America’s inequality

Sachs Says Democrats, GOP Both `Unrealistic’ on Budget
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Earlier this month, Columbia University Professor, Jeffrey Sachs, launched a stinging attack on the state of economic and social policy in the United States. Sachs is particularly angry that the Government is cutting core Government services at the same time as it cuts taxes for the rich, in refernce to December’s $9 billion worth of tax cut extensions.

Here are some key sound bites from Sachs’ February 14 interview on Bloomberg:

“What’s happening in this country? We give up massive amounts at the top in tax cuts and then we turn around and we squeeze the poorest of the poor. We cut grants for higher education in the same month that the President tells us that it is key for our competitiveness…

This is absurd what we are doing. The rich have had 20 years of the greatest boom of the history of this world. There’s more wealth in this city [New York] than one could conceivably count. There are more billionaires and more people that have sheltered their income and we turn around and we are going to keep driving down the poorest of the poor… This is a game that is going to come to head in a bad way.  Do we really have to have our own Egypt here in the United States or are we actually going to understand that we have a society where half the people have no voice at all…

Both parties are financed by wealthy people… Everyone caters for the top and then we hear about how hard it is at the bottom; about how hard it is to cut the community development programs…

American influence is waning. American infrastructure is deteriorating. American competitiveness is slowly declining. The President says all these things…but he can’t back up these ideas with real money because there is no money. So all that’s happening is a gradual decline in the United States…except at the top…

Our country has become two completely different countries. One is at the top and they run the politics. They finance the campaigns of both the Democrats and the Republicans [which are] both centre-right parties. It’s weird, we don’t have a centre-left party. No one’s talking about the poor… Our politics is driven just by the top and every one else is wondering what’s happening. Our streets aren’t being paved. We don’t even have clean drinking water anymore… 

What’s really shocking is that the Civilian Discretionary Budget under Obama’s plan goes down to 2% of gross national product – that’s for education, infrastructure, energy, science – we have never seen anything like it. They are basically saying forget government other than social security, Medicare, Medicaid and the military…

We are cutting our budgets on things that are vital for our national security and our international security, like climate [change]. And big oil, which runs the Republican Party, keeps saying don’t worry, those things don’t matter… Both parties are on the take because all of this is campaign financing games…

We are wrecking the global climate. We have energy crisis, food crisis. Do we talk about any of that in our country? Absolutely not, Our leadership doesn’t even exist…     

The upcoming issue of Mother Jones contains a series of charts confirming Sach’s views (h/t Bernard Hickey for link). Here are my two favourites:

First, the change in incomes since 1979:

And the winners and losers from 2007 to 2009:

And the rich’s gains have not only been financial. According to The State of Working America, improvements in life expectancy have overwhelmingly been concentrated within the wealthy (again h/t Bernard Hickey for the link):

Clearly, there is something seriously wrong with the United States. And it appears to stem from its political system, which is captured by America’s elite. Something’s got to give. Having so much wealth concentrated in the top 1% of income earners is seriously corrosive to society and may ultimately lead to conflict, mass riots and mayhem.

Cheers Leith     

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Leith van Onselen


  1. “Clearly, there is something seriously wrong with the United States. And it appears to stem from its political system, which is captured by America’s elite. Something’s got to give. Having so much wealth concentrated in the top 1% of income earners is seriously corrosive to society and may ultimately lead to conflict, mass riots and mayhem.”

    Something we can at least agree on.

    I found the starkly obvious divide between the haves and the have-nots the most distasteful part of my visit to the US.

    The Bush administration was truly appalling – but Obama seems to be scarcely any better, if at all.

  2. The Sachs interview is great. You’re right. I find it astounding that the politicians are so complacent when unemployment is still not far off 10%. They are too busy negotiating tax breaks for their millionare buddies.

  3. Leith, glad to see you cover this topic. As you would be aware it has been of major concern to a number of commentators for some time and largely ignored by the traditional media. The likelihood of stemming of this inequality in the US is particularly difficult as both Republicans and Democrats are captives of the financial elite.

    An excellent presentation explaining financial commitments in US households over time. Largely applicable to households in UK, Australia (without the health insurance problem). Long but well worth it.
    Elizabeth Warren, Jefferson Memorial Lectures, The Coming Collapse of the Middle Class:

    There are numerous blogs that have attempted to highlight the growing inequities apparent in US (and increasingly other western democracies) following the rise of the financial kleptocracy (to steal a phrase from the irrepressible Max Keiser).

    Slate, United States of Inequality:

    And finally, old friends long trying to get the message across:
    There are many others and of course most of these blogs have links to other like sites.

  4. I’m reading a cool book written by George Lichtheim, ‘Europe in the Twentith Century’.

    This a 1972 vintage history and in refering to the socialist economies he observes …. ultimately only the ‘planners’ of a planned economy benefit.

    Change ‘planned’ to ‘managed’,add 40 years and its where we and particularly the USA finds itself today.

  5. While I agree to an extent about political influence, the beneficiaries are largely investors rather than so-called fatcats (with the largest transfer of wealth going to the nation’s banks). Of course, the best way to limit political influence and crony capitalistic tendencies is to limit the size of government.

    On the above cited evidence: Studying quartiles of income largely ignores that there is a high degree of income mobility in America. The underclass is not a a cohesive group from one period to the next. The bottom quartile has a decent chance to enter higher quartiles (and vice-versa). Immigrants (who will disproportionately make up the lowest quartile) and even divorce rates have a high amount of influence on what comprises the quartiles from time period to time period.

    The key is to question whether things are getting better for say our bottom quartile from one period to the next. Fortunately, that study has been done: The US Income Mobility Study showed economic growth resulted in rising incomes for most taxpayers over the period from 1996 to 2005. Median incomes of all taxpayers increased by 24 percent after adjusting for inflation. The real incomes of two-thirds of all taxpayers increased over this period. In addition, the median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the higher income groups.

    Now, I might critique this study and say that it doesn’t adjust for work experience, but when you look at generational studies, we see that there are fairly low correlations for income from one generation to the next.
    On why you might see more poverty in America: I think one issue is visibility. The poor tend to live in cities whereas they tend to suburbs and the countryside for most of Europe.


    • Nick, you are so blind and bias. The problem is no one understands how wealth is made, and wealth can’t be made without a large and ever growing crowd of working people and indebted consumers. Americans have created too many illusions and myths about themselves. Don’t you know, it is not the absolute level of income, but the relative one which matters and is socially relevant. You could compare the lowest income in America with the lowest income in Africa and it would be complete nonsense.

  6. One of the graphs there showing Americans’ home equity dropping 35% says it all. America’s homes are the best in the world, yet are also the cheapest and most affordable. Clueless economists have self-destructed this already cheap housing by claiming it was “unaffordable” for the poorest and the lazy. The end result is that most of the middle class which owns homes has lost several trillions in home equity. And the rich folks with plenty of cash and foreign investment are snapping up foreclosed property and vastly increasing their gap from the middle and lower income groups. Self-destructing America’s already extremely affordable housing has been one of the biggest contributors to this huge gap between the haves and the have-nots.

  7. There are some parallels between where the USA is now and where Australia is heading.
    Our two main parties are vastly dependant on contributions from the wealthy and are both ‘centre-right’ neo-classical ideology dominated.
    A key difference is that our electoral system allows third parties so we find the Greens being pulled in to fill the massive void on the left.

  8. Actually, it is the strongly “leftist” policy of redistribution of all wealth including housing that has caused the housing crisis in America. There are clueless analysts like Hugh Pavletich, Wendell Cox et al who blindly quote their “median multiples”, without even considering that even palaces of gold are being expected to be “affordable” to even the lowest income earners in the developed world. Inequality is EXTREME and ABSURD in India and China, which are really practicing a high degree of capitalism. The haves (homeowners) in India are sitting on billions of US dollars worth of property, while the have nots (non-homeowners) in India and China have no hope ever of being able to buy a house.

    • Rob. Your comment makes no sense. I understand that you for some reason hate Demographia. But if you are going to personally attack the co-authors, at least back up your argument with sound reasoning and/or data.

      • Leith,

        How many times have I challenged Hugh and his cronies right on this very blog to answer some basic questions about their “analysis”. Just go back and check. They have not had the integrity to address even those basic questions, so they deserve no respect. Besides, I hold people like Wendell Cox highly responsible for the immense suffering that most of the middle class has suffered in our hometown (St.Louis, Missouri).

        By the way, there is absolutely nothing “unconventional” about your economic theories. You preach the same self-destructive and flawed theories that clueless economists apply (only) to the developed world. Shadow and I are the real mavericks here.

        • Rob. Maybe Demographia won’t respond to you because you do not make sense. As for being a maverick, give me a break. You somehow think that never ending house price inflation is somehow good for society because of the ‘wealth effect’ that it generates. Yet, anyone with an ounce of commonsense can see that your thesis is ridiculous and that house prices are a zero sum game. Stuff the younger generations that have to continually pay higher and higher prices. Stuff the households and businesses that have to pay higher and higher rents. Just as long as your house keeps on increasing in value, hey Rob. She’ll be right.

          • Your reply is exactly what makes it obvious that there is nothing “unconventional” whatsoever about you. When you are so brainwashed by conventional self-destructive logic, you just end up not being able to think out of the box.

            I have posted very basic questions about what Demographia uses in their analysis, and Hugh and his herd has not replied to those. That has nothing to do with my theories. If you took the effort to read even some of my posts, you will see that.

            I have never claimed never ending housing appreciation as the cure for the world’s evils. I have repeatedly called out India and China as the most ABSURD bubbles ever in the history of the world. The developed world, especially the USA, has never had a bubble compared to developing countries.

            Your whole theory about falling/deflating/low prices in everything is what has caused the problem in the first place. The current generation gets wiped out, and is competing with the next generation for survival. And both generations suffer immensely, like is happening in the USA.

            If everything is free or very cheap, what is the incentive for anyone to work hard at all?

            Stop swallowing the molasses from Hugh, and you will be able to think straight for once.

  9. so America is becoming India. They can’t maintain their infrastructure either nor educate their poorest or lift them out of poverty or close the widening gap

    Perhaps its the disadvantage of big population.

  10. Robert Sherlock

    Here in Houston the poor have got it better than the middle class in Australia.
    Drive around to the poorest suburbs in Houston and will bet that there are satellite dishes on the roof, at least one fairly new car in the driveway and they are overweight from eating out too much.
    On minimum wage in Houston you could buy a house in 99% of the suburbs, a big house in the cheaper suburbs and a small house in the expensive suburbs. This enables anyone to go to nearly any public school. There are areas in Australia that entry level to a school district is over a million.
    Most of the USA has a great divide between the have and the have nots the more socialist states, the ones that has high taxes, high social programs, high regulations, high prices. In the more capitalist states have low taxes, less handouts, less regulations and lower housing and food prices. The capitalist states the poor tend to be better placed to live comfortable, and have more opportunity to raise out of the poor class (minimum wage) to the rich class (property ownership).
    There is no advantage to have high wages like Australia for everyone, if no-one can afford anything. At the moment the poor class (minimum wage) and the middle class (average wage) cant make it to the rich class (property ownership).