Summary week 2: The price of inequality, chapters 1, 4
and 10
Chapter 1: America’s 1 percent problem
One of the darkest sides to the market economy that came to light during the economic
crisis was the large and growing inequality that has left the American social fabric, and
the country’s economic sustainability, fraying at the edges: the rich were getting richer,
while the rest were facing hardships that seemed inconsonant with the American dream.
There was great inequality with regard to income distribution, but the distribution of
wealth was even more unequal.
If the rich were growing richer and if those in the middle and at the bottom were also
doing better, that would be one thing, especially if the efforts of those at the top were
central to the successes of the rest. We could celebrate the successes of those at the top
and be thankful for their contributions. But that’s not what’s been happening.
The crisis made these inequalities worse in innumerable ways, beyond the higher
unemployment, lost homes, stagnating wages. The wealthy had more to lose in stock
middle however had their wealth in housing, and saw most of their wealth being whipped
out.
There is a fear that if the inequality rises that the poor would have almost no possibilities
to get out of that situation
The rising tide that did not lift all boats
US have always been an capitalized country, but the high level on inequality is new.
The top is not only growing the fast, but the bottom is also declining instead of growing.
For now, we simply note that the marked reduction in inequality in the period between
1950
and 1970, was due partly to developments in the markets but even more to government
policies, such as the increased access to higher education provided by the GI Bill and the
highly progressive tax system enacted during World War II this was all turned back by
Reagan
government policies have been central to the creation of inequality in the United States. If
we are to reverse these trends in inequality, we will have to reverse some of the policies
that have helped make America the most economically divided developed country and,
beyond that, to take further actions to lessen the inequalities that arise on their own from
market forces.
Defenders They believe that for capitalism to work its wonders, high inequality is an
inevitable, even necessary feature of the economy. After all, those who work hard should
be rewarded, and have to be, if they are to make the efforts and the investments from
which all benefit.
Trickle-down economics
that giving more money to the top will benefit everyone, partly because it would lead to
more growth. This is an idea called trickle-down economics.
politics of envy. One should look not at the relative size of the slices but at the absolute
size. Giving more to the rich leads to a larger pie, so though the poor and middle get a
smaller share of the pie, the piece of pie they get is enlarged. we see the opposite effect
in reality
, whereas trickle-down economics doesn’t work, trickle-up economics may: all—even
those at the top—could benefit by giving more to those at the bottom and the middle.
A snapshot of America’s inequality
The simple story of America is this: the rich are getting richer, the richest of the rich are
getting still richer, the poor are becoming poorer and more numerous, and the middle class
is being hollowed out. The incomes of the middle class are stagnating or falling, and the
difference between them and the truly rich is increasing.
Disparities in household income are related to disparities in wages and in wealth and
income from capital—and inequality in both is increasing.
Polarization
The polarization of the labor force has meant that while more of the money is going to the
top, more of the people are going toward the bottom
The great recession makes hard lives even harder
Even before the crisis, America’s poor lived on the precipice; but with the Great
Recession, that became increasingly true even of the middle class.
A labour market without a safety net
But the hardship faced by those who lost their jobs and couldn’t find another was even
greater.
Our unemployment insurance system, one of the least generous in the advanced industrial
world, simply wasn’t up to the task of providing adequate support for those losing their
jobs.
Normally, insurance extends for only six months. Before the crisis, a dynamic labor
market at full employment meant that most of those who wanted a job could find one
within a short time, even if the job wasn’t up to their expectations or skills. But in the
Great Recession that was no longer true. Almost half of the jobless were long-term
unemployed.
Indeed, the bad luck of entering the labor force in a year of high unemployment shows up
in the lifelong earnings of these individuals.
Economic insecurity
Those with seemingly secure jobs faced an insecure retirement, because in recent years,
the United States has changed how it manages pensions. Most retirement benefits used to
be provided through defined-benefit retirement schemes—where individuals could be sure
of what they would get when they retired, with corporations bearing the risk of stock
market fluctuations. But now most workers have defined-contribution schemes, where the
individual is left with the responsibility of managing his retirement accounts—and bearing
the risk of stock market fluctuations and inflation.
The Great Recession thus represented a triple whammy for many Americans: their jobs,
their retirement incomes, and their homes were all at risk.
It is easy to understand the growing insecurity that so many Americans feel. Even the
employed know that their jobs are at risk, and that with the high level of unemployment
and the low level of social protection, their lives could suddenly take a turn for the worse.
The loss of a job meant the loss of health insurance and perhaps even the loss of their
home.
