The Organisation for Economic Co-operation and Development (OECD) released its report called Divided We Stand: Why Inequality Keeps Rising yesterday.
In releasing report the OECD Secretary-General Angel Gurría said:
The social contract is starting to unravel in many countries. This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise.
Social contract breaking down? Indeed. Trickle-down doesn't work? Really? No kidding!
More after the squiggly!
In remarks at the press conference the Secretary-General had this to say:
Income inequality in OECD countries is at its highest level for the past half century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.
Something well documented on this site. Something that is well-known by the American public. Despite the best efforts of the media and politicians it has not escaped the attention of the people that the rich have gotten richer. They may not know by how much but they certainly know they didn't share in the orgy of corporate profits over the past several decades.
While being mired in a truly terrible economy they still see reports quarter after quarter of new record profits. They see high food costs and energy costs. They see fewer opportunities. But most of all they don't see any way out of this mess. They don't see the government as being responsive to their plight. We have Congressional approval numbers at single digits. A President with approval numbers not seen at this point in a sitting President's term since Jimmy Carter.
Later in the remarks he added:
Sustained inequality inhibits growth and social cohesion.
It does. People end up with less money to spend. So they spend less. Companies don't hire because they don't have enough customers or the customers they have aren't spending as much. And the cycle continues. People that end up on the unemployment tread mill can't get off of it. The average is over 40 weeks. People exhausting 99 weeks (or less in many states) don't have anything. Several hundred thousand are forced into foreclosure and several hundred thousand more are forced to file for bankruptcy "protection" - in reality a draconian process with non-dischargeable debts and up to 5 years of paying on accumulated debt.
Further, the media and various talking-heads spend significant effort to find someone to blame. Deadbeats they say. Poor people are to blame for the housing bubble and its collapse they say. Whiners complained about high gas prices and rapidly rising food prices. Welfare queens getting new Cadillac Escalades from the government every year they say. Moochers living the high life on unemployment and food stamps they say.
They blamed anyone and everyone except for the people that actually are responsible for this mess. Everyone but the serial looters that trashed household after household, person after person, and business after business in a unrelenting reckless pursuit of every last dollar we have. Turns out that the people saw right through it.
Another observation in the Secretary-General's remarks:
It is a real “live” economic issue as we could observe at the beginning of the crisis when the housing bubble burst, and the most vulnerable couldn’t afford to pay for their mortgages anymore. The framework and the incentives which made this happen had its roots in deep-rooted social imbalances.
Indeed. The banks and the top one percent took advantage of the very social imbalances that they already had created to further destroy a larger swath of the population. Perhaps they weren't satisfied with the amount of money they had stolen from us. Perhaps it was the pace at which they were stealing from us. It was probably both.
What about the role of the relentless pursuit of cutting taxes on the "job creator" class? The Secretary-General noted:
Over the last two decades, there was a move away from highly progressive income tax rates and net wealth taxes in many countries. As top earners now have a greater capacity to pay taxes than before, some governments are re-examining their tax systems to ensure that wealthier individuals contribute their fair share of the tax burden.
This aim can be achieved in several different ways. They include not only the possibility of raising marginal tax rates on the rich but also improving tax compliance (and in this areas we have been helping governments eliminate bank secrecy and fiscal havens), eliminating tax deductions, and reassessing the role of taxes on all forms of property and wealth.
Some governments? It would be nice if the United States was one of those governments! The people want the wealthiest of our citizens taxed more. But our politicians refuse to budge on this. It isn't fair they say. It punishes people for "their" success they say. The top one percent stole it fair and square and it would be unconscionable for them to have to give it back they - okay they don't say that. But they are close to just coming right out and saying it.
The cheapest investment the wealthiest of our citizens ever made with the highest return of any of their investments was buying our politicians. For literally pennies they bought the keys to the castle. They have reaped tremendous returns through deregulation, tax "reform", bailouts, and giveaways like no-bid contracts and the like. Not to mention that they bought protection from prosecution, let alone investigation.
Many of our politicians were bought and paid for before they ever made to Washington D.C. or our various state capitols or city halls. They were purchased at those $1000 or $5000 a plate "fund raisers" where they got to meet their owner's representatives, perhaps if they were lucky the owners themselves. Six and seven figure jobs promised to be waiting for them at the end of their terms. All they have to do in return is to make sure they represent the interests of the one percent at the expense of everyone else.
One of the consequence of our government choosing to work for such a small segment of our population is that the wealthiest get all of the money and the rest of us get austerity.
Tax and benefit systems play a major role in reducing market-driven inequality, but have become less effective at redistributing income since the mid-1990s. The main reason lies on the benefits side: benefits levels fell in nearly all OECD countries, eligibility rules were tightened to contain spending on social protection, and transfers to the poorest failed to keep pace with earnings growth.
As a result, the benefit system in most countries has become less effective in reducing inequalities over the past 15 years.
It was already bad enough. But there is still too much money that is flowing from the government back to the bottom 99 percent rather to the top. Social Security needs to be "strengthened" by cutting it. Medicare needs to be "reformed" by cutting it. Medicaid needs to be cut. LIHEAP needs to be cut. SNAP needs to be cut. TANF needs to be cut. Tuition assistance needs to be cut.
Anything and everything that the top one percent has no need for are all on the chopping block. And naturally anything and everything they need such as tax credits for private jets and thousands of other credits and deductions that only they qualify for are completely off the table. It couldn't be any more obvious. They don't even bother hiding it anymore. It gets talked about in the open. "Debated" on cable TV.
In the 2 page Country notes for the United States the OECD listed some key findings:
The wealthiest Americans have collected the bulk of the past three decades’ income gains. The share of national income of the richest 1% more than doubled between 1980 and 2008: from 8% to 18% [Table9.1]. The richest 1% now makes an average US$1.3 million of after-tax income (compared to US$17,700 for the poorest 20% of US citizens). During the same time, the top marginal income tax rate dropped from 70% in 1981 to 35% in 2010.
Of course that disparity is even worse since the OECD only went to 2008 for that measure. It keeps getting worse day by day, week by week, month by month and year by year. Our government apparently is unable to do anything about it. If only the wealthiest Americans consisted only of baseball players that lied about steroid use then perhaps it would motivate the government to drop everything else they were doing and get to the bottom of it.
The rising incomes of executives and finance professionals account for much of the rising share of top income recipients. Moreover, people who achieve such a high income status tend to stay there: only 25% drop out of the richest 1% in the US, compared to some 40% in Australia and Norway, for instance.
Yep. We know who populates the top of the income ladder. We also know that the rich stay rich. We also know that our government has been willing to destroy tens of millions of American households in a massive effort of extend and pretend to make sure that nobody on the Forbes 400 list falls off of it. Tens of millions more American households will probably have to be destroyed in this endeavor.
The main reason for widening inequality in the US is the widening wage gap. The gap between the richest and poorest 10% of full-time workers has increased by almost one third, more than in most other OECD countries.
One of the things the report itself gets into is the fact that in the US there is a large number of part-time workers but also that we have dual income households where both have low incomes and that adds to the widening gap.
We have also been privileged to experience a relentless extraction of any wage gains we have received by the near immediate jump in commodity prices especially in food and energy any time a positive jobs report comes out. Or when the jobs report show more hours worked or a higher hourly rate. Over and over this has happened throughout the much of the last decade.
We have a Federal Reserve Board that has a dual mandate for full employment and to keep a lid on inflation. However, the only inflation that the Fed is trying to keep from happening is wage inflation and consequently they aren't doing anything in regard to getting to full employment as that would create wage inflation since companies would then have to compete for workers.
Contrary to the OECD trend, annual hours among lower-wage workers in the US increased by more than 20% over the past decades [Table4.A1.2] – probably linked to incentive policies such as the Earned Income Tax Credit (EITC) but also the relatively low level of the minimum wage. This trend partially offset the rising wage gap and led to a more moderate increase in overall annual earnings inequality.
People work more hours for less pay. Work more. Get paid less. Get fired. Rinse, wash, repeat.
At any rate the OECD had some key policy recommendations:
Employment is the most promising way of tackling income inequality. The biggest challenge is creating more and better jobs that offer good career prospects and a real chance to people to escape poverty.
What? Jobs? What about the damn deficit? National debt?
Our government has insisted on talking about deficits and forming special commissions and super-committees to look into that problem. For a whole month there were near daily tit-for-tat arguments and poo-flinging over it. Broken deals like the "Grand Bargain". Threats of bond defaults. An address to the Nation by the President. Balanced budget amendments. Austerity. One would have thought the world would end. It was so bad that politicians of both parties were talking in Chamber of Commerce speak and looking near and far for any signs of the "Confidence Fairy" or the "Bond Vigilante".
But what have the American people been telling our politicians for years now? We need jobs. What have we been telling pollsters like Gallup month after month for years now was the most pressing issue the country has? We need jobs.
At least the President has finally "discovered" the jobs crisis in this country. Though I am unsure just how it came to his attention considering the thorough lack of discussion of such a crisis by the vast array of Beltway pundits and political strategists and advisers. He could have found out sooner if he had just come to Main Street America and asked us.
Investing in human capital is key. This must begin in early childhood and be sustained through compulsory education. Once the transition from school to work has been accomplished, there must be sufficient incentives for workers and employers to invest in skills throughout the working life.
Ugh. Human capital? Really, I hate that term. How about investing in Human Beings? I like that term much better.
However, with attacks on our public school systems, devaluing of our teachers, and the overall push to privatize our K-12 education system into the hands of "education" corporations the United States is going in the wrong direction. The whole debacle of "standardized tests" and reducing teaching from teaching children how to learn to teaching them to pass a specific test is failing our future generations. All of it geared towards breaking the public school system so that the largest government function in this country can be handed over to serial looters that have zero interest in educating our children but rather to extract massive amounts of cash from the American people through direct tuition and taxes.
This is an abomination in this country that will turn into a real travesty and ultimately a tragedy if we don't tell our politicians to cut it out! Our children are not grist for future for-profit diploma mills. Education is not a product.
Reforming tax and benefit policies is the most direct instrument for increasing redistributive effects. Large and persistent losses in low-income groups following recessions underline the importance of government transfers and well-conceived income support policies.
Yes. We need to extend unemployment benefits. We need to better support TANF and SNAP. We need to make sure that those most damaged by this economic debacle receive as much help as possible. We need to make sure that those that were already being kept in poverty even before the economy tanked have the opportunities to rise out of poverty. We need to make sure that we don't leave anybody behind. We need to put an end to the near permanent underclass that our system has created.
The growing share of income going to top earners means that governments may re-examine the redistributive role of taxation.
Tax the wealthy! Maybe we should try that! I know it is heresy in "polite" Beltway circles. Class warfare, the pundits and poo flingers would shout. Can we get our politicians to accept that raising taxes on the wealthiest is a necessity in this country? I doubt it. We will be lucky if we don't end up with the Bush Tax Cuts made permanent in the run-up to the November 2012 election so that the Democrats won't be attacked for raising taxes. It is wishful thinking but I would hope that our Democratic candidates will be running on ending the tax breaks for the wealthy.
The provision of freely accessible and high-quality public services, such as education, health, and family care is important.
I would say it is more than important. It should be mandatory. It probably should be part of an extended Bill of Rights in the Constitution. There is absolutely no reason why people in this country should lack for food, shelter, education, medical care nor child care. None. We have the resources in this country to take care of our population we just need to make sure that they are reallocated for that purpose.
Finally ...
As part of the release there is a 4-page media brief.
Toward the end the brief asks (and answers):
Is there any reason for the policy makers (governments) to worry about this problem?
The economic crisis has added urgency to the debate. The social contract is starting to unravel in many countries. Youths who see no future for themselves feel increasingly disenfranchised. They have now been joined by protesters who believe that they are bearing the brunt of a crisis for which they have no responsibility while people on high incomes appear to have been spared.
Rising income inequality creates economic, social and political challenges. It can jeopardise social mobility: intergenerational earnings mobility is low in countries with high inequality such as Italy, the United Kingdom and the United States, and higher in the Nordic countries, where income is distributed more evenly. The resulting inequality of opportunities will affect economic performance as a whole. Inequality can also fuel protectionist sentiments. People will no longer support open trade and free markets if they feel that they are losing out while a small group of winners is getting richer and richer.
Sounds like the OECD has a grasp of why there are people out there in the parks and the streets across the globe. And here I thought that nobody knows why Occupy is protesting or what they want. Somebody ought to let the US government, our media, and most of all, our fellow citizens know!
The OECD ends the 4-page media brief with the following:
Divided We Stand: Why Inequality Keeps Rising shows that there is nothing inevitable about growing inequalities. Globalisation and technological changes offer opportunities but also raise challenges that can be tackled with effective and well-targeted policies. Any policy strategy to reduce the growing divide between rich and poor should rest on three main pillars: more intensive human capital investment; inclusive employment promotion; and well-designed tax/transfer redistribution policies.
There is no reason why income inequality should continue to rise. There is no reason why that inequality cannot be reversed. While there are potent power structures that exist to prevent such a reversal it is something the people can overcome if they are willing to take on those power structures rather than wait for our politicians to figure out who they are supposed to be working for rather than who they are actually working for.
Much of the report tells us things we already know. The one thing they do is deny globalization and offshoring of jobs as being any kind of factor in the income disparity we experience. They blame automation. They cite the need for "upskilling" of the workforce. But even then they are ignoring the causes they cited elsewhere in their report where the disparity is enhanced by the fewer high skilled jobs versus the lower skilled jobs that are available. That many of the high skilled jobs can easily be offshored or are created offshore in the first place is not addressed. They ignore any need for tariffs to counter nations that employ anti-competitive practices that put our workers at a material disadvantage. Free trade must not be impeded. The free flow of capital across borders must not be impeded.
LINKS:
A news release and brief discussion is here:
Society: Governments must tackle record gap between rich and poor, says OECD
Full Remarks by Secretary-General Angel Gurría are here:
Remarks by Angel Gurría, OECD Secretary-General
Two-page Country notes for the United States is here:
COUNTRY NOTE: UNITED STATES (pdf)
The 4-page Media brief is here:
Media Brief
The full report (400 pages) can be purchased for $105 or browsed here (click the Look Inside button):
OECD Bookshop