They Have More Money

Interesting piece over at the Atlantic about who gives more to charity...the wealthy or the poor. The answer is surprising.

One of the most surprising, and perhaps confounding, facts of charity in America is that the people who can least afford to give are the ones who donate the greatest percentage of their income. In 2011, the wealthiest Americans—those with earnings in the top 20 percent—contributed on average 1.3 percent of their income to charity. By comparison, Americans at the base of the income pyramid—those in the bottom 20 percent—donated 3.2 percent of their income. The relative generosity of lower-income Americans is accentuated by the fact that, unlike middle-class and wealthy donors, most of them cannot take advantage of the charitable tax deduction, because they do not itemize deductions on their income-tax returns.

While it's true and quite obvious that the wealthy give a larger dollar amount, the do not give as much percentage wise, as the less fortunate. Add in the fact that the poorer folks don't get a tax deduction and it seems even more generous. But why?

However, some experts have speculated that the wealthy may be less generous—that the personal drive to accumulate wealth may be inconsistent with the idea of communal support. Last year, Paul Piff, a psychologist at UC Berkeley, published research that correlated wealth with an increase in unethical behavior: “While having money doesn’t necessarily make anybody anything,” Piff later told New York magazine, “the rich are way more likely to prioritize their own self-interests above the interests of other people.” 

They are, he continued, “more likely to exhibit characteristics that we would stereotypically associate with, say, assholes.” Colorful statements aside, Piff’s research on the giving habits of different social classes—while not directly refuting the asshole theory—suggests that other, more complex factors are at work. In a series of controlled experiments, lower-income people and people who identified themselves as being on a relatively low social rung were consistently more generous with limited goods than upper-class participants were. Notably, though, when both groups were exposed to a sympathy-eliciting video on child poverty, the compassion of the wealthier group began to rise, and the groups’ willingness to help others became almost identical.

Hmm...perhaps the wealthy are out of touch?

I think that people that have less money give more because they know what it's like to be poor. Perhaps they didn't have a lot of money in recent memory and can completely relate to the hardship. And the wealthy don't give as much because...well...that's why they are wealthy.

They have more money.

What Do They Do?

Someone asked me in comments a while back just what exactly right to work laws do to a state's economy? Well, here's a pretty good summation. Here's the one that jumped out at me.

2) Under right-to-work laws, workers reap fewer gains from economic growth. Supporters of right-to-work laws often argue that they’ll help attract more businesses to a state. Opponents retort that weakening unions will lead to an erosion of wages. (A large Economic Policy Institute study from 2011 found that, after controlling for a host of factors, right-to-work states have lower wages on average than pro-union states.) 

Both arguments might be correct. One careful study conducted by Hofstra’s Lonnie Stevans in 2007 found that right-to-work laws do help boost the number of businesses in a state — but the gains mostly went to owners, while average wages went down. ”Although right-to-work states may be more attractive to business,” Stevans concludes, “this does not necessarily translate into enhanced economic verve in the right-to-work state if there is little ‘trickle-down’ from business owners to the non-unionized workers.” 

So business owners gain, and workers lose. One possible retort is that these states could simply set up new safety-net programs to compensate workers who are hurt. But that leads to another question: Without strong unions in place, who will push for these policies?

So, more business comes to the state but the gains go right to the owners. Paging Joseph Stiglitz!

What continues to amaze me is how the Right, supposedly "classic liberals" influenced by Adam Smith, vociferously fight for more wealthy for the modern day version of the aristocracy. Somewhere Klemens von Metternich is applauding....

Too Controversial?

Nick Hanauer has come up again in some various conversation I have had and I remembered that I wanted to put his TED talk (repressed for a while because it was deemed "too controversial") up here for all to see. Since when is income inequality controversial?

It's also nice to see the complete destruction, soundly and succinctly backed up with evidence, of the Right's vision of how the economy works. I guess the rich aren't job creators after all.

On Siglitz: Part Six

The sixth chapter of Joseph Stiglitz's The Price of Inequality is called, "1984 is Upon Us." In this section, Stiglitz details how many of the wealthy in this country try to frame the discussion in a way that benefits their interests, realizing that, in democracy, they cannot simply impose their rules on others. He posits that, in one way or another, they have to "co-opt" the rest of society to advance their agenda. They do this using their own, more subtle version of "newspeak."

An example of this can be seen in how our society responds to the word "socialism."

In American parlance, "socialism" is akin to communism , and communism is the ideology we battled for sixty years, triumphing only in 1989 with the fall of the Berlin Wall. Hence labeling anything as socialism is the kiss of death. Medicare is a single payer system-the government pays the bill, but the individual gets to choose the provider. Most of the elderly love Medicare. But many are convinced that government can't provide services efficiently that they believe that Medicare must be private.

Hence the famous "Keep your government hands off my Medicare" line. The irony here, aside from the obvious, is just how much socialism there is in this country that hasn't delivered the promised tyranny we now daily from the Right and, in fact, has been enormously beneficial to our country. Even famed "unbridled capitalist" Adam Smith wrote, in The Wealth of Nations, that the sovereign has

The duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a greater society.

Here, Smith champions elements of socialism and states that they are essential to any successful society. They have certainly worked out very well for us as we are the greatest nation this world has ever seen.

So, the dichotomy here is very frustrating given how the framing of American parlance operates. When we start discussing economics and the high level of inequality we have in this country, we see it again. As Stiglitz notes

Mainstream economics assumes that individuals have well defined preferences and fully rational expectations and perceptions. Individuals know what they want. But in this respect, traditional economics is wrong. If it were true, there would be little need for advertising. Corporations use recent advances in psychology and economics that extend our understanding and preferences and beliefs can be shaped to induce people to buy their products. 

Exactly right. One of the major problems I have with the whole "people act in their own enlightened self interest" meme is that..well...people don't. They are often foolish, emotionally unintelligent, and behave poorly, even engaging in criminal activity. That's why "leaving it all up to the free market to sort out" doesn't work given that the powerful people who run many of these markets can be characterized as all the above.

More importantly, people who don't really know what they want and aren't rational can be easily manipulated. Because of this simple fact, Stiglitz notes that most Americans have no earthly idea how much inequality there is in this country. They believe there is less economic inequality than there is, they underestimate its adverse economic effects, and they overestimate the costs of taking action.

In a recent study respondents on average thought that the top fifth of the population had just short of 60 percent of the wealth, when in truth that group holds approximately 85 percent of the wealth. Interestingly, respondents described an ideal wealth distribution as one in which the top 20 percent hold just over 30 percent of the wealth. Americans recognize that some inequality is inevitable, and perhaps even desirable if one is to provide incentives; but the level of inequality in American society is well beyond that level.

I've brought up this study before but I think it should be revisited given the context of Stiglitz's argument. People don't have any idea just how much the wealthy have in this country. Of course, any discussion about it results in Orwellian screeches and howls from the Right about "Marxism" and "class warfare." Yet this sort of wealth concentration at the top is exactly where liberal economic theory was born. Men like Adam Smith and Samuel Stiles bemoaned the hoarding of wealth by the aristocracy through mercantilism and other protectionist practices. In many ways, Stiglitz has argued the same thing in previous chapters by pointing out the endless cycle of rent seeking, incompetent government action and government inaction. Regardless of the times or the mechanism, the wealthy are continuing to do what they always do: consolidate power.

Now, this is usually the point when people ask, "how much inequality is bad and how much is good?" Well, before we do that, we have to get back to the perception problem.

Not only do Americans misperceive the level of inequality; they underestimate the changes that have been going on. Only 42 percent of Americans believe that inequality has increased in the past ten years, when in fact the increase has been tectonic. Misperceptions are evident, too, in views about social mobility. Several studies (here, here, and here) confirmed that perceptions of social mobility are overly optimistic.

So, we need to solve the problem of awareness first before we can detail any sort of serious metric regarding acceptable or unacceptable levels of inequality. That means we have to combat the 1984ish messaging we see every day from the 1 percent.

After we've done that, the best place to start is the most commonly used measure of inequality: the Gini-coefficient. There is also the Theil index, which has more sub group and sub region development, the Decile dispersion ratio, and the Share of income/consumption of the poorest x%. All of these metrics should be used in tandem for a more accurate analysis.

In taking a look at where we are today, it's obvious that we really do have some very serious perception problems.

Bear in mind, these figures are only through 2010, the last time the Census Bureau did their estimate. Two years ago we were at 46.9 which means we are very close to that .5 tipping point where we quite literally have a country of haves and have-nots. The study from above shows that Americans want our country to be more like Sweden. That's not surprising, given that there Gini coefficient is .23, nearly half of what our's is today.

Stiglitz has much more to say in this chapter regarding perceptions in terms of market behavior, fairness, and a whole host of other issues like the public view on estate taxes and bank recapitalization. It's quite a bit of information to absorb so I chose to focus on the more general theme of the chapter-the perception of inequality. For the finer points, as always, I recommend reading the book and the sources contained at the end of each section, some of which I have listed here.

So, the facts show that it's a more subtle version of newspeak, isn't it? It's not quite war is peace (although the Right's view on guns is certainly close to that) but it's still just as contradictory. The people of this country need to know just how much inequality there is and, as Stiglitz noted in previous chapters, the detrimental effects it is inflicting on our country.

Good Words

No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. (Adam Smith, 1776)

It's always amused me when conservatives bring up Adam Smith and point to him as the King of Unbridled Capitalism. As is usually the case, they miss the complexity.

Smith was firmly grounded in reality and recognized the dangers of special interests. He concluded that employers "always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages above their actual rate" and sometimes entered "into particular combinations to sink the wages even below this rate." He also condemned the deadening effects of division of labor and that's why he called for government intervention to raise workers' living standards.

So, while he was indeed the father of economic liberalism, he was decidedly not the cold-hearted capitalist that the Right will have you believe he was.

On Stiglitz Part Five

I ran across this piece last week and thought it would make an excellent summation before a return to Stiglitz.

One conservative message on inequality is to say that it doesn't matter, and we should accept rises in both pre-tax and post-tax inequality. This is the implication of studies periodically put out by the Heritage Foundation, arguing that poor people aren't really poor if they have microwave ovens. This isn't an appealing argument. 

The problem with rising inequality is not that lower-income families can't afford ever-cheaper electronics; it's that they can't keep pace with the rising costs of health care, education and (in certain parts of the country) housing. There's also no reason to think that, whatever standard of living we start from, an economy where nearly all the improvements accrue to a small fraction of families is either politically sustainable or morally acceptable.

Excatly. In a nutshell, that is the foundation that is laid in the four chapters of his book. The cost of inequality is no health care, no education (past high school), and inadequate housing. Millions are affected by one, two or all three of these issues in an adverse way. So what's the result?

A Democracy in Peril-the title of Chapter 5 in "The Price of Inequality."

Stiglitz starts off in this chapter talking about the disillusionment, lower trust, and general loss of perceived fairness that has mounted due to inequality.  This leads to an erosion of civic virtue.

Such civic virtue should not be taken for granted. If the belief takes hold that the political system is stacked, that it's unfair, individuals will feel released from the obligations of civic virtue. When the social contract is abrogated, when trust between government and its citizens fails, disillusionment, disengagement, or worse follows. In the United States today and in many other democracies around the world mistrust is ascendent.

No doubt, this is a chief reason why we see less than 60 percent voter turnout. It gets worse.

Social capital is the glue that holds societies together. If individuals believe the economic and political system is unfair, the glue doesn't work and societies don't function well. As I've traveled around the world, particularly in my job as chief economist of the World Bank, I've seen instances where social capital has been strong and societies have worked together. I've also seen instances where social cohesion has been destroyed and societies have become dysfunctional.

Well, that's where we are headed and what makes matters worse are the policies aimed to further this disenfranchisement, most of which are aimed at the poor. Photo ID laws and resistance against extended voting hours and times add to this feeling of disillusionment (which works in the favor of those who support these endeavors) resulting in continued low turnout at the polls.

Stiglitz goes on to talk about how Citizen's United makes matters worse and it is there that he and I part ways in agreement (in fact, this is my least favorite chapter in the book). His book was written before the election this year so he couldn't know that his predictions in this chapter regarding this case were going to be wrong.

Hundreds of millions of dollars were poured at President Obama in the hopes of defeating him and all of it failed. Certainly, the president had a lot of money behind him. Yet he also had a massive network of people that not only contributed small amounts of money but also formed a very solid foundation of motivated people that got out the vote. So, Stiglitz was wrong. In this case, people triumphed over money.

His analysis of Citizen's United wasn't the only point he made with which I disagreed. The rest of the chapter has to do with globalization and he's far too vague in his criticism of it. He somewhat wrongly assumes that the lack of voter enthusiasm can be entirely attributed to civic disillusionment
and not mere laziness (see: The Michael Jordan Generation). He also leaves out the raised prosperity around the world as a result of the spread of free markets and capitalism. He seems to call of return to protectionism which, in my view, would be a giant mistake. And this chapter is generally far too repetitive regarding disillusionment with our democracy.

He does have two good points that round out the chapter in regards to financial markets and American's place in the global economy. If America is going to lecture countries around the world about economic stability, then it should practice what it preaches. We have indeed lost credibility around the world because of our financial markets.

Proponents of the financial markets like to claim that one of the virtues of open capital market is that they provide "discipline." But the markets are a fickle disciplinarian, giving an A rating one moment and turning around with an F rating the next. Even worse, financial markets' interests frequently do not coincide with those of the country. The markets are shortsighted and have a political and economic agenda that seeks the advancement of the well being of financiers rather than that of the country as a whole. 

Right. Until we chuck the "Wall Street Government," we aren't going to have as much respect around the world and voter disillusionment is going to continue at home. This point also serves to put an end, once and for all, to the notion that a successful business leader would make a successful civic leader (and that a rating from S&P means nothing).

The title of Stiglitz's next chapter is "1984 is Upon Us" and it details how perception is manipulated to continue inequality. 

No Easy Answers

With the passage of the right to work law in Michigan, it's clear that there are no easy answers to protecting the middle class while also protecting a company's right to make money. On the surface, it seems tremendously unfair to make someone pay union dues. If they don't want to pay, that should be OK, right?

Similar to the health care issue, however, the problem arises when the people that don't pay then free ride and enjoy the benefits of what the unions do for laborers. In many ways, unions are all that is left in this country in protecting the rights of the individual versus the billions of a corporation and, more importantly, from keeping inequality from getting even worse. We have many states in this country that have had right to work laws in place for years. Wages have not gotten better and the owners have reaped the benefits. They've stagnated and gotten worse so Governor Snyder is mistaken when says this will help workers. It won't.

Of course, the larger picture says that nothing is going to help laborers because of globalization. When you spread free market ideals and capitalism around the world, this is what you get: a giant pool of cheap labor. In the long run, this is a good thing but in the short run, people are having to make do with less money and it really, really sucks for most Americans. Further, it has inhibited our growth economically and made the middle class a vapor of what it once was.

There are no easy answers and I know that I don't have them. My initial thought is we need some fresh, new ideas in place of the old and stale arguments being fought out in Michigan right now. I was absolutely appalled to see the fights that had broken out and the violence, largely instigated by the union protesters and supporters. There is no excuse whatsoever for this sort of behavior and it only hurts their cause. It's likely going to be worse until some one or several someones put on their contstructivists caps and start answer some questions.

How do we support these laborers who are unintended victims of globalization, if at all? Just tell them to ride it and out it will get better (which it will, eventually)? Remember, that it stands to reason that if people are making less here that some people are making more elsewhere (more, of course, than the absolute shit they used to make). I'm not trying to diminish the exploitation that goes on by MNC's around the world but we shouldn't ignore how they have raised prosperity in many Global South countries. This doesn't help our own laborers, obviously.

And what of the issue of inequality? No doubt, right to work laws make it worse. This is where the federal government could help by eliminating the avenues of rent seeking that so many of the top earners and private firms take advantage of every day. With the fiscal cliff talks going nowhere everyday, this seems unlikely so our march to look more and more like a Third World country is being realized.

I don't know...I really don't. Honestly, I don't think anyone does and that's the problem.

Let Warren Unburden Them

Warren Buffett's recent opinion piece seen in many papers and online over the last few days is a fine example of how completely ridiculous the Right is in regards to federal government tax policy. He begins with an anecdote.

Suppose that an investor you admire and trust comes to you with an investment idea. "This is a good one," he says enthusiastically. "I'm in it, and I think you should be, too." Would your reply possibly be this? "Well, it all depends on what my tax rate will be on the gain you're saying we're going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent." Only in Grover Norquist's imagination does such a response exist. 

Only in all their imaginations does such a response exist. I can say with near certainty that anyone on the Right that says they do this or has known people to act in this fashion is lying. As Mr. Buffett has said many times previously, people invest to make money. Government tax policy doesn't enter into it.

And facts are facts...

Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent -- and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. 

Never did anyone mention taxes as a reason to forgo an investment opportunity I offered. Under those burdensome rates, moreover, both employment and the gross domestic product (a measure of the nation's economic output) increased at a rapid clip. The middle class and the rich alike gained ground. 

They both gained ground because there was less inequality. The money that was used from the higher tax revenues paid for investments in infrastructure and education (the GI Bill, for example). This, in turn, led to a higher skilled labor force and an economy that was robust and innovative. This is not the case today.

The group's average income in 2009 was $202 million -- which works out to a "wage" of $97,000 per hour, based on a 40-hour workweek. (I'm assuming they're paid during lunch hours.) Yet more than a quarter of these ultrawealthy paid less than 15 percent of their take in combined federal income and payroll taxes. Half of this crew paid less than 20 percent. And -- brace yourself -- a few actually paid nothing. 

This is how money has been transferred upwards as Stiglitz mentions in "The Price of Inequality."

So what does Warren think should be done about this?

We need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy. 

And what will the result be?

Our government's goal should be to bring in revenues of 18.5 percent of GDP and spend about 21 percent of GDP -- levels that have been attained over extended periods in the past and can clearly be reached again. As the math makes clear, this won't stem our budget deficits; in fact, it will continue them. But assuming even conservative projections about inflation and economic growth, this ratio of revenue to spending will keep America's debt stable in relation to the country's economic output. 

I agree and, as Warren notes, this will involve major concessions by the Right and the Left. All sides in this debate have signaled a willingness to bend so I do have some hope.

And what about that figment of the Right's imagination who is overly obsessed with "uncertainty?"

In the meantime, maybe you'll run into someone with a terrific investment idea, who won't go forward with it because of the tax he would owe when it succeeds. Send him my way. Let me unburden him. 

 Maybe I should send ol' DJ from TSM to Mr. Buffett...hee hee...:)

On Stiglitz, Part Four

Spend just a few minutes on the internet and you can see Joseph Stiglitz everywhere.

A recent article on how public sector belt tightening has made inequality worse.

These reductions, economists say, act as a drag on the economy. Former park employees, clerks, and firefighters such as Lykins are buying only the necessities. Cities are deferring road work, which means contractors aren't hiring people to pour concrete. By far, the largest impact is on school systems, which are laying off teachers, counselors, and janitors.

The latest BLS data on the working poor.

In 2010, there were 10.5 million individuals classified as "working poor" (persons who spent at least 27 weeks in the labor force—that is, working or looking for work—but whose incomes still fell below the official poverty level); the number of working poor was little changed from 2009.

Yet another report on the widening income disparity.

The divergent fortunes of Reyes and Hemsley show that the U.S. has gone through two recoveries. The 1.2 million households whose incomes put them in the top 1 percent of the U.S. saw their earnings increase 5.5 percent last year, according to estimates released last month by the U.S. Census Bureau. Earnings fell 1.7 percent for the 96 million households in the bottom 80 percent -- those that made less than $101,583.

So, Chapter 4 of The Price of Inequality by Joseph Stiglitz, aptly titled "Why It Matters" could never be more relevant.

Stiglitz begins by illustrating a very simple fact.

When the wealthiest use their political power to benefit excessively the corporations they control, much needed revenues are diverted into the pockets of a few instead of benefiting society at large. But the rich do not exist in a vacuum. They need a functioning society around them to sustain their position and to produce income from their assets. The rich resist taxes, but taxes allow society to make investments that sustain the country's growth.

This echoes Nick Hanuer and his pointing out of the obvious: he (and other wealthy people) don't buy 5,000 pairs of pants. They buy 5 pairs. If people are buying less pairs of pants, the economy doesn't grow and that's why it matters. But it gets worse.

As Stiglitz notes, moving money from the bottom to the top lower consumption because the wealthy save more of their money rather than spend it. In fact, they save 15 to 25 percent of their income whereas those at the bottom spend all of theirs. Why does this matter?

The result: until and unless something else happens, such as increase in investment or exports, total demand in the economy will be less than what the economy is capable of supplying-and that means there will be unemployment. 

So, what can be done? Well, the wealthy are going to have to give up some of the money they are saving if they want to continue to have a society in which to enjoy their wealth. Stiglitz thinks that this should be done through taxes and government spending. Certainly, that's going to happen in some form or another but I question to what degree and, I have to admit, I question the mechanism. Relying completely on government is not the answer. As Stiglitz himself admits, they are running the government with their money and it's going to be enormously difficult to break out of that cycle, if not impossible. I think the president is trying to do this and having a tough time of it. Mitt Romney will make it worse.

That doesn't change the fact that the wealthy of this country are going to have to ALL do what Bill Gates does in Africa but do it here. It can't just be a few of them and the sooner they realize the necessity of this to their own livelihoods, the better. Stiglitz has a simple way to solve it.

The top 1 percent of this country earns 20 percent of the income. If they shifted just 5 percent of that income to the poor or middle class who do not save (through a combination of taxes, private charities, grants, and higher wages a la Henry Ford), this would increase aggregate demand by 1 percentage point and still leave them obviously quite wealthy with 15 percent of the nation's income. This is what we saw from post WWII to about 1980 and it wasn't socialism, folks, there was still inequality...just not enough to inhibit growth in our economy like there is right now.

This increase of one point would have a cascading effect. As the money recirculates, output would actually increase by 1.5 to 2 percentage points. Unemployment would go down considerably, likely around 6 percent. Stiglitz notes that a broader redistribution (from the top 20 percent, as opposed to the top 1 percent) would lower this unemployment even further.

Right around now is when the mouth foamers blow a bowel and starting screaming about socialism and/or communism. Paying higher taxes, as Stiglitz is suggesting, isn't socialism. Morever, I'd be more than happy if the wealthy of this country saw the need to do this voluntarily and simply did it for their own sake's. If we continue down this path of increased inequality and stagnation (likely worse, eventually), they will not have a choice. I think things are moving in the right direction, though, and we are already seeing some signs of this possibly happening and I am certainly optimistic.

Stiglitz goes on to discuss how the government's response to weak demand from inequality led to a bubble and even more inequality. He cites inadequate regulation and dishonest/incompetent banking as large contributors to this problem but this has been gone over many times.

He then lays out exactly how inequality makes for a less efficient and productive economy by looking at lowering public investment (as we see in the CSM link above), underinvestiment in the common good like education that directly leads to economic mobility, rent seeking and the financialization of our economy (the oil market is a great example of this...filled with people that don't actually buy oil but speculate on it), and the issue of consumerism.I'm going to turn this final point of consumerism into a stand alone post at some point as it is worthy of special attention. 

The rest of Chapter 4 is devoted to the alleged inequality efficiency trade off which, again, deserves its own post and honestly is separate from the issue of why inequality matters.  Suffice to say, Stiglitz has shown thus far that not only are we failing in equality of outcome but we are failing in equality of opportunity. People simply don't have the income mobility that leads to greater opportunity and our society is sorely lacking in closing this gap and increasing these types of opportunities.

Worse, as Stiglitz previews for the next chapter, this inequality is imperiling our democracy.

The Redistribution Canard

As a response to Mitt Romney's 47 percent video, the Right has pointed to the video below as proof that Barack Obama is a communist.

Visit NBCNews.com for breaking news, world news, and news about the economy

Let's take note of a couple of things. First of all, this video is not newly discovered nor was it hidden. This was a public conference, not a private fundraising gathering.

More importantly, take note of how the last part of the clip about markets and innovation was conveniently left off of the version on YouTube. Taken in context, what he is saying isn't any different than what Bill Clinton was saying in 1998 as well.

I also don't think this is a gotcha! moment because the only people who are going to be pissed off about this are people that aren't going to vote for him anyway.

I guess what I don't understand about this video is the apoplectic reaction to the word "redistribution." Somehow it  means communism. Or fascism. Or socialism. Or anti-colonial Kenyanism. Pick one and I guess it's right for whatever day it is.

But there's nothing wrong with redistribution when you consider that every organization (public or private) redistributes wealth when you think about it. The NFL operates under a profit sharing model where teams like Green Bay (owned by the city of Green Bay, a public entity) share profits through redistribution of wealth from larger market teams like the New York Giants or the Chicago Bears. This begs the question...are the owners of the NFL communists?

When we pay our taxes, that money is redistributed to the various sectors in public life that need it. These would include defense, b to the w. I hardly think anyone will argue that a member of our armed services not paying federal taxes because he or is she is in a combat zone is taking advantage of wealth redistribution or a moocher off of the government.

Of course, this doesn't mean that wealth redistribution isn't going on nor does it mean that there are ill effects from it. It most certainly is going on and we can clearly see by the inequality in this country that it is being redistributed upwards, not downwards, and this is the fault of the federal government to a large degree.

On Stiglitz Part Three

Given Mitt Romney's recent comments, I think it's time to get back to Stiglitz. The next section in his book, The Price of Inequality, is called Markets and Inequality. His basic premise here is that even though market forces are real, every law, every regulation and every institutional arrangement has been made to benefit those at the top and to the disadvantage of the rest. Simply put, it is the government's fault! They create the problem by making rules that benefit the wealthy and then they do little to change the fall out.

He faults the government's reaction to the technology boom, for example, as being quite poor when one considers that education at that time should have been shored up in a sort of GI bill type of way. The steel industry, for example, now operates with a quarter of the workforce because of technological advances. What are the remaining three quarters supposed to do now that their services are no longer required? Train for a new profession. Of course, this isn't usually easy and it can be expensive.

That's where the issue of stagnant wages comes in. Stigiliz accurately points out that from 1949 to 1980, productivity and real hourly compensation rose together. After 1980, they began to drift apart. Why? Because the government began to make policies that benefited rent seekers at the top of our society. This is where these two premises

• Taxing the top at higher rates reduces incentive
• Helping the poor means more poverty because they then don't want to work

are inaccurate and no longer apply. Because of the large amount of inequality, people have less of incentive to work. They are essentially hopeless so why bother? Stiglitz asks, "How seriously would incentive be weakened if we had a little bit less inequality?" The problem here is that the Straw Man Machine gets to work and labels folks like me and Stiglitz as wanting no inequality. That's simply not true and no one is trying to do that.

Further, incentive pay for wealth execs isn't really that.

Under incentive compensation schemes, pay is supposed to increase with performance. What the bankers did was common practice: when there was a decline in measured performance according to the yardsticks that were supposed to be used to determine compensation, the compensation system changed. The effect was that, in practice, pay was high when performance was good, and pay was high when performance was bad. (Bebhuck and Fried, Pay Without Performance) 

In fact, they were so embarrassed by this that "performance bonuses" was changed to "retention bonuses." Executives were (and still are) allowed to set their own compensation schedules which has effectively separated pay from performance and misalign incentives, as Stigliz correctly notes.

Countries that have large financial sectors typically have greater inequality. Deregulation along with hidden and open government subsidies distort the economy and make it easier to move money from the bottom to the top. As Stiglitz notes, "We don't have to know precisely the fraction of inequality that should be attributed to the increased financialization of the economy to understand that a change in policy is needed." Indeed. The banks are simply too big right now and need to be broken up. I'm happy to see that many on both the right and the left are calling for this to happen.

A recent report by the Congressional Research Service confirms much of the information above.

The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. 

However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.

I highly recommend reading the entire report. It is loaded down with data that supports Stiglitz's assertions.

The other big part of this chapter is a discussion on the free mobility of capital and the free mobility of labor. It is here where he and I part ways. He rightly criticizes the MNC's and financial institutions for some of the problems they have caused the Global South. However, he completely ignores the fact that the average age of mortality in Africa, for example, has doubled in the last fifty years and it's largely due to Global North investment and direct aid.

He seems to be calling for a return to trade restrictions and tariffs placed on imports that would, in turn, benefit labor in this country. I think that's a giant mistake. We have progressed for the last 70 years towards liberal and free markets. This was done to prevent world wars which were very costly in many ways (the biggest of which is human life). To go back after all the progress we have made in the Global South is very short sighted.

What we can do in the age of free mobility of capital is use that money to further educate our workforce and make the more competitive in the world. Labor around the world is very cheap right now and those without college degrees simply can't compete which is the main reason why we have a large number of people unemployed or underemployed. These people need to get college degrees and that's going to mean sacrifice by everyone...colleges, universities, professors, bankers, and many more of the very wealthy.

All of these people are going to have to step up to the plate, whether it is in the form of lower tuition, lower salaries for professors, higher taxes for the wealthy, or more private grants...A LOT MORE PRIVATE grants. Remember, the 1 percent can't enjoy their money without the support of a strong middle class.

With education, comes strength.

Not In A Million Years

When you live in a world that begins and ends with material gains, generally speaking, you ascribe that perception to others. Take, for example, the erroneous notion that the anger directed at the wealthy of the world is based on envy. It usually brings people like this out of the woodwork.

"If you're jealous of those with more money, don't just sit there and complain," she said in a magazine piece. "Do something to make more money yourself -- spend less time drinking or smoking and socialising, and more time working."

Yes, that's right. All poor people just laze around all day smoking and drinking. What an idiot.

I think I speak for many when I say, Gina, that there is no fucking way that I am jealous of you. I wouldn't trade places with you in a million years. To begin with, your physical appearance is a mirror image of your personality-mean, ugly, and obese. Further, your words are the living embodiment of sloth and greed so it's really not surprising you think the way you do.

And getting to be the richest woman in the world must have been hard work., eh? Oh, wait. No, it wasn't as you inherited all your wealth. According to her, though, "There is no monopoly on becoming a millionaire. Become one of those people who work hard, invest and build, and at the same time create employment and opportunities for others."

So why are people still poor?

Rinehart blamed what she described as "socialist," anti-business government policies, and urged Australian officials to lower the minimum wage and cut taxes.

Oh, right...that:) Playing the victim card again, are we?

People like Gina Rinehart fail to grasp the very simple notion that there many people who don't live for material gains. It's never bothered me that people have more money than I do. I have a great wife, wonderful children, great friends and , most importantly of all, good health in my family. Obviously, one needs a stable job and some money for a rainy day but beyond that, life is about so much more than having material things.

The failure of the Right to see that they are projecting their own perceptions of greed, envy and pettiness onto others is truly one of the finest examples of cognitive dissonance in modern times.

Back To Stiglitz

Being that it is Labor Day, I thought we'd jump back to my analysis of Joseph Stiglitz's book, The Price of Inequality. And, before I get to the next section (Chapter 3), I want to detail the four myths (per Stiglitz) that are perpetuated by the Right regarding inequality. These are pretty important to look at before we continue.

First, the Right argues that when inequality is examined, it is done so in a snapshot sort of way. If one looks at lifetime inequality, then it's not so bad. People start off poor and then they get rich. In fact, the opposite is becoming increasingly true. Chances are if you are born poor, you are going to stay that way the rest of your life. Lifetime inequality is, in fact, very large and it's almost as large as it is in each moment of time.

Second, the Right says that our poor must not have it that bad because they have Flat Screen TVs and X Box. That may have been a measure of wealth in 1980 when those items weren't made cheaply in China and sold at Costco but it's certainly not a measure by today's standards. As at National Academy of Sciences panel pointed out, one can't ignore relative deprivation. Rural India, for example, has enormous poverty but they have access to television and cel phones. How would selling a TV or cel phone provide for long term needs like food, access to decent health care and education? The value of these things aren't really that great in today's world.

Third, the Right likes to pick nits about statistics. They say that inflation may be overestimated and growth in income underestimated. Yet Americans are working longer hours and sometimes two or three jobs just to make ends meet. These jobs aren't very secure either. Details like this aren't really measured in quantitative analyses and that's why those studies must be juxtaposed with qualitative work. Clearly, the problem is growing worse as we saw in the latest Census report in 2010: poverty went up from 15.2 percent to 16 percent.

Finally, (and this is what is going to tie into my post about Chapter 3), the Right insist that it is moral for society to be unequal, even at ever increasing levels. Doing anything would "kill the golden goose," as Stiglitz puts it. This argument has two sides and both are wrong. The first is that if we tax the higher rate folks they will lose their incentive to work and tax revenue will drop. As Greg Mankiw (one of Mitt Rommney's main economic advisers), the Laffer Curve proved to be inaccurate. The second part of this argument states that helping the poor will only lead to more and increasing poverty. They too will not be properly incentivized. The poor have only themselves to blame, right? Why should they take away the "hard earned money" of the wealthy?

We aren't going to get anywhere with addressing these issue of inequality until we dispense with these four myths. They are not rooted in fact nor are they rooted in evidence. Moreover, they are detrimental to solving the problem of lessening inequality, the result of which (as Stiglitz notes) will create a more dynamic economy.