why the rich are rich, the poor are poor – Google Search

28 May

why the rich are rich, the poor are poor – Google Search.

 

The Rich Get Richer, the Poor Get Poorer, While the Middle Class Gets Decimated

The following article originally appeared on OpEdNews.com.

The rich get richer and the poor get poorer. That should be the theme that best describes this “great recession.” Only the poor are expanding in numbers with members of the middle class (that have been treading water since the late 1970′s with flat incomes that barely kept up with inflation) now being decimated with job losses, expiring unemployment benefits, depletion of savings, foreclosures and bankruptcy; some falling so far and having to rely on food stamps just to survive.

Meanwhile the rich have remained whole, thank you very much. Wall Street tycoons were bailed out. The stock market has recovered with the Dow now over 11,000 so all is well with the investor class. Of course the big corporations, having moved their labor operations to 3rd world countries are quite profitable, as are the private health insurance behemoths, their brother pharmaceutical giants as well as all the defense related industries (with their huge government contracts) that never had it better.

But for the working men and women (on whose backs made this country the envy of the world) have seen their fortunes go with the globalization of manufacturing and outsourcing of their once good paying jobs.

Small towns have withered and died with the loss of their manufacturing plants while the town’s small businesses got decimated and replaced by the likes of Wal Mart and big corporate franchising of the stores, businesses and restaurants that were once owned and operated by local entrepreneurs.

And where has the government been in all of this? It’s been subsidizing the corporations that pulled up stakes with tax breaks and NAFTA type agreements. Where were the governmental incentives, the tax breaks and infrastructure improvements to help keep those corporate outfits in this country?

But with this “great recession” (more like a depression for many) where are the 1930′s depression era WPA’s and CCC’s? Where are the giant government sponsored infrastructure projects of roads, bridges, schools, railroads and the like?

Is it just nostalgia when one thinks about FDR and the Depression of his time where there was a commonness of purpose (even in the face of Republican Congressional resistance) of initiating huge government programs to get people back to work, regulate the fat cat financial interests and have government act to the benefit of its people?

Instead, what are most loud today are the “tea party” activists, bankrolled by the likes of the ultra-conservative Koch brothers and other behind the scene corporate sponsors that underwrite the anti-government, ant-tax, fear mongering rants (which depict all governmental action as “Socialism”) by these misinformed and misguided fools.

There ought to be a middle class rebellion in this country to demand our government initiate policies that benefit the majority of people in this country.

But the upper middle classes, traditionally the ones who are best able to articulate the sufferings of the downtrodden masses and mobilize them into action have separated themselves from the middle and working classes. These upper middle class professionals, doctors, lawyers, university professors, school teachers and clergy et al (many of whom came from lower middle class origins) have lost their connection with the greater working class population. Presumably, the former, too scared or worried of losing what they have attained, preferred to acquiesce and thus enable the larger injustices to be rained down upon those less fortunate than themselves.

This may reveal (as much as anything) why there has been a collective passivity exhibited by the majority of people in the face of the worst economic calamity since the 1930′s, instead of the massive collective demand by the people that would have spurred effective governmental actions similar to what was enacted during the 1930′s, the time most akin to our own.

 

Why are some people so rich and others so poor? Is it from good choices or good luck? Hard work, smarts, and ability—or something else? That depends who you are comparing yourself to. If you are more successful than your friends, colleagues, and family members, surely a lot of it is because you are better at what you do, or have made better choices, or have worked harder to get where you are. Think former President Bill Clinton, compared to his somewhat less successful brother.

But as the scale of comparison widens, the amount that’s due to the choices you made—compared to the uterus you gestated in—drops dramatically. That suggests we are a long way from equality of opportunity and that the rich are rewarded for the same effort far more than are the poor. It’s time to fix that.

The United States is an unequal society. According to the Congressional Budget Office, the top 20 percent get about half the nation’s income, compared to the 5 percent of all income shared among the bottom fifth of households. The top 10 percent of the population controls about 70 percent of the wealth. Among rich countries, America’s inequality is certainly extreme. But the world as a whole is an incredibly unequal place. Norway—held up as a model of equality—still sees the bottom fifth of households with incomes less than a third (PDF) those of the top fifth.

Why is there such inequality? The choices we make as individuals can put us considerably above or below our peer average in terms of income or happiness or status. But our peer average itself is set by forces beyond our control—factors such as to whom we were born. And our peer average explains our relative standing against national averages far more than our own choices.

Take the importance of family. In the U.S., about 50 percent of variation of wealth and about 35 percent to 43 percent of variation in income of children can be explained by the relative wealth and income (PDF) of their parents, suggest economists Samuel Bowles and Herbert Gintis. One reason for this tight relationship is that parents who were educated are far more likely to educate their own kids. According to Michael Greenstone and Adam Looney of the Brookings Institution, the median wage of the average American male—employed or not—has declined by $13,000 since 1969. Most of that drop is because of plummeting earnings among those with a high school diploma or less, something that’s highly dependent on your parents. Evan Soltas examined the General Social Survey data and concluded that if your father didn’t graduate high school, you are eight times more likely not to graduate high school yourself—a 22.2 percent chance, as compared to a 2.9 percent chance among kids whose fathers did graduate.

The advantages of a privileged background don’t stop at graduation. Tufts economist Linda Loury suggests that half of all jobs in the U.S. are found through family, friends, or acquaintances. Canadian economists Miles Corak and Patrizio Piraino look at how often men end up working at the same company where their father worked, finding that as many as 40 percent have done that at some point. The proportion rises to 70 percent among the top 1 percent in income distribution. This helps to explain why the relationship between the earnings of parent and child is even higher at the top end than it is across the population at large, according to Corak. One-third of successions between chief executive officers in publicly listed companies in the U.S. involves an incoming CEO related by blood or marriage to the old CEO, the founder, or a large shareholder. That’s bad news for the share price, according to Francisco Perez-Gonzalez of the NBER, but clearly good news for the newly appointed relative.

It’s particularly hard to explain recent changes in U.S. inequality by using ‘drive’ or ‘effort’ as your rationale. Had growth since 1979 been equally shared, the Center on Budget and Policy Priorities estimates, the bottom 80 percent of Americans would earn more today. The bottom quintile would have $1,300 more in income. Americans between the 60th and 80th percentile would earn $6,500 more. And the top 1 percent would see annual incomes lower by $347,000. Is all of this because the bottom 80 percent of Americans have got considerably lazier since 1979?

At the international level, the relative impact of effort vs. luck is even more biased in favor of luck. A recent New York Times story pointed out that household incomes in Manhattan are as evenly distributed as in Sierra Leone—in both places, the wealthiest fifth make 40 times more than the lowest fifth. The difference, of course, is the average around which that income lies. The median household income in Manhattan is around $67,000. Gross domestic product per capita—a measure of mean incomes in a country—is $1,131 in Sierra Leone and the median will be significantly lower. According to Branko Milanovic, about two thirds of total global inequality can be explained by geography (PDF). Put the two factors of locational and parental determinants together and about 80 percent of your income as an adult, compared to the global average, can be explained by where you were born and to whom you were born.

At any level beyond the local, differences in income due to inequality of opportunity dwarf those from inequality of effort or talent. This argues, among other things, for a tax code that is more progressive, not less. The bottom fifth of Americans pay 19 percent of their income in taxes, according to the Center on Budget and Policy Priorities, while the top 1 percent pay 33 percent of their income in taxes. In other words, the tax gap between the bottom fifth and the richest 100th is just 14 percent of income. Compare that to the daddy gap—how much your relative income is related to your parents’ position in the income ranking—of around 40 percent.

And if we care about reducing inequality of opportunity—apparently a bipartisan concern—we’ve clearly got some work to do. We should make sure everyone gets the basics—good nutrition, health care, and good education, from pre-school on up. We should ensure that places in the best colleges and jobs in the best firms go to the most talented, not the best connected. And we should help, not hinder, willing workers to move to where the good jobs are—around the country and around the world.

The choices people make are certainly important when it comes to how successful they are, compared to their school friends or colleagues. But luck—not hard work—is overwhelmingly why the rich are rich while the poor are poor.

 

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