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December 27, 2007

Economist's View - 3 new articles

The Maxwell Poll on Inequality

Here is a new Maxwell Poll on inequality. The website has a brief describing the poll:

The Maxwell Poll on Inequality is an annual survey of a representative sample of over 600 Americans on their perceptions of inequality and government action. The November 2007 Poll reveals that most Americans see inequality as growing. While trends are leveling in perceptions of the increase and the seriousness of the problem, the American public in general remains concerned. The Poll reveals that perceptions of inequality and desire for government action to address it are tied to party affiliation. This reveals the potential for the wealth gap to be an important election campaign issue with Democrats supporting candidates who promise to take more government action.

The full report is here, and, as just noted, there is also a brief summarizing the results.

Over the last year, public perceptions about inequality have changed. For instance, in Figures 2, 3, and 4 in the brief, the number of people who say inequality is increasing and a serious problem has fallen since 2006. Prior to that, the trend had been upward:


There are also partisan differences in the responses. From the brief:

Inequality and the Public: Persistent Concern and Partisan Division, by Jeffrey M. Stonecash: ... Perceptions of Inequality, Partisanship, and the 2008 Presidential Election Awareness of inequality is increasing and there is greater support for government efforts to try to do something about it. There are also those who do not see a problem. These trends create the conditions for inequality issues to become more prominent in our society.

Political parties are the primary vehicle to get an issue on the agenda and make it part of public debate. For that to happen, those with differing views have to identify primarily with one party so the party sees that it has a clear base of support among those concerned about a social issue.

Party Opinion Differences Maxwell Poll 2007 Inequalitybyparty

Those with differing assessments of inequality as a problem have sorted themselves out between the two parties. As Figure 5 indicates, among those who think that inequality is a serious problem, 48 percent identify as Democrats and 10 percent identify as Republican. Among those who think that inequality is not much of a problem, 43 percent are Republican and 20 percent are Democrats. Democrats have long stressed that individuals have major differences in family and personal resources and face significant differences in opportunity in society. The party is attracting those who share that view. Republicans are more likely to emphasize that individuals are responsible for their own situations. In their view inequality may simply reflect the consequences of differences in talent and effort and should not be seen as a problem. The party is attracting those who share that view. The consequence is that 55 percent of Democrats see inequality as a serious problem and only 20 percent of Republicans see it as a serious problem.

These perceptions affect support for government action. 82 percent of Democrats think government should do more while only 27 percent of Republicans hold that view. 67 percent of Republicans think government should do what it is doing now or less, while only 14 percent of Democrats agree with those positions.

These differences are likely to play a significant role in the 2008 presidential election. With inequality growing, the public recognizing that and the parties attracting those with very different ideas about what should be done, the party candidates are likely to reflect these differences and make inequality and the role of government a central part of the campaign.

But I think it's important to keep in mind that, even with changes over the last year, the percentage of people who say inequality is increasing and a serious problem is still quite high. Here's a summary from the brief emphasizing that point:

Key Findings from The Maxwell Poll

• Inequality in the distribution of income continues to increase.

• A plurality of Americans think inequality will continue to increase.

• Over 40 percent of Americans see inequality as a serious problem.

• Over 50 percent of Americans think government should do more about the problem of inequality.

• Republicans and Democrats differ significantly in their views about inequality and the obligation of government to try to do something about it. Those differences will likely play a role in creating a debate about the issue of inequality during the 2008 presidential campaign.

Though the levels remain high, the change in the perception of inequality over the last year (described above as "trends are leveling") is interesting. But what has caused it?

links for 2007-12-27

John Berry: Subprime Fallout Won't be as Bad as Some are Predicting

John Berry says losses from the subprime mess will be big, but "not nearly enough to sink the U.S. economy":

Subprime Losses Are Big, Exaggerated by Some, by John M. Berry, Commentary, Bloomberg: As the U.S. savings and loan crisis worsened in the 1980s, analysts tried to top each other's estimates of the debacle's cost... Much the same thing is happening now with losses linked to subprime mortgages, with figures of $300 billion to $400 billion being bandied about.

A more realistic amount is probably half or less than those exaggerated projections -- say $150 billion. That's hardly chicken feed, though not nearly enough to sink the U.S. economy. ...

There are two reasons why the losses aren't likely to be so large.

First, the mortgages are backed by collateral, a house or condominium, and in a foreclosure a home typically retains significant value. When it is sold, the lender often will get 50 percent to 60 percent or more of the loan amount after foreclosure expenses.

Second, most subprime borrowers aren't going to default. ...

What does that mean for the broader economy, particularly consumer spending? ...

The economic repercussions of the housing bust and mortgage woes are limited to a great extent because less than half of American families own a home with a mortgage... Almost a third of all families rent their house or apartment, almost a fourth own and have no mortgage and the vast majority with a mortgage are current in their payments.

Even with about a tenth of all subprime mortgages now in foreclosure, only a small share of all American families -- about 0.3 percent -- own a home in foreclosure...

Comparisons in dollars of constant value between likely subprime losses and those incurred during the S&L crisis indicate the 1980s hit was significantly greater, though the current episode still has a long way to run. ...

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