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Mainstream Economics Warns Out-of-Control Inequality Harms the Economy…But Corrupt Government Policy Keeps Increasing Inequality

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Who’s Who of Prominent Economists Agree: Inequality Harms Economic Growth

By WashingtonsBlog

A who’s who of prominent liberal and conservative economists in government and academia have now said that runaway inequality harms economic growth, including:

  • Former U.S. Secretary of Labor and UC Berkeley professor Robert Reich
  • Global economy and development division director at Brookings and former economy minister for Turkey, Kemal Dervi
  • Societe Generale investment strategist and former economist for the Bank of England, Albert Edwards
  • Michael Niemira, chief economist at the International Council of Shopping Centers
  • Former executive director of the Joint Economic Committee of Congress, senior policy analyst in the White House Office of Policy Development, and deputy assistant secretary for economic policy at the Treasury Department, Bruce Bartlett
  • Deputy Division Chief of the Modeling Unit in the Research Department of the IMF, Michael Kumhof

Even the father of free market economics – Adam Smith – didn’t believe that inequality should be a taboo subject.

Numerous investors and entrepreneurs agree that runaway inequality hurts the economy, including:

How Bad Is It?

So how bad is it, really?

Inequality in America today is twice as bad as in ancient Rome, worse than it was in Tsarist Russia, Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America. (More stunning facts.)

It’s Not an Accident … It’s Policy

Extreme inequality helped cause the Great Depression, the current financial crisis … and the fall of the Roman Empire . Bad government policy – which favors the fatcats at the expense of the average American – is largely responsible for our runaway inequality.

And yet the powers-that-be in Washington and Wall Street are accelerating the redistribution of wealth from the lower, middle and more modest members of the upper classes to the super-elite.

Defenders of the status quo pretend that this inequality is something outside of our control … like a force of nature. They argue that it’s due to technological innovation or something else outside of policy-makers’ control.

In reality, inequality is rising due to bad policy.

Nobel prize winning economist Joe Stiglitz said recently:

Inequality is not inevitable. It is not … like the weather, something that just happens to us. It is not the result of the laws of nature or the laws of economics. Rather, it is something that we create, by our policies, by what we do.

We created this inequality—chose it, really—with [bad] laws …

Gaming the System to Pillage and Loot

The world’s top economic leaders have said for years that inequality is spiraling out of control and needs to be reduced. Why is inequality soaring even though world economic leaders have talked for years about the urgent need to reduce it?

Because they’re saying one thing but doing something very different. And both mainstream Democrats and mainstream Republicans are using smoke and mirrors to hide what’s really going on.

And it’s not surprising … Nobel winner Stiglitz says that inequality is caused by the use of money to shape government policies to benefit those with money. As Wikipedia notes:

A better explainer of growing inequality, according to Stiglitz, is the use of political power generated by wealth by certain groups to shape government policies financially beneficial to them. This process, known to economists as rent-seeking, brings income not from creation of wealth but from “grabbing a larger share of the wealth that would otherwise have been produced without their effort”

Rent seeking is often thought to be the province of societies with weak institutions and weak rule of law, but Stiglitz believes there is no shortage of it in developed societies such as the United States. Examples of rent seeking leading to inequality include

  • the obtaining of public resources by “rent-collectors” at below market prices (such as granting public land to railroads, or selling mineral resources for a nominal price in the US),
  • selling services and products to the public at above market prices (medicare drug benefit in the US that prohibits government from negotiating prices of drugs with the drug companies, costing the US government an estimated $50 billion or more per year),
  • securing government tolerance of monopoly power (The richest person in the world in 2011, Carlos Slim, controlled Mexico’s newly privatized telecommunication industry).

(Background here, here and here.)

Stiglitz says:

One big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy …. Monopolies and near monopolies have always been a source of economic power—from John D. Rockefeller at the beginning of the last century to Bill Gates at the end. Lax enforcement of anti-trust laws, especially during Republican administrations, has been a godsend to the top 1 percent. Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itself—one of its best investments ever. The government lent money to financial institutions at close to 0 percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest.

***

Wealth begets power, which begets more wealth …. Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder. It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.

Former Sectretary of Labor Robert Reich recently noted:

When so much wealth accumulates at the top, with money comes the capacity to control politics… It’s not that people are rich, it’s that they abuse their wealth … The wealthy contribute to political candidates and the access that their contributions buy entrenches inequality by securing subsidies, bailouts and policies that lead to even greater inequality.

Bloomberg reports:

The financial industry spends hundreds of millions of dollars every election cycle on campaign donations and lobbying, much of which is aimed at maintaining the subsidy [to the banks by the public]. The result is a bloated financial sector and recurring credit gluts.

Indeed, the big banks literally own the Federal Reserve. And they own Washington D.C. politicians, lock stock and barrel. See this, this, this and this.

Two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City, Moody’s chief economist and many others have all said that the United States is controlled by an “oligarchy” or “oligopoly”, and the big banks and giant financial institutions are key players in that oligarchy.

The chairman of the Department of Economics at George Mason University says that it is inaccurate to call politicians prostitutes. Specifically, he says that they are more correct to call them “pimps”, since they are pimping out the American people to the financial giants.

Economics professor Randall Wray writes:

Thieves … took over the whole economy and the political system lock, stock, and barrel.

No wonder the government has saved the big banks at taxpayer expense, chosen the banks over the little guy, and

No wonder crony capitalism has gotten even worse under Obama than under Bush.

No wonder big Wall Street players are continuing to loot taxpayer money and public resources.

No wonder the big banks continue to manipulate every market and commit crime after crime and … and profit handsomely from it, while law-abiding citizens slide further and further behind.

Yet Obama is prosecuting fewer financial crimes than Bush, or his father, or Ronald Reagan.

No wonder:

All of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else. See this, this and this.

***

Economist Steve Keen says:

“This is the biggest transfer of wealth in history”, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.

Stiglitz said in 2009 that Geithner’s toxic asset plan “amounts to robbery of the American people”.

And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”.

Without the government’s creation of the too big to fail banks (they’ve gotten much bigger under Obama), the Fed’s intervention in interest rates and the markets (most of the quantitative easing has occurred under Obama), and government-created moral hazard emboldening casino-style speculation (there’s now more moral hazard than ever before) … things wouldn’t have gotten nearly as bad.

As we wrote in March 2009:

The bailout money is just going to line the pockets of the wealthy, instead of helping to stabilize the economy or even the companies receiving the bailouts:

  • A lot of the bailout money is going to the failing companies’ shareholders
  • Indeed, a leading progressive economist says that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”
  • The Treasury Department encouraged banks to use the bailout money to buy their competitors, and pushed through an amendment to the tax laws which rewards mergers in the banking industry (this has caused a lot of companies to bite off more than they can chew, destabilizing the acquiring companies)

As we pointed out in 2008:

The game of capitalism only continues as long as everyone has some money to play with. If the government and corporations take everyone’s money, the game ends.The fed and Treasury are not giving more chips to those who need them: the American consumer. Instead, they are giving chips to the 800-pound gorillas at the poker table, such as Wall Street investment banks. Indeed, a good chunk of the money used by surviving mammoth players to buy the failing behemoths actually comes from the Fed.

Quantitative Easing

It is well-documented that quantitative easing increases inequality (and see this and this.)

Quantitative easing doesn’t help Main Street or the average American. It only helps big banks, giant corporations, and big investors.

The Federal Reserve has been doing quantitative easing for 5 years … and inequality has shot up over the last 5 years. It’s not a coincidence.

Subsidies to Giant, Wealthy Corporations

Massive subsidies to big corporations is also part of the problem. Indeed, some financial analysts say that the taxpayer subsidy to the giant banks alone is $780 billion per year.

The average American family pays $6,000/year in subsidies to giant corporations.

This is a direct transfer of wealth from the little guy to the big guy … which increases inequality.

Goosing the Stock Market

Moreover, the Fed has more or less admitted that it is putting almost all of its efforts into boosting the stock market.

Robert Reich has noted:

Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The “wealth effect” is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds.

AP writes:

The recovery has been the weakest and most lopsided of any since the 1930s.After previous recessions, people in all income groups tended to benefit. This time, ordinary Americans are struggling with job insecurity, too much debt and pay raises that haven’t kept up with prices at the grocery store and gas station. The economy’s meager gains are going mostly to the wealthiest.

Workers’ wages and benefits make up 57.5 percent of the economy, an all-time low. Until the mid-2000s, that figure had been remarkably stable — about 64 percent through boom and bust alike.

David Rosenberg points out:

The “labor share of national income has fallen to its lower level in modern history … some recovery it has been – a recovery in which labor’s share of the spoils has declined to unprecedented levels.”

The above-quoted AP article further notes:

Stock market gains go disproportionately to the wealthiest 10 percent of Americans, who own more than 80 percent of outstanding stock, according to an analysis by Edward Wolff, an economist at Bard College.

Indeed, as we reported in 2010:

As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all stocks, bonds and mutual funds in the U.S. On the other hand, the top 1% owned owned 50.9%.***

(Of course, the divergence between the wealthiest and the rest has only increased since 2007.)

Professor G. William Domhoff demonstrated that the richest 10% own 98.5% of all financial securities, and that:

The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.

Tyler Durden notes:

In today’s edition of Bloomberg Brief, the firm’s economist Richard Yamarone looks at one of the more unpleasant consequences of Federal monetary policy: the increasing schism in wealth distribution between the wealthiest percentile and everyone else. … “To the extent that Federal Reserve policy is driving equity prices higher, it is also likely widening the gap between the haves and the have-nots….The disparity between the net worth of those on the top rung of the income ladder and those on lower rungs has been growing. According to the latest data from the Federal Reserve’s Survey of Consumer Finances, the total wealth of the top 10 percent income bracket is larger in 2009 than it was in 1995. Those further down have on average barely made any gains. It is likely that data for 2010 and 2011 will reveal an even higher percentage going to the top earners, given recent increases in stocks.” Alas, this is nothing new, and merely confirms speculation that the Fed is arguably the most efficient wealth redistibution, or rather focusing, mechanism available to the status quo. This is best summarized in the chart below comparing net worth by income distribution for various percentiles among the population, based on the Fed’s own data. In short: the richest 20% have gotten richer in the past 14 years, entirely at the expense of everyone else.

***

Lastly, nowhere is the schism more evident, at least in market terms, than in the performance of retail stocks:

Saks chairman Steve Sadove recently remarked, “I’ve been saying for several years now the single biggest determinant of our business overall, is how’s the stock market doing.” Privately-owned Neiman- Marcus reported “In New York City, business at Bergdorf Goodman continues to be extremely strong.”

In contrast, retail giant Wal-Mart talks of its “busiest hours” coming at midnight when food stamps are activated and consumers proceed through the check-outs lines with baby formula, diapers, and other groceries. Wal-Mart has posted a decline in same-store sales for eight consecutive quarters.

As CNN Money pointed out in 2011, “Wal-Mart’s core shoppers are running out of money much faster than a year ago …” This trend has only gotten worse: The wealthy are doing great … but common folks can no longer afford to shop even at Wal-Mart, Sears, JC Penney or other low-price stores.

Durden also notes:

Another indication of the increasing polarity of US society is the disparity among consumer confidence cohorts by income as shown below, and summarized as follows: “The increase in equity prices has raised consumer spirits, particularly among higher-income consumers. The Conference Board’s Consumer Confidence index for all income levels bottomed in February/March of 2009. The recovery since then has been notable across the board, but nowhere as much as for those making $50,000 or more.”

Business Week notes:

Barry Ritholtz, [CIO of Ritholtz Wealth, and popular financial blogger], says millions of potential investors may conclude, as they did after the Great Depression, that the market is a rigged game for insiders. Such seismic shifts in popular sentiment can have lasting effects. The Dow Jones industrial average didn’t regain its September 1929 peak of 355.95 until 1954. “You’re going to lose a generation of investors,” says Ritholtz. “And that’s how you end up with a 25-year bear market. That’s the risk if people start to think there is no economic justice.”

Americans know that the system is rigged against them. See this. We know that the government is giving Wall Street crooks a pass. 70% of Americans know that the government’s economic policies have thrown money at the banks and hosed the people.

In such an environment, the average American has largely gotten out of stocks and other investments.

Over-Financialization

When a country’s finance sector becomes too large finance, inequality rises. As Wikipedia notes:

[Economics professor] Jamie Galbraith argues that countries with larger financial sectors have greater inequality, and the link is not an accident.

Government policy has been encouraging the growth of the financial sector for decades:

https://desultoryheroics.com/wp-content/uploads/2014/03/71000-financialandnonfinancialsectors-compensationlesleopold.jpg

(Economist Steve Keen has also shown that “a sustainable level of bank profits appears to be about 1% of GDP”, and that higher bank profits leads to a ponzi economy and a depression).

Unemployment and Underemployment

A major source of inequality is unemployment, underemployment and low wages.

Corporate Profits v. Jobs

Government policy has created these conditions. And the pretend populist Obama – who talks non-stop about the importance of job-creation – actually doesn’t mind such conditions at all.

The“jobless recovery” that the Bush and Obama governments have engineered is a redistribution of wealth from the little guy to the big boys.

The New York Times notes:

Economists at Northeastern University have found that the current economic recovery in the United States has been unusually skewed in favor of corporate profits and against increased wages for workers.

In their newly released study, the Northeastern economists found that since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.

The study, “The ‘Jobless and Wageless Recovery’ From the Great Recession of 2007-2009,” said it was “unprecedented” for American workers to receive such a tiny share of national income growth during a recovery.

***

The share of income growth going to employee compensation was far lower than in the four other economic recoveries that have occurred over the last three decades, the study found.

Obama apologists say Obama has created jobs. But the number of people who have given up and dropped out of the labor force has skyrocketed under Obama (and see this).

And the jobs that have been created have been low-wage jobs.

Low Wage Jobs

For example, the New York Times noted in 2011:

The median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009.

***

Most ordinary Americans aren’t getting raises anywhere close to those of these chief executives. Many aren’t getting raises at all — or even regular paychecks. Unemployment is still stuck at more than 9 percent.

***

“What is of more concern to shareholders is that it looks like C.E.O. pay is recovering faster than company fortunes,” says Paul Hodgson, chief communications officer for GovernanceMetrics International, a ratings and research firm.

According to a report released by GovernanceMetrics in June, the good times for chief executives just keep getting better. Many executives received stock options that were granted in 2008 and 2009, when the stock market was sinking.

Now that the market has recovered from its lows of the financial crisis, many executives are sitting on windfall profits, at least on paper. In addition, cash bonuses for the highest-paid C.E.O.’s are at three times prerecession levels, the report said.

***

The average American worker was taking home $752 a week in late 2010, up a mere 0.5 percent from a year earlier. After inflation, workers were actually making less.

AP pointed out that the average worker is not doing so well:

Unemployment has never been so high — 9.1 percent — this long after any recession since World War II. At the same point after the previous three recessions, unemployment averaged just 6.8 percent.

– The average worker’s hourly wages, after accounting for inflation, were 1.6 percent lower in May than a year earlier. Rising gasoline and food prices have devoured any pay raises for most Americans.

– The jobs that are being created pay less than the ones that vanished in the recession. Higher-paying jobs in the private sector, the ones that pay roughly $19 to $31 an hour, made up 40 percent of the jobs lost from January 2008 to February 2010 but only 27 percent of the jobs created since then.

Alan Greenspan noted:

Large banks, who are doing much better and large corporations, whom you point out and everyone is pointing out, are in excellent shape. The rest of the economy, small business, small banks, and a very significant amount of the labour force, which is in tragic unemployment, long-term unemployment – that is pulling the economy apart.

Money Being Sucked Out of the U.S. Economy … But Big Bucks Are Being Made Abroad

Part of the widening gap is due to the fact that most American companies’ profits are driven by foreign sales and foreign workers. As AP noted in 2010:

Corporate profits are up. Stock prices are up. So why isn’t anyone hiring?

Actually, many American companies are — just maybe not in your town. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.

***

The trend helps explain why unemployment remains high in the United States, edging up to 9.8% last month, even though companies are performing well: All but 4% of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.

But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9%, says Robert Scott, the institute’s senior international economist.

“There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott.

***

Many of the products being made overseas aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.

Government policy has accelerated the growing inequality. It has encouraged American companies to move their facilities, resources and paychecks abroad. And some of the biggest companies in America have a negative tax rate … that is, not only do they pay no taxes, but they actually get tax refunds.

And a large percentage of the bailouts went to foreign banks (and see this). And so did a huge portion of the money from quantitative easing. More here and here.

Capital Gains and Dividends

According to a 2013 study published by a researcher at the U.S. Congressional Research Service:

The largest contributor to increasing income inequality…was changes in income from capital gains and dividends.

Business Insider explains:

Drastic income inequality growth in the United States is largely derived from changes in the way the U.S. government taxes income from capital gains and dividends, according to a new study by Thomas Hungerford of the non-partisan Congressional Research Service.

Essentially, what Democrats have been saying about income inequality — that it’s in a large part due to favorable taxation and deduction policies for high income Americans — is largely right

***

The study … conclusively found that the wealthy benefitted from low tax rates on investment income, which in turn caused their wealth to grow faster.

Essentially, taxing capital gains as ordinary income would make the playing field more fair, and reduce over time income inequality.

Joseph Stiglitz noted in 2011:

Lowering tax rates on capital gains, which is how the rich receive a large portion of their income, has given the wealthiest Americans close to a free ride.

Indeed, the Tax Policy center reports that the top 1% took home 71% of all capital gains in 2012.

Ronald Reagan’s budget director, assistant secretary of treasury, and domestic policy director all say that the Bush tax cuts were a huge mistake. See this and this.

The Existential Threat of Algorithmic Trading

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Most of us are well aware of the problem of human labor being displaced by technology. The Thought Infection blog recently posted an informative overview of how even jobs we might not immediately think of as being at risk of obsolescence are steadily being encroached upon by technology. In this follow up article, he explains how automation has an especially destabilizing effect on the financial sector and economic system.

Excerpt:

The advent of algorithmic trading extends the game that has always existed in markets, but now the speed is faster, the stakes are higher and we can’t be sure who is in control. 

The manipulation abilities of trading algorithms may already (and if not, soon will) extend beyond this kind of inter-algorithmic effects. Given that trading algorithms can act on human informational sources, such as Twitter, as news is released, it is not outlandish to imagine that these algorithms could also be producing information in an effort to manipulate the market. Given that algorithms are becoming better at turning basic information into natural language, it seems possible that an algorithm could be designed to Tweet out false information about a company to try to depress the stock price.

If we take the ketchup manufacturer again and we imagine they are in a precarious position due to a new bill to remove subsidies for tomato growing. Imagine a bunch of tweet/comment/news bots aimed at pushing the public dialogue to make it seem that the subsidies are going to be removed. If massively parallelized, this kind of attack on public sentiment could have a significant effect on the ketchup manufacturer and provide an opportunity for major profits. I think it’s likely this kind of algorithmic sentiment manipulation is already happening on some level.

Even this kind of sentiment manipulation is only a drop in the bucket compared to what may become possible in the near future. The astounding profits which can be made in this kind of algorithmic trading is driving huge investment in artificial intelligence. In the near future, algorithmic traders will be capable of much more complex manipulations to try to move market prices.

…Perhaps by identifying those congressmen who are on the fence about subsidies, a targeted campaign to manipulate the opinions of those in said congressman’s district could have a real effect on the outcome for ketchup manufacturers. This may seem a bit ridiculous, but even a tiny effect on the perceptions and opinions of one individual can make a big difference if spread across a wide enough group.

Read the full article here: http://thoughtinfection.com/2014/01/05/the-deep-end-of-decoupling-the-existential-threat-of-algorithmic-trading/

What he speculates could be our greatest threat in the future is not Terminator-like cybernetic weapons but “an army of Gordon Gekko-bots capable of manipulating every aspect of our legal and political systems in an aim to maximize market profits.”

Swiss to Vote on Basic Income for All

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Switzerland is one of the world’s wealthiest countries per capita, and also one of the most democratic. It’s the only European country with true direct democracy in which all citizens have to do is gather 100,000 signatures calling for a vote to hold a nationwide referendum with a binding result. Last November, Swiss citizens created the so-called 1:12 referendum, which would limit the wages of top executives so they couldn’t earn more in a month than lower paid employees do in a year. That proposal lost the vote, but early next year they’ll have an opportunity to decide on an equally radical referendum: a $2,800 basic income for every adult, whether employed or unemployed. There is currently no minimum wage in Switzerland, but there will also be a vote on that next year.

Anger about salaries and fairness has surged among Swiss voters because some of their biggest banks including UBS are responsible for speculative investment bubbles and continue to pay top executives huge bonuses while reporting huge losses. According to Bloomberg News, Switzerland is home to at least five of Europe’s top 20 paid executives. The inequality pay ratio in Switzerland is 1:194 (while in the U. S., average CEO to average worker compensation was 1:243 in 2010).

The idea of a Basic Income or Universal Wages are not only supported by Marxists and Communists, but have have been gaining traction among Libertarians as well. A great post at Thought Infection recently made an argument for such proposals from a civil libertarian perspective:

Freedom in the 21st century should mean freedom from having to engage in productive work simply to meet your basic needs for comfort and dignity. 

At one time, the ready availability of jobs amply filled the need for a basic access to a comfortable and dignified life, but precipitous technological and economic changes erode this dynamic further each day. The function of the economy has never been to provide gainful employment to people, but simply to provide material goods. As the economy manages to produce more with less human labor, we must create new mechanisms aimed specifically that maintaining and raising the minimum level of comfort and dignity to everyone in a society…

…Worse than just being immoral, the desperate poverty of the lower classes is both immoral and useless. It is not a lack of money that compels the great successes of the modern age, but rather the availability of opportunities. It is because healthy, well-fed people were able to get a good education that allowed us to realize the great miracles of the modern age (eg, the internet, smart phones, Google, etc…). 

We must rebalance the right of society to compel people into productive work with the obligation of society to support its citizens. It should be noted that basic income is not aimed at the unrealisitic and undesirable goal of unfettered access for all to every luxury of the world. Freedom from work does not mean the right to luxury; it simply sets a baseline below which no person should fall. Basic income seeks to strike a fair balance between allowing the benefit of work to coexist with a system aimed at delivering dignity and opportunity for all in a society.

Beyond just better enabling access to opportunities, basic income will also allow people the freedom to live as they choose; to explore unpaid work in the form of volunteering, participating in creative projects, or starting new business ventures. Some argue that there would be less incentive for people to start businesses and be productive, but it could just as easily be argued that it would remove the disincentive from the high-risk, high-reward ventures that are so valuable to modern society…

…Requiring people to live so much of their life working simply to earn a basic income is a waste of human potential and bad for progress. By eliminating the obligation to work just for simple survival, basic income would allow a new dynamic expansion of human freedom and human potential.

A society compelled to perfect cohesion and homogeneity lacks the dynamism to compete in the modern world. New ideas can only come into being at the chaotic interface between contrasting worldviews and lifestyles. In a world where progress is completely reliant on our ability to innovate and create new ideas, we should be seeking to maximize the spectrum of lifestyles which can be expressed within the society. By removing the need to work just to live, we will let people explore their true potential, and we will realize the untold benefits of a new dynamism.  

And this brings us to the real reason that I think basic income will happen soon, not only because it is morally the right thing to do (which it is), but because it makes good sense economically. Just as slavery ended when factories made the economic model of slavery obsolete, we will move towards basic income because it makes good economic sense for the modern innovation economy.

Dynamic, creative and competitive economies of today must seek to stretch the social fabric to its limits. Basic income will serve to reinforce this fabric and enable the risky ventures that will power us forward in the 21st century.

Read the full article here: http://thoughtinfection.com/2013/12/15/basic-income-means-basic-freedom/

 

83 Numbers From 2013 That Are Almost Too Crazy to Believe

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Michael Snyder of The Economic Collapse blog recently compiled a long list of astounding social-economic statistics from the past year. They paint a bleak picture of the future of our current economic system and unless major changes are made, the numbers will only worsen in 2014. There’s probably many more indicators left off the list, but just a small sampling of what’s on it would be enough to worry even the most die-hard optimists:

#1 Most people that hear this statistic do not believe that it is actually true, but right now an all-time record 102 million working age Americans do not have a job.  That number has risen by about 27 million since the year 2000.

#2 Because of the lack of jobs, poverty is spreading like wildfire in the United States.  According to the most recent numbers from the U.S. Census Bureau, an all-time record 49.2 percent of all Americans are receiving benefits from at least one government program each month.

#3 As society breaks down, the government feels a greater need than ever before to watch, monitor and track the population.  For example, every single day the NSA intercepts and permanently stores close to 2 billion emails and phone calls in addition to a whole host of other data.

#4 The Bank for International Settlements says that total public and private debt levels around the globe are now 30 percent higher than they were back during the financial crisis of 2008.

#5 According to a recent World Bank report, private domestic debt in China has grown from 9 trillion dollars in 2008 to 23 trillion dollars today.

#6 In 1985, there were more than 18,000 banks in the United States.  Today, there are only 6,891 left.

#7 The six largest banks in the United States (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley) have collectively gotten 37 percent larger over the past five years.

#8 The U.S. banking system has 14.4 trillion dollars in total assets.  The six largest banks now account for 67 percent of those assets and all of the other banks account for only 33 percent of those assets.

#9 JPMorgan Chase is roughly the size of the entire British economy.

#10 The five largest banks now account for 42 percent of all loans in the United States.

#11 Right now, four of the “too big to fail” banks each have total exposure to derivatives that is well in excess of 40 trillion dollars.

#12 The total exposure that Goldman Sachs has to derivatives contracts is more than 381 times greater than their total assets.

#13 According to the Bank for International Settlements, the global financial system has a total of 441 trillion dollars worth of exposure to interest rate derivatives.

#14 Through the end of November, approximately 365,000 Americans had signed up for Obamacare but approximately 4 million Americans had already lost their current health insurance policies because of Obamacare.

#15 It is being projected that up to 100 million more Americans could have their health insurance policies canceled by the time Obamacare is fully rolled out.

#16 At this point, 82.4 million Americans live in a home where at least one person is enrolled in the Medicaid program.

#17 It is has been estimated that Obamacare will add 21 million more Americans to the Medicaid rolls.

#18 It is being projected that health insurance premiums for healthy 30-year-old men will rise by an average of 260 percent under Obamacare.

#19 One couple down in Texas received a letter from their health insurance company that informed them that they were being hit with a 539 percent rate increase because of Obamacare.

#20 Back in 1999, 64.1 percent of all Americans were covered by employment-based health insurance.  Today, only 54.9 percent of all Americans are covered by employment-based health insurance.

#21 The U.S. government has spent an astounding 3.7 trillion dollars on welfare programs over the past five years.

#22 Incredibly, 74 percent of all the wealth in the United States is owned by the wealthiest 10 percent of all Americans.

#23 According to Consumer Reports, the number of children in the United States taking antipsychotic drugs has nearly tripled over the past 15 years.

#24 The marriage rate in the United States has fallen to an all-time low.  Right now it is sitting at a yearly rate of just 6.8 marriages per 1000 people.

#25 According to a shocking new study, the average American that turned 65 this year will receive $327,500 more in federal benefits than they paid in taxes over the course of their lifetimes.

#26 In just one week in December, a combined total of more than 2000 new cold temperature and snowfall records were set in the United States.

#27 According to the U.S. Census Bureau, median household income in the United States has fallen for five years in a row.

#28 The rate of homeownership in the United States has fallen for eight years in a row.

#29 Only 47 percent of all adults in America have a full-time job at this point.

#30 The unemployment rate in the eurozone recently hit a new all-time high of 12.2 percent.

#31 If you assume that the labor force participation rate in the U.S. is at the long-term average, the unemployment rate in the United States would actually be 11.5 percent instead of 7 percent.

#32 In November 2000, 64.3 percent of all working age Americans had a job.  When Barack Obama first entered the White House, 60.6 percent of all working age Americans had a job.  Today, only 58.6 percent of all working age Americans have a job.

#33 There are 1,148,000 fewer Americans working today than there was in November 2006.  Meanwhile, our population has grown by more than 16 million people during that time frame.

#34 Only 19 percent of all Americans believe that the job market is better than it was a year ago.

#35 Just 14 percent of all Americans believe that the stock market will rise next year.

#36 According to CNBC, Pinterest is currently valued at more than 3 billion dollars even though it has never earned a profit.

#37 Twitter is a seven-year-old company that has never made a profit.  It actually lost 64.6 million dollars last quarter.  But according to the financial markets it is currently worth about 22 billion dollars.

#38 Right now, Facebook is trading at a valuation that is equivalent to approximately 100 years of earnings, and it is currently supposedly worth about 115 billion dollars.

#39 Total consumer credit has risen by a whopping 22 percent over the past three years.

#40 Student loans are up by an astounding 61 percent over the past three years.

#41 At this moment, there are 6 million Americans in the 16 to 24-year-old age group that are neither in school or working.

#42 The “inactivity rate” for men in their prime working years (25 to 54) has just hit a brand new all-time record high.

#43 It is hard to believe, but in America today one out of every ten jobs is now filled by a temp agency.

#44 Middle-wage jobs accounted for 60 percent of the jobs lost during the last recession, but they have accounted for only 22 percent of the jobs created since then.

#45 According to the Social Security Administration, 40 percent of all U.S. workers make less than $20,000 a year.

#46 Approximately one out of every four part-time workers in America is living below the poverty line.

#47 After accounting for inflation, 40 percent of all U.S. workers are making less than what a full-time minimum wage worker made back in 1968.

#48 When Barack Obama took office, the average duration of unemployment in this country was 19.8 weeks.  Today, it is 37.2 weeks.

#49 Investors pulled an astounding 72 billion dollars out of bond mutual funds in 2013.  It was the worst year for bond funds ever.

#50 Small business is rapidly dying in America.  At this point, only about 7 percent of all non-farm workers in the United States are self-employed.  That is an all-time record low.

#51 The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.

#52 Once January 1st hits, it will officially be illegal to manufacture or import traditional incandescent light bulbs in the United States.  It is being projected that millions of Americans will attempt to stock up on the old light bulbs before they are totally gone from store shelves.

#53 The Japanese government has estimated that approximately 300 tons of highly radioactive water is being released into the Pacific Ocean from the destroyed Fukushima nuclear facility every single day.

#54 Back in 1967, the U.S. military had more than 31,000 strategic nuclear warheads.  That number is already being cut down to 1,550, and now Barack Obama wants to reduce it to only about 1,000.

#55 As you read this, 60 percent of all children in Detroit are living in poverty and there are approximately 78,000 abandoned homes in the city.

#56 Wal-Mart recently opened up two new stores in Washington D.C., and more than 23,000 people applied for just 600 positions.  That means that only about 2.6 percent of the applicants were ultimately hired.  In comparison, Harvard offers admission to 6.1 percent of their applicants.

#57 At this point, almost half of all public school students in America come from low income homes.

#58 Tragically, there are 1.2 million students that attend public schools in the United States that are homeless.  That number has risen by 72 percent since the start of the last recession.

#59 According to a Gallup poll that was recently released, 20.0 percent of all Americans did not have enough money to buy food that they or their families needed at some point over the past year.  That is just under the all-time record of 20.4 percent that was set back in November 2008.

#60 The number of Americans on food stamps has grown from 17 million in the year 2000 to more than 47 million today.

#61 Right now, one out of every five households in the United States is on food stamps.

#62 The U.S. economy loses approximately 9,000 jobs for every 1 billion dollars of goods that are imported from overseas.

#63 Back in 1950, more than 80 percent of all men in the United States had jobs.  Today, less than 65 percent of all men in the United States have jobs.

#64 According to one survey, approximately 75 percent of all American women do not have any interest in dating unemployed men.

#65 China exports 4 billion pounds of food to the United States every year.

#66 Overall, the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975.

#67 The number of Americans on Social Security Disability now exceeds the entire population of Greece, and the number of Americans on food stamps now exceeds the entire population of Spain.

#68 It is being projected that the number of Americans on Social Security will rise from 57 million today to more than 100 million in 25 years.

#69 Back in 1970, the total amount of debt in the United States (government debt + business debt + consumer debt, etc.) was less than 2 trillion dollars.  Today it is over 56 trillion dollars.

#70 Back on September 30th, 2012 our national debt was sitting at a total of 16.1 trillion dollars.  Today, it is up to 17.2 trillion dollars.

#71 The U.S. government “rolled over” more than 7.5 trillion dollars of existing debt in fiscal 2013.

#72 If the U.S. national debt was reduced to a stack of one dollar bills it would circle the earth at the equator 45 times.

#73 When Barack Obama was first elected, the U.S. debt to GDP ratio was under 70 percent.  Today, it is up to 101 percent.

#74 The U.S. national debt is on pace to more than double during the eight years of the Obama administration.  In other words, under Barack Obama the U.S. government will accumulate more debt than it did under all of the other presidents in U.S. history combined.

#75 The federal government is borrowing (stealing) roughly 100 million dollars from our children and our grandchildren every single hour of every single day.

#76 At this point, the U.S. already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain.

#77 Japan now has a debt to GDP ratio of more than 211 percent.

#78 As of December 5th, 83 volcanic eruptions had been recorded around the planet so far this year.  That is a new all-time record high.

#79 53 percent of all Americans do not have a 3 day supply of nonperishable food and water in their homes.

#80 Violent crime in the United States was up 15 percent last year.

#81 According to a very surprising survey that was recently conducted, 68 percent of all Americans believe that the country is currently on the wrong track.

#82 Back in 1972, 46 percent of all Americans believed that “most people can be trusted”.  Today, only 32 percent of all Americans believe that “most people can be trusted”.

#83 According to a recent Pew Research survey, only 19 percent of all Americans trust the government.   Back in 1958, 73 percent of all Americans trusted the government. [While it’s unfortunate we can’t trust government, it’s a good thing that more are now aware of reasons why we shouldn’t trust it.]

“Economic Recovery” is Just Deceptive Statistics

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Whenever there’s a cheerful jobs report propagated by corporate news, many of us know they’re lying (because it just doesn’t correspond to reality) though we might not know exactly how the numbers they use decieve us. At Counterpunch.org, Paul Craig Roberts dissects some of the figures cited by the Bureau of Labor Statistics as support for claims of an economic recovery. For example, their payroll jobs report says that the US economy created 203,000 jobs in November. Since it takes about 130,000 new jobs each month to keep up with population growth, the remaining 70,000 of the jobs would have only slightly reduced the unemployment rate yet it supposedly fell from 7.3 to 7.0 which is too much. It turns out the payroll survey counts a person holding two jobs as if it were two employed persons, while the unemployment rate is calculated from the household survey, which counts a person holding two or more jobs as one job. Though the two figures are often reported together, they actually have no connection.

Payroll numbers can be skewed by seasonal hiring and because the birth-death model used to estimate the numbers of unreported business shutdowns and startups often underestimate the former and overestimate the latter. The unemployment rate figures are innacurate because it leaves out people who have given up on looking for work. The greater the number of discouraged workers there are, the lower the rate of unemployment, according to the BLS.

So exactly where and what are the 203,000 new payroll jobs created in November? Paul Craig Roberts breaks down the figures as reported by the BLS and discovered that the majority are lowly-paid, part-time, nontradable (non exportable) domestic service jobs including:

…retail trade with 22,300 jobs, transportation and warehousing with 30,500 jobs, temporary help services with 16,400 jobs, ambulatory health care services with 26,300 jobs, home health care services with 11,800 jobs, and the old reliable waitresses and bartenders with 17,900 jobs.

This is the jobs profile of the American super economy. It is the profile of India 30 or 40 years ago.

PCR continues his analysis by citing the work of statistician John Williams (shadowstats.com), who found more misstated jobs that could be attributed to the government shutdown and reopening, the birth-death model, and concurrent-seasonal-adjustment errors. According to Williams, whose figures include long-term discouraged workers who cannot find a job, the US unemployment rate is actually 23.2%.

Of course there’s no recovery with a 23.2% unemployment rate, but to keep stocks and bonds at all-time record high levels, the Federal Reserve is printing $1,000 billion new dollars annually, potentially creating an economic bubble. Despite these issues, the BLS estimated a third quarter GDP growth of 3.6%. Paul Craig Roberts challenges this claim with the following figures:

US real median household income has declined from $56,189 in 2007 to $51,371 in 2012, a decline of $4,818 or 8.6%. http://www.deptofnumbers.com/income/us/

US real per capita income has declined from $29,554 in 2007 to $27,319 in 2012, a drop of $2,235 or 7.5%.

According to the Bureau of Labor Statistics, there are 1,277,000 fewer seasonally adjusted payroll jobs in November 2013 than in December 2007.

He concludes by asking:

How it is possible for the economy to have been in recovery since June 2009 (according to the National Bureau of Economic Research) and there are 1,277,000 fewer jobs today than existed six years ago prior to the recession?

How has real Gross Domestic Product recovered when jobs and real consumer incomes have not?

War on the Poor Continues With Planned Pension Cuts in Detroit and Illinois

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Yesterday Federal bankruptcy court judge Steven Rhodes ruled that Detroit is insolvent and eligible for a Chapter 9 debt restructuring. This gives the city the go-ahead to cut retirement benefits as part of its restructuring plan, despite pensions being explicitly protected by the state constitution.

Learn more about the situation in Detroit at Detroit Inquiry.

Judge Rhodes’s decision serves as a precedent for city and state governments across the country to carry out a similar policies. Just hours after the Detroit ruling, both chambers of the Illinois legislature also passed an unconstitutional pension reform bill that would steal money from the pension plans Illinois state workers paid for, reduce and suspend cost-of-living increases and limit their salaries.

Such acts of class warfare demonstrate how the government/corporate machine views the 99% as merely a source of wealth and cannon fodder. Once they find cheaper labor and more prosperous markets elsewhere and once soldiers return home after fighting their wars, we’re worth even less to them. Judging from their actions, the corporatocracy has no loyalty, trust and respect for us. Why should we give them any loyalty, trust and respect if it’s not reciprocated?

Detroit Bankruptcy Timeline:

2011

March 16: Michigan’s Public Act 4 emergency manager law goes into effect.

Nov. 16: Detroit Mayor Dave Bing says the city could run out of cash by April 2012 and have a potential shortfall of $45 million by the end of the fiscal year June 30.

Dec. 2: State Treasurer Andy Dillon orders a preliminary financial review of Detroit. The move sparks protests against Michigan Public Act 4, the emergency manager law that expanded EM powers.

Dec. 21: Dillon announces “probable financial stress” in Detroit and recommends Snyder send a team to review city finances.

2012

Jan. 10: Former State Treasurer Andy Dillon gives Mayor Dave Bing until the first week of February to submit a financial plan to avoid an emergency manager.

March 13: A 25-page proposed consent agreement is given to the City Council.

March 21: A state review team declares Detroit in a “severe financial emergency.”

March 23: The Michigan Court of Appeals reverses an Ingham County judge’s ruling that barred the state from entering a consent agreement with Detroit.

April 4: The City Council, 5-4, approves a consent agreement.

April 5: Gov. Rick Snyder and Bing sign the agreement.

June 15: A nine-member oversight board created under the consent agreement holds its first meeting.

Aug. 2: A proposed repeal of Public Act 4 is placed on the Nov. 6 ballot and the law immediately is suspended. Public Act 72, the prior 1990 law that grants fewer powers to emergency financial mangers, is reinstated.

Nov. 7: Public Act 4 is repealed in the general election.

Dec. 10: Detroit’s Financial Advisory Board calls for a 30-day review of the city’s finances under Public Act 72.

Dec. 14: A state review of Detroit finances finds “a serious financial problem.”

Dec. 27: Snyder signs a new emergency manager bill, Public Act 436, which is to take effect March 28.

2013

Jan. 3: An audit shows Detroit has a $327 million accumulated deficit as of June 30.

Feb. 19: A state team reviewing Detroit’s finances determines the city is in a financial emergency with “no satisfactory” plan to resolve it.

March 1: Snyder announces plans to bring an emergency manager to Detroit.

March 9: The council makes a formal request for an appeal hearing in Lansing.

March 12: Detroit officials fail to convince the state’s Emergency Loan Board that a satisfactory plan in place to address Detroit’s fiscal crisis without an emergency manager.

March 14: Snyder appoints Kevyn Orr as Detroit emergency manager. He takes office March 25 for the job, which pays $275,000 per year. State officials hope he can complete his job within 18 months.

March 26: Public Act 436 goes into effect and opponents file a lawsuit in U.S. District Court in Detroit, arguing the legislation deprives citizens of “constitutionally protected rights” and dilutes their vote.

May 13: Orr submits a preliminary financial and operating plan to the state Treasury Department, saying Detroit’s cash-flow crisis makes it “insolvent.”

June 14: Orr unveils to creditors his plans to restructure the city’s finances and avoid bankruptcy.

June 20: Orr holds closed-door meetings with union officials to discuss a restructuring proposal that includes health care and pension cuts and launches a probe of the city’s pension funds amid concerns about corruption, spending and management.

July 5: The city files a lawsuit against Syncora Guarantee Inc., in an attempt to recover $11 million a month in casino payments and taxes that Detroit claims are being improperly withheld by the insurance company.

July 15: Orr submits a quarterly financial report to the state saying the city’s financial condition “continues to be dire.”

July 17: The city’s two pension funds sue Snyder July 17 to block him from authorizing what would be the biggest municipal bankruptcy in U.S. history on claims it would violate retirees’ constitutional right to a pension.

July 18: Orr files a petition for municipal bankruptcy in U.S. District Court’s Eastern District in Detroit.

July 19: The case is assigned to U.S. Bankruptcy Judge Steven Rhodes.

July 24: Rhodes freezes all lawsuits against the city challenging the legality of Detroit’s bankruptcy filing.

Aug. 2: Rhodes creates a committee to represent city retirees.

Aug. 5: Orr announces he has contracted with Christie’s, the New York-based international auction house, to appraise the collection of the Detroit Institute of Arts.

Aug. 13: Chief U.S. District Judge Gerald Rosen is appointed to mediate disputes between the city and creditors.

Sept. 26: An audit commissioned by Orr reveals the city’s pension funds lost more than $125 million on real estate deals and gave questionable bonus payments to employees.

Oct. 9: Gov. Rick Snyder is questioned under oath about his decision to authorize the largest municipal bankruptcy in U.S. history. Snyder is the first sitting governor in modern Michigan history to face a sworn deposition.

Oct. 11: Orr announces the city has secured a $350 million loan agreement with Barclays to pay off a pension related-debt and finance city service improvements while Detroit is in bankruptcy.

Oct. 15: In a report to Dillon, Orr says the city’s financial condition remains dire but cash flow improved during the first quarter since the bankruptcy filing.

Oct. 25: Detroit’s eligibility trial begins before Judge Rhodes in Detroit’s federal courthouse.

Nov. 6: Judge Rhodes denies the NAACP’s request to pursue a lawsuit against Gov. Rick Snyder’s administration over the constitutionality of the emergency manager law.

Nov. 8: The city’s nine-day eligibility trial ends.

Nov. 8: Orr postpones a proposed health care initiative for retirees until Feb. 28 under an agreement with the city and retiree committee created through bankruptcy proceedings.

Nov. 13: A city union representing Detroit’s EMTs reaches a five-year, out-of-court contract agreement with Orr.

Nov. 25: Rhodes in a court filing announces he will decide Dec. 3 whether Detroit can proceed with its Chapter 9 bankruptcy filing.

Nov. 26: A group of creditors ask for an independent evaluation of the Detroit Institute of Arts collection.

Nov. 27: Judge Rhodes halts Detroit’s efforts to fix its broken streetlight system after discovering one of the city’s law firms involved in the bankruptcy case also represents the new Public Lighting Authority, a potential conflict of interest.

Nov. 27: A trial over Detroit’s plan to seek a $350 million bankruptcy loan is pushed back amid new objections by creditors. Judge Rhodes and attorneys representing the city and several creditors agreed in principle to delay the trial to Dec. 17-19.

Dec. 3: Rhodes delivers decision on bankruptcy eligibility.

(Timeline: Associated Press)

Getting Out of the Matrix

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The “government shutdown” may have a silver lining for average citizens after all, it could potentially introduce to the minds of many the possibility that governments can shut down and to get people thinking about what to do if or when it happens for real. Even if you don’t believe it can happen, there’s plenty of reasons to expect a worsening financial crisis,  environmental chaos due to natural and man-made disasters, energy shortages, etc. In short, now is a good time to start seeking alternatives to the current system, finding ways to live off the grid (or at least be less in the grid), and taking basic steps for preparedness.

As important as it is to be aware of the myriad problems affecting our lives, it’s just as important to seek solutions and inspiration to help each other in personal and collective journeys towards a better path. Two podcasts I’ve heard recently may do just that through interviews with creative and iconoclastic individuals who are well on their way on a better path and are encouraging others to join along.

The first is from Kevin Barrett’s Truth Jihad Radio program with author/activist Sander Hicks:

You can read about Hicks’ interests and writings here.

The second was on the latest episode of Greg Carlwood’s The Higherside Chats podcast with author Wendy Tremayne, who gave up a high paying position in New York for a more frugal, sustainable and fulfilling existence in New Mexico:

Both shows cover an interesting mix of information and views on politics, spirituality economics and lifestyle.

Even if one is not ready or able to immediately attempt such a leap, don’t assume it’s not possible. It’s difficult by design to survive within much less escape a system so dominated by corporations and power-mad political bureaucracy without some sacrifice or compromise. However, everyone can take big or small actions everyday to offset compromises, contribute towards positive change and improve one’s situation, whether it’s conscious consumer and lifestyle choices, inner work, learning, communicating, supporting, creating, organizing, resisting and whistleblowing as just a few examples. As Gil Scott-Heron said in his song “Work For Peace”, nobody can do everything but everyone can do something. What one does might depend on personality, passion, skills, knowledge, creativity, and life situation. You might not see immediate results but sometimes change can occur through long-term cumulative efforts.