Shared Prosperity

Former Secretary of Labor Robert Reich (TAPPED):

The "living beyond our means" argument, with its thinly veiled suggestion of moral turpitude, is technically correct. Over the last fifteen years, average household debt has soared to record levels, and the typical American family has taken on more of debt than it can safely manage. That became crystal clear when the housing bubble burst and home prices fell, eliminating easy home equity loans and refinancings.

But this story leaves out one very important fact. Since the year 2000, median family income has been dropping, adjusted for inflation. One of the main reasons the typical family has taken on more debt has been to maintain its living standards in the face of these declining real incomes.

It's not as if the typical family suddenly went on a spending binge — buying yachts and fancy cars and taking ocean cruises. No, the typical family just tried to keep going as it had before. But with real incomes dropping, and the costs of necessities like gas, heating oil, food, health insurance, and even college tuitions all soaring, the only way to keep going as before was to borrow more. You might see this as a moral failure, but I think it's more accurate to view it as an ongoing struggle to stay afloat when the boat's sinking.

Behavioral economists Richard Thaler and Cass Sunstein (Nudge: Improving Decisions About Health, Wealth, and Happiness) have some ideas on helping people to make better choices in their lives (Amazon.com):

Amazon.com: What do you mean by "nudge" and why do people sometimes need to be nudged?

Thaler and Sunstein: By a nudge we mean anything that influences our choices. A school cafeteria might try to nudge kids toward good diets by putting the healthiest foods at front. We think that it's time for institutions, including government, to become much more user-friendly by enlisting the science of choice to make life easier for people and by gentling nudging them in directions that will make their lives better. [...]

Amazon.com: Can you describe a nudge that is now being used successfully?

Thaler and Sunstein: One example is the Save More Tomorrow program. Firms offer employees who are not saving very much the option of joining a program in which their saving rates are automatically increased whenever the employee gets a raise. This plan has more than tripled saving rates in some firms, and is now offered by thousands of employers.

Author Naomi Klein (The Shock Doctrine: The Rise of Disaster Capitalism), speaking at the Chicago School of Economics (via Democracy Now):

When [anti-regulation economist] Milton Friedman turned ninety, the Bush White House held a birthday party for him to honor him, to honor his legacy, in 2002, and everyone made speeches, including George Bush, but there was a really good speech that was given by Donald Rumsfeld. I have it on my website. My favorite quote in that speech from Rumsfeld is this: he said, "Milton is the embodiment of the truth that ideas have consequences."

So, what I want to argue here is that, among other things, the economic chaos that we're seeing right now on Wall Street and on Main Street and in Washington stems from many factors, of course, but among them are the ideas of Milton Friedman and many of his colleagues and students from this school. Ideas have consequences.

More than that, what we are seeing with the crash on Wall Street, I believe, should be for Friedmanism what the fall of the Berlin Wall was for authoritarian communism: an indictment of ideology. It cannot simply be written off as corruption or greed, because what we have been living, since Reagan, is a policy of liberating the forces of greed to discard the idea of the government as regulator, of protecting citizens and consumers from the detrimental impact of greed, ideas that, of course, gained great currency after the market crash of 1929, but that really what we have been living is a liberation movement, indeed the most successful liberation movement of our time, which is the movement by capital to liberate itself from all constraints on its accumulation.

Blogger Avedon Carol:

[W]hat the oligarchs never want you to think about is that heavily taxing the rich — especially things like estate taxes — also make the economy richer, improve your opportunities, increase the likelihood of innovation, and all that other good stuff that America is supposed to be especially good at. Because without estate taxes, wealthy families can keep accumulating wealth for their unproductive offspring and keep that money out of the economy, making them stronger and you proportionately weaker, until the vast majority of people are little more than serfs and slaves working for a tiny number of Malefactors of Great Wealth. Money is like blood in the economy's body, and if it doesn't circulate — if it all accumulates at the top — the body withers while the head becomes stuffed up and bloated, and neither part functions very well.

Money as blood is an interesting analogy. It makes sense that there's a limited pool of wealth, and the economy would function better if more people had access to it. One could offer the counterargument that new wealth can be created (e.g. through new inventions or through harvesting natural resources). But the people in the best position to create that new wealth are — wouldn't you know it — the ones who already have lots of wealth.

Obama lays the financial meltdown squarely at the feet of conservatism (barackobama.com):

The challenges facing our financial system today are more evidence that too many folks in Washington and on Wall Street weren't minding the store. Eight years of policies that have shredded consumer protections, loosened oversight and regulation, and encouraged outsized bonuses to CEOs while ignoring middle-class Americans have brought us to the most serious financial crisis since the Great Depression.

I certainly don't fault Senator McCain for these problems, but I do fault the economic philosophy he subscribes to. It's a philosophy we've had for the last eight years — one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else. It's a philosophy that says even common-sense regulations are unnecessary and unwise, and one that says we should just stick our heads in the sand and ignore economic problems until they spiral into crises.

Well now, instead of prosperity trickling down, the pain has trickled up — from the struggles of hardworking Americans on Main Street to the largest firms of Wall Street.

TPM has excerpts from Obama's speech today in Colorado:

Why else would he say that we've made great progress economically under George Bush? Why else would he say that the economy isn't something he understands as well as he should? Why else would he say, today, of all days — just a few hours ago — that the fundamentals of the economy are still strong?

Senator — what economy are you talking about?

What's more fundamental than the ability to find a job that pays the bills and can raise a family? What's more fundamental than knowing that your life savings is secure, and that you can retire with dignity? What's more fundamental than knowing that you'll have a roof over your head at the end of the day? What's more fundamental than that?

Update: Digby adds:

Every two-term Republican in the last 80 years who isn't Ike had some kind of a severe meltdown in the financial system. Coincidence?

The NYTimes reports that, as a measure of economic well-being, the GDP isn't all it's cracked up to be:

The gross domestic product grew robustly in the post–World War II years. Family incomes also went up, and a rising G.D.P. came to signal well-being as well as expanding economic activity. But these days, while the value added in making cars goes into the total, same as always, the actual cash can be distributed in stock dividends or profits or multimillion-dollar chief executive pay rather than in raises for workers — the G.D.P. does not reflect the shift in distribution.

And over the last 15 years there has been just such a shift. While the G.D.P. has continued to rise, wages have stagnated, pensions have shrunk or disappeared and income inequality has increased. Other shortcomings have become apparent. The boom in prison construction, for example, has added greatly to the G.D.P., but the damage from the crimes that made the prisons necessary is not subtracted. Neither is environmental damage nor depleted forests, although lumbering shows up in government statistics as value added. So does health care, which is measured by the money spent, not by improvements in people's health. Obesity is on the rise in America, undermining health, but that is not subtracted.

Ezra Klein discusses McCain's answer to the "What's rich?" question at Saturday's Saddleback Church forum:

On Saturday night, at Saddleback Church, Barack Obama and John McCain were asked what income level made someone rich (give Rick Warren his due: This was one of the campaign's more useful forum queries). Obama said $150,000, which is somewhere around the 94th percentile. John McCain said $5 million, which is about $3.4 million more per year than you need to qualify for the top 0.1 percentile.

[...] If your wife has hundreds of millions of dollars and you spend your days in the United States Senate, your bar for riches changes a bit. Nothing he said, incidentally, is wrong. $5 million is indeed rich. It's just $4,800,000 more than you'd need to be making for most Americans to see you as rich. McCain's answer is just profoundly out-of-touch. But that has consequences. Asking the world's tallest man to set cabinet heights, or the world's strongest man to decide the tension of jar lids, is going to leave you with some pretty tall cabinets and some pretty tightly closed jars. Similarly, asking one of the world's richest men to set your tax policy will end up with a pretty skewed set of policies: Say, a tax plan that gives his wife $370,000 in breaks. Again, nothing weird or malign: Just the naturally skewed perspective of someone who lives on a particular extreme, in this case, the extreme edge of the wealth distribution.

Ezra Klein:

According to The Wall Street Journal, Wal-Mart's store managers and department supervisors are forcing their employees into mandatory meetings where they "warn that if Democrats win power in November, they'll likely change federal law to make it easier for workers to unionize companies — including Wal-Mart." This is then followed by a friendly soliloquy about union dues, forced strikes, and the jobs Wal-Mart would have to cut if anyone so much as dared breathe the letters "UFCW." As one worker who attended the meetings reported, "The meeting leader said, 'I am not telling you how to vote, but if the Democrats win, this bill will pass and you won't have a vote on whether you want a union.'" [...]

It's impossible to organize under circumstances where labor-friendly workers are fired, stores are closed to serve as an example to others, and where companies pay trivial fines eight years after the fact. Card check, by contrast, makes it possible to organize. And Wal-Mart is, predictably, terrified. But not because their workers wouldn't "have a vote." Rather, they're afraid because, finally, they would.

Update: dday at Digby's blog has more:

That's a direct quote from John Bogle, founder of Vanguard Group mutual funds. (Note: Mr Bogle does not approve of the current state of affairs which has allowed unbridled speculation to threaten our homes and our economic welfare.) The other statement we've been hearing a lot, and that we should ponder, is that the "free-market economy" we've been living in privatizes profit but socializes risk. The same financial institutions who have been demanding lax or no restrictions on their dealing, while happily pocketing the profits on increasingly risky behavior, have suddenly discovered a use for Government as they turn to John & Jane Taxpayer to bail them out from the natural consequences of their risky deals.

Gretchen Morgenson is running a readable, sobering picture of our current Debt Trap in the NYTimes.