Public Policy and Governance – Page 276

Who Gets What–And Why

Joseph Stiglitz–a Nobel Prize-winning economist–recently testified before the Senate Budget Committee about America’s growing inequality.

As disturbing as the data on the growing inequality in income are, those that describe the other dimensions of America’s inequality are even worse: inequalities in wealth are even greater than income, and there are marked inequalities in health, reflected in differences, for instance, in life expectancy. But perhaps the most invidious aspect of US inequality is the inequality of opportunity. America has become the advanced country not only with the highest level of inequality, but is among those with the least equality of opportunity—the statistics show that the American dream is a myth; that the life prospects of a young American are more dependent on the income and education of his parents than in other developed countries. We have betrayed one of our most fundamental values. And the result is that we are wasting our most valuable resource, our human resources: millions of those at the bottom are not able to live up to their potential.

Stiglitz made several important observations about the situation in which we find ourselves: first–and perhaps most importantly–he pointed out that our current levels of inequality are the result of policy choices we have made, either deliberately or inadvertently. Stiglitz identifies our education system and the manner in which it is financed, our health system, our tax laws, bankruptcy and anti-trust laws, the functioning of our financial system, corporate governance…. and he says that existing policies in each of these areas help enrich the top at the expense of the rest.

Stiglitz also pointed out that the folks currently enjoying their status as members of the 1% are “not those who have made the major innovations that have transformed our economy and society.” They are disproportionately the manipulators and rent-seekers, the speculators and financiers–not the entitled producers or “makers” they evidently believe themselves to be.

Stiglitz noted that “trickle-down”–the belief that gains at the top will eventually raise the prospects of those on the bottom–has been thoroughly discredited. He explained that the recent Great Recession has exacerbated–but not caused–our growing inequality. He underlined what should be obvious to all of us by now: jobs are not created when wealthy individuals get to keep more of their money–they are created by demand, and when middle-class folks don’t have discretionary income, demand remains weak.

In a recent column, Paul Krugman–also a Nobel prize winning economist–explained why improving demand is so critical:

Economists who took their own textbooks seriously quickly diagnosed the nature of our economic malaise: We were suffering from inadequate demand. The financial crisis and the housing bust created an environment in which everyone was trying to spend less, but my spending is your income and your spending is my income, so when everyone tries to cut spending at the same time the result is an overall decline in incomes and a depressed economy. And we know (or should know) that depressed economies behave quite differently from economies that are at or near full employment.

Stiglitz also talked bluntly about the likely consequences for the country–both democratic and economic– if we don’t change the policies that are feeding, rather than curing, the problem.

His entire testimony is both depressing and illuminating, and well worth reading.

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Is Justice Scalia Senile?

The legal community has been buzzing since Justice Scalia issued one of his dissents last Tuesday.

Justice Antonin Scalia’s factual error has been called “unprecedented” by legal experts. As Talking Points Memo noted,

It’s common for the Supreme Court to make typographical corrections and insubstantial edits to a decision after its release. But it’s exceedingly rare to see a factual error that helps form the basis for an opinion. Legal experts say Scalia’s mistake appears to be wholly unprecedented in that it involves a justice flatly misstating core facts from one of his own prior opinions…

Scalia was dissenting from a 6-2 decision upholding the Environmental Protection Agency’s authority to regulate cross-state coal pollution. To help back up his judgment, he cited a 9-0 opinion he wrote in 2001 called Whitman v. American Trucking Association. But the EPA’s stance in that case was the exact opposite of what Scalia said it was in Tuesday’s opinion.

Scalia has been a polarizing figure in the legal community, often criticized for using his obvious brilliance to twist precedent and law in order to get his preferred result. Critics note that his professed “originalism” is employed very selectively in service of his ideological preferences. Tuesday’s error, however, is of an entirely different order.

And that raises some eyebrows–and questions.

Where were his law clerks? Didn’t they alert him to the error? How could he misstate facts from a decision that he himself had written —and not just misstate some peripheral matters, but totally mischaracterize the parties basic positions?

Scalia has become more irascible in recent years; more contemptuous of longstanding Court rules and dismissive of the ethical guidelines that apply to others in the judiciary. This latest behavior raises a troubling question: is the Justice getting senile? And if so, what–if anything–can we do about it?

When the Court was first established, lifespans were shorter. The average tenure of a Supreme Court Justice through 1970 was 14.9 years. Among those who’ve retired since 1970, it has jumped to 26.1 years.

Maybe we should consider a 20 year term for Justices. Long enough to shield them from political pressure, but not long enough to risk having them serve well into their dotage.

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Documenting Shameful Behavior

A few months ago, I got a call from a young man who wanted to interview me about Indianapolis’ homeless problem. Why me? He had interviewed service providers, police officers and others involved with Indianapolis’ homeless on a day-to-day basis, but was looking for someone who could address the policy choices involved. I said, sure, come on over.

In due course, three young men came over with camera and other gear, and we talked about the city’s recent forced removal of a “tent city,” the fact that there is nowhere for homeless people to go for anything other than short-term (10 day) shelter, and–especially–the fact that Indianapolis (unlike other cities our size) budgets no public money to address homelessness.

They wanted to know why the city can find dollars to support sports teams, to subsidize development projects and even to build a cricket field, but somehow cannot find resources to help people dealing with the loss of their jobs and homes–not to mention those with mental health problems. They wanted to know why these vulnerable people were ignored until someone complained of a “camp” at which time they were forcibly removed, their few meager possessions trashed, and they were ordered to go…somewhere else.

And they wanted to know why Mayor Ballard refused to talk to them.

I didn’t have very satisfactory answers to those questions.

The truth of the matter–as we all know–is that the political system responds to people who have “voice,” people who can volunteer or contribute to campaigns, people who “know people,” who can have dinner or drinks with elected officials, and who can otherwise make their policy preferences known.

The trio left, and I didn’t hear anything more until a couple of days ago. They’d finished the documentary, Uncharted: The Truth Behind Homelessness and invited me to see it. Despite their youth, the product was impressive. Good production values, a thorough and even-handed treatment of the issues involved, and a genuinely gripping story.

Don’t take my word for it, though–watch the trailer, and then buy tickets to the first showing, at 2:30, at the IUPUI Campus Center on Saturday, May 31st. I plan to attend, even though I’ve seen it once.

Perhaps this will spark a conversation that Indianapolis needs to have.

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Welcome to the Oligarchy

A study that will appear in the Fall 2014 issue of Perspectives on Politics, a very highly regarded academic journal, concludes that the U.S. is no longer a democracy. Instead, we have become an oligarchy, and a pretty corrupt one at that.

“Despite the seemingly strong empirical support in previous studies for theories of majoritarian democracy, our analyses suggest that majorities of the American public actually have little influence over the policies our government adopts.”

The study provides pretty conclusive evidence that the US government does not represent the interests of the majority of our country’s citizens, but is instead ruled by the rich and powerful. As the Telegraph reports:

After sifting through nearly 1,800 US policies enacted in that period and comparing them to the expressed preferences of average Americans (50th percentile of income), affluent Americans (90th percentile) and large special interests groups, researchers concluded that the United States is dominated by its economic elite.

That domination helps to explain another recent study, this one by French Economist Gabriel Zucman. Zucman looked at international data on what economists call investment positions (each country reports its assets abroad and foreign-owned assets at home). He found that the numbers don’t add up: globally, according to the reports, liabilities substantially outnumbered assets. But that’s mathematically impossible.

Zucman investigated further; He eventually concluded that the only way to explain such a result is if a lot of money is run through offshore havens, and the ownership doesn’t show up in any country’s national statistics.

Zucman estimates that the world’s wealthy are using tax havens, including Swiss banks, to hide at least $4.5 trillion but more likely $6 trillion from the tax collectors. That’s $6,000,000,000,000—close to six percent of the entire world’s gross economic output for one year. In other words, as one pundit noted, not chickenfeed.

Not only are we being governed by wealthy oligarchs, for all intents and purposes–they aren’t even beneficent oligarchs. What’s ours is theirs, what’s theirs is theirs–and they aren’t sharing.

Welcome to our brave new global economy. The American republic was nice while it lasted.

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Now THAT’S a Retirement Speech!

In the wake of the Great Recession, the SEC has come in for plenty of criticism from academics and pundits who follow financial regulation. But few critiques have been as blunt and biting as the one recently issued by a retiring SEC lawyer.

James Kidney had joined the SEC in 1986. He made a speech at his retirement party last month that has garnered considerable attention, not least because his audience was composed primarily of SEC lawyers and alumni.

Kidney had campaigned within the agency to bring charges against more executives, especially in the SEC’s case against Goldman Sachs Group Inc. (GS)

According to a copy of his remarks that found its way to Bloomberg News, Kidney said the SEC had become “an agency that polices the broken windows on the street level and rarely goes to the penthouse floors. On the rare occasions when enforcement does go to the penthouse, good manners are paramount. Tough enforcement, risky enforcement, is subject to extensive negotiation and weakening.”

Kidney said his superiors were more focused on getting high-paying jobs after their government service than on bringing difficult cases. The agency’s penalties, Kidney said, have become “at most a tollbooth on the bankster turnpike.”

“I have had bosses, and bosses of my bosses, whose names we all know, who made little secret that they were here to punch their ticket,” Kidney said. “They mouthed serious regard for the mission of the commission, but their actions were tentative and fearful in many instances.”

Kidney’s remarks serve as a reminder that no senior executive at a major financial firm has gone to jail; for that matter, the SEC has brought civil charges against only a handful.

The revolving door between government agencies and those they are supposed to be regulating is an open secret–and a clear impediment to vigorous enforcement of the laws.

Sometimes, it takes an inside guy to remind us outside folks why things aren’t working the way they should.

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