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October 20, 2009

Economist's View - 5 new articles

"Will Economic Inequality Lead to Terrorism?"

Bruce Judson with a description of a "chilling call" that occurred while he "was a guest on OnPoint which is distributed nationally by NPR." As he notes in an email, "the post raises an important issue. All of the discussion of economic inequality essentially presumes that people continue to view the existing economic system as legitimate. As foreclosure rise, jobs disappear, and the divide between the have's and have not's increases, our ability to take this for granted becomes less clear":

Will Economic Inequality Lead to Terrorism? A Chilling Moment on NPR, by Bruce Judson: Last week, It Could Happen Here was the subject of a 45-minute segment of Tom Asbrook's OnPoint, which airs nationally on NPR. To demonstrate, how inequality can divide a nation, It Could Happen Here, which is a nonfiction book, opens with a fictional scenario involving American terrorists who threaten the nation with dirty bombs demanding an end to foreclosures by "vulture banks," and free access to healthcare and higher education for all. Tom Ashbrook asked hard questions about this scenario. I said to him think of a laid off engineer who works with radioactivity to create medical devices…

Here's the transcript of the discussion:

BRUCE JUDSON: First off, here's a flash point for you. In the scenario, in the fictional scenario, I talk about…It is very easy to imagine that an engineer, or someone else with the necessary knowledge who works on, let's say, medical devices and has used radioactivity to create a better world…. to save lives, is laid off. You can imagine that he suddenly is facing foreclosure. He's an educated person unable to put his kids through college.

A few minutes later the show took calls. The show received a chilling call from an out of work nuclear engineer–who had helped to build 13 nuclear power plants but had not worked in two years. You can read the transcript of his call below, or click to listen to his call here.

Click player below to listen to out of work Nuclear Engineer:

TOM ASHBROOK: Certainly inequality's a big issue. Let me get a call right here from New London, Connecticut. And

Don. Hi, Don. You're on the air.



CALLER: I think you should be listening to this guy, Judson. I'm an unemployed nuclear engineer. I've worked on 13 nuclear power plants. Making a dirty bomb is not a big deal. I'm not going to go out and tell everybody now to do it, but I'm just saying things like that can happen. And it sounds like you're just being dismissive of all his ideas and what he's saying. Because there's a lot of anger out here, and there are a lot of people who feel that the American Dream is slipping away from them, they don't have a chance. And the only entrepreneurial opportunity for them is to sell drugs and to be an outlaw. It's happening.

TOM ASHBROOK: [OVERLAPPING] I hear you, [PH] Don. We've got Bruce on for an hour. So, I can't say we're not listening to him. But let me ask you, you've got a lot of expertise in your field, nuclear engineering. But does that mean you're unhappy if you're unemployed? Do you really feel like the country's ready to revolt?

CALLER: I'm not an expert in revolution, and I don't really know how they happen. All I know is I'm 60 years old. There's not a lot of people who want to hire a nuclear engineer who's 60 years old. And there are a lot of people out there like me who are out there who, you know, once you have so much gray hair, you're out of here. And there's just a lot of people that are just not happy with the way that the country's going right now. And I don't know…where it's going to take it, or what's going to be its spark, or what's going to be the event. But people feel like there's just no way to climb out of the hole. Like there's just nothing that's going to get them out. This attitude, that I've seen, over 60 years, I've never seen anything like it. It scares me.

TOM ASHBROOK: Up against it. And with an education, a particular education. Don, thank you for your call.

You can listen to the full OnPoint segment by clicking the player below:

In ... today's New York Times column Safety Nets for the Rich, Bob Herbert, details our emerging have and have not society, where two-thirds of the entire income gains of the nation between 2002 and 2007 went to the top 1% of Americans. Herbert writes:

And we still don't seem to have learned the proper lessons. We've allowed so many people to fall into the terrible abyss of unemployment that no one — not the Obama administration, not the labor unions and most certainly no one in the Republican Party — has a clue about how to put them back to work.

Meanwhile, Wall Street is living it up. I'm amazed at how passive the population has remained in the face of this sustained outrage.

Unfortunately if we do not change course, Herbert's amazement may end in circumstances that we do not want to contemplate. We are witnessing the unfolding of a chain of dangerous events associated with our collapsing middle class and increasingly two-tier economy. Sadly, the dynamics outlined in It Could Happen Here that lead to political instability are occurring with increasing ferocity. More on this in my next post...

"Is The American Dream A Myth?"

We've known for some time that the degree of social mobility in the US is much less than people believe. But given how widespread the mobility myth is -- the false perception that there is equal (enough) opportunity allows us to be more accepting of unequal outcomes than we would be if we knew how stagnant social outcomes actually are -- the evidence that rebuts this belief is worth repeating:

Is The American Dream A Myth?, by Ronald Brownstein, National Journal: One tenet that separates the United States from other countries is our belief in upward mobility. A study of attitudes in 27 countries found that Americans, more than people elsewhere, tend to believe that intelligence, skill, and effort will be rewarded with success. This faith is vibrant even among groups to which opportunity has often been denied:... African-Americans and Hispanics were more likely than whites to believe that children of all races had adequate chances to succeed in America.
But as Brookings Institution scholars Ron Haskins and Isabel Sawhill demonstrate in a compelling new book, America's record doesn't entirely justify this optimism. ... In the generation after World War II, the median income roughly doubled, increasing faster for those on the lower rungs of the ladder than for those at the top. Since 1979, the median income has advanced much more slowly overall, and it has grown much faster for the affluent than for those below them. Today,... family incomes are higher than in the 1970s almost entirely because women are working...; men in their 30s today earn less than their fathers did at the same age. In this environment, upward mobility becomes tougher. ...
More than 60 percent of Americans whose parents scaled the top fifth of the income ladder have reached the top two-fifths themselves, Haskins and Sawhill found. By contrast, 65 percent of Americans with parents from the lowest fifth of earners remain stuck in the bottom two-fifths. Though we venerate the American Dream, studies show that children born to low-income parents in the United States are more likely to remain trapped near the bottom than their counterparts in Europe...
Many factors constrain upward mobility in America, including the decline of the two-parent family and bad personal decisions... But another reason the escalator is slowing ... is that income is now so dependent on education. Today, four-year college graduates earn about 80 percent more than workers with high school degrees. That's more than double the gap in the 1960s.
Young people who begin with the most advantages are considerably more likely than the less well-off to add the advantage of advanced education. Sawhill and Haskins report that children of parents in the top fifth of income are now more than twice as likely to attend college, and nearly five times as likely to graduate, as are children of parents in the bottom fifth. Separate research from Thomas Mortenson ... shows that this income gap in college completion has widened substantially since the 1970s. ...
These are deeply unhealthy, even destabilizing, patterns. If advanced education is the key to economic success, it's dangerous to reserve it primarily for those who start out on top. Such ossification is a recipe for class and racial conflict...
He and Sawhill see several keys to expanding college access. Although affordability remains a challenge, they say that enough financial aid is available for needy students that money is not the principal obstacle. ...
The two believe that less progress has been made in developing programs that effectively prepare lower-income students to apply to college or help them succeed once they arrive. Most important, too few public schools in poor neighborhoods academically equip students to handle college work.
There is no simple answer to these challenges. But the nation is inviting conflict if it apportions opportunity primarily to the children with the good sense to be born where it is already within reach.

FRBSF: The Economic Outlook

Glenn Rudebusch of the SF Fed:

Five key questions are often asked about current economic and financial conditions: Has the financial crisis ended? Is the recession over? Will the economy return to full employment and normal conditions anytime soon? Is inflation going to jump too high? Does the Federal Reserve have an "exit strategy" to undo its extraordinary policy actions of the past two years? The answers, respectively, are: Mostly, Almost certainly, No, No, and Yes.


He also notes the poor outlook for jobs:

Although growth has returned, the economy will remain in a deep hole with high unemployment and underutilized productive resources for some time. So, even though the recession is over, production, income, sales, and employment will persist at subpar levels. A large amount of unemployed or underutilized labor and capital remains in the economy, and it will take a sustained period of growth for the economy to return to its normal or potential level.

And, unless something is done about it (hint, hint), the problems are likely to persist for a considerable time period:

A rough benchmark for calibrating the stance of monetary policy explains the level of the funds rate in terms of inflation and unemployment. Currently, this simple rule of thumb, which has captured the broad contours of policy over the past two decades, suggests that the funds rate will be near its zero lower bound for several years.

More here.

"Safety Nets for the Rich"

The administration must be aware of the impact that continuing weakness in labor markets will have on Democrat's political fortunes:

Safety Nets for the Rich, by Bob Herbert, Commentary, NY Times: ...We've spent the last few decades shoveling money at the rich like there was no tomorrow. We abandoned the poor, put an economic stranglehold on the middle class and all but bankrupted the federal government — while giving the banks and megacorporations and the rest of the swells at the top of the economic pyramid just about everything they've wanted.
And we still don't seem to have learned the proper lessons. We've allowed so many people to fall into the terrible abyss of unemployment that no one — not the Obama administration, not the labor unions and most certainly no one in the Republican Party — has a clue about how to put them back to work.
Meanwhile, Wall Street is living it up. I'm amazed at how passive the population has remained in the face of this sustained outrage.
Even as tens of millions of working Americans are struggling to hang onto their jobs and keep a roof over their families' heads, the wise guys of Wall Street are licking their fat-cat chops over yet another round of obscene multibillion-dollar bonuses — this time thanks to the bailout billions that were sent their way by Uncle Sam, with very little in the way of strings attached. ...
We need to make some fundamental changes in the way we do things in this country. The gamblers and con artists of the financial sector, the very same clowns who did so much to bring the economy down in the first place, are howling self-righteously over the prospect of regulations aimed at curbing the worst aspects of their excessively risky behavior and preventing them from causing yet another economic meltdown.
We should be going even further. We've institutionalized the idea that there are firms that are too big to fail and, therefore, "we, the people" are obliged to see that they don't — even if that means bankrupting the national treasury and undermining the living standards of ordinary people. What sense does that make? If some company is too big to fail, then it's too big to exist. Break it up.
Why should the general public have to constantly worry that a misstep by the high-wire artists at Goldman Sachs (to take the most obvious example) would put the entire economy in peril? ...
Enough! Goldman Sachs is thriving while the combined rates of unemployment and underemployment are creeping toward a mind-boggling 20 percent. Two-thirds of all the income gains from the years 2002 to 2007 — two-thirds! — went to the top 1 percent of Americans.
We cannot continue transferring the nation's wealth to those at the apex of the economic pyramid ... while hoping that someday, maybe, the benefits of that transfer will trickle down in the form of steady employment and improved living standards for the many millions of families struggling to make it from day to day.

That money is never going to trickle down. It's a fairy tale. We're crazy to continue believing it.

If you had the authority to change economic policy, what would you do to create jobs? I'd start and the state and local level, make sure that governments are expanding to absorb unemployed resources rather than contracting and adding to the problem, and work upward from there. The creation of new employment opportunities would be the primary focus of the policy initiatives.

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