Category - Inequality

How’s about $18 million? That’s what John J. Noffo Kahn, of Palm Beach, Florida, paid for a farm in Barnard, Vermont, to be used as a vacation home, and in the process shattering the previous record price for the sale of a residential property in the state (a mere $8 million).

Reports the Valley News (full article not online*):

The buyer […] said in an email that privacy and security were two reasons he purchased the property through [a limited liability company].

“One of the attractions, for me, to the area was that I thought (naively!) that I would be coming to a place where MONEY is not of the foremost importance to the members of the community. I was looking forward to a low-profile existence in which my wealth would not be what defined me to my neighbors,” wrote […] Noffo Kahn, who said he was not interested in having a story written about his new vacation home.

“Thanks for bursting my bubble on Vermont!” he added.

I hate to break it to you, John, but the traditional route to a low-profile existence is to spend less than $18 million for your vacation home.

There are a few things worth noting. First, in support of the friendly rivalry we Vermonters have going with our Granite State neighbors, Noffo Kahn’s complaint about his bubble being burst regarding his conception of Vermont, the Valley News is located in Lebanon, New Hampshire, so there’s some chance that his bubble might still be intact. Noffo Kahn’s new neighbors in Barnard probably will treat him with neighborly respect, though they have good reason to distrust multi-millionaire vacationers. That’s because the sellers of the farm, whose main domicile is in Texas, sued 14 fellow Barnard residents who were opposing the fact that they (the Texan owners) had closed off a trail through the property that had long been open to the community. Now, that wasn’t Noffo Kahn, and maybe he’s the kind of swell guy who doesn’t let his wealth define him, and instead defines himself as a good neighbor who respects something more in his fellow men and women than their own lack of wealth.

As for Noffo Kahn’s preference that the Valley News not write a story on the property sale:

After a reporter e-mailed back, making clear that the record-setting sale was a news-worthy event and asking for a chance to discuss the matter, Noffo Kahn, who had already expressed his “already dismal appraisal of today’s media,” wrote back.

“So typical!” he wrote. “You haven’t even the sensitivity to realize that writing a story about an $18 million property–when so many are suffering this Christmas–is a salt on their wounds!”

Let’s debate the question of news-worthiness for a moment. Con: Noffo Kahn is a person who buys things, just like everyone buys things, so why should he be made into a celebrity of sorts against his will when none of the rest of us have newspaper articles written about our purchases? I mean, would I want the whole world to know that I recently purchased not one but three copies of the amazingly cool book The Human-Powered Home, so that I can give the extras away as gifts to as-yet-unidentified friends? Oh the embarrassment! When will that darned media stop noticing that extreme economic inequality is damaging to the individual well-being of the vast majority of people, community and social cohesion, democratic governance, and the future habitability of the biosphere? (Ditto.) (Or more like, when will the media actually start noticing it and taking it seriously on a more than one-off basis?)

Pro: The habit of really, really rich people to pay extraordinary sums for the things they buy has a real effect on the lives of others, and just like it is news worthy to report on a leaking manure lagoon that threatens the health of downstream neighbors, it is news worthy to report on events that impact the economic lives of of “downstream” neighbors as well. Given the timing of the sale, this particular transaction probably won’t have the same effect on property values of neighbors as it would have if it had taken place a couple of years ago, but the principle remains the same. When you throw money around, it matters; there are unintended consequences, and while the Valley News story doesn’t attempt to perform a systems analysis on what all those consequences might be, at least they have alerted readers to the fact that something with reasonable potential to have broader consequences has happened.

And as for that “salt on their wounds” that Noffo Kahn is so worried about, perhaps at this Christmas time a better use of Noffo Kahn’s time would be turn that sensitivity question around and first remove the plank from his own eye.

[* Come on, Valley News, get with the program!]

[The following is a guest post emailed in to the Center for Popular Economics by a reader of CPE’s newsletter]

by Ben Leet

I am a retired school teacher who has done research on the U.S. economy partly for personal reasons and also because I had been teaching at a school in a poverty neighborhood in Oakland. There were many murders, crimes and depressing events in the neighborhood where I taught. Children brought in bullets that had passed through their walls, or one described a murder that happened in his back yard. Those were the worst examples, but violence was not uncommon. Bad economics, I concluded, contributed to poor student performance, poor behavior, and stunted emotional development. Here are the salient facts I’ve uncovered that point to a society mired in inequality.

Here are the problems we face:

A friend just sent this to me. It’s an English folk poem, circa 1764, so he says.

They hang the man and flog the woman
That steal the goose from off the common,
But let the greater villain loose
That steals the common from the goose.

The Law demands that we atone
When we take things we do not own
But leaves the lords and ladies fine
Who take things that are yours and mine.

The poor and wretched don’t escape
If they conspire the law to break;
This must be so but they endure
Those who conspire to make the law.

The law locks up the man or woman
Who steals the goose from off the common’
And geese will still a common lack
Till they go and steal it back.

Is the New Supply Side Better Than the Old? by Austan Goolsbee is getting a lot of play in the econoblogosphere today. It’s an interesting article that points out some of the weaknesses in the supply-side argument for cutting income tax rates on the highest income people. One small point of correction, however: when referencing the fact that top incomes soared after the tax cuts of the 1980s and 2001, but also soared after tax hikes in other periods, Goolsbee says:

Seeing the same pattern when taxes rose as when they fell indicates that tax cuts weren’t responsible. It suggests that cuts for high-income taxpayers likely gave windfalls to those whose incomes were already rising sharply because of broader market forces.

One might note the impact of the policy climate in various periods, as well. Since the 1980s, it hasn’t just been tax policy that has favored high-income earners over their less fortunate fellows, but deregulation and lax enforcement on a broad range of policies including labor and the environment, as well as overt war-on-the-poor measures such as welfare reform.

Hat tip to Mark Thoma.

By Amit Basole
CPE Staff Economist

Global Charity
In the year 2000, the richest 10 per cent of the world’s population held 85 percent of its total income and wealth. The bottom half owned a mere 1 percent. Such glaring global asymmetries have long justified redistribution of wealth from the “Global North” to the “Global South” in the form of development aid and loans. So much so, that the stock image of a developing country that springs to mind (particularly in sub-Saharan Africa) is that of a heavily indebted economy which continually borrows simply to repay its old loans and receives food and other forms of aid to feed and clothe its “naked and hungry masses.” Persistent poverty is often blamed on inadequate aid, and rich countries are periodically exhorted to donate more generously. This form of global charity is visible to all. But there is another flow of wealth across national borders, greater in magnitude and more clandestine. This is the flow from poor countries to the rich. Yes, the world’s poorest countries are today financing the richest. Far from being heavily indebted, many developing countries are net creditors vis-à-vis the rest of the world. How is this possible?

Who is financing whom?
Recent analysis of flows of income and wealth across national borders reveals a startling and different story than that of global charity towards the South. Economists have found that more money flows out of developing countries in the form of interest payments, profits of foreign corporations, and clandestine investments in financial markets of the rich countries than flows into them as loans, aid, and foreign direct investment. According to a recent United Nation’s report, in 1995 the net inflow of money into developing countries was $40 billion, but by 2006 this had reversed to a net outflow of $657 billion! The global financial system is sucking wealth out of developing countries, making them poorer in the process. Sub-Saharan Africa in particular is associated with highly indebted poor countries. Indeed, in 1996 the combined external debt of 25 countries of sub-Saharan Africa, owed to rich countries and to institutions such as the IMF and the World Bank, stood at $178 billion—a large sum indeed. But even more significantly, the flow of wealth out of these same countries over 26 years (1970-1996) equaled more than $193 billion. To make matters worse, much of this wealth flowing out of poor countries ends up in the US economy, which absorbs two-thirds of world savings. The ecologically-damaging consumption boom in the world’s rich countries is financed by its poor countries where consumption is a matter of survival. The insanity of this situation puts a question mark on the entire logic of the international financial system.

How does this happen?
But wait a minute. We might wonder, aren’t developing countries poor by definition? How then do they have resources to transfer to rich countries? We must remember here that although the majority of the population in a developing country is indeed poor, most countries have a small elite class that owns a disproportionate share of its income and wealth. In other words, the poor are poor precisely because the rich are rich. Further, a government may be highly indebted but what about its private citizens, in particular the rich ones? Several African leaders have amassed personal fortunes even as the governments they head have incurred large debts. At least in part these extraordinary assets are held abroad in rich countries. The problem is that while public debts are scrupulously recorded, many private assets are just as scrupulously concealed. To take just one famous example, the Swiss bank accounts of the family of General Sani Abacha, who ruled Nigeria for five years, reportedly contain as much as $2 billion.

This phenomenon is also known as “capital flight.” There are several avenues by which money flows from the poor countries to the rich. Repayment of earlier debt and accumulation of foreign exchange reserves with Central Banks in developing countries are two big ones. Since reserves often take the form of US treasury bills, reserve accumulation essentially means lending scarce capital to the US, a classic case of the poor lending to the rich. But there is yet a third, more hidden, avenue as well. This is trade mis-invoicing: under-reporting exports and over-reporting imports. Exporters in a country may understate the value of their export revenues, so that they can retain abroad the difference between their true value and their declared value, while importers may over-state the value of their imports to obtain extra foreign exchange, which can then be transferred abroad.

What can be done?
Should we simply chalk this up as a typical case of Third World mismanagement and corruption, a problem of “failed states,” a lack of democratic accountability and transparency? It is all that, but that is not the whole story. Rich country governments and international lending institutions are often complicit in maintaining corrupt rulers and in transferring their assets abroad. The Financial Times remarks in an editorial on the freezing of General Abacha’s bank accounts, “Financial institutions that knowingly channeled the funds have much to answer for, acting not so much as bankers but as bagmen, complicit in the corruption that has crippled Nigeria.”

If development aid is used to amass private fortunes while external creditors look the other way, why should a developing country’s poor citizens be forced to pay the price of painful “reforms” such as cutbacks in government spending on essential services, when most of that aid has not benefited them at all in the first place? Rather citizens of developing countries and their governments could tell their foreign creditors that old debt will only be treated as legitimate if the creditors can provide evidence for how the money was used for genuine development goals. This shifts the burden of proof onto the lenders. Needless to say, such a proposal would be extremely unpopular with rich country governments as well as with the IMF and the World Bank.

In addition to “bottom-up” approaches to development, such as strengthening government accountability and democracy from below in developing countries, there is a role for us here in the developed world to play: we can do our bit by raising awareness about capital flight and odious debt, and holding our own governments accountable for who they lend or give aid to and how that money is spent.

Sources:

1. Isabel Ortiz (2007) Putting Financing for Development in Perspective: The South Finances the North, IDEAS Network (http://www.ideaswebsite.org/news/nov2007/Putting_Financing.pdf)

2. World Economic Situation and Prospects, 2007- United Nation Development Policy and Analysis Division (http://www.un.org/esa/policy/wess/wesp.html)

3. James Boyce and Leone Ndikumana (2000) Is Africa a Net Creditor? New Estimates of Capital Flight from Severely Indebted Sub-Saharan African Countries, 1970-1996. (http://www.umass.edu/economics/publications/econ2000_01.pdf)

My day job is as an assistant editor at Chelsea Green Publishing. I’ve been particularly excited about one book that we’ve been working on, Peter Barnes’ Climate Solutions: A Citizen’s Guide: What Works, What Doesn’t, and Why. Well, it’s just shipped from the printer, so now’s your chance to get a copy and check it out.

[update] I just came across a little BusinessWeek article focusing on Barnes’ ideas for a carbon dividend. They don’t get all the details quite right (all the more reason for you to read the book!) and they don’t mention the book (curses!), but “cap-and-dividend” just might be turning into a powerful and politically relevant meme.

Kudos to the folks at the Center for Constitutional Rights and their allies in the struggle to end exploitative telephone contracts in New York state prisons. The problem is not restricted to New York, but that’s where the Telephone Justice coalition has been focusing its efforts.

Typically, states receive kickback commissions from the phone companies who receive the contract, creating a situation in which there is no incentive to seek competitive bids. Unsurprisingly rates for such calls are well above market rates, as much as $6 per minute. The phone companies and prison officials justify the high prices by saying there is a need for added security measures. There is little evidence to justify this claim, especially since calls from all Federal prisons cost just 7¢ a minute.

In any case, the records show that companies and states often make millions of dollars in profits from surcharges and inflated per-minute rates. In New York State, 57.5 percent of the profits - over $200 million since 1996 - were kicked back to the state in the form of commissions.

So it turns out that crime does pay, only it’s the state and telephone companies that are getting paid, not the perpetrator or victim of the crime. The joys of being the middleman. Is it possible that schemes like this contribute to state legislatures’ ongoing practice of finding new ways to put and keep people in jail, from “three strikes” laws to mandatory minimums for victimless crimes? State governments like to find ways to generate revenue without imposing general taxes, and ripping money off from the families of inmates is probably a good way to do so without incurring the wrath of most voters. That’s just one of the arguments made by lawyers at the CCR who helped to end this practice.

The contracts are also unjustifiable as a matter of public policy. The profits returned to the states are treated as income - in New York, they are said to pay for basic prisoner services such as health care and release clothes - and this system is analogous to an unlegislated, regressive, and highly selective tax, under which specific individuals are asked to bear the financial burdens that are the proper responsibility of the state. By imposing such burdens on families of prisoners, the practice resembles a form of collective punishment.

Given the class divide in who goes to jail, and the divide in who tends to vote, relatively few voters are from families with someone in jail. So the people who are being squeezed have no clout with the lawmakers. Well, in New York they’ve managed to earn some clout through the efforts of the Telephone Justice coalition, which was launched by the CCR.

Since 1999, the Center for Constitutional Rights (CCR) has been fighting on the ground and in the courts to end the exploitative telephone contract between New York State and MCI/Verizon which charged family members 630% more for collect phone calls from their loved ones in prison than the average consumer. Single-carrier collect call systems are the norm for telephone service in prisons across the United States. Prisoners may only call collect, and loved ones who accept the calls must accept the terms dictated by the chosen phone company. At a time when prisoners are increasingly housed in facilities hundreds of miles away from their home communities, telephones become for many the only way to stay in touch.

This year, after three years of tireless work, we won. [cont’d]

Next step: take the campaign to all the other states. (See the campaign’s endorsers page for links to some other telephone justice efforts around the country.

I’ll be writing more later, but for now, just a couple of things I thought make up a good contrast. Not many people would be surprised by the assertion that economic classes receive different treatment before the law in the U.S., but the following two items are certainly remarkable. First, take a look at this story, about a group arrested for feeding the homeless in Orlando. Yes, apparently charity begins and ends at home: “mass feeding in one area” is banned by a city ordinance. Don’t worry though, not everybody suffers from such casual and needless oppression. Gazillionaire hedge fund managers will get to keep their huge tax break: their income is considered capital gains and so is subject to the 15% capital gains tax, not to the regular income tax or to the payroll tax that funds social security benefits. Mark Shields explains why. Thanks to MoJoBlog for the tip on the lack of legislation.

Oh and by the way, Keith Knight tells it like it is.

Not that the news shouldn’t be reported again, or again and again for that matter. Increasing inequality is serious business (pun acknowledged though not planned ahead of time) but not, unfortunately, the kind of issue that gets real traction. Thanks to Pizzigati for keeping track and to AlterNet for helping spread the word.

Trickle-Up Economics: New Report Reveals Staggering Global Wealth Concentration

A new business study on global household wealth documents how the world’s wealth is continuing to concentrate in the pockets of the awesomely affluent.

The world’s non-wealthy households haven’t done so well over the last half-dozen years, says a new report released last week by a major global business consulting company.

From 2001 through 2006, reports the Boston Consulting Group, the non-wealthy of the world — those households holding less than $100,000 in financial assets — saw the total value of their assets slightly decline.

Over those same years, the consulting group’s new Global Wealth 2007 documents, total world wealth actually increased, up a brisk 7.5 percent just last year alone

So where did all that new wealth end up? At the top. So far this century, the 16.5 percent of global households with at least $100,000 to invest have seen their assets soar 64 percent in value, to $84.5 trillion.

[cont’d]

*Ha ha!

I’ve tried, oh I’ve tried, but good ole Katha Pollitt has said it better than I’ve ever managed. A tidy summary to why, indeed, poverty is bad for your health–IF you live in an economy like the U.S.’s where access to health care is largely dependent on your financial standing. Poverty, I’m sure, isn’t particularly good for your health if you live in an economy with a sensible, universal health system; but it sure won’t be nearly as outright dangerous to be poor.

In last month’s New York Review of Books, Freeman Dyson leads off with an essay on “Our Biotech Future“. He predicts that biotechnology will, in this new century, become relatively cheap and widespread in a similar way to the cheapening and spreading of physics-based and computer technology over the past several decades.

It has become part of the accepted wisdom to say that the twentieth century was the century of physics and the twenty-first century will be the century of biology. Two facts about the coming century are agreed on by almost everyone. Biology is now bigger than physics, as measured by the size of budgets, by the size of the workforce, or by the output of major discoveries; and biology is likely to remain the biggest part of science through the twenty-first century. Biology is also more important than physics, as measured by its economic consequences, by its ethical implications, or by its effects on human welfare.

Heterodox Economist reminds us of a useful point: Wall Street types might deserve to eat a bear market in some sense of getting their just deserts, but the connections between the financial world and the rest of the economy (including millions of working stiff jobs, etc) mean that the bear is likely to be shared around with plenty of people who don’t deserve the downside. The system as we know it is rigged in favor of the owners. Because they own, they cannot be allowed to suffer for their suffering trickles down much faster than any of their advantages. He also talks about Rosa Luxemburg, which is cool.

I try to follow the rule that blog posts should be more than just a “hey, check this out,” and a link. But I guess some rules are made to be broken. I don’t have much to say about this, but it is definitely worth listening to.

NPR.org, August 8, 2007 · The first morning of my visit to Scenic Trails, I was walking the path between some trailers when I bumped into a man named Tim Szepek. He was young, tall, and solidly good-looking. I asked if I could speak to him for a moment and he agreed. We found a spot of shade beneath a tree, and I started with what I considered a casual warm-up.

“What’s it like to live around here?” I asked.

“Well,” he replied, “I’ll be honest.”

“Ain’t a day goes by when I don’t think about killing myself.”

And so began my time in Scenic Trails, a FEMA trailer park deep in the Mississippi woods where 100 families have lived in near isolation for close to two years.

[cont’d and audio versions]

Jonathan Teller-Elsberg, CPE Staff Economist

A few weeks ago, CPE Staff Economist Jerry Friedman wrote an Econ-Atrocity reviewing Bill McKibben’s new book, Deep Economy. Though he says McKibben “has written a clear attack on much of what ails us,” Friedman nonetheless criticizes McKibben for approaching the environmental and social problems of the day from an individualist perspective. For all that McKibben wants to promote and revive “community,” he has the attitude (says Friedman) of a “personal Salvationist . . . [who thinks that] the enemy [is] ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.” What McKibben misunderstands or ignores, Friedman argues, is the power of social institutions to drive behavior, regardless of the desires and seemingly free choices of individuals.

I think that Friedman will find solace in Peter Barnes’ recent book, Capitalism 3.0: A Guide to Reclaiming the Commons, since Barnes’ approach is definitively institutional. The problem, according to Barnes, is that the structure of the economy and society leave too much power in the hands of corporate capitalism. Even if all the CEOs and boards of directors and politicians were replaced with kind-hearted souls like McKibben, we would still face pretty much the same issues of environmental decay, economic inequality, and other social ills—the logic of capitalism and the legal structure of private property rights force the leaders of corporations to do what they currently do. He learned this from personal experience as co-owner and manager of several business ventures, most famously Working Assets (a telephone and credit card company that donates one percent of gross revenues to progressive charitable organizations). “I’d tested the system for twenty years, pushing it toward multiple bottom lines [that consider social and environmental impacts in addition to profit concerns] as far as I possibly could. I’d dealt with executives and investors who truly cared about nature, employees, and communities. Yet in the end, I’d come to see that all these well-intentioned people, even as their numbers grew, couldn’t shake the larger system loose from its dominant bottom line of profit.” (Ironically, Bill McKibben is quoted on the front cover of Capitalism 3.0 helping to promote Barnes’ book.)

In his column today, David Brooks furthered the argument that education is the key to reducing inequality, improving one’s lot, etc, etc. He says that

“when you look at the details, you find that most
inequality is caused by a rising education premium, by changes
in household and family structure, by the fact that the rich now
work longer hours than the less rich and by new salary structures
that are more tied to individual performance.”

He argues for a lot of swell policies that would make a difference in a
lot of people’s lives. But he (along with so many other intelligent people) overlooks a tragic flaw in this argument: while a better education will certainly benefit any given individual, that does not mean that better educations for everyone will benefit everyone. A little thought experiment might make this point clearer.

A recent article in Psychological Science describes experiments aimed at understanding the psychology of accepting, or not, social inequalities. (If the abstract seems a bit abstract, try this slightly more reader-friendly summary from Science.)

The gist: people who accept justifications for inequality experience less emotional stress when confronted by evidence of the inequality. The more a person believes that there are good reasons for inequality, the less emotional stress they’ll have. (Stress in the form of moral outrage, existential guilt, and support for changing things to help out the disadvantaged.) So acceptance looks to be a self-protection mechanism. Also, showing people stories, propaganda, what-have-you, that feeds ideas of justification (for example, “rags-to-riches” stories) increases their acceptance of the justifications, and so decreases their emotional reaction to evidence of inequality.

As the authors abstract, “system-justifying ideology appears to undercut the [urge to bring about] redistribution of social and economic resources by alleviating moral outrage.”

I guess this helps explain why people are likely to accept that “this is the best of all possible worlds.” Giving a rat’s ass that the world ain’t so great is hard to do. It’s stressful. That’s why those of us who think otherwise have got to help each other keep our spirits up. More potlucks!

Scientific American is reporting on a an article in the journal Neuron that describes brain scanning experiments intended to see if poorer people react differently than richer people to opportunities to gain a little extra money.

The microeconomic law of diminishing marginal utility states that while accumulating a good—pretzels, pencils, nickels, whatever—each successive unit of that good will be less satisfying to acquire than the one before it. Finding a shiny quarter on the street is a real thrill. But, if you are carrying around a bag of coins, acquiring another one does not seem nearly as exciting. In fact, would you even bother to pick it up?

That hesitation is what researchers at the University of Cambridge in England were banking on when they designed a study to see if the haves catch on more slowly than the have-nots when it comes to reward-based learning. Reporting in the current issue of Neuron, the scientists reveal that when a small sum of money is on the line, poorer people learn quickly how to maximize their profits, leaving their wealthier counterparts in the dust.

The latest (March 2007) newsletter from the Center for Rural Affairs has several good articles, mostly in response to the proposed Farm Bill and the President’s proposed federal budget now before Congress. [Note: once the next newsletter comes out, the link to this one will change and you’ll be able to find it through their newsletter archives.] And as usual, the “Corporate Farming Notes” are worth following. Some examples:

Ex-chair of the Fed, Alan Greenspan, was frequently criticized for throwing his weight around in favor of those whose economic position is based on owning financial capital, at the expense of the vast majority of the public. Congress loved everything about Greenspan and would have made him chair-for-life if they could, so it shouldn’t be terribly surprising that his replacement, Ben Bernanke, tends towards the same bias. Dean Baker paints a “hypothetical” scenario that would lead to just that conclusion. How else to explain why Bernanke would be so eager to smooth the rough waters of the financial markets? Aren’t they just natural expressions of the rational free-market system? To paraphrase Marilynne Robinson from one of her essays in Mother Country, if the markets are natural systems, like rivers, what obligation is there to flatten out the waterfalls and smooth over the rapids? The answer seems to be the obligations of class.

By Gerald Friedman, CPE Staff Economist
Dec. 1, 2006

A recent article in the New York Times (October 25, 2006) entitled “Hospitals Try Free Basic Care for Uninsured” raises an intriguing possibility. The Times reports how some local governments and hospitals have found that by providing primary care, supportive services, and preventive care for the uninsured they can save money by avoiding higher costs when conditions worsen down the road. Following the experience of a diabetic patient at Seton, a Roman Catholic hospital network in Texas, the Times shows how preventive care reduced “costs for the hospital” by helping the woman avoid expensive emergency room visits. By improving her health, preventive care cut her medical bills nearly in half. “The money we save,” Dr. Melissa Smith, medical director of three Seton clinics, “money that is not hemorrhaging through the I.C.U., is money we can do so much more with to help her upfront.”

We could all hope that there will be enlightened insurers who will respond to these stories. The Times is certainly hoping to promote a free-market win-win where the poor will receive care that will help them stay healthy, and health insurers and providers will increase their profits by reducing total expenditures. But this worthy goal misses the fundamental flaw of for-profit health insurance: Capitalist businesses, including America’s health insurers, are not eleemosynary institutions. They do not set out to produce useful things. Instead, they seek to create profits; any social value or use is purely coincidental. In the specific case here, our capitalist health care industry is organized to produce profits; any quality health care that it provides is a desirable, but secondary, product.

By Thomas Masterson, CPE Staff Economist

The Basic Income Guarantee (BIG) is just what it sounds like: a guaranteed basic level of income. Most proposals suggest that it be distributed to every adult citizen without regard to income or wealth. BIG would replace all of the social programs currently in place that attempt to reduce or eliminate poverty, such as welfare, unemployment insurance, and Medicaid, with a monthly payment sufficient to lift an individual out of poverty.

Interestingly, this proposal is drawing support from the right as well as the left (leftists have long supported versions of this proposal). Even Charles Murray (think “The Bell Curve”) likes it: he has written a book about it in which he seems to say that he thought it up, calling it “The Plan.” By eliminating the need to monitor for fraud and abuse of the system, BIG would actually be cheaper than our current system of multiple benefits and eligibility criteria. BIG would also get rid of the disincentive to work built into the welfare system–often working for pay leads to a decrease in benefits, making work a less attractive option. And, by allowing people to decide on their own what to use the money for (though Murray’s plan calls for $3,000 of his $10,000 annual grant to be spent for health insurance), BIG would increase efficiency. Lefties like it because it frees people from dependence on employers and gives them more bargaining power to demand good working conditions and better pay.

By Jonathan Teller-Elsberg, CPE Staff Economist

Most of the news we get about China has to do with the actions of the Chinese government or with broad economic trends. Only rarely, it seems, is there much reporting on the actions of Chinese people.

So the Washington Post and China correspondent Edward Cody deserve credit for a series of articles he’s written for the paper over the past year. Cody’s articles have described the struggles of Chinese factory workers and peasants as they face various abuses at the hands of factory owners and corrupt local officials (sometimes one and the same people). He reports that the Chinese government believes that the core cause for the increase in spontaneous mass protests across the country is growing economic inequality.

In the southern Fujian province, thousands of peasants have been protesting the seizure of their land, which is often converted to industrial use. Those Cody talked to have received hardly any compensation for the land, and they suspect that the local officials who should be distributing compensation payments have instead used the money to make investments in factories. Few of the peasants have been able to get jobs in the new factories, something that was promised when the land was seized.

In next-door Guangdong province, workers at shoe factories have staged spontaneous strikes, including one in which hundreds of workers ransacked company facilities. There have been numerous walkouts at the shoe manufacturers in the past couple years. The workers are angry about low wages, limited time off, and lack of communication with managers.

Farther north, in the town of Huaxi, villagers fed up with years of polluted air and water and stonewalling by government officials created a protest camp outside the gates to an industrial park. Despite a police raid to shut the camp down, the protesters increased in number. When a large force of police and civilian assistants returned on April 10th, some 20,000 villagers responded. A fierce street battle ensued and the police and city officials were forced to retreat from the town. The protest camp remained for another month and a half, until government officials agreed to shut down the industrial park. However, those suspected of being leaders of the protest movement remained on police wanted lists.

In the Anhui province, the beating of a young man by bodyguards of a businessman sparked a spontaneous riot in which approximately 10,000 city residents torched police cars, threw rocks at anti-riot troops and looted a grocery store after the owner was seen providing water to the police.

Though each of these was an isolated incident on its own, they are part of growing pattern of angry resistance by China’s poor–whether from peasant farms or sweatshop factories–to the Communist Party’s cozy alliance with capitalist business. A minister for public security in China estimated that 3.76 million people participated in what he termed “mass incidents” throughout the country during 2004, and that the frequency of these incidents has been increasing.

The government has become very concerned, both because this expression of people power threatens the stability of Communist Party control and because it could undermine the party’s goals for further economic development in the capitalist mold. The spread of cell phones and the internet are allowing unofficial news of resistance to reach a larger Chinese audience, despite the efforts of government censors in the official media. Even the state-run media has begun reporting that the root cause of the recent unrest is the widening gap between rich and poor in the country. Perhaps conveniently, these reports downplay the idea that protesting citizens could be angry about the political structure of one-party rule. After all, much of the economic development that has been part of China’s shift to capitalism and the growing rich-poor gap has relied on collusion between local government officials and private businessmen.

Sources:

Articles by Edward Cody in the Washington Post:

“China’s Land Grabs Raise Specter of Popular Unrest; Peasants Resist Developers, Local Officials,” 10/5/04;

“In China, Workers Turn Tough; Spate of Walkouts May Signal New Era,” 11/27/04;

“For Chinese, Peasant Revolt Is Rare Victory; Farmers Beat Back Police In Battle Over Pollution,” 6/13/05;

“A Chinese Riot Rooted in Confusion; Lacking a Channel for Grievances, Garment Workers Opt to Strike,” 7/18/05;

“A Chinese City’s Rage At the Rich And Powerful; Beating of Student Sparks Riot, Looting,” 8/1/05;

“China Grows More Wary Over Rash Of Protests; Cell Phones, Internet Spread The Word, Magnify Fallout,” 8/10/05;

“China’s Rising Tide of Protest Sweeping Up Party Officials; Village Chiefs Share Anger Over Pollution,” 9/12/05;

“China Warns Gap Between Rich, Poor Is Feeding Unrest,” 9/22/05;

“China Promises Equitable Growth,” 10/1/05;

“China’s Party Leaders Draw Bead on Inequity,” 10/9/05;

“Beijing Pledges to Focus on Income Disparities,” 10/12/05.

(c) 2005 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

(4/21/04)
By Alanna Hartzok, Co-Director, Earth Rights Institute

One day, while riding horseback in the Oakland hills, merchant seaman and journalist Henry George had a startling epiphany. He realized that speculation and private profiteering in the gifts of nature were the root causes of the unjust distribution of wealth. The insights presented in Progress and Poverty, George’s masterwork, launched him to fame. His policy approach was known at that time as the “single tax” - meaning that taxation should be shifted off of labor and onto the socially created surplus value of land and other natural resources. His message reached as far as the great Russian Leo Tolstoy, who was so taken with the idea that he frequently referred to George and “Georgism” in his novel Resurrection.

During the last 20 years of the 19th century George built an impressive populist movement bent on solving the problem of the wealth gap, and he died in 1897 while campaigning to be New York’s mayor. The “Georgists” were determined to free labor and all productive effort from the burden of taxation. Land and natural resources were gifts of nature to be fairly shared by all. The role of government would be to secure democratic rights to the earth for all people via the collection of resource rents, the surplus value accruing to natural wealth, which would be distributed in social goods, services or by direct citizen dividends.

But just as this solution to the rich/poor gap was gaining momentum, the Georgist movement was stopped in its tracks. Wealthy individuals poured their money into leading schools of economics to encourage the writing of treatises against George and the movements he had spawned. The ethical perspective that land is a common heritage and the policy approach of land value taxation were subsequently eliminated from the field of economics. The newly dominant theory focused on only two primary factors - labor and capital - with capital having the upper hand as “employing labor.” “Labor,” of course, is quite capable of self-employment given access to land. This is what the elites and the plutocrats feared most - that labor would gain full power to directly produce capital given conditions of equal rights to the resources of the earth.

Despite the elites’ success in mangling the science of political economy, the Georgist paradigm has had some influence over the years. The 1887 Wright Act in California enabled bonds raised by local irrigation districts to be paid from the increase in land values, resulting in a powerful and beneficial land reform, though this equitable and successful public finance approach was eventually undermined by private banking institutions. Now taxpayers nationwide subsidize the irrigation needs of agribusiness. Alaska’s state constitution vests the ownership of oil and other natural resources in the people as a whole and the state’s Permanent Fund distributes substantial oil revenue as citizen dividends to state residents. With no state income or sales taxes, Alaska has been the only state where the wealth gap has decreased during the past decade. This is essentially a Georgist paradigm approach, and surface land values and electromagnetic spectrum rent could be similar sources for citizen dividends.

Meanwhile, Georgist economics is again making steady progress. In Pennsylvania, eighteen municipalities, including Harrisburg and Allentown, have been revitalizing their local economies via property tax reform which shifts taxes off of homes and the built environment and onto the value of land sites. Movements for land value taxation are growing now in Scotland, UK, Ireland, South Korea and elsewhere, while Venezuela, Russia and other countries are pushing for greater resource rents from oil and mineral resources. Georgist economics is increasingly recognized as a key to economic democracy based on equal rights to the earth for all.

Recommended:

Mason Gaffney, Fred Harrison and Kris Feder, The Corruption of Economics. Shepheard-Walwyn Ltd., 1994.

Henry George’s books can now be read online. Hardcopies of his books, and those of other Georgist authors, can be ordered from The Robert
Schalkenbach Foundation (212-683-6424).

J.W. Smith, Economic Democracy: The Political Struggle of the Twenty-First Century. This excellent Georgist paradigm book can be ordered from The Institute for Economic Democracy (866-588-7445).

Kenneth C. Wenzer, ed. Land Value Taxation. M.E. Sharpe, 1999.

Georgist paradigm articles and links to other sites: Earth Rights Institute.

The Council of Georgist Organizations 2004 conference will be held in Albuquerque, New Mexico, July 21 - 25. For details: www.progress.org/cgo.

The International Union for Land Value Taxation conference is scheduled for May 27 - 30 in Madrid, Spain. For details: www.interunion.org.uk/.

Leo Tolstoy’s novel Resurrection can be read online.

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Brenda Wyss, CPE Staff Economist

Jamaica is hemorrhaging nurses and teachers. The Jamaica Gleaner reports that Jamaica loses roughly 8% of its RNs and more than 20% of its specialist nurses annually. Most go to the US or the UK. The US, with 97.2 nurses per 10,000 people, actively recruits nurses from Jamaica, a country with only 11.3 nurses per 10,000 people. Meanwhile, US and British schoolteacher work programs recruit Jamaican teachers for inner city schools in New York City and London. In 2001 alone, 3% of Jamaica’s teachers (almost 500 educators) left the island to accept temporary assignments abroad. Jamaica’s Ministry of Education estimates the country
lost 2,000 teachers between 2000 and 2002. And Jamaica’s brain drain is not limited to nurses and teachers. In fact, an IMF report estimates that more than 60% of all Jamaicans with tertiary education have migrated to the US.

Jamaica’s chronically under-resourced health and education sectors can ill afford the loss of skill. In its 2001 Annual Report, Jamaica’s Ministry of Health reported nationwide vacancy rates of 37% for RN positions, 28% for public health nurses, 17% for nurse practitioners, and 61% for assistant nurses. At the same time, a shortage of trained teachers threatens educational quality. While Jamaica has trained increasing numbers of teachers over the years, the fraction of teachers serving in Jamaica’s schools who are fully trained has declined. Between the 1990-91 and 1996-97 school years, the total share of trained teachers decreased by 11%.

(6/25/03)
By Anita Dancs, Staff Economist for the Center for Popular Economics and Research Director of the National Priorities Project

With great fanfare, President Bush signed the ‘No Child Left Behind Act’ in 2001. Contrary to Administration claims, this Act will leave many children behind. The Act sets out requirements on public schools in an effort to raise student achievement, but it also promises additional funding. Despite these promises, the Bush Administration’s proposed budget for the coming year would underfund the Act by $7 billion. State and local governments mired in fiscal crises in recent years, will have to find ways of meeting the Act’s requirements while also dealing with rising Medicaid costs, underfunded homeland security mandates, and neglected roads.

By Holly Sklar

You know CEO pay is still out of control when Fortune magazine puts a smiling pig in a suit on the cover and headlines its pay roundup, “Have they no shame? Their performance stank last year, yet most CEOs got paid more than ever.”

Fortune, remember, is a leading business magazine, not a union publication.

Median CEO pay at the 100 large companies in Fortune’s survey rose 14 percent last year to $13.2 million. Half earn more than the median, half earn less. Median CEO pay at the 365 large companies measured by BusinessWeek rose 6 percent to $3.7 million, including salary, bonus and long-term compensation such as exercised stock options.

By Michael Ash, CPE Staff Economist

A recent finding from two researchers at the Federal Reserve Board implies that rich people did all of the extra consuming during the 1990s “boom.”

They reached their conclusion by looking at savings, the flip side of consuming. While the historic pattern has been that the rich save and the poor eat hand-to-mouth, the pattern of savings stratified by income class reversed over the past decade. The savings rate of high-income households declined very sharply, and the increased savings of the poor partly paid for the upper-class consumption spree.

The overall savings rate (savings as a percent of income) fell from 5.9 to 1.3 percent over the 1990s. Table 1 shows savings stratified by income class.

By Kiaran Honderich, CPE Staff Economist

(Reprinted from CPE’s newsletter, “The Popular Economist,” Spring, 2002.)

Over the last year activists have made important progress in the battle against global AIDS. Developing countries won a partial victory at the WTO ministerial meeting in Doha in November, affirming their right to produce affordable generic drugs in a health crisis. And the appalling mainstream consensus that treatment with antiretroviral drugs was too expensive and complex to be made available in poor countries–writing off literally tens of millions of lives at a stroke–is finally giving way to acknowledgement that treatment is possible in resource-poor settings, although it seems likely to be rolled out in a way that neglects rural populations. These battles are by no means finished–the WTO is still hashing out whether poor countries too small to produce their own generic drugs should be permitted to import them from another country; if Bush gains fast track authority then he will be able to take back the gains of Doha; and South Africa’s ANC government is being dragged kicking and screaming by activists towards the treatment programs that its country needs–but real progress is being made.

By James Boyce, Professor of Economics, UMass-Amherst

In a state-of-the-art forecast on the impacts of global warming, the Intergovernmental Panel on Climate Change (IPCC) reported this month that low-income countries in Africa and Asia will suffer the greatest harm from the build-up of greenhouse gases in the Earth’s atmosphere. The distribution of the long-term costs of fossil fuel consumption is therefore a mirror image of distribution of its short-term benefits: while the transitory pleasures of rapacious fossil fuel consumption are concentrated among the world’s affluent classes, the brunt of the long-term costs will fall on people who have never ridden in an automobile, much less owned one.
The IPCC projects that average surface temperatures will rise by 2.5 to 10 degrees Farenheit in this century, following a one-degree rise in the 20th century. Even if the costs of climate change were distributed equally across humankind, the poorest would suffer the most because they are starting from an abysmally low base. But ironically, many of the worst-hit places will be precisely where they live, notably by virtue of worsening droughts in Africa and increased flooding and cyclones in low-lying regions of tropical Asia. For both reasons, the IPCC report concludes, ‘The effects climate change are expected to be greatest in developing countries in terms of loss of life and relative effects on investment and the economy.’

Meanwhile, international negotiations aiming to reach a treaty on steps to combat global warming remain stymied by the U.S. insistence that developing countries agree to do more to limit their emissions of greenhouse gases.

Sources:

IPCC, ‘Climate Change 2001: Impacts, Adaptation, and Vulnerability: Summary for Policymakers,’ approved by IPCC Working Group II in Geneva, 13-16 February 2001.

‘Global Warming’s Big Losers: Poor Countries and Island Nations,’ The International Herald Tribune, 19 February 2001, p. 4. (www.iht.com/articles/11061.html)

Web resources:

For the IPCC report, go to: www.ipcc.ch.

For more on greenhouse injustice, see the excellent website of India’s Centre for Science and the Environment: www.cseindia.org/html/cmp/cmp33.htm.

The Environmental Protection Agency has a Global Warming links page at www.epa.gov/ebtpages/airairpoglobalwarming.html.

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.