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October 4, 2010

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Latest Posts from Economist's View


Paul Krugman: Fear and Favor

Posted: 04 Oct 2010 12:51 AM PDT

When the wealthy get involved in politics, "it's not just about ideology: it's also about business":

Fear and Favor, by Paul Krugman, Commentary, NY Times: A note to Tea Party activists: This is not the movie you think it is. You probably imagine that you're starring in "The Birth of a Nation," but you're actually just extras in a remake of "Citizen Kane."
True, there have been some changes in the plot. In the original, Kane tried to buy high political office for himself. In the new version, he just puts politicians on his payroll.
I mean that literally. As Politico recently pointed out, every major contender for the 2012 Republican presidential nomination who isn't currently holding office and isn't named Mitt Romney is now a paid contributor to Fox News. Now, media moguls have often promoted ... politicians they believe will serve their interests. But directly cutting checks to political favorites takes it to a whole new level of blatancy.
Arguably, this shouldn't be surprising. Modern American conservatism is, in large part, a movement shaped by billionaires and their bank accounts, and assured paychecks for the ideologically loyal are an important part of the system. Scientists willing to deny the existence of man-made climate change, economists willing to declare that tax cuts for the rich are essential to growth, strategic thinkers willing to provide rationales for wars of choice, lawyers willing to provide defenses of torture, all can count on support from a network of organizations that may seem independent on the surface but are largely financed by a handful of ultrawealthy families. ...
Nobody who was paying attention has ever doubted that Fox is ... a part of the Republican political machine... But by hiring those G.O.P. candidates, while at the same time making million-dollar contributions to the Republican Governors Association and the rabidly anti-Obama United States Chamber of Commerce, Rupert Murdoch's News Corporation, which owns Fox, is signaling that it no longer feels the need to make any effort to keep up appearances.
Something else has changed, too: increasingly, Fox News has gone from merely supporting Republican candidates to anointing them. Christine O'Donnell ... could ... well be described as the Fox News candidate...
As ... David Frum put it, "Republicans originally thought that Fox worked for us, and now we are discovering we work for Fox" — literally, in the case of all those non-Mitt-Romney presidential hopefuls. It was days later ... that Mr. Frum was fired by the American Enterprise Institute. Conservatives criticize Fox at their peril.
So the Ministry of Propaganda has, in effect, seized control of the Politburo. What are the implications?
Perhaps the most important ... is that when billionaires put their might behind "grass roots" right-wing action, it's not just about ideology: it's also about business. What the Koch brothers have bought with their huge political outlays is, above all, freedom to pollute. What Mr. Murdoch is acquiring ... is the kind of influence that lets his media empire make its own rules.
Thus in Britain, a reporter at one of Mr. Murdoch's papers, News of the World, was caught hacking into the voice mail of prominent citizens, including members of the royal family. But Scotland Yard showed little interest... Now the editor who ran the paper when the hacking was taking place is chief of communications for the Conservative government — and that government is talking about slashing the budget of the BBC, which competes with the News Corporation.
So think of those paychecks to Sarah Palin and others as smart investments. After all, if you're a media mogul, it's always good to have friends in high places. And the most reliable friends are the ones who know they owe it all to you.

"The Foreclosure Crisis Had Significant Racial Dimensions"

Posted: 04 Oct 2010 12:24 AM PDT

This study "shows the important and independent role that racial segregation played in the housing bust":

Study finds foreclosure crisis had significant racial dimensions, EurekAlert: Although the rise in subprime lending and the ensuing wave of foreclosures was partly a result of market forces that have been well-documented, the foreclosure crisis was also a highly racialized process, according to a study by two Woodrow Wilson School scholars published in the October 2010 issue of the American Sociological Review.
Woodrow Wilson School Ph.D. candidate Jacob Rugh and Woodrow Wilson School's Henry G. Bryant Professor of Sociology and Public Affairs, Douglas Massey, assessed segregation and the American foreclosure crisis. The authors argue that residential segregation created a unique niche of minority clients who were differentially marketed risky subprime loans that were in great demand for use in mortgage-backed securities that could be sold on secondary markets.
The authors use data from the 100 largest U.S. metropolitan areas to test their argument. Findings show that black segregation, and to a lesser extent Hispanic segregation, are powerful predictors of the number and rate of foreclosures in the United States – even after removing the effects of a variety of other market conditions such as average creditworthiness, the degree of zoning regulation, coverage under the Community Reinvestment Act, and the overall rate of subprime lending.
"This study is critical to our understanding of the foreclosure crisis since it shows the important and independent role that racial segregation played in the housing bust," said Rugh.
A special statistical analysis provided strong evidence that the effect of black segregation on foreclosures is causal and not simply a correlation.
"While policy makers understand that the housing crisis affected minorities much more than others, they are quick to attribute this outcome to the personal failures of those losing their homes – poor credit and weaker economic position," noted Massey. "In fact, something more profound was taking place; institutional racism played a big part in this crisis."
The authors conclude that Hispanic and black racial segregation was a key contributing cause of the foreclosure crisis. "This outcome was not simply a result of neutral market forces but was structured on the basis of race and ethnicity through the social fact of residential segregation," the authors note in the article.
"Ultimately, the racialization of America's foreclosure crisis occurred because of a systematic failure to enforce basic civil rights laws in the United States," the authors write in the article. "In addition to tighter regulation of lending, rating, and securitization practices, greater civil rights enforcement has an important role to play in cleaning up U.S. markets. It is in the nation's interest for federal authorities to take stronger and more energetic steps to rid U.S. real estate and lending markets of discrimination, not simply to promote a more integrated and just society but to avoid future catastrophic financial losses."

links for 2010-10-03

Posted: 03 Oct 2010 11:01 PM PDT

"Wealth and an American Paradox"

Posted: 03 Oct 2010 11:34 AM PDT

Why are Americans mostly opposed to redistribution?:

Wealth and an American paradox, by Claude Fischer, Berkeley Blog: The liberal blogosphere is currently atwitter over a new study produced by Michael Norton and Dan Ariely (pdf) showing how much Americans underestimate economic inequality in America. 

A 2005 on-line survey asked thousands of respondents to estimate what proportion of all the total wealth in the country was owned by the richest one-fifth of Americans, the next richest one-fifth and so on. On average, the respondents guessed that the richest one-fifth owned about three-fifths of the nation's wealth; in reality the richest one-fifth own over four-fifths of it. The survey also asked respondents for their ideal distribution; on average, they preferred a society in which the richest one-fifth owned about one-third of the national wealth. (Although dramatic, these findings are not surprising. ... Americans generally cannot provide accurate statistical descriptions of America. ...)

According to the new study, then, Americans not only think that wealth is much more equally distributed than it really is, they want an America that is much more equal than they imagine it is today. And yet, Americans are notably opposed to the government doing anything to move the distribution of wealth in that direction. Why the contradiction?

America the Unequal

The United States has the greatest inequality of income and wealth among affluent western nations. And that inequality has been increasing pretty steadily since about 1970 — more so than in other western nations – with a slowdown in the late 1990s and a few short-term fluctuations in wealth inequality due to swings in the stock market. This is pretty much understood by serious scholars (with a few outlying voices in dissent). It looks like Americans have been sensing rising inequality, too. ...

Hands Off

And yet, Americans, studies have shown, are more opposed to having the government do anything about this inequality than are citizens of other western nations. (And, of course, the United States in fact does less than other western nations to address inequality.) ... Surveys asking whether the government should do something major (on the order of what European nations do) show continuing opposition from many, if not most, Americans. ...

Explaining

So, it appears that Americans have noticed growing inequality, but they haven't really changed their general opposition to the government doing anything dramatically different about it (beyond perhaps financing "shovel-ready" projects). Why?

One implication of the Norton-Ariely paper cited above is that, were most Americans to appreciate how unequal their society is and how much greater that inequality is than their ideal, their political views would shift.

Perhaps, but perhaps not. The other evidence suggests that increasingly many Americans have been aware of growing inequality, but that has not changed their resistance to explicit economic "leveling." ...

Versions of this paradox have perplexed social scientists for decades. (See also this earlier post.) Here are a handful of plausible explanations forwarded by scholars:

  • "Anti-statism." Americans have been historically suspicious of and hostile to government (although they have accepted many pragmatic programs, like Medicare). Therefore, they may wish that inequality was much less than it is, but they will not empower the government to do something serious about it.
  • Opportunity, not outcome. Survey data show that many Americans generally do support government actions that widen opportunities for economic advancement, especially through education. Most Americans may believe, then, that in a society of equal opportunity, unequal outcomes can be reduced or at least tolerated. (Unfortunately, the belief that the U.S. is particularly open to upward mobility is empirically incorrect.)
  • Race trumps: In the U.S., issues of economic inequality have been tangled up with issues of race, because blacks have disproportionately been poor and the likeliest recipients of government assistance. Research suggests that this prospect leads whites to resist government action, even action that might benefit themselves.
  • Ideology of self-reliance: Americans have been historically committed to emphasizing individual independence and self-reliance; increased government action threatens to create dreaded "dependency." In practice, Americans have comprised that ideology when conditions demanded – in the Great Depression, for example; or in accepting disaster relief. But these values make for deep resistance to any major new initiatives.
  • Constricted horizons: Some have argued that political discussions here are so narrowly bounded that Americans may see and resent great inequality but cannot really imagine that things could be (and are elsewhere) different. When, for example, the free-enterprise Obama health plan is seen by so many as an extreme, socialistic program, when our tax rates on the wealthy are described as confiscatory, or when Sweden is depicted as some sort of totalitarian state, it would seem that Americans are operating with blinders on.

The latest Norton-Ariely paper provides a vivid picture of just how unaware Americans are of how unequally distributed wealth has become in the United States. It still leaves us with the puzzle of why most Americans, even when they are aware of that imbalance, oppose major efforts to rebalance it.

The best I can do is related to the "race trumps" explanation, but it's more about the individual and everyone else than race. That is, I think people do feel they get a raw deal, that they are not paid according to what they contribute to society due to one thing or another working against them ("the system" generally). They feel they deserve more. That would be fair. So they would and do favor policies that clearly correct the inequities that they feel.

However, when the typical household does the calculation for most policies that are proposed, or that have been implemented in the past, they conclude, rightly or wrongly, that on net it won't end up favoring them. They will, yet again, be asked to pay the bills and then end up with even less to show for it. When the middle class hears redistribution they don't think it will be from the wealthy to them, or from the wealthy to the poor, but rather from them to the poor. These programs never end up working in their favor, and they don't think it's fair that their hard-earned money, money that is needed to make it to the end of the month, ought to be given to people who don't share their commitment to hard work (I want to be clear that I am speculating about what others think, not giving my own view). Things like the bailout of the financial crisis tell them that the wealthy and powerful always find ways to come out on top -- when the applecart is upset they end up with more apples than everyone else -- and attempts to make them pay more inevitably end up, one way or another, as a new burden on the middle class. They are told that the taxes for these programs will only fall on the wealthy -- who don't always deserve what they have -- but when it's time to actually pay for the programs, somehow the taxes for the middle class always seem to go up. They always end up paying the largest part of the bill. So why even try if, in the end, it will only make the middle class worse off? Why give their hard earned money to people who are less-deserving, people who don't even try and instead simply live off "the system."

And that is the misperception that I think is a big part of this, that the poor deserve their fate because of the choices that they have made. The system didn't oppress them or hold them back, it wasn't where they grew up, it wasn't the schools they went to, etc., etc. It was their own choices and lack of ability and hey, while life isn't easy for those of us in the middle class, we get up every day and go to work and do what needs to be done. Why should our hard earned money go to help those who are unwilling to do these things? I think it's this misperception, that the poor are poor largely due to their own poor choices, and that it's unfair to take from the hard-working middle class to give them help, that creates resistance to redistribution.

I think the whole debate over "what is rich" reflects this -- it says don't take my money, I'm a hard-working stiff just trying to have enough to pay the bills at the end of the month just like the rest of you, if anything I deserve more -- so keep your hands out of my pockets.

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