THE GREAT DIVIDE

Inequality Is Not Inevitable

AN insidious trend has developed over this past third of a century. A country that experienced shared growth after World War II began to tear apart, so much so that when the Great Recession hit in late 2007, one could no longer ignore the fissures that had come to define the American economic landscape. How did this “shining city on a hill” become the advanced country with the greatest level of inequality?

One stream of the extraordinary discussion set in motion by Thomas Piketty’s timely, important book, “Capital in the Twenty-First Century,” has settled on the idea that violent extremes of wealth and income are inherent to capitalism. In this scheme, we should view the decades after World War II — a period of rapidly falling inequality — as an aberration.

This is actually a superficial reading of Mr. Piketty’s work, which provides an institutional context for understanding the deepening of inequality over time. Unfortunately, that part of his analysis received somewhat less attention than the more fatalistic-seeming aspects.

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Credit Javier Jaén

Over the past year and a half, The Great Divide, a series in The New York Times for which I have served as moderator, has also presented a wide range of examples that undermine the notion that there are any truly fundamental laws of capitalism. The dynamics of the imperial capitalism of the 19th century needn’t apply in the democracies of the 21st. We don’t need to have this much inequality in America.

Our current brand of capitalism is an ersatz capitalism. For proof of this go back to our response to the Great Recession, where we socialized losses, even as we privatized gains. Perfect competition should drive profits to zero, at least theoretically, but we have monopolies and oligopolies making persistently high profits. C.E.O.s enjoy incomes that are on average 295 times that of the typical worker, a much higher ratio than in the past, without any evidence of a proportionate increase in productivity.

If it is not the inexorable laws of economics that have led to America’s great divide, what is it? The straightforward answer: our policies and our politics. People get tired of hearing about Scandinavian success stories, but the fact of the matter is that Sweden, Finland and Norway have all succeeded in having about as much or faster growth in per capita incomes than the United States and with far greater equality.

So why has America chosen these inequality-enhancing policies? Part of the answer is that as World War II faded into memory, so too did the solidarity it had engendered. As America triumphed in the Cold War, there didn’t seem to be a viable competitor to our economic model. Without this international competition, we no longer had to show that our system could deliver for most of our citizens.

Ideology and interests combined nefariously. Some drew the wrong lesson from the collapse of the Soviet system. The pendulum swung from much too much government there to much too little here. Corporate interests argued for getting rid of regulations, even when those regulations had done so much to protect and improve our environment, our safety, our health and the economy itself.

But this ideology was hypocritical. The bankers, among the strongest advocates of laissez-faire economics, were only too willing to accept hundreds of billions of dollars from the government in the bailouts that have been a recurring feature of the global economy since the beginning of the Thatcher-Reagan era of “free” markets and deregulation.

The American political system is overrun by money. Economic inequality translates into political inequality, and political inequality yields increasing economic inequality. In fact, as he recognizes, Mr. Piketty’s argument rests on the ability of wealth-holders to keep their after-tax rate of return high relative to economic growth. How do they do this? By designing the rules of the game to ensure this outcome; that is, through politics.

So corporate welfare increases as we curtail welfare for the poor. Congress maintains subsidies for rich farmers as we cut back on nutritional support for the needy. Drug companies have been given hundreds of billions of dollars as we limit Medicaid benefits. The banks that brought on the global financial crisis got billions while a pittance went to the homeowners and victims of the same banks’ predatory lending practices. This last decision was particularly foolish. There were alternatives to throwing money at the banks and hoping it would circulate through increased lending. We could have helped underwater homeowners and the victims of predatory behavior directly. This would not only have helped the economy, it would have put us on the path to robust recovery.

OUR divisions are deep. Economic and geographic segregation have immunized those at the top from the problems of those down below. Like the kings of yore, they have come to perceive their privileged positions essentially as a natural right. How else to explain the recent comments of the venture capitalist Tom Perkins, who suggested that criticism of the 1 percent was akin to Nazi fascism, or those coming from the private equity titan Stephen A. Schwarzman, who compared asking financiers to pay taxes at the same rate as those who work for a living to Hitler’s invasion of Poland.

Our economy, our democracy and our society have paid for these gross inequities. The true test of an economy is not how much wealth its princes can accumulate in tax havens, but how well off the typical citizen is — even more so in America where our self-image is rooted in our claim to be the great middle-class society. But median incomes are lower than they were a quarter-century ago. Growth has gone to the very, very top, whose share has almost quadrupled since 1980. Money that was meant to have trickled down has instead evaporated in the balmy climate of the Cayman Islands.

With almost a quarter of American children younger than 5 living in poverty, and with America doing so little for its poor, the deprivations of one generation are being visited upon the next. Of course, no country has ever come close to providing complete equality of opportunity. But why is America one of the advanced countries where the life prospects of the young are most sharply determined by the income and education of their parents?

Among the most poignant stories in The Great Divide were those that portrayed the frustrations of the young, who yearn to enter our shrinking middle class. Soaring tuitions and declining incomes have resulted in larger debt burdens. Those with only a high school diploma have seen their incomes decline by 13 percent over the past 35 years.

Where justice is concerned, there is also a yawning divide. In the eyes of the rest of the world and a significant part of its own population, mass incarceration has come to define America — a country, it bears repeating, with about 5 percent of the world’s population but around a fourth of the world’s prisoners.

Justice has become a commodity, affordable to only a few. While Wall Street executives used their high-retainer lawyers to ensure that their ranks were not held accountable for the misdeeds that the crisis in 2008 so graphically revealed, the banks abused our legal system to foreclose on mortgages and evict people, some of whom did not even owe money.

More than a half-century ago, America led the way in advocating for the Universal Declaration of Human Rights, adopted by the United Nations in 1948. Today, access to health care is among the most universally accepted rights, at least in the advanced countries. America, despite the implementation of the Affordable Care Act, is the exception. It has become a country with great divides in access to health care, life expectancy and health status.

In the relief that many felt when the Supreme Court did not overturn the Affordable Care Act, the implications of the decision for Medicaid were not fully appreciated. Obamacare’s objective — to ensure that all Americans have access to health care — has been stymied: 24 states have not implemented the expanded Medicaid program, which was the means by which Obamacare was supposed to deliver on its promise to some of the poorest.

We need not just a new war on poverty but a war to protect the middle class. Solutions to these problems do not have to be newfangled. Far from it. Making markets act like markets would be a good place to start. We must end the rent-seeking society we have gravitated toward, in which the wealthy obtain profits by manipulating the system.

The problem of inequality is not so much a matter of technical economics. It’s really a problem of practical politics. Ensuring that those at the top pay their fair share of taxes — ending the special privileges of speculators, corporations and the rich — is both pragmatic and fair. We are not embracing a politics of envy if we reverse a politics of greed. Inequality is not just about the top marginal tax rate but also about our children’s access to food and the right to justice for all. If we spent more on education, health and infrastructure, we would strengthen our economy, now and in the future. Just because you’ve heard it before doesn’t mean we shouldn’t try it again.

We have located the underlying source of the problem: political inequities and policies that have commodified and corrupted our democracy. It is only engaged citizens who can fight to restore a fairer America, and they can do so only if they understand the depths and dimensions of the challenge. It is not too late to restore our position in the world and recapture our sense of who we are as a nation. Widening and deepening inequality is not driven by immutable economic laws, but by laws we have written ourselves.

This is the last article in The Great Divide.

Gaming the Poor

In a referendum in November, voters approved as many as seven new casinos to join New York State’s existing nine gambling facilities. And New York is hardly alone. In recent years, 23 other states have legalized and licensed commercial (as opposed to Native American) gambling facilities. In the casino-dense Northeast and mid-Atlantic regions, where 26 casinos have opened since 2004 and at least a dozen more are under development, most adults now live within a short drive of one.

Not surprisingly, the closer casinos come to where people live, the more likely people are to gamble at one. As casinos have spread into de-industrialized cities, dying resorts and gritty urban areas, the rate of gambling participation has grown among lower-income groups.

In America’s increasingly two-tier economy, casino industry leaders realized that they didn’t have to cater exclusively to well-heeled consumers in order to rake in profits. Payday lending, rent-to-own stores, subprime credit cards, auto title loans and tax refund anticipation loans all evolved to extract high profits from low-income groups. And the newly established state-licensed casinos have their methods, too. Read more…

No Money, No Time

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Credit Javier Jaén

THE absurdity of having had to ask for an extension to write this article isn’t lost on me: It is, after all, a piece on time and poverty, or, rather, time poverty — about what happens when we find ourselves working against the clock to finish something. In the case of someone who isn’t otherwise poor, poverty of time is an unpleasant inconvenience. But for someone whose lack of time is just one of many pressing concerns, the effects compound quickly.

We make a mistake when we look at poverty as simply a question of financial constraint. Take what happened with my request for an extension. It was granted, and the immediate time pressure was relieved. But even though I met the new deadline (barely), I’m still struggling to dig myself out from the rest of the work that accumulated in the meantime. New deadlines that are about to whoosh by, a growing list of ignored errands, a rent check and insurance payment that I just realized I haven’t mailed. And no sign of that promised light at the end of the tunnel. Read more…

Stop Holding Us Back

This month, more than three million high school students will receive their diplomas. At more than 80 percent, America’s graduation rate is at a record high. More kids are going to college, too. But one-third of the nation’s African-American and Latino young men will not graduate.

In an era when there is virtually no legal work for dropouts, these young men face a bleak future. It is not news that the students who don’t make it out of high school largely come from our poorest neighborhoods, but the degree to which they are hyper-concentrated in a small set of schools is alarming. In fact, according to new research I conducted with my colleagues at Johns Hopkins University, half of the African-American boys who veer off the path to high school graduation do so in just 660 of more than 12,600 regular and vocational high schools. Read more…

This Fugitive Life

WE have begun to pay attention to the harmful effects that America’s extremely high levels of incarceration have on former prisoners and their families, particularly in African-American neighborhoods, but we’re still missing part of the story. Our get-tough turn didn’t just send millions of African-American men to prison and return them home with felony convictions. It expanded the scope of policing and court supervision in poor black neighborhoods, radically altering the way life is lived there.

In 2002, during my sophomore year of college, I moved into a working-class-to-poor African-American neighborhood in Philadelphia, and got to know a group of friends in their teens and early 20s who hung out together in the alleyways and on back porches. I watched the police stop and search young men in the street, chase them, make arrests, raid houses in the middle of the night and threaten girlfriends and mothers who refused to cooperate. I saw the police take young men into custody, not only on the streets, but at their jobs, in their mothers’ homes, at funerals and even in a hospital delivery room.

Children in the neighborhood played games of chase in which one child played the role of the cop. The child would push the other child down on the ground and stick his hands in imaginary handcuffs: “I’m going to lock you up! I’m going to lock you up, and you ain’t never coming home!” I once saw a 6-year-old pull another child’s pants down to attempt a cavity search.

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Credit Oliver Munday

Most of the young men I met had not finished high school and were struggling to find work. They lived with female relatives, and some sold drugs off and on. Many went to jail or prison, but before they went in, and after they came home, they lived as suspects and as fugitives. With pending cases in criminal courts, probation and parole sentences to complete or low-level warrants out for unpaid court fees or missed court dates, they worried that any encounter with the police would send them to prison. The threat of capture and confinement had seeped into the basic activities of daily living. Read more…

The Republican War on Workers’ Rights

Midterm elections are like fancy software: Experts love them, end-users couldn’t care less. But if the 2010 elections are any indication, we might not want to doze off as we head into the summer months before November. Midterm elections at the state level can have tremendous consequences, especially for low-wage workers. What you don’t know can hurt you — or them.

In 2010, the Republicans won control of the executive and legislative branches in 11 states (there are now more than 20 such states). Inspired by business groups like the American Legislative Exchange Council (ALEC), the U.S. Chamber of Commerce and the National Association of Manufacturers, they proceeded to rewrite the rules of work, passing legislation designed to enhance the position of employers at the expense of employees.

The University of Oregon political scientist Gordon Lafer, who wrote an eye-opening report on this topic last October for the Economic Policy Institute, a liberal think tank in Washington, looked at dozens of bills affecting workers. The legislation involved unemployment insurance, the minimum wage, child labor, collective bargaining, sick days, even meal breaks. Despite frequent Republican claims to be defending local customs and individual liberty, Mr. Lafer found a “cookie-cutter” pattern to their legislation. Not only did it consistently favor employers over workers, it also tilted toward big government over local government. And it often abridged the economic rights of individuals. Read more…

The Benefits of Mixing Rich and Poor

Whenever President Obama proposes a major federal investment in early education, as he did in his two most recent State of the Union addresses, critics have a two-word riposte: Head Start. Researchers have long cast doubt on that program’s effectiveness. The most damning evidence comes from a 2012 federal evaluation that used gold-standard methodology and concluded that children who participated in Head Start were not more successful in elementary school than others. That finding was catnip to the detractors. “Head Start’s impact is no better than random,” The Wall Street Journal editorialized. Why throw good money after bad?

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Children in 1990 in the Head Start program in Lampasas, Tex.Credit Eli Reed/Magnum Photos

Though the faultfinders have a point, the claim that Head Start has failed overstates the case. For one thing, it has gotten considerably better in the past few years because of tougher quality standards. For another, researchers have identified a “sleeper effect” — many Head Start youngsters begin to flourish as teenagers, maybe because the program emphasizes character and social skills as well as the three R’s. Still, few would give Head Start high marks, and the bleak conclusion of the 2012 evaluation stands in sharp contrast to the impressive results from well-devised studies of state-financed prekindergartens. Read more…

Going Mobile

Few stereotypes are as well entrenched — and wrongheaded — as the perception of mobile homes as the marginal housing choice of the destitute and downtrodden.

Although most of today’s mobile homes aren’t truly mobile and many are situated in pleasant, tree-lined communities, these outdated assumptions prevent us from embracing an important affordable housing option. They also prevent low-income owners from reaping financial rewards from their most valuable assets — their homes.

In America today, about 18 million people live in factory-built “manufactured homes.” They are disproportionately low-income, with a median annual household income of $30,000. That makes manufactured housing the largest source of unsubsidized affordable housing in the nation. When well built and maintained, mobile homes can appreciate in value like any home and are half the price of standard “site-built” homes.

Unfortunately, antiquated policies, perpetuated by powerful financial interests, prevent residents from experiencing the benefits of homeownership.
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No Accounting Skills? No Moral Reckoning

SOMETIMES it seems as if our lives are dominated by financial crises and failed reforms. But how much do Americans even understand about finance? Few of us can do basic accounting and fewer still know what a balance sheet is. If we are going to get to the point where we can have a serious debate about financial accountability, we first need to learn some essentials.

The German economic thinker Max Weber believed that for capitalism to work, average people needed to know how to do double-entry bookkeeping. This is not simply because this type of accounting makes it possible to calculate profit and capital by balancing debits and credits in parallel columns; it is also because good books are “balanced” in a moral sense. They are the very source of accountability, a word that in fact derives its origin from the word “accounting.”

Read more…

To Reduce Inequality, Start With Families

The French economist Thomas Piketty swept across the United States last week with a dire warning: Income inequality isn’t going to go away, and it probably will get worse. Only policies that directly address the problem — in particular, progressive taxation — can help us change course.

At a panel discussion in Washington of Piketty’s new blockbuster, “Capital in the Twenty-First Century,” the American economist Robert Solow, who served on President Kennedy’s Council of Economic Advisers, took the long view as he formulated his response to the idea of trying to democratize ownership of capital in our country.

“Good luck with that,” he said. Read more…