Monthly Archives: June 2014

You can blame America’s inequality and shrinking middle class for rising student debt

Co-Written with Mark Huelsman.

There is a tendency among elite opinion makers to believe that debt accrued while gaining a college degree is “good debt” that isn’t problematic because, as the thought goes, those with college degrees tend to make enough money to recoup their debt over a lifetime. Student debt is supposedly an equalizer—a way for students to gain access to credit in order to get a degree that will give them an equal chance to enter the middle class and achieve the American Dream. Sadly, like many pundit platitudes, this assertion is grounded in fantasy, not fact.

In fact, this is only true for some students—those who were fairly wealthy in the first place. College is certainly worth the cost, but that at present it is saddling poor and middle-class students with student debt is actually preventing them from participating in the wealth-building processes that previous generations have enjoyed.

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The debate over student debt usually focuses on those right out of school, but that masks that a substantial portion of those with student debt struggle mightily to pay off their loans in a timely manner, delaying (sometimes in perpetuity) their entry into the middle class. Research by the US Federal Reserve Bank of New York finds that many borrowers still haven’t paid off their student loans by their 40s and 50s.

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For students just out of school, upward of 15% of their federal student loans are in default within three years of students leaving school, and delinquency rates for student loans have continued to rise during and after the recession, even as delinquencies in every other form of loan—including mortgages, home equity loans, credit cards, and auto loans—have declined.

The inability to pay off debt is a really big deal, because these students are more likely to take any job that comes their way to pay off their loans than invest in themselves. Research from Demos finds that if “current borrowing patterns continue, student debt levels will reach $2 trillion sometime around 2022. Another report concludes that, “an average student debt burden for a dual-headed household with bachelors leads to a lifetime wealth loss of nearly $208,000.” Given that wealth inequality has returned to Gilded Era heights, this finding should be disturbing.

The problem is that, rather than being seen as a social investment, college education is increasingly seen as a commodity—something that is accessible for the wealthy, but out of reach for the poor, and increasingly, the middle class. Sure enough, student debt is highly correlated to income level with the wealthiest having the lowest amount of debt as a portion of their income (see table).

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Poor and middle class students are much more likely to take on student loans—in fact, nearly 9 in 10 graduates who receive Pell Grants also needed to borrow to finance their degree, compared to 53% of graduates who did not receive Pell Grants. These students will spend more time paying off their debt and less time saving for retirement or other needs, creating a vicious cycle of deepening wealth inequality.

There is a more tenuous, but equally important way in which rising inequality has increased student debt among the poor and middle class – through the political system. Recently, Martin Gilens and Benjamin Page sent the internet alight with their assertion that “economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.” This finding is corroborated by Larry BartelsDorian WarrenJacob HackerPaul Pierson and Kay Lehman Schlozman who have all recorded similar findings.

Although this elite and corporate control of the political system is bad a priori, it has particular importance in the case of education. In their study of the political attitudes of the wealthiest 1%, Larry Bartels, Benjamin Page and Jason Seawright find that the wealthiest 1% have different policy priorities than average voters. For instance, while 78% of the general public agree with the statement, “The federal government should make sure that everyone who wants to go to college can do so,” only 28% of the wealthy agree. Elites are also far less likely to agree that, “The federal government should spend whatever is necessary to ensure that all children have really good public schools they can go to,” by a margin of 35% to 87%. They also believe that cutting deficits is a more important priority than funding education, and believe that education is a lower spending priority than the middle class.

This helps explain why states have slashed spending for education while also cutting taxes—those with the most influence over policy have little to gain from public education, but much to gain from cutting taxes. It also explains why there is very little national attention paid to community colleges, which educate 4 in 10 college students, and who are disproportionately impacted by state budget cuts.  Research by Greg Duncan and Richard Murnane shows that wealthy spend far more supplementing their children’s incomes than the poor, which means that state level cuts have a devastating impact on the poor (see chart).

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Robert Hiltonsmith and Tamara Draut find that in the aftermath of the Great Recession, 49 states (all but North Dakota) cut spending on higher education and that state spending on higher education hit an all-time low in the wake of the recession (see chart). This, essentially, results in higher tuition. Draut and Hiltonsmith find that, “Nationally, average tuition at 4-year public universities increased by 20% in the four years since 2008 after rising 14% in the four years prior.” Tuition continues to grow as a share of the median income, which means all families but the very rich have to take out large debts to pay for their education. This, in turn, means that recent graduates are paying off loans, rather than building wealth.

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College is an important pathway to the middle class and one of the most effective ways to fight inequality. As it becomes increasingly difficult for students to gain an education, it closes gateways to upward mobility. The effect is particularly potent for blacks. A recent study by Bhashkar Mazumder finds that, “blacks have experienced substantially less upward intergenerational mobility and substantially more downward intergenerational mobility than whites.” He finds that this gap shrinks among those with 16 years of schooling.

One simple way to move away from the debt-for-diploma system is for the government to shift from a policy of loans to a policy of grants. There is no reason why college education should primarily be funded by expensive, high interest loans. In the past, Pell Grants helped the poor and middle class attend college, but Pell Grants make up an increasingly low percentage of the cost for college (see chart).

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At a bare minimum the government could allow students to refinance their debts at a lower level; most other countries have policies that allow students to pay off debts as a portion of their income and eventually allow the debts to be forgiven. In Britain, students don’t begin paying off their loans until they find stable employment, and then they pay in proportion to their earnings. Australia similarly ties the cost of paying off the loan to the income of the graduate, and loans themselves come with no interest attached. In Denmark, education is considered a right by the people and an investment by the government, and is therefore free. Some students are even offered a stipend by the government to defray costs. Norway and Sweden have  similar systems of higher education. The US has attempted to implement loan repayment schemes that allow students to pay in accordance with their income, but the default repayment plan on federal student loans is still an arbitrary 10-year time period—a time when borrowers tend to make less, and when saving for retirement could benefit them the most. But enrollment in these plans have been slow, likely due to the fact that our system is needlessly complex and opaque (to wit, there are upwards of 9 different repayment plans one can choose on student loans).

Education, and especially college education is a pathway to the middle class, and most Americans think it is more important than ever. But as society becomes more unequal, access to debt-free education becomes harder and harder.

Originally published on Quartz. 

America’s new wealthy have so little to offer society

Co-written with Wallace Turbeville.

In F. Scott Fitzgerald’s The Great Gatsby, East Egg represents inherited wealth and privilege, while West Egg represents wealth earned through innovation and hard work, a distinction at the core of the American ideal. We have always embraced a dynamic capitalism, marked not by stasis but rather “creative destruction,” lionizing trust-busters as heroes of competition. Joseph Schumpeter, who coined the phrase, feared that eventually capitalism would lead to corporatism and destroy the entrepreneur, the lifeblood of the capitalist system. One disturbing implication of Thomas Piketty’s new book, Capital, is that the American economy is slipping into a form of “rentier” capitalism, in which passive income from wealth, increasingly in the form of inherited fortunes, is supplanting dynamism, hard work and innovation. The term rentier came into use in the mid-19th century to describe people who lived off income from property rather than creating something of value. And now the rentiers have found a way to protect their gains—buying influence in the political system.

The rise of rentier capitalism

Richard Hofstadter observed about American capitalism, “Once great men created fortunes; today a great system creates fortunate men.” This was what Fitzgerald saw in the 1920s: dead, inherited wealth next to dynamic new money. He saw the former as aristocratic, with only the facade of knowledge and virtue, while the latter was entirely uninterested in wisdom and seduced by wealth. Oscar Wilde observed the same in Victorian England, where the illusion of virtue (being named Earnest) was far more important than its practice. Today, much the same dynamic exists between the inherited rentier wealth of the Kochs and Waltons and the new money of the Zuckerbergs and Brins. There was a day when aristocrats were at least cultured. Today, instead, we have a wealthy class with the culture of new money and innovativeness of old money (i.e., rather little of either). This new rentier class, with little to offer society, subsists largely on legalized grift or, in economic terms, rent.

Rents comes in two forms, both referring to income received as a result of status rather than earned by hard work or as compensation for a product, idea or service that benefits society broadly. The first form is inherited wealth and the second is monopolistic market power. The first is easy to see. The second has changed from vertical business trusts to Jamie Dimon as the reincarnation of J. Pierrepont Morgan armed with supercomputers, phalanxes of physicists for quantitative analysis and legions of lobbyists. In our post-liberal economy, these two types of rentiers interact in a feedback loop that has changed the meaning of American inspired (and imposed) western capitalism.

Thomas Piketty paints a dystopian picture of the consequences of this accumulation of wealth in his new book. Piketty describes an underlying property of capitalist economies—if return on capital assets exceeds growth of the economy, wealth will flow into investment in assets, land, companies and financial assets and away from entrepreneurial innovation. Innovation requires distribution of income to the workers who produce products and services, empowering them to consume such goods and services in a virtuous circle measured by consumption driven growth. In contrast, the pool of passive capital asset investment will grow as earnings accumulate instead of being used for consumption. For Piketty, this is the usual configuration of a capitalist economy, rather than the idyllic days of 1945-1979 during which equality increased and the financial well-being and security of the “typical American family” marched relentlessly forward.

Today, America’s top 1% makes its income primarily from capital, not labor.

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Piketty writes, “In terms of total amounts involved, inheritance has thus nearly regained the importance it had for nineteenth century cohorts.”

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He notes, however, that this truth has yet to reach popular culture, where “recent American TV series feature heroes and heroines laden with degrees and high-level skills.”

Piketty concludes that we may soon reach a point in which social rent-seeking àl la marrying wealthy will be a far more effective path to prosperity than entrepreneurship. This is how capitalism dies—not with a revolution—but rather vitiated by rentiers, increasingly myopic and addicted like a junkie to the high of wealth accumulation.

The rise of rentier finance

These conditions are closely related to the massive growth of an overtly rent-seeking financial sector.  Rather than investing in the “real economy,” financiers make money through increasingly obfuscated and complex financial “innovations.” With the deregulation of finance in the Clinton era, finance became increasingly rent-seeking, building towers of leverage rather than companies. During the period of growing disparity of incomes and wealth described by Piketty, this differential between financial sector wages has increased by a staggering amount. Thomas Philippon and Ariell Reshef, find that, “that rents accounted for 30% to 50% of the wage differential between the financial sector and the rest of the private sector.”

 

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Investment in the rent-supercharged financial sector itself has been a primary destination for accumulated wealth and it has greatly increased returns relative to growth. This capital investment fuels the growth of the rent-seeking business of the financial sector, which causes wealth to accumulate and need to be invested, and so on in a loop. The two trends reinforce each other.

The politics of rent

The development of rentier capitalism was not inevitable. The most nakedly self-interested class in modern history owes a substantial debt to a slavish political system. As Paul Krugman notes of Bush era policies, “True, the top tax bracket on earned income fell from 39.6 to 35 percent. But the top rate on dividends fell from 39.6 percent (because they were taxed as ordinary income) to 15 percent — and the estate tax was completely eliminated.”

The Koch brothers, who bankroll a large portion of the conservative dis-information machine are great examples. They claim to love free markets but in truth nothing terrifies them more. The freedom that they seek is the freedom to exploit the market power that their inherited wealth affords them. They use the political sphere to entrench the wealth inherited from their father. Piketty notes that the American tradition is one of high progressive taxation, especially on bequests, to prevent an American analog to European-style aristocracy. Even the patron saint of libertarianism, Robert Nozick, argued that an estate tax was fair, and suggested that, “taxes will subtract from the possessions people can bequeath the value of what they themselves have received through bequests.” Two generations of rentiers are rather enough.

As we have seen, the financial sector perpetuates and is fueled by the new rentier class. In her book, All The Presidents’ Bankers, Nomi Prins traces the history of banker influence in the highest corridors of power, when “the titans of banking” replaces “the barons of industry as the beacons of economic supremacy in the United States.”

Economic inequality perpetuates itself through political inequality, which breeds cronyism. Supreme Court decisions like McCutcheon and Citizen’s United enhance the power of the super wealthy to use the political system to extract rents. Larry BartelsMartin GilensDorian WarrenJacob HackerPaul Pierson, and Kay Lehman Schlozman have found that the rise in economic inequality has coincidedwith a rise in political inequality. The wealthy are using the political system to bolster their wealth, and while both parties are certainly complicit, in few eras has the political system been so nakedly captured by big money.

The implications

The implications are stark. First, liberals must note the important distinction between wealth earned through creativity and labor and wealth accumulated to capital, and focus their attention on the latter.

A growing portion of today’s moneyed elite is neither virtuous nor meritorious, it is parasitic. Second, government must create an economy that rewards work, not property. The Lockean ideal quickly becomes farce when one family owns more wealth than the poorest 40 million Americans.

Taxing inheritance and empowering the middle and lower income segments of society will slow the drift toward an economy dominated by a growing rentier class. Moreover, a moderate increase in inflation could greatly benefit the vast majority of Americans. Higher inflation, even higher than the official target, would adversely affect the asset-holding super rich whose asset value would erode with inflation, but would benefit the rest of the public by encouraging immediate consumption and decreasing the burden of existing debt.

But there is a more fundamental way to address the problem. The modern financial sector constitutes a powerful extra-governmental system of redistribution in favor of the wealthiest Americans. A large portion of the financial sector is in the business of extracting value from the flows of money within the economy with little or no benefit to the intermediation of the allocation of investment capital to socially beneficial uses.

The financial reforms that were adopted in response to the 2008 financial crash were overwhelmingly focused on reducing the potential for a repeat of the catastrophic run on the financial system that triggered the crisis. While this was an admirable endeavor,   a second phase of reform of the financial sector limiting its role in the accumulation of wealth at the top and the stagnation and decline of the well-being and security of the rest of society is essential to a return to a sustainable economy. The myriad practices through which the financial sector extracts value from the system without enhancing the process of allocating capital to purposes that serve the public must be eliminated to reverse the drift toward a rentier economy. These practices can be identified, starting with high-speed trading, predatory derivatives transactions, and tax incentives for hedge funds. Policy makers simply need to develop the backbone to deal with them.

Originally published on Quartz.

Six studies that show everything Republicans believe is wrong

The great 20th-century economist John Maynard Keynes has been widely quoted as saying, “When the facts change, I change my mind. What do you do, sir?” Sadly, in their quest to concentrate economic and political power in the hands of the wealthiest members of society, today’s Republicans have held the opposite position – as the evidence has piled up against them, they continue spreading the same myths. Here are six simple facts about the economy that Republicans just can’t seem to accept:​

1. The Minimum Wage Doesn’t Kill Jobs.

The Republican story on the minimum wage takes the inordinately complex interactions of the market and makes them absurdly simple. Raise the price of labor through a minimum wage, they claim, and employers will hire fewer workers. But that’s not how it works. In the early Nineties, David Card and Alan Krueger found “no evidence that the rise in New Jersey’s minimum wage reduced employment at fast-food restaurants in the state.” Since then, international, national and state-level studies have replicated these findings – most recently in a study by three Berkeley economists. Catherine Ruetschlin, a policy analyst at Demos, has argued that a higher minimum wage would actually “boost the national economy” by giving workers more money to spend on goods and services. The most comprehensive meta-study of the minimum wage examined 64 studies and found “little or no evidence” that a higher minimum wage reduces employment. There is however, evidence that a higher minimum wage lifts people out of poverty. Raise away!

2. The Stimulus Created Millions of Jobs.

In the aftermath of the 2007 recession, President Obama invested in a massive stimulus. The Republican belief that markets are always good and government is always bad led them to argue that diverting resources to the public sector this way would have disastrous results. They were wrong: The stimulus worked, with the most reliable studies finding that it created millions of jobs. The fact that government stimulus works – long denied by Republicans (at least, when Democrats are in office) – is a consensus among economists, with only 4 percent arguing that unemployment would have been lower without the stimulus and only 12 percent arguing that the costs outweigh the benefits.

3. Taxing The Rich Doesn’t Hurt Economic Growth.

Republicans believe that the wealthy are the vehicles of economic growth. Starting with Ronald Reagan in the 1980s, they tried cutting taxes on the rich in order to unleash latent economic potential. But even the relatively conservative Martin Feldstein has acknowledged that investment is driven by demand, not supply; if there are viable investments to be made, they will be made regardless of tax rates, and if there are no investments to be made, cutting taxes is merely pushing on a string. Thomas Piketty and Emmanuel Saez, two of the eminent economists of inequality, find no correlation between marginal tax rates and economic growth.

In fact, what hurts economic growth most isn’t high taxes – it’s inequality. Two recent IMF papers confirm what Keynesian economists like Joseph Stiglitz have long argued: Inequality reduces the incomes of the middle class, and therefore demand, which in turn stunts growth. To understand why, imagine running a car dealership. Would you prefer if 1 person in your time owned 99% of the wealth and the rest of the population had nothing, or if wealth was distributed more equally, so that more people could purchase your cars?

Every other country in the Organization for Economic Cooperation and Development has far lower levels of inequality than the United States. Since there are no economic benefits of inequality, why hasn’t the right conceded the argument? Because it’s based on class interest, not empirical evidence.

4. Global Warming is Caused by Humans.

Even as global warming is linked to more and more extreme weather events, more than 56 percent of Republicans in the current congress deny man-made global warming. In fact, the infamous Luntz memo shows that Republicans have actually created a concerted campaign to undermine the science of global warming. In the leaked memo, Frank Luntz, a Republican consultant, argues that, “The scientific debate is closing [against us] but not yet closed. There is still a window of opportunity to challenge the science.”

In truth, the science of global warming is not up for debate. James Powell finds that over a one year period, 2,258 articles on global warming were published by 9,136 authors. Of those, only one, from the Herald of the Russian Academy of Sciences, rejected man-made global warming. That one article was likely motivated by the Russian government’s interest in exploiting arctic shale. Another, even more comprehensive study, examining 11,944 studies over a 10-year period, finds that 97 percent of scientists accepted the scientific consensus that man-made global warming is occurring.

This is not an abstract academic debate. The effects of climate change will be devastating, and poor countries will be hurt the worst. We’ve already seen the results. Studies have linked global warming to Hurricane Sandydroughts and other extreme weather events. More importantly, doing nothing will end up being far more expensive than acting now. One study suggests it could wipe out 3.2% of global GDP annually.

5. The Affordable Care Act is Working

President Obama’s centrist healthcare bill was informed by federalism (delegating power to the states) and proven technocratic reforms (like a board to help doctors discern which treatments would be most cost-effective). Republicans, undeterred, decried it as Soviet-style communism based on “death panels” – never mind the fact that the old system, which rationed care based on income, is the one that left tens of thousands of uninsured people to die.

From the beginning, Republicans have predicted disastrous consequences or Obamacare, none of which came true. They predicted that the ACA would add to the deficit; in fact, it will reduce the deficit. They claimed the exchanges would fail to attract the uninsured; they met their targets. They said only old people would sign up; the young came out in the same rates as in Massachusetts. They predicted the ACA would drive up healthcare costs; in fact it is likely holding cost inflation down, although it’s still hard to discern how much of the slowdown was due to the recession. In total, the ACA will ensure that 26 million people have insurance in 2024 who would have been uninsured otherwise.

It’s worth noting that every time the CBO estimates how much Obamacare will cost, the number gets lower. Odd how we’ve never heard Republicans say that.

6. Rich people are no better than the rest of us.

Politicians on the right like to pretend that having money is a sign of hard work and morality – and that not having money is a sign of laziness. This story is contradicted by human experience and many religious traditions (Jesus tells a graphic story about a rich man who refused to help the poor burning in hell). But it’s also contradicted by the facts – more and more rich people are getting their money through inheritances, and science shows that they are no more benevolent than others.

More and more, the wealthy in America are second or third generation. For instance, the Walton family, heirs to the Walmart fortune, own more wealth than the poorest 40 million Americans. Thomas Philippon and Ariell Reshef have found that 30 to 50 percent of the wage difference between the financial sector and the rest of the private sector was due to unearned “rent,” or money they gained through manipulating markets. Josh Bivens and Larry Mishel found the same thing for CEOs – their increased pay hasn’t been correlated to performance.

If rich people haven’t really earned their money, are they at least doing any good with it? Studies find that the wealthy actually give less to charity as a proportion of their income than middle-class Americans, even though they can afford more. Worse, they use their supposed philanthropy to avoid taxes and finance pet projects. Research by Paul Piff finds that the wealthy are far more likely to exhibit narcissistic tendencies. “The rich are way more likely to prioritize their own self-interests above the interests of other people,” Piff recently told New York magazine. “It makes them more likely to exhibit characteristics that we would stereotypically associate with, say, assholes.”

Originally published on The Rolling Stone.

Life, liberty and the pursuit of property

It is a general rule, if not a law, of the modern business cycle that the working class is the last to gain from the boom and the first to lose from the bust. A recent report by Demos, a progressive think tank, finds that most of the job gains are not only in low-wage industries but in highly unequal ones. The report found that in 2012 fast-food CEOs were earning more than 1,200 times what the average fast-food worker made, and that over the next eight years, some 421,900 jobs will be created in the highly unequal food preparation and serving industry, which includes the fast-food industry.  

Bosses in these industries often victimize employees, stealing their wages, firing them without cause and subjecting them to brutal and unpredictable schedules. Workers are often misclassified and thereby denied legal benefits, and they make too little to pay their bills and therefore rely on credit card debt and payday lenders. Turnover rates are high, and workers are frequently subject to the vicissitudes of an unforgiving labor market.

Worker militancy, long ago banished by anti-unionization efforts and terror over the possibility of unemployment, has already shown nascent signs of return. The fast-food strikes in 150 U.S. cities and 30 other countries on Thursday, following those across more than 100 cities last December, highlight the increasing plight of workers and their desire for change. And companies are taking notice. In its most recent SEC filing, McDonald’s worried about risks including “campaigns by labor organizations and activists” and “reputational harm as a result of perceptions about our workplace practices.” In his recent book “Capital in the 21st Century,” French economist Thomas Piketty shows that these high levels of inequality are unlikely to abate in the near future.

American worries about inequality between capital and labor have a long and proud history. The founders, fearful of centralized economic power, believed that property should be owned widely. John Adams said, “The only possible way then of preserving the balance of power on the side of equal liberty … is to make the acquisition of land easy to every member of society.” In a remark that would surely have him branded as a Marxist today, Lincoln proclaimed in 1861, “Labor is the superior of capital, and deserves much the higher consideration.” The key to solving this problem structurally is not merely redistribution through taxation and social programs. Although these ameliorate the worst degradations of our current society, they treat the symptoms of inequality rather than curing the cause. The key to reducing inequality is predistribution — the distribution of income and wealth prior to government redistributive efforts — through higher wages and employee capital ownership.

Profit-sharing

A higher minimum wage is part of the solution. Catherine Ruetschlin, a policy analyst at Demos, argues that a higher minimum wage would actually “boost the national economy” by giving workers more money to spend on goods and services. Critics allege that a higher minimum wage would kill jobs. However, the most comprehensive meta-study of the minimum wage examined 64 studies and found “little or no evidence” that a higher minimum wage reduces employment. The preponderance of evidence suggests that a higher minimum wage lifts people out of poverty. It alsoshifts income toward the bottom of the income distribution.

The second part of the solution is to increase stock ownership. Many companies spend billions each year on share buybacks, which help only those who own stocks. Walmart, for instance, spent $7.6 billion on share buybacks in 2012. The benefits of such actions should be spread more widely. In fact, employee capital ownership has a long history in the United States. In 1792, when the U.S. government first subsidized the cod industry, it mandated that three-eighths of the subsidy go to the crew. Any company that refused to sign an agreement promising its workers a share in the profits would not receive government aid. Today, about 47 percent of American workers participate in a profit-sharing agreement. Sadly, however, arrangements are far less common among workers at the lowest end of the spectrum.

Profit sharing and other forms of employee ownership benefit employees. A study of 40,000 employees at 14 firmsfound that workers in profit sharing arrangements have higher pay and benefits, greater job security and higher job satisfaction. Profit sharing also helps employers by boosting productivity. A meta-study by Chris Doucouliagos examined 43 published studies and found that profit sharing, worker ownership and worker participation in decision making are correlated with higher productivity. A U.K. study that found employee ownership increased productivity by 2.5 percent confirms this finding.

There are numerous ways to incentivize an ownership society. More progressive capital gains taxation would discourage accumulation at the top. Firms with broad ownership could be favored in federal contracts or economic development projects. Currently, corporations can include “incentive pay” (read: bonuses) as a cost of business (and therefore subject to a lower tax rate). This break should be allowed only to firms that establish incentive pay for all their employees. Ownership policies can be bipartisan. Two of the most vigorous defenders of employee profit sharing are conservative Rep. Dana Rohrabacher and the socialist Sen. Bernie Sanders. Turning workers into capitalists through ownership has been proposed by the more liberal Robert Solow and also the conservative James Pethokoukis.

Another promising idea is “baby bonds.” A “baby bond” grants citizens a small capital stake that becomes available to them when they reach adulthood, which can be used to pay for education or finance a mortgage. Hillary Clinton floated such a scheme — $5,000 for each child — during her 2008 presidential campaign. In Britain, the Child Trust Fund established by the Labor Party in 2005 granted every child born after Sept. 1, 2002, 250 pounds. In the name of “fiscal austerity,” Prime Minister David Cameron eliminated the program and replaced it with tax-exempt junior individual savings accounts, which only exacerbate inequality, because poor and middle-class families often cannot afford to fund such accounts.

Complementary goals

A higher minimum wage and broader ownership of assets are complementary goals. The first strikes at income inequality — it raises wages for workers enough to live, which should be the standard. It should be axiomatic that an able-bodied worker produces enough to provide for his or her basic needs. The second tackles the issue of wealth inequality; wealth provides a buffer for workers in hard times, a nest egg for retirement and money to fund education. Our economy has been working very well for some people but leaving the vast majority of Americans with little or no wealth. More and more Americans own no stock, have little saved away for retirement and rent, rather than own, their home. They increasingly have negative wealth in the form of credit card, student and home debt. New research finds that rather than being the result of lavish spending, these debts are an economic inevitability in an increasingly unequal society. Unlike large corporations and wealthy bankers, they are unlikely to be bailed out.

The current system is unsustainable. Inequality is straining our democracy and our shared sense that we’re all in this together. The goal should be to harmonize the interests of capital and labor by granting some control of the former to the latter. James Madison wanted America to be a country with “universal hope of acquiring property.” Today, most Americans can only hope to acquire debt.

Originally published on Al Jazeera.

Neil deGrasse Tyson vs. the right: “Cosmos,” Christians, and the battle for American science

The religious right has been freaking out about Neil deGrasse Tyson’s “Cosmos” for what feels like an eternity. And, while the theological complaints seem laughable for their rancor and predictability, it’s time we thought harder about what they represent, because the Christian right’s “Cosmos” agita actually indicates a far deeper problem in religious conservatism — the selective acceptance of Enlightenment values. Religious conservatives have selectively adopted the legacy of liberal Enlightenment, from free speech to science, and jettisoned it when it does not suit their narrow ideological aims.

There is a nasty tendency for those arguing for their case to adopt a stance of enlightened empiricism on one issue to devolve into empirical nihilism on another. There is also the habit of shifting from a high praise of liberal values on one issue to utter contempt on another. Of course, our various liberal values will come into conflict frequently and must be weighed, but we must be disturbed at how quickly some, particularly on the religious right, are willing to twist these traditions for their own gain.

The odd conflict of science and religion has come to define modern religious fundamentalism. While most religious people happily accept scientific theories about gravity, claims about the age of Earth are subject to a strange scrutiny by those who believe that the literary creation narratives in the Bible describe actual events.

The scientific consensus about global warming must be untrue, because, as Dr. Innes writes in “Left, Right and Christ,” the world is “not a glass ornament that we might accidentally destroy … we are not capable of destroying it, whether by nuclear weapons or carbon emissions.” Young earth creationism is the ultimate attempt to both accept modern science, but also to deny it. Fundamentalists like Ken Ham argue that the world and laws we currently observe simply bear no resemblance to the past.

In truth, we cannot get fundamentalism without the scientific revolution. Fundamentalism does not exist independently, but rather defines itself in relationship to post-Enlightenment values. It is the odd melding of science and religion that creates fundamentalism — the belief that the Bible is ultimately both a scientific and religious text. Fundamentalists, like the conspiracy theorists they resemble, will build up reams of evidence creating the case for something that can be disproven with a simple logical proposition. Few thinkers have built such an impressive edifice of logic and evidence upon such a thin foundation of speculation.

Dinesh D’Souza, for instance, has taken to using science as proof of religion — he argues, rather absurdly, that the Bible’s explanation of the origins of the universe predates modern science. In his speech at Intelligence Squared, he claims:

When the discovery of the big bang came — this, by the way, was at a time when most scientists believed the universe was eternal, the steady state universe was the prevailing doctrine of American and Western science — so it came as a shock that the universe had a beginning. Why? because, in a way, it wasn’t just that matter had a beginning, but space and time also had a beginning. In other words, this was something that the ancient Hebrews had said thousands of years ago and without conducting a single scientific experiment. By the way, this is not the same as other cosmologies. Other ancient cosmologies posited the universe being fashioned by a kind of carpenter god who made it out of some preexisting stuff, but the ancient Hebrews said, “No, first there was nothing, and then there was a universe.”

But this rhetorical flourish is a fundamental misunderstanding of the purpose of the creation narrative, and religion in general. Religion, ultimately, aims at truths deeper than science and trying to apply religious reasoning to the natural world is absurd. Augustine warned as much, telling Christians in “De Genesi ad litteram libri duodecim” to avoid, “talking nonsense on these topics.”

More worryingly, the idea that a rather tenuous reading of a literary work holds the same weight as centuries of scientific evidence is more than a little absurd. D’Souza is trying to selectively apply science, but without its foundation — empirical, testable, repeatable propositions.

We see here the fundamentalist flaw: a mass of rhetoric, reason and evidence built on the utterly insane proposition that the Old Testament is meant to be a scientific account of the origins of the universe.

The reason any somewhat knowledgeable Christian is frustrated by these debates is that they simply pit one fundamentalist against another. One tries to use science to disprove religion, the other to prove it — both apparently unaware that belief is something that cannot be “proven.” That’s the entire point! Too often, religious excursions into science resemble the thinking of the suicidal people described by Anne Sexton, “They ask only what tool, they never ask why build?” Fundamentalism at its core is the misunderstanding of the proper relationship between science and religion — one practiced just as frequently by atheists as Christians.

Another form of this trend is the co-option of liberal values. The religious right cannot generally be found decrying freedom of speech or freedom of religion, instead they make a selective application of these values — much the way they’ll talk science when you question nuclear power but deny a consensus about evolution or global warming on entirely spurious grounds.

One recent example of this illiberalism was the quickness with which Catholics decried a “Black Mass” at Harvard. The “Black Mass” is merely a satanic parody of the Catholic mass — which, while it may be offensive to some Catholics, is totally harmless in practice. Of course, the idea of Catholics demanding special privileges is not rare, but to be expected; one wonders if Satanist child abusers could claim that their church would deal with the matter internally.

Liberal values are not weighed in a vacuum, but this weighing appears to be something many religious conservatives are incapable of doing. During the Black Mass controversy, Father James Martin appeared on MSNBC and said, “I think to put it in perspective, we could say, how would we feel if they said, ‘we’re going to do a little cultural thing, we’re going to do something that’s anti-Semitic, or racist, or homophobic, just as a cultural experiment, we’re going to set up the reenactment of a lynching …’” Father Martin claims to put the event in perspective, and then does the opposite, equating the merely offensive with an act of white supremacy.

Lynchings were intimately tied to white supremacy in the post-Civil War South — their intention was to establish white hegemony and create a permanent underclass. Lynchings, the Ku Klux Klan and the burning of crosses were either overtly violent or symbolically violent. The reenactment of a lynching would not be acceptable at a liberal university because it would amount to the direct threat of violence to minorities on campus. It would be aimed at suppressing their rights to expression.

One wonders how Father Martin has lived his entire life in the United States and is still capable of making such an odious comparison. The distinction between the merely offensive and what amounts to group libel or defamation is hard to make, but the Supreme Court has endorsed the idea that some speech may be more than just offensive, and can therefore be regulated. As Clarence Thomas noted in his correct dissent in Virginia v. Black,“just as one cannot burn down someone’s house to make a political point and then seek refuge in the First Amendment, those who hate cannot terrorize and intimidate to make their point.” Father Martin seems to miss this distinction and believes that he should be protected from ever being criticized or offended.

Hobby Lobby provides another example of the selective use of the liberal tradition. One might find it ironic that Catholics aim to carve out an exception for themselves from laws of general applicability when denying other religions that privilege. But sadly, religious majorities have a long history of understanding the First Amendment diametrically wrong, as a protection of powerful religions rather than weak ones. It is the latter the Founders knew would need special protection (see: Church of Lukumi Babalu Aye v. City of Hialeah), not the former.

To both of these claims — that many on the religious right have entirely abandoned the post-WWI liberal consensus of scientific inquiry and Enlightenment values — there are those who would like to say the same about the left. The Economist is quick to point to GMOs as the left’s version of anti-scientific inquiry. Such claims are entirely overblown. More recently, there have been claims that the left is showing the same illiberal tendencies as the right, most notably Michelle Goldberg of the NationShe argues we are “entering a new era of political correctness,” which she calls “left-wing anti-liberalism.”

While she cites some rather damning movements, they are all fringe movements that have produced pixels but will not bring about change. As Marx once wrote of Communism, “In order to supersede the idea of private property, the idea of communism is enough. In order to supersede private property as it actually exists, real communist activity is necessary.” We might note that the idea of illiberalism is something liberalism must countenance, even though it must be prevented from ever being existent.

And here the threat from the right is far stronger: We have seen free speech, freedom of association, freedom of religion and rights of due process come under scrutiny at all levels. Workers are being denied even the semblance of control over their labor and women over their bodies. Money is making a mockery of democracy.

What we see is an asymmetric illiberalism. The religious right and some portions of the conservative movement have hijacked Enlightenment values for selective use. A truly deep (almost dogmatic) commitment to free speech, say, that practiced by the ACLU, which will defend the right of neo-Nazis to protest, is not what we find in many conservative circles. Instead, we see an embrace of empiricism when it is good and a rejection when it is bad. We see an embrace of religious freedom for me, but not for thee. Harry Emerson Fosdick preached in 1922:

The present world situation smells to heaven!  And now, in the presence of colossal problems, which must be solved in Christ’s name and for Christ’s sake, the Fundamentalists propose to drive out from the Christian churches all the consecrated souls who do not agree with their theory of inspiration.  What immeasurable folly!

Well, they are not going to do it; certainly not in this vicinity.  I do not even know in this congregation whether anybody has been tempted to be a Fundamentalist.  Never in this church have I caught one accent of intolerance. God keep us always so and ever increasing areas of the Christian fellowship; intellectually hospitable, open-minded, liberty-loving, fair, tolerant, not with the tolerance of indifference, as though we did not care about the faith, but because always our major emphasis is upon the weightier matters of the law.

His words are still more important today. We live in an increasingly connected and multicultural world, and yet many major religions refuse to recognize marginal ones. We also live in a world threatened by global warming, and yet some Christians deny it, even though it has long been a tenet of religion to live in harmony with nature.

Originally published on Salon.

How Thomas Piketty and Elizabeth Warren demolished the conventional wisdom on debt

In a 2006 “Saturday Night Live” sketch, Chris Parnell sums up the conventional wisdom about credit card debt:

“Did you know millions of Americans live with debt they can not control? That’s why I’ve developed this unique new program for managing your debt. It’s called, Don’t Buy Stuff You Can’t Afford.”

According to the prevailing story, debt is caused by lavish and irresponsible spending by poor and middle-class families. But like much “conventional wisdom,” an increasing amount of evidence belies this point. In fact, the decline of saving and the rise of debt was an almost inevitable consequence of families trying to scrape by in the face of rising inequality. This is the corollary of French economist Thomas Piketty’s now-famous observation:While capital is increasingly concentrated at the top, it turns out that debt is becoming concentrated at the bottom.

In the same “SNL” bit, Amy Poehler says, “There’s a whole section in here about buying expensive things using money you save.” This supposedly common-sense observation is mirrored elsewhere. The American Institute of CPAs runs an advertising campaign urging people to “Feed the Pig.” One such ad depicts a responsible couple studiously saving for a house, while another eats lobster, receives massages and then complains about “never having enough to put away.” Underlying both the real commercial and the satirical one is the idea that those who aren’t saving could do so, but are instead spending the money. But the evidence for this story is weak.

A more compelling story is that inequality has made it harder for households at the middle and bottom to save.  In fact, the decline in savings has coincide with a rise in income inequality (see chart). There is evidence that these trends are connected.



American households falling in the bottom third of income growth from 1999 to 2007 accounted for a full half of the decline in the overall saving rate over the same period,according to the IMF. Meanwhile, a 2012 Demos study finds that “40 percent of households used credit cards to pay for basic living expenses such as rent or mortgage bills, groceries, utilities, or insurance, in the past year because they did not have enough money in their checking or savings account.” Another 2012 study finds that “regions or periods with higher inequality are characterized not only by a more unequal distribution of saving rates but also by lower saving rates for most of the income distribution.”

One of the myths of the right has been that if the rich have more money, they’ll save and invest more as a result, thereby stimulating the economy. That is, more inequality will lead to more national saving. In fact, the data shows that inequality just concentrates wealth in the hands of the few. It also points to the important possibility that the increase in income inequality is what drove the savings rate down to begin with, by also increasing disparities in wealth.

Wealth serves as a buffer for an income shock, like losing a job or a medical emergency; it also constitutes a family’s retirement income and the means for funding children’s education. However, the rise in income inequality has been coupled with a rise in wealth inequality, meaning that wealth is increasingly concentrated in the hands of the few. Recently, Emmanuel Saez and Gabriel Zucman have shown the increase of wealth inequality in the United States (source).

This rising wealth inequality means that American households don’t have anything to fall back on in the case of a bout of unemployment or a health crisis. (One study finds that 62 percent of bankruptcies are medical-related.)

In a recent study, Amy Traub, a senior policy analyst at Demos, sought to test whether those with credit card debt were the profligates portrayed by popular culture. She used a national survey of 1,997 households to create two groups indistinguishable in terms of income, race, age, marital status and rate of homeownership. The only difference? One group had credit card debt, the other group didn’t. Traub finds that the households without debt had more assets, and fell back on them when dealing with unexpected expenses. She finds “little evidence” that “households with credit card debt are less responsible in their spending habits than households that do not have accumulated debt.” Instead, she finds that unemployment, children, lack of education, lack of health insurance and negative home equity correlate strongly with high levels of debt.

In their famous book on the subject, “The Two-Income Trap,” Elizabeth Warren andAmelia Warren Tyagi argue that slowing income growth, not overspending, is what’s driving families into debt. In an essay on Boston Review they write that,

There is no evidence of any ‘epidemic’ of overspending—certainly nothing that could explain a 255 percent increase in the foreclosure rate, a 430 percent increase in the bankruptcy rolls, and a 570 percent increase in credit-card debt.

The Warrens point to the increasing cost of education and housing. A 2000 study performed in Fresno, California, found that the most important determinant of neighborhood housing prices was school quality. The strongest evidence that the Warrens cite is that between 1984 and 2001 housing prices for those with one or more children increased at three times the rate of those without children. As families have tried to provide for the education for their children, they have increasingly been squeezed by high housing costs.

The final factor driving debt is unscrupulous practices by banking institutions.The CARD Act is saving Americans $12.6 billion a year by cutting back dodgy fees and other shady practices. But payday lenders can still prey on the poor. Traub finds that households with higher levels of credit card debt were more likely to have received financing from payday lenders. We need policies to give poor and middle-class workers more income and wealth. Increasing the minimum wage is a simple start. Incentivizing worker ownership and profit-sharing would also benefit workers. The government could give citizens a small basic income each year and it could also institute a “baby bond” policy, which would foster wealth building. On the other side, it needs to bust up concentrated and idle wealth by taxing it.

As Piketty notes in his interview with Matthew Yglesias, “My point is to increase wealth mobility and to increase access to wealth.” He aims to “reduce taxation of wealth for most people, but to increase it for those who already have a lot of wealth.” By spreading wealth to the middle class and poor, we could decrease the reliance on the “plastic safety net,” and create a strong and sustainable middle class.

Originally published on Salon.

The Piketty pontiff: How Pope Francis is bringing Catholicism back to its anti-inequality roots

Pope Francis sent conservatives into a rage on Friday when — in a comment that had shades of Thomas Piketty — he called for a global movement toward ”equitable economic and social progress,” to be achieved in part by “the legitimate redistribution of  economic benefits by the state.”

Americans are perhaps more accustomed to the “conservative-tinged activism” that has defined the church’s stateside leadership in recent years. However, Francis’ statement on “legitimate redistribution” shouldn’t come as a total shock, even if we ignore the pivot toward economic justice he has already signaled in the year since his election.

In truth, the Pope’s focus on inequality is consistent with a long history of Catholic social justice teaching. In one of the church’s most important encyclicals on the question of economics, “Rerum Novarum” (1891), Pope Leo XIII wrote,

Justice, therefore, demands that the interests of the working classes should be carefully watched over by the administration, so that they who contribute so largely to the advantage of the community may themselves share in the benefits which they create-that being housed, clothed, and bodily fit, they may find their life less hard and more endurable.

Leo XIII also advocated government assistance to the needy, the right to form unions and the right to a livable wage.

Social justice activism also appears in the church much more recently. When Reagan sent goons to South America to crush the leftist uprisings, they weren’t just killing young socialists — they were gunning down nuns.



Even more conservative Catholic thinkers, like the writer G.K. Chesterton, would not be seduced by the idea the wealthy were somehow virtuous (and the poor feckless). In“Orthodoxy,” he writes,

You will hear everlastingly, in all discussion about newspapers, companies, aristocracies, or party politics, this argument that the rich man cannot be bribed. The fact is, of course, that the rich man is bribed; he has been bribed already. That is why he is rich.

Obviously, things have changed. American Catholicism has in recent years focused more on conservative political causes. Calls for social justice, meanwhile, have receded into the background — and in some cases even found themselves opposed by prominent Catholics.

Take for example Rick Santorum, one of the most prominent Catholic politicians, who said in 2011,

If you’re low-income … in many states you can qualify for Medicaid, you can qualify for food stamps, you can qualify for housing assistance, and that’s not if you’re in poverty. That’s if you’re above the poverty line. And so you have all of the children growing up in an environment where government is paying you, and then we wonder why do these kids feel they’re entitled to so much?

That is not a healthy thing for children, it’s not a healthy thing for society … Suffering, if you’re a Christian, suffering is a part of life. And it’s not a bad thing, it is an essential thing in life … There are all different ways to suffer. One way to suffer is through lack of food and shelter and there’s another way to suffer which is lack of dignity and hope and there’s all sorts of ways that people suffer and it’s not just tangible, it’s also intangible and we have to consider both.

Contrast that to Pope Leo XIII, who wrote in “Rerum Novurm” that,

Rights must be religiously respected wherever they exist, and it is the duty of the public authority to prevent and to punish injury, and to protect every one in the possession of his own. Still, when there is question of defending the rights of individuals, the poor and badly off have a claim to especial consideration. The richer class have many ways of shielding themselves, and stand less in need of help from the State; whereas the mass of the poor have no resources of their own to fall back upon, and must chiefly depend upon the assistance of the State. And it is for this reason that wage-earners, since they mostly belong in the mass of the needy, should be specially cared for and protected by the government.

Although Santorum’s sentiments certainly don’t constitute the views of all American Catholics, one does wonder what would happen if someone held opinions on abortion this out of line with the church’s position. Would they be run out of town? We know they would.

For a long time it seemed as if someone could be a perfectly respectable Catholic thinker and also believe odious things about poverty and race. (See: Rick Santorum, and also Paul Ryan.) The Church seemed far more interested in abortion, homosexuality and contraception than the plight of the poor. A 2010 Pew study finds many Americans draw their views on same-sex marriage and abortion from the church but few draw their views on government assistance to the poor from the church.

A change in emphasis from the culture wars to poverty would be welcome, and certainly not unprecedented. In a way, Pope Francis can be seen as putting the reforms of theSecond Vatican Council of 1965 back on track after decades of derailment by conservative popes. (As Thomas Ryan, director of the Loyola Institute for Ministry, said in 2012, the goal of Vatican II was “to engage, not condemn.”)

Broadly speaking, the Catholic church’s teachings are socially conservative and economically liberal, although over the last four decades, there has been a strong emphasis on the social conservatism. If Francis shifts the conversation to economic issues, might it actually galvanize change?

If nothing else, it will make Christians confront the fact the Christ was no friend of the rich and powerful. In the New Testament, the only person Jesus ever describes as occupying Gehenna (often translated as “hell”) is a rich man who “dressed in purple and fine linen and lived in luxury,” but nonetheless ignored the beggar Lazarus.

Jesus also once told his followers that, “No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.”

There’s a long history of concern in religion — as in the work of Karl Marx — that market systems corrupt virtue and degrade humanity. Pope Francis himself voices this fear. In May of last year, Francis tweeted that,“My thoughts turn to all who are unemployed, often as a result of a self-centered mindset bent on profit at any cost.” He noted further that, “We do not get dignity from power or money or culture, no! We get dignity from work.” When discussing the collapse of Bangladesh factories he worried that that many political and economic systems “have made choices that mean exploiting people.”

In his Apostolic Exhortation “Evangeli Gaudium,” Pope Francis writes,

Money must serve, not rule! The Pope loves everyone, rich and poor alike, but he is obliged in the name of Christ to remind all that the rich must help, respect and promote the poor. I exhort you to generous solidarity and to the return of economics and finance to an ethical approach which favours human beings.

Although the Catholic Church may not have the influence it once did, religion still holds power in both the international and American political discussion. In his recent Brookings Report, “Faith in Equality,” E.J. Dionne argues that a religious left may be a powerful force fighting for economic justice:

The edge that religious progressives have among the young also presents an opportunity to our religious traditions: a focus on social justice and inclusion offers a more promising path to engaging the energies and allegiances of the new generation than does a continuation of the culture wars. Pope Francis is one religious leader who seems to have noticed this.

The intellectual terrain that the Catholic Church now navigates is far different from now than it was even a few short years ago. Thomas Piketty’s “Capital in the 21st Century” is on the top of Amazon’s best-seller lists, and Francis is on his way to becoming one of the most popular popes in history. Some people have dismissed Obama declaration that inequality the “defining issue of our era.” Pope Piketty begs to differ.

Originally published on Salon.

The ultimate guide to shutting down conservative anti-Piketty hysteria

Thomas Piketty’s wildly popular new book, “Capital in the 21st Century,” has been subject to more think pieces than the final episode of “Breaking Bad.” Progressives are celebrating the book — and its unexpected popularity — as an important turning point in the fight against global wealth inequality. This, of course, means that conservatives have gonecompletely ballistic.

Rush Limbaugh, for example, has come out guns a-blazing: “Some French socialist, Marxist, communist economist has published a book, and the left in this country is having orgasms over it,” he exclaimed during a recent broadcast.

When the right drops the C-bomb, the M-bomb and S-bomb all at once, you can be certain a book is having an impact. And “Capital” may well be the “General Theory” of the first half of the 21st century, redefining the way we think about capitalism, democracy and equality.

This, of course, means that the right-wing attacks have only just begun. That in mind, here is a handy guide to navigating the more absurd responses:

Claim: Piketty is a dirty Marxist

There are two Marxes. One, a scholar of capitalism of repute, put forward testable hypotheses, some of which you may accept, some of which you may reject. The other is a conservative boogeyman, the human representation of all they find evil. If they dislike something, it must be Marxist.

James Pethokoukis, a formidable writer, went full hack for his National Review review,

Thanks to Piketty, the Left is now having a “Galaxy Quest” moment. All that stuff their Marxist economics professors taught them about the “inherent contradictions” of capitalism and about history’s being on the side of the planners — all the theories that the apparent victory of market capitalism in the last decades of the 20th century seemed to invalidate — well, it’s all true after all.

How to respond: Most times someone drops the M-Bomb, he is intending to be provocative. With enough effort, you can make almost anything Marxist. While Marxists don’t agree on everything, and the term is very nebulous (Marx once said he wouldn’t describe himself as a Marxist), there are some pretty established rules for determining if someone is, indeed, a Marxist. First, he generally doesn’t write things like,

  • “Marxist analysis emphasized the falling rate of profit — a historical prediction that turned out to be quite wrong” (“Capital in the 21st Century,” page 52)
  • “Marx usually adopted a fairly anecdotal and unsystematic approach”. (“Capital in the 21st Century,” page 229)
  • “Marx evidently wrote in great political fervor, which at times lead him to issue hasty pronouncements from which it is difficult to escape. That is why economic theory needs to be rooted in historical sources …” (“Capital in the 21st Century,” page  10)
  • “… Marx totally neglected the possibility of durable technological progress and steadily increasing productivity.” (“Capital in the 21st Century,” page  10)

These are not the words of a Marxist, but rather a reasonable scholar, investigating the truth of the claims written by the greatest political economist who ever lived. The fact that Piketty abstains from the vitriol and misrepresentation that typify most writing on Marx are to his credit.

Piketty certainly does argue that capitalism will not inevitably reduce inequality, as economist Simon Kuznets had famously claimed. As to whether capital will accumulate without end, as Marx believed, he is more nuanced.

Piketty argues that capital will accumulate in the hands of the few when growth is slower than the rate of return on capital and dis-accumulate if not (This is the now famous “r>g” formula). As growth slows, companies can replace workers with machines (written by economists as “substitution between capital and labor”), but only if there is a high elasticity of capital to labor (higher elasticity means easier replacement). This means that the share of income going to the owners of capital will rise, and the distribution of that capital will become more unequal.

Piketty does not hold to a labor theory of value, he does not believe that capitalism is founded on the exploitation of the proletariat, and he does not believe the system will inevitably collapse on its own contradictions. But critics who call Piketty a Marxist don’t actually mean, “Piketty subscribes to a collection of propositions generally accepted by Marxists”; they mean it as a verbal grenade. Step over it and move to more substantive criticisms.

Claim: The social safety net has already solved the problem

In order to somewhat compensate workers for voluntary unemployment and the ludicrously low wages that “markets” pay them, modern societies have developed transfer systems, or social safety nets of various levels of robustness, to bolster the incomes of low-wage workers. Some conservatives argue that these transfers have solved the inequality problem.

Scott Winship, the lovable but irksome economist dedicated to upsetting the inequality consensus, writes in Forbes,

Most importantly, in the United States, most public transfer income is omitted from tax returns. That includes not just means-tested programs for poor families and unemployment benefits, but Social Security. Many retirees in the Piketty-Saez data have tiny incomes because their main source of sustenance is rendered invisible in the data.

How to respond: There’s not enough room to give his data claims a full airing. For our purposes, it suffices to say that, while America does have a transfer system, it’s far less robust than that of other developed nations. (See chart below, from Lane Kenworthy.)

Government revenues are far lower in the U.S. than in other countries, making redistribution more difficult, and thus our safety net is far more frail. (See chart below, from Sean McElwee.)

Far more interesting is what would happen if conservatives made this their line. After all, if transfers are what is preventing inequality from skyrocketing then the rising share of pre-transfer income accruing to the wealthy capital owners means we need more robust transfer system. Because few, if any, thinkers on the right have argued for a stronger transfer system (and are, in fact, attempting to violate it), they must accept the logical conclusion: Their policies will set off skyrocketing inequality (or, more likely: They don’t give a shit).

Claim: Inequality isn’t a problem because look at consumption!

There are lots of ways to look at inequality. You could look at income inequality by examining how much a person takes home every year from their labor, income from assets and transfers. You could also look at wealth inequality by figuring out how many assets they own, in the form of stocks, bonds, property, and subtract from it their debts. Or you could look at how much they are able to consume.

Some conservative economists argue that an increase in income inequality has not been mirrored by an increase in consumption inequality because the wealthy save or invest their income. Kevin Hassett, a former Romney economic adviser, illustrates this point, arguing:

From 2000 to 2010, consumption has climbed 14% for individuals in the bottom fifth of households, 6% for individuals in the middle fifth, and 14.3% for individuals in the top fifth when we account for changes in U.S. population and the size of households. This despite the dire economy at the end of the decade.

Although he initially made this argument against Piketty in 2012, he has revived it recently in a lecture on the subject.

How to respond: In large part, this is a common trope on the right — the “but they have cellphones!” argument. The empirical literature on this subject is still very much in flux, and there is not a consensus. Some recent studies find that consumption inequality has increased with income inequality. But even if we except the consumption inequality argument, conservatives have some explaining to do. After all, if income inequality has been rising while consumption inequality has stayed the same, where is the spending coming from? Debt. Which means that wealth inequality is increasing, as the rich save more and the poor fall further into debt. Research released this week by Amy Traub of Demos finds that the recent increase in credit card debt hasn’t been driven by profligate spending, but unemployment, children, the declining value of homes and lack of health insurance. Recent research by Emmanuel Saez and Gabriel Zucman show how the bottom 90 percent simply haven’t been able to save their incomes and thereby build wealth. (See chart below.)

Claim: We need lazy rich people

Tyler Cowen is one of the more honest of Piketty’s critics, and there is certainly a lot to like in his review. However, this section is a head-scratcher:

Piketty fears the stasis and sluggishness of the rentier, but what might appear to be static blocks of wealth have done a great deal to boost dynamic productivity. Piketty’s own book was published by the Belknap Press imprint of Harvard University Press, which received its initial funding in the form of a 1949 bequest from Waldron Phoenix Belknap, Jr., an architect and art historian who inherited a good deal of money from his father, a vice president of Bankers Trust… consider Piketty’s native France, where the scores of artists who relied on bequests or family support to further their careers included painters such as Corot, Delacroix, Courbet, Manet, Degas, Cézanne, Monet, and Toulouse-Lautrec and writers such as Baudelaire, Flaubert, Verlaine, and Proust, among others.

How to respond: It’s very true that in the past, many artists, writers and thinkers benefited from familial wealth (or rich benefactors). This, however, is not to be celebrated! It means that marginalized people are frequently removed from mainstream discussion. It’s also a dreadful defense of inequality. As theologian Reinhold Niebuhr writes,“The fact that culture requires leisure, is however, hardly a sufficient justification for the maintenance of a leisured class. For every artist which the aristocracy has produced, and for every two patrons of the arts, it has supported a thousand wastrels.”

Poverty and oppression can also create other powerful types of art, from boheim to the blues. More important, there are far better ways to fund the arts than throwing money at rich families and hoping they cook up something nice. For instance, the National Endowment for the Arts has funded arts education, dance, design, folk and traditional arts, literature, local arts agencies, media arts, museums, music, musical theater, opera, theater and visual arts. In the aftermath of the Great Depression the Works Progress Administration had an arm devoted to funding the arts that supported Jackson Pollock, William Gropper, Willem de Kooning, Leon Bibel and Ben Shahn. The CIA has even gotten into the game.

As Niebuhr notes, “An intelligent society will know how to subsidize those who possess peculiar gifts … and will not permit a leisured class to justify itself by producing an occasional creative genius among a multitude of incompetents.” It’s a wonder that conservatives want the wealthy financing art and philosophy — Marx, after all, would have died of penury without the beneficence of the wealthy Engels. Given that his economist friends have been impressed by Piketty’s cultural depth because of his ability to cite Jane Austen, I wouldn’t put much weight on their cultural defense of privilege.

Claim: Piketty is French, and we saved their asses in World War II

This is true. You’ve lost the debate.

Originally published on Salon.

Welcome to the Piketty revolution: “Capital in the 21st Century” is a game-changer (even if you never read it)

Anyone who’s anyone (and many more who aren’t) has written something this week about “Capital in the 21st Century,” the new treatise on income inequality by French economist Thomas Piketty.

The book was actually published early last month by Harvard University Press, but arrived to fanfare only within the insular, if august, community of economic policy researchers. So, on arrival, it might have seemed like the 700-page tome, with its academic tone and laboriously documented historical analyses, was destined to a life of obscurity. But then something strange happened. People — regular people — started to buy it in droves. By the time “Capital” surged to the top of the charts this week — so many physical copies of the book were sold that Amazon actually ran out of inventory — Thomas Piketty had become the most famous economist this side of Paul Krugman, celebrated on the left and reviled on the right.

At this point, a review or discussion of “Capital” is almost a rite of passage for an aspiring wonk. (You can read this writer’s here.) But the one question that hangs over Piketty’s meteoric rise is, in a way, the most obvious one: What does any of this actually mean?



First off, Piketty is a symbol of the increasing consensus among academic economists and political scientists about inequality and democracy. This consensus, which has been demonstrated in innumerable studiesreports and books already, establishes a few propositions: Inequality has been increasing in the United States over the past three decades. This inequality has been defined particularly by an explosion among the very top, be it the 1 percent or the 0.1 percent (or even the .01 percent). This concentration of economic power has coincided with an increase in political power for the wealthiest Americans. There are still some ideologues who dispute these points, but there are ideologues who still disputeevolution and global warming — best to move along.

Second, Piketty puts conservatives in a rather awkward position. Conservative values, like “opportunity,” “family” and “tradition” — which are broadly supported by Americans — were once the backbone of the Republican Party. Today, that tradition has been jettisoned by the GOP in favor of becoming a subservient vessel for the richest of the rich. Some conservatives have argued that inequality isn’t a problem because government transfer programs — Social Security, Medicaid, Medicare — reduce inequality. This is certainly true, but these are the same transfer programs conservatives are so eager to cut! So if conservatives wish to make this argument, they must implicitly accept that transfer programs work to alleviate inequality, and therefore that cutting them will increase inequality.

Other conservatives, like Kevin Hassett at the American Enterprise Institute, have arguedthat the increase in income inequality has not led to increase in consumption inequality. That is, while incomes have diverged, because the wealthy save more, the poor and middle class can still afford to keep up in purchasing consumer goods. This isn’t true: Numerous studiesfind that consumption inequality has increased along with inequality. However, if the poor have been able to buy goods, they are only able to do so by increasing their debt-loads, which means that wealth inequality will increase concomitantly. (There was a day when conservatives would fear an increase in debt and a large propertyless class. Today, they cheer it on!) In both of the aforementioned conservative arguments, the right reveals the depths to which it will happily sink to gain the patronage of the wealthy.

Third, Piketty points us again to the most important facet of inequality — the inequality of capital. Capital — the ownership of assets that allows individuals to attain wealth and exploit labor — was what Marx worried about. As he wrote in “The Communist Manifesto” of the members of bourgeois society: “Those of its member who work, acquire nothing, and those who acquire anything, do not work.” Today, the debate over income inequality is framed often as the distinction between the salaries of mega-CEOs and minimum-wage workers. This inequality is certainly disturbing; a recent Demos report finds that the compensation of fast food CEOs was more than 1,200 times the earnings of the average fast food worker. But salary is only one part of compensation. Piketty reminds us that a far more potent driver of inequality is the passive accumulation of capital that is only exacerbated through inheritance (see chart below, from Piketty).

This distinction is important, because it reveals the true depth of Republican hypocrisy. While they talk of the value of hard work, they cut taxes on the various parasites whose only source of wealth is the labor of others. They wish to reduce income taxes to 25 percent and, more disturbingly, eliminate capital-gains taxes altogether. That means more wealth inequality, because the percentage of Americans who owns stocks is decreasing(and capital is even more unequally distributed than labor). When their policies are examined objectively, they help not even the 1 percent, but a much smaller portion of society — the 0.01 percent that make their money through capital accumulation and exploitation, rather than of honest labor.

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Is Piketty’s book more likely to be purchased and sat on a coffee table than read? Certainly. The same can be said of “Das Kapital,” though no one would attempt to deny its immense political impact. Keynes’ “General Theory of Employment” — the ur-text of modern economic policy — also wasn’t widely read by the masses, but no book has had a more potent or prolonged influence on the world economic program. The idea of a dense, academic tome setting the public alight is not extraordinary, but rather quite ordinary. The list can certainly be expanded. It’s unlikely that public fully understood the “Origin of the Species,” the Pentagon Papers, “Silent Spring,” “The Kinsey Report,” “Democracy and Education” or “The Course of Positive Philosophy” at the time of their publications, but their impact on society, because of the movements they either fomented or supplemented, is undeniable.

“Capital in the 21st Century” is such a book. For decades, Americans have been aware of the fact that “growth” was no longer benefiting them and their children. We have noticed that the benefits of new technology and of our labor have been flowing to a very few, and that those same people then dictate policies to consolidate their wealth even further. Our voices are not heard, as both political parties, to differing extents, have become subservient to those with wealth.

If nothing else, “Capital” will finally bring questions of “who gets what” back to the center of economics. Economists will no longer be able to couch tax cuts for the rich behind a veil of jargon, disguising power relations as mere economic efficiencies. We forget, if we ever knew, that the earliest economists were philosophers and historians first — and that economics was always considered to be a question of politics.

The Founding Fathers feared that inequality and the conflict between capital and labor would undermine the nascent American government: John Adams, for example, wrote that “property monopolized or in the possession of a few is a curse to mankind.” And even Adam Smith — he of the “invisible hand” — worried of men who “monopolize economic power and undermine the government.” The solution proposed by America’s founders was widespread capital ownership. As Adams writes, “The only possible way then of preserving the balance of power on the side of equal liberty and public virtue, is to make the acquisition of land easy to every member of society.” Later, Abraham Lincoln said, “Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.” Lincoln and the Founders would have been disturbed to learn that one family, the Waltons, now owns more wealth than the bottom 48 million families in America combined; and that wealth inequality is again back to the levels last seen in the days of “The Great Gatsby.” (See chart below, from Saez and Zucman.)

Piketty supplies us with the basis for a new narrative. In this narrative, the postwar period — in which rapid growth produced broad-based, equally shared growth — is unique, not an inevitable product of capitalism. Piketty believes this postwar lull in violent inequality to be an inevitable coalescence of population and war. I believe it was brought about by a powerful labor movement and an epochal crisis of capitalism, coupled with wartime solidarity. Either way, such equality will not come again without action (and it’s unlikely we could grow our way to equality). Money will not remove itself from politics. Power cedes nothing without demand.

The owners of this country, those who profit off of lung cancer, environmental degradation and political capture, are very worried that we learn their tricks. They did not create wealth, they stole it, and continue to accumulate it. As Marx noted, the default position of capitalist societies is ever more inequality and accumulation. Although he is far from a Marxist, Piketty has reaffirmed this truth. The only question that remains is the question Nikolai Chernyshevsky asked in 1863, “What is to be done?”

Originally published on Salon.