiller’s fame. In 1969, for the first time, the Social Democrats outpolled every other party. The election that year became known as the ‘Schiller election’.

    Schiller insisted that his policies had brought West Germany to ‘a sunny plateau of prosperity’ where inflation and unemployment were permanently vanquished. Year after year, however, the economy failed to perform as he instructed. In July 1972, when Schiller was denied control over the exchange rate, he stormed out of the cabinet and left elected office forever.

    Schiller left with the West German economy roaring. Within 18 months, his claim that the government could ensure stable prices, robust growth and jobs for all blew up.

    The headline event of 1973 was the oil crisis. On 6 October, Egyptian and Syrian armies attacked Israeli positions, starting the conflict that became known as the Yom Kippur War. By agreeing to slash production and raise the price of oil, Saudi Arabia, Iraq, Iran and other Middle Eastern oil exporters quickly backed the two Arab countries. Shipments to countries that supported Israel, including the US and the Netherlands, were cut off altogether.

    Oil-importing countries responded in dramatic fashion. Western European countries lowered speed limits and rationed diesel supplies. From Italy to Norway, driving was banned on four consecutive Sundays in order to save fuel. The Japanese government shut down factories and told citizens to turn out the pilot lights on their water heaters. US truck drivers blocked highways to protest high fuel prices, and motorists queued for hours to top off their gasoline tanks. In a televised address, the US President Richard Nixon warned Americans: ‘We are heading toward the most acute shortages of energy since the Second World War.’

    Faced with higher petroleum prices, economic growth in 1974 collapsed. Around the world, inflation soared. When oil prices receded, the world economy failed to bounce back. Double-digit inflation dramatically undermined workers’ wage gains. From 1973 to 1979, average income per worker grew only half as fast as it had before 1973. Help-wanted signs vanished as unemployment rose. The economic experts, only recently so confident that their rational mathematical analysis had brought permanent prosperity, were flummoxed. Stable economic growth had given way to violent gyrations.

    The underlying problem, it turned out, was not expensive petroleum but slow productivity growth. Through the 1960s and early ’70s, across the wealthy world, productivity had risen a strong 5 per cent a year. After 1973, the trend shifted clearly downward. Through the rest of the 20th century, productivity growth in the wealthy economies averaged less than 2 per cent a year. Diminished productivity growth translated directly into sluggish economic growth. The days when people could feel their living standards rising from one year to the next were over. As the good times failed to return, voters turned their fury on political leaders. In fact, there was little any Western politician could do to put their economies back on their previous tracks.

    To give a short-term boost to an underperforming economy, central banks and governments have a variety of tools they can use. They can lower interest rates to make it cheaper to buy a car or build a factory. They can lower taxes to give consumers more money to spend. They can increase government spending to pump more cash into the economy. They can change regulations to make it easier for banks to lend money. But when it comes to an economy’s long-term growth potential, productivity is vital. It matters more than anything else – and productivity growth after the early 1970s was simply slower than before.

    Turning innovative ideas into economically valuable products and services can involve years of trial and error

    The reasons behind slowed productivity growth had nothing to do with any government’s economic policy. The historic move of rural peoples to the cities, around the world, could not be repeated. Once masses of peasant farmers and sharecroppers had shifted into more productive work in the cities, it was done. The great flow of previously unemployed women into the labour force was over. In the 1960s, building thousands of miles of superhighways brought massive economic benefits. But once those roads were open to traffic, adding lanes or exit ramps was far less consequential. In rich countries, literacy had risen to almost universal levels. After that historic jump, the effects of additional small increases in average education were comparatively slight. If higher productivity growth were to be regained, it would have to come from developing technological innovations and new approaches to business, and putting them to use in ways that allowed the business sector to operate more effectively.

    When it comes to influencing innovation, governments have power. Grants for scientific research and education, and policies that make it easy for new firms to grow, can speed the development of new ideas. But what matters for productivity is not the number of innovations, but the rate at which innovations affect the economy – something almost totally beyond the ability of governments to control. Turning innovative ideas into economically valuable products and services can involve years of trial and error. Many of the basic technologies behind mobile telephones were developed in the 1960s and ’70s, but mobile phones came into widespread use only in the 1990s. Often, a new technology is phased in only over time as old buildings and equipment are phased out. Moreover, for reasons no one fully understands, productivity growth and innovation seem to move in long cycles. In the US, for example, between the 1920s and 1973, innovation brought strong productivity growth. Between 1973 and 1995, it brought much less. The years between 1995 and 2003 saw high productivity gains, and then again considerably less thereafter.

    When the surge in productivity following the Second World War tailed off, people around the globe felt the pain. At the time, it appeared that a few countries – France and Italy for a few years in the late 1970s, Japan in the second half of the ’80s – had discovered formulas allowing them to defy the downward global productivity trend. But their economies revived only briefly before productivity growth waned. Jobs soon became scarce again, and improvements in living standards came more slowly. The poor productivity growth of the late 1990s was not due to taxes, regulations or other government policies in any particular country, but to global trends. No country escaped them.

    Unlike the innovations of the 1950s and ’60s, which were welcomed widely, those of the late 20th century had costly side ef