Insidious & underrated cause of growing inequality
We look to changes in the economy to explain growing inequality. What happens in the economy is important, but in the long run more important is what happens in the cultural and society. A lot has changed in our culture since the 1960s. Among the most insidious has been a breakdown of the family and rise of single parent household. Children who grow up in these situations, on average, do worse in every social and economic factor we measure. How has this influenced the rise of inequality?
The linked article talks about the uncomfortable truth. "Among low-education, low-income whites, as well as blacks and Hispanics, family disintegration has become the norm." On the other hand, marriage remains the norm for the higher income, higher educated folks. This has to affect upward mobility.
In the middle of the 20th Century, marriage rates and family styles were similar among the lower and upper income groups, i.e. poor kids enjoyed the same benefit of family values as the rich. All they lacked was the higher incomes and, within broad bands, learned behaviors are more important success predictors than are family income. To the extend that income is important, poor kids are losing twice today. They more often come from broken homes and homes with lower income.
Before you can start to solve any problem, you need to identify correctly its causes. To the extent we consider inequality a problem we need to look deeper than obvious, superficial, economic causes. In the middle of the 20th Century, American society was ready to take advantage of the great opportunities made available by robust economic growth. Poor kids, often children of immigrants or those recently coming from the countryside, were prepared to take advantage of what they are given by their good upbringing and strong work ethics.
You can lead a horse to water but you can't make him drink. That saying made more sense to an earlier generation than it does to ours, but the meaning is clear. As does, you have to make hay while the sun is shining. These folksy phrases explain a lot of what has happened in our society. Our society provides great opportunity but benefits most those who take them.
Perhaps is it ironic that those who are best able to take advantage of the system are often new immigrants. Maybe no so ironic. They come with fresh eyes and see better what they can do, not what is "denied" them.
I have found that the old saying about making hay requires some explanation now that few people have farm experience and hay making has changed with mechanization. If you store hay damp, it can rot and create enough heat in a tightly packed barn to cause spontaneous combustion. That means you have to stack hay on hot sunny days, days when you might prefer not to be out in the fields doing heavy, hard work. So the saying means that you have to do what needs to be done when the opportunity arises, not when you find it pleasant or convenient.
There is another interesting permutation, what we might call a absent parent paradox. While single parent households produce generally poorer results, it is also true that alternative families produce some high risers. It is sort of a tournament mentality with winners winning big and most others getting less or nothing. This also contributes to inequality in a big way.
The economy matters. But the economy is embedded in a society and culture. The economy shapes society and society shapes the economy. It is an endless feedback loop and it is impossible to sort out the exact causality. But their interaction defines our limits and potential. We have to work within this environment, recognizing that there are no easy solutions. We may want less economic inequality, but it will be hard to achieve that goal in society that is structured against it. The best solution, IMO, is to build human capital. That is a generational task. For the rest of our lifetimes, we will be living with the inequality caused by the current behaviors.
Posted by Christine & John at December 30, 2013 8:16 AM
Downgrade the economy now FOX! You got nothin’—nothin’. We, last night, just funded NASA, all the universities and Reuters to full (2bil Reuters). I’m gonna’ kill you next election. We found a way to bring the country out of reccession irregardless who’s in office—we don’ need no stinkin’ congress or a president. Optimism is up—say you what?
I never knew the meaning about “making hay.” You learn something every day.
Jeez C&J are we supposed to fall for this moronic bullshit? If so please explain the last go around of income inequality in the US just prior to the great depression using this ignorant propaganda from the AEI. Better yet explain the many other countries that don’t have the issues discussed in the AEI trash yet have the income inequality that compares or is worse than in this country.
It is corruption and economic policy that is the root cause of income inequality, voodoo economics or supply side economics if you prefer is the root cause. Reagan’s was the most corrupt administration and income inequality started to gain acceptance during his administration.
I am comparing the U.S. of 1960 to the U.S. of today. We saw inequality grow after around 1970. There were lots of factors involved. Societal factors also made a difference.
If something is the root cause, it must come before the observed phenomenon. I know you want to blame Reagan, but this trend started more than ten years before Reagan’s policies could have taken hold. And it actually got worse during the times of Clinton and now Obama.
One of the problems was opportunity itself. As you provide better opportunity to more people, they tend to self-select. Those who are more ambitious, smarter or luckier do better than others. It gets worse in the next generations, as the successful tend to marry other successful people and teach their kids the values that made them successful.
In the not very distant past, you had smart and hard working people distributed more randomly in the population. It was based on barriers to advancement. When the barriers were removed, the better prepared moved out, while others stayed. The opportunity produced first greater equality, as formerly poor but ambitious people moved up. But then the other factor set in.
I have observed this over my lifetime and you must have as well. Consider men returning from WWII. Some took advantage of the GI Bill; others did not. By 1960, there was significant difference in their outcomes. But we had not yet seen the big effect of education. Around 1970, there was still some doubt about the value of education. You may recall articles figuring lifetime earnings that showed that if you went to work right out of HS, you would make more in a lifetime than if you spend money and time to go to college. This changed about 1972.
Another big change you must have seen was immigration. In 1970, the U.S. reached the lowest point of foreign born residents in American history. We were a much more homogenous society. If you read the article you linked, you find that all the most equal countries are European and homogenous. The U.S. became less of both since 1970. Interestingly, the least equal in your list are among those who have sent lots of immigrants to the U.S.
I know it is hard for you to understand complexity. You prefer to blame individuals, such as Reagan or Bush. But I ask you to read your own link and try to understand it and then think about what you have seen in your own life.
I suppose you also did not read the “AEI Trash”. If you did, you would see that it does not talk about inequality in the way I do. If you read what I wrote, you know that is just my “trash” based on my experience, study and observation across time and cultures. The difference between us is that I try to figure out why things are the way they are and maybe how to make them better. You try to find people to blame. I understand that individuals make a big difference, but I look to the systemic factors that influence their choices. It would be must simpler if you were right. In that case, we could just elect somebody like Obama and fix it all. That happens only in fairy tales, however.
If something is the root cause, it must come before the observed phenomenon. I know you want to blame Reagan, but this trend started more than ten years before Reagan’s policies could have taken hold. And it actually got worse during the times of Clinton and now Obama.
C&J, the 70’s were a time of economic change but the big change in income inequality started in the 80’s see figure 1 in this link
You can try to revise history and make all these moronic claims but the fact is it is garbage when you compare the income inequality prior to the great depression using the misinformation conservative think tanks and now you in this post have been spewing lately. Something you seem to have ignored in my previous comment.
At least you have quit trying to convince us income inequality is a good thing unlike some extremist
Better educated adults make better educated children usually. It’s meritously dependent on what is viably important within the myriad social groupings. If a parent values italian music that kid looks at it favorably via memory usually. Why is this a topic? Yawn.
Do you read the things you post? Or were you just trying to give me evidence? Look at your charts. Figure 3 show exactly what I was telling you. Income inequality dropped until the mid-1960s. It leveled off and then started to rise in the late 1970s, wit an inflection point around 1976, before Reagan took office. It also jumped in the early 1990s, when Democrats controlled the presidency and congress. You also see that the income streams of the 95th percentile diverged from those of the 20th percentile about the same time.
Or maybe you are unaware of the concept of an inflection point and its importance in explaining causality. Sometimes we call them turning points or tipping points. Think of it like pushing up a hill. When you get to the top, you start sliding down. You are going faster when you get to the bottom, but the slide started at the inflection point at the top.
Re inequality - Some significant inequality is good and sign of progress. It is unjust to treat unequal inputs equally just as the opposite. People who develop useful talents or behaviors deserve more compensation than those who do not. I don’t like extreme inequality, but you must know that it is a different sort than in 1900. In those days, most rich folks income came from inherited wealth. Today, wages and investments are the big drivers. Guys like Zuckerberg or Oprah might not “deserve” all the wealth they have amassed, but they get it from sources not easily controlled by government.
It is a topic because it is such a simple thing but so easily overlooked. And many disagree. As you see, J2t2 doesn’t believe it is a significant factor. I suspect you do not either if you think it through.
A parent has a passion or a behavior, the kid picks it up. The parent goes through a divorce, the child deems it acceptable behavior to marry and flip off a mate. This topic is time memorial in terms of literature and culture and has always been a factor—see Dickens. I don’t think we are going to cure it at this juncture.
There are a myriad of reasons why income inequality has changed since the Great Depression.
Some of the reasons are quite complex, while other reasons are simplistic. C&J is correct in that the very data that j2t2 uses as reference in comment #375368 contradicts this commenter’s main argument (e.g., which timeframes, juxtaposed with the given data, were analogous).
In my view, the two prominent reasons (since the days of the Robber Barons )were the repeal of the 1933 Glass-Steagall Act with the introduction of the Graham-Leach-Bliley Act of 1999 (essentially allowing brick and mortar savings banks that take deposits and give loans to be able to separate this practice with equities acquisition and stock speculation).
Also known as the Community Reinvestment Act of 1977, Jimmy Carter signed a bill into law that endeavored to stop discriminatory practices in lending - especially in low income areas. Termed “Redlining,” many banking and lending institutions rarely approved loans to people for homes or business loans based solely on the geographic area in which such person(s) lived.
However, like most legislation and the need for politicians to win reelection, the CRA was amended 6 or 7 times (mainly during the 1990s).It is also important to note that BOTH political parties conspired in this vote-buying scheme disguised as helping communities.
Without going into a diatribe, the G-L-B Act of 1999 as well as the CRA changes in the 1990s were huge drivers in the financial meltdown of 2008. And we are still feeling the repercussions of the aforementioned legislation.
It is also important to note that each time lending practices were “loosened” by the hand of the government’s legislation in the name of “fairness,” gigantic bubbles were created (see Internet Stock Market Bubble of 1999-2000 and the packaging of mortgage-backed securities (MBSs), CDOs and myriad other fancy schemes that were so complex, not even some of the CFOs of said “Too Big To Fail” banks even knew how they were ‘bundled’ and sold as Triple-A securities around the nation and world, respectfully).
The fact is: the law-of-unintended-consequences took effect after these laws were enacted. Think of these laws as fiscal and monetary policy on steroids!
Many liberals have argued vehemently that the Financial Crisis had little to do with the aforementioned information that I described above (even the panel that undertook analysis of the F.C. differed on the reasons cited. Remember, the panel was heavily weighted with democrats).
The bottom line is the government cannot continue to lend money to banks to lend to risky borrowers, no matter which race or gender the borrowers are. The only thing that matters is the ability of the borrower to pay back said loans based on sound financial analysis.
Finally, the government, in the name of Giants such as Fannie Mae and Freddie Mac, put enormous pressure on lending institutions if they did not kow-tow to the CRA’s appointed board of overseers if they didn’t comply with lending practices not tethered to sound financial reasoning.
More importantly, those political appointees to said institutions guaranteed where voted would end up going to, all thinks being equal. And those same appointees endeavored to raise huge sums of money to their benefactors in order to maintain the status-quo in the name of cronyism and graft.
Again, ‘Redlining’ was a horrible, discriminatory practice; however, its practice was basically eliminated over time. The laws that were kept on the books after the negative effects were mitigated, should have been eliminated. Especially when default rates for many banks and lenders rose to 20% - 25% when said banks were “scored” by their respective appointed overseers based on demographics, not business.
So, in summary, Carter, Reagan, HW Bush, Clinton, GW Bush and even Obama all went along with these laws (Clinton, however, was the Root-Cause of all of this mess - he supercharged our economy; however it was a Pyhrric Victory in the end).
Income inequality can be best mitigated by growing the economy in general and creating jobs. The well-paying manufacturing jobs will not be coming back anytime soon - especially with productivity gains from lean manufacturing/six-sigma, technology and global competition in today’s world continues to advance.
Therein lies the problem. how do we create well-paying jobs in an increasingly technological society? Education?…education is only as good as there are jobs available. WE are a service-oriented economy and have been for a few decades now. One isn’t going to go work for GE, P&G, Ford, American Wheel & Axle, Kraft, Whirlpool, IBM, Bethlehem Steel, Alcoa and fill-in-the-blank other major AND small manufacturers like in the post-war era.
I see energy (namely natural gas, oil sands and a few other fossil fuel sources as a way to really allow those with a H.S. diploma to get a good job and grow the rest of our economy).
Remember, much of the wealth inequality comes from both those risk takers and innovators as much as it comes from the stock market gains by the same class of people.
Who got wealthier during the worst of times? Those who are connected to Washington Pols and the lobbyists who provide the perfect quid-pro-quo relationship. And in that - BOTH Clinton, Bush, et al., are to blame - remember this axiom: I’ll give you “stuff,” you vote for me.
I would say that ‘economy’ and ‘inequality’ are two different beasts linked at the hip. Even so, each can exist without the other. We operate best when a good balance exist between the two.
So, what are some issues affecting each?
Some businesses need to be quite large to enable innovation, spread the risk, provide capital sufficient for R&D, growth, etc. But, regulation is necessary to ensure that corporations don’t become so large they stop adding to the common good and work to kill innovation, buy up the competition, following a goal of maintaining their status at the expense of everything else.
Therefore, we need some serious anti-trust law implemented in commerce, agriculture, banking, pretty much across the board. This would address both inequality and the economy.
We can all agree that education is the best deterrent to poverty and in providing for an independent lifestyle. But, the country is really wrapped around a pole here. Long established cultures/traditions are having a detrimental effect on many young people. Sports, hanging out and recreational drugs are taking their toll on the otherwise aspiring student. But, the real emphasis should be put on the teachers. The teaching cadre should be selected from the top ten percent of the top univs/colleges. The majority of the teaching staff should come with way different backgrounds than that found in the current teaching cadre in failing schools.
Also, need retired professionals to volunteer as part time teachers specifically to instill some idea of real world opportunities and career paths.
The investment is not so much tax dollars as it is a higher level of communications and purpose.
I very much agree with Kevin’s post re the CRA and GLB regulations. I would update to include the Dodd-Frank fianancial regs, better known as the ‘plucked chicken’ regs.
In that regard, I think Kevin missed the mark with the axiom, “ I’ll give you “stuff,” you vote for me.” More correct, IMO, “I’ll stuff your campaign stocking if you give me favorable legislation.” In other words, poor gov’t or mismanagement is not the problem. Corpocracy is the real problem.
Example: today’s WaPo talks about loopholes in estate tax law that has cost the gov’t more than $100B since 2000, that, according to the article. The writer relates that the estate tax law was poorly written, allowing tax lawyers to take advantage of loopholes in the law to help the folks escape most of their estate tax burden. Well, no, writer. Corpocracy, as usual, wrote most of the bill, sans the boiler plate.
Otherwise, once the dike was breached numerous well intentioned legislators would have rushed, rushed to brace the dike. They didn’t. They haven’t. Some 13 years later they are sorta pretending.
From the article, “committees in the house and senate are working on what they call comprehensive tax overhaul bills. Neither plans to address estate or gift taxes. Covey (loophole lawyer) suggests - - - - Wealthy donors to politicians, both Republican and Democrat, want to keep the loophole in place.”
The Corpocracy keeps drumming it into our heads that the economy can be saved by amnestizing some several millions of immigrants even as Kevin writes that the well paying jobs are not coming back in any number leaving us to depend on service sector jobs as the mainstay of employment.
A WaPo article lends itself to the job pressure, even to the level of ‘jobs Americans won’t do”, etc.
Brief gist of the article:
‘Amazon has 1382 robots that pick up online orders in a warehouse and deliver them to their departure point. Also, working on a drone delivery system from warehouse to residence.’
If line cooks, who preheat pre-cooked food, become too expensive they can easily be replaced with robots. In Europe, McDonald’s is replacing cashiers with touch screens.
Clothing retailers, like American Giant, may trend to set up outside the city limits and sell via on-line, cutting out the standard retailing style of marketing.
Stocking grocery shelves by the box rather than piecemeal will whack a few more jobs.
Long haul trucking, some 5.7M drivers, may be replaced with robot drivers.
Farm tractor drivers may be relegated to retirement as they can be replaced with automated tractors programmed to till/harvest the fields.
FOXCONN, maker of IP products, is working to deliver on one million FOXbots it promised in 2010.
LabCorp, in NC, is working on a machine to sort and split blood samples. This is just one of hundreds of thousands of menial lab jobs than pay decent wages but could be done more efficiently by robots.
I don’t need to remind the reader that the Corpocracy is not out there talking up jobs, but I will. And, as long as we are primarily engaged in scorched earth debates re LBGT and Jesus it’s not likely the economy/jobs debate will rise above the noise.
Good post, Kevin.
Otherwise, we have the Corpocracy we deserve.
The two are interlinked completely. Inequality cannot exist without differential in economy (finances). If the blacks were an overarchingly rich racial group they would innevitably be of the mainstream. The two are coincidive in terms of most everything, that’s my take. Inequality rarely really even means non-criminality versus criminality either—it’s parental and company growing up that statutes it early on—atleast to the mid-twenties or so. Being where thus they go thus what they do generally in life is really a values chase.
Lack of morals and sparedom of the rod beget a cop, another type of rogue.
The following Associated Press story is worrisome. I think a large number of us fall into this category, myself included:
Unprepared world braces for retirement crisis
By Paul Wiseman, David McHugh and Elaine Kurtenbach
A global retirement crisis is bearing down on workers of all ages.
Spawned years before the Great Recession and the 2008 financial meltdown, the crisis was significantly worsened by those twin traumas. It will play out for decades, and its consequences will be far-reaching.
Many people will be forced to work well past the traditional retirement age of 65. Living standards will fall, and poverty rates will rise for the elderly in wealthy countries that built safety nets for seniors after World War II. In developing countries, people’s rising expectations will be frustrated if governments can’t afford retirement systems to replace the tradition of children caring for aging parents.
The problems are emerging as the generation born after World War II moves into retirement.
“The first wave of underprepared workers is going to try to go into retirement and will find they can’t afford to do so,” says Norman Dreger, a retirement specialist with the consulting firm Mercer in Frankfurt, Germany.
The crisis is a convergence of three factors:
» Countries are slashing retirement benefits and raising the age to start collecting them. These countries are awash in debt since the recession hit. And they face a demographics disaster as retirees live longer and falling birth rates mean there will be fewer workers to support them.
» Companies have eliminated traditional pension plans that guaranteed employees a monthly check in retirement.
» Individuals spent freely and failed to save before the recession and saw much of their wealth disappear once it hit. Those factors have been documented individually. What is less appreciated is their combined ferocity and global scope.
“Most countries are not ready to meet what is sure to be one of the defining challenges of the 21st century,” the Center for Strategic and International Studies in Washington concludes.
The notion of extended, leisurely retirements is relatively new. Germany established the world’s first widely available state pension system in 1889. The United States introduced Social Security in 1935. In the prosperous years after World War II, governments expanded pensions. In addition, companies began to offer pensions that paid employees a guaranteed amount each month in retirement — so-called defined- benefit pensions.
The average age at which men could retire with full government pension benefits fell from 64.3 years in 1949 to 62.4 years in 1999 in the relatively wealthy countries that belong to the Organization for Economic Cooperation and Development.
As the 2000s dawned, governments — and companies — looked at actuarial tables and birth rates and realized they couldn’t afford the pensions they’d promised.
The average man in 30 countries the OECD surveyed will live 19 years after retirement. That’s up from 13 years in 1958, when many countries were devising their generous pension plans.
The OECD says the average retirement age would have to reach 66 or 67, from 63 now, to “maintain control of the cost of pensions” from longer lifespans.
Compounding the problem is that birth rates are falling just as the bulge of people born in developed countries after World War II retires. The higher the percentage of older people, the harder it is for a country to finance its pension system because relatively fewer younger workers are paying taxes. In response, governments are raising retirement ages and slashing benefits. In 30 high- and middle-income OECD countries, the average age at which men can collect full retirement benefits will rise to 64.6 in 2050, from 62.9 in 2010; for women, it will rise from 61.8 to 64.4.
In the wealthy countries it studied, the OECD found that the pension reforms of the 2000s will cut retirement benefits by an average of 20 percent.
The fate of government pensions is important because they are the cornerstone of retirement income. Across the 34-country OECD, governments provide 59 percent of retiree income, on average.
The outlook worsened once the global banking system went into a panic in 2008 and tipped the world into the worst recession since the 1930s.
Government budget deficits swelled in Europe and the United States. Tax revenue shrank, and governments pumped money into rescuing their banks and financing unemployment benefits. All that escalated pressure on governments to reduce spending on pensions.
The Great Recession threw tens of millions out of work worldwide. For others, pay stagnated, making it harder to save. Because government retirement benefits are based on lifetime earnings, they’ll now be lower. The Urban Institute, a Washington think tank, estimates that lost wages and pay raises will shrink the typical American worker’s income at age 70 by 4 percent — an average of $2,300 a year.
Leslie Lynch, 52, of Glastonbury, Conn., had $30,000 in her 401(k) retirement account when she lost her $65,000-ayear job last year at an insurance company. She’d worked there 28 years. She’s depleted her retirement savings trying to stay afloat.
“I don’t believe that I will ever retire now,” she says.
In Asia, workers are facing a different retirement worry, a byproduct of their astonishing economic growth.
Traditionally, Chinese and Koreans could expect their grown children to care for them as they aged. But newly prosperous young people increasingly want to live on their own. Countries like China and South Korea are at an “awkward” stage, says Richard Jackson, senior fellow at the CSIS: The old ways are vanishing, but new systems of caring for the aged aren’t yet in place.
Yoo Tae-we, 47, a South Korean manager at a trading company, doesn’t expect his son to support him as he and his siblings did their parents.
“We have to prepare for our own futures rather than depending on our children,” he says.
I am not saying that we can “cure” it. I am simply saying that it is certainly a factor in success or failure and that the significant increase in single parent families in the last half century has influenced the incidence of inequality in the U.S.
Given this fact, we need to be circumspect in “cures” to inequality, knowing that some of the things government will do will have no useful effect and may cause harm to those we are trying to help.
Re retirement - We should live modestly when we have to and then keep on living modestly when we have more than we need. I think that we have enough for retirement, even after the recent hard times. I would like to take credit for being really smart, but our success is based only on persistence and time. I have been singing this same song for more than 30 years. My more profligate acquaintances used to say I was stupid. Now they say I was lucky. I feel bad for them that enlightenment may have come too late for them, but short of inventing a time machine, I don’t see solutions for them. I suspect that given the chance to do it all over, they would not improve much anyway. Perhaps it is true that the owl of Minerva only flies at dusk.
I hope to work until I cannot work or until I die. This was always my intention, even though I have enough money to retire. I don’t think the older generation should live off the younger ones. We should be useful as long as we can. If lack of retirement planning causes others to work longer, I am content that they are doing the right things, even if for the wrong reasons.
Kevin L. Lagola
You’ve heard the saying, “Those who trade their freedom for their security deserve neither.”
It’s a shame our grandfathers traded our freedom for their security when they started the SS system. It never should have been based on other people’s money. Roosevelt could have started a temporary fix for the suffering in the 30’s. Instead he sold future generations into dependency and gave them the notion government will take care of them.
It’s all a pipe dream and it’s coming to an end. That’s why I hate the Democratic party.
Is it a musing more than a topic again.
Is it a musing more than a topic again?
Inequality is a big issue. Many of those most aggrieved don’t seem to think clearly about the causes of inequality. As we saw with J2t2, they get their timelines wrong and so don’t understand the problem. If you don’t know the causes, you are likely not to address them properly and may do more harm than good. Therefore, discussing the causes of inequality is a very important topic.
C&J, here is a useful comparison as I see it. At the low end you have some young people who work to get ‘found’ while others sit around and wait to be ‘found’.
Those who get ‘found’ are fortunate to live a middle class lifestyle.
At the top end you have some young people who work to get ‘found’ while others sit around and wait to be ‘found.
Those who get ‘found’ may make 300-400 times the income of of the ‘found’ low ender.
Has to do with luck, hard work, family status/background, access to opportunity, personality, risk taking, ability to apply ones education, and so on - - -
We need to include another dynamic - - - the ability to use Corpocracy to bend the gov’t to do your bidding; electing supporters of your cause, friendly commerce/business/tax laws and so on - - -
Otherwise - - -
As we saw with J2t2, they get their timelines wrong and so don’t understand the problem
Once again C&J Bullshit. The timeline is not wrong as you claim. The slight upturn in the late 70’s doesn’t negate the fact that in the 80’s once Supply side economics became the norm the discrepancy in income brackets took off and have stayed that way except when the stock market has crashed which saw slight improvements as the rich took a hit in the short term.
The article you quote earlier in this thread on the causes of the financial disaster is dead wrong. It seeks to blame the collapse the CRA of 1977, and government forcing lenders to make loans to unworthy borrowers. Again, this is dead wrong.
Prior to the financial collapse, the US real estate was worth about $14 trillion.
All subprime mortgages comprised about $280 billion of the total value of US real estate. Yet the actual cost to the taxpayer of the financial meltdown was about $12 trillion. Even if every unworthy borrower defaulted on every subprime mortgage, the loss would have been only $280 billion, NOT $12 trillion. To put it another way, about 2% of all the losses in the financial crisis could be attributed to subprime mortgages.
Does this result check out? Anyway you look at it- total foreclosures of 4 million, percentage of foreclosures out of total housing units or households, the numbers come up the same- nothing reaches even $1 trillion, even with worst case scenarios.
Clearly, unworthy borrowers taking on bad loans because the government forced lenders to do it is not the cause of all those losses.
Why did an insurer, AIG, have to be bailed out? Why did failures cross the entire financial sector, including insurers, commercial banks, and investment banks? Why did the financial sector completely crater?
Hint: 1) The deregulation of the financial sector pushed by Republicans and signed by Clinton in 1998, namely, the repeal of Glass Steagall, and 2) The Commodities Futures Modernization Act, an amendment inserted into the 2002 budget by conservative Republican Phil Gramm, prohibiting government oversight of commodities, including various mortgage derivatives.
Not only is the thrust of the article wrong, it is a pernicious lie, perpetrated by exactly the same kind of people who brought this economy to its knees; these are the same people who demanded a bailout, even as GOP conservatives denounced Obama for being a socialist- the guy who bailed out banks to the tune of $12 trillion, a socialist…
The trend started in the late 1970s, after a flattening in the 1970s. Inequality grew under Clinton and Obama as much as it did under Reagan or Bush.
It is just a little more than silly to believe that events in 1981-2, when Democrats controlled the House of Representatives, are the cause of inequality today, especially when the trend began before the events you mention.
The real cusp came in late 1960s early 1970s. We had the collapse of the Bretton Woods agreements, Vietnam war & War on Poverty provoking the great inflation, big changes in immigration resulting from drastic changes in laws in 1965 and the end of cheap oil related to the oil embargoes.
I also thought it useful to point out really big changes in American households.
I am not sure whether to feel insulted or complimented by your ideas. On the one hand, I am appalled by your simplistic analysis. On the other hand, you think conservatives like me are way smarter than liberals, which is the only way to explain how conservatives can be responsible for so much since 1981 when Republicans controlled both congress and the presidency for only 4 years, the same as Democrats, BTW. All the rest of the time, it has been divided government.
Thanks for the compliment, but we don’t deserve it.
Phil and Wendy, two of the great corpocratists of the era, worked many years laying the groundwork to get the 2002 CFMA ‘loophole’ in place. But, they weren’t just operating by themselves.
Otherwise, once the dike was breached numerous well intentioned legislators would have rushed, rushed to brace the dike. They didn’t. They haven’t. Some 11 years later they are sorta pretending.
70 of the 85 lines gutting the bill wrote by Citigroup…
News orgs, legislators, silence all around.
Otherwise, - - -
Virtually the entire GOP is in the pocket of the financial sector, along with many so-called ‘Centrist’ Democrats. I would support an economic populist like Elizabeth Warren over Hillary Clinton in a heartbeat. There are a of good things about Hillary, but she and her husband have always been way too tight with Wall Street for my comfort. But economic populism barely even gets reported by the media. The only hope seems to rest with some of the Democrats, but there just aren’t enough people in the Senate like Sherrod Brown, Warren, Merkley, and Whitehouse. Meanwhile, the MSM frames the argument as if it were a choice between ‘centrists’ and right-wing whacko jobs, as if the question were whether government should merely be chummy with the finance sector, or give them totally free, unregulated reign.
ph, well posted. You could become 3rd party and diddle in the middle.
Dodd-Frank isn’t so different from the ACA. It was necessary for the Corpocracy to lie bigtime about the ACA just to get something to stick to the wall. It will take the Corpocracy several years to flesh out the ACA, supporting and electing those pols who will support their needs, to the delight of the pols in a position to play the game.
Otherwise - - -
I am a sixth generation anglo-saxon from a conservative Christian background with no divorce. So are most of my friends in our small PA coalmining town. We are ALL struggling, working poor. Nope, Republicans, you cant hang this one on the darkees and gays!
What ever will you do now?!?!
You dont need a phd in finance to see what happened in America (though you DO need a PhD in finance in order to sink the world economy nearly on purpose, apparently. Oir financial systemis based on and requires continued growth. Th. Means creation of wealth or value, either directly through resource capture, value-added labor, etc. And through increased efficiency to increase productivity with limited labor. Wealth does not appear feom thin air and cannot be created from no physical, manual, or capital resources. But this is exactly what Wall Street attempted. When these complex instruments led to income for their proponents, where did this wealth come from? Arbitrage, which exploits difference im cost amd value, in this case by exaggerating ninexistent value rather than leveraging low cost. Also indirectly by inflation. If the money sipply increases but is captured and held by one party, they go from zero to billions held, a good deal even though that monet (and..the bad part..ALL OTHER OF THAT CURRENCY) is now devalued. Someone PLEASE correct me if I am wrong as I am not an MBA. Explain to me how these financial instruments created wealth rather than redistributing it through inflation and arbitrage. I do not see it. Be warned..if you purport to show that CFIs create real wealth for the economy..I WILL check your work..not just accept “expert” opinion..my address is