Supreme Court Decisions and Income Inequality

Yesterday, economist Joseph Stiglitz testified before the Senate Budget Committee.  Today the US Supreme Court announced its 5 to 4 decision declaring limits on the total amount of money individuals can give to candidates, political parties and political action committees unconstitutional.

Stiglitz's prepared remarks on income inequality are worth reading and can be found here: http://www.nextnewdeal.net/stiglitz-why-inequality-matters-and-what-can-be-done-about-it.

Here is the section of his remarks that made the connection with the Supreme Court's decision for me (highlighting mine):

(W)e pay a high price for this inequality, in terms of our democracy and nature of our society. A divided society is different—it doesn't function as well. Our democracy is undermined, as economic inequality inevitably translates into political inequality. I describe in my book how the outcomes of America’s politics are increasingly better described as the result of a system not of one person one vote but of one dollar one vote. One of the prices we pay for the extremes to which inequality has grown and the nature of inequality in America—both inequality in outcomes and inequalities of opportunities—is that we have a weaker economy. Greater inequality leads to lower growth and more instability. These ideas now have become mainstream: even the IMF has embraced them. We used to think of there being a trade-off: we could achieve more equality, but only at the expense of giving up on overall economic performance. Now we realize that, especially given the extremes of inequality achieved in the US and the manner in which it is generated, greater equality and improved economic performance are complements.

More information about the Senate Budget Committee hearing can be found at:  http://www.budget.senate.gov/democratic/public/index.cfm/2014/3/meet-the-witnesses-joseph-stiglitiz-and-raj-chetty  There are links to more information about the two economists, Stiglitz and Chetty, at that site.

Learn How Wall Street Has Been Rigged Against You

Here's a link to a recent interview of Michael Lewis by Terry Gross about his latest book, Flash Boys.  Lewis outlines the problem and how a group of traders figured out how things were rigged and started a new exchange to even the playing field for investors.

http://www.npr.org/2014/04/01/297686724/on-a-rigged-wall-street-milliseconds-make-all-the-difference

From the interview summary:

You'd be surprised to hear what investment banks do to get that nanosecond edge, and how they often use it in ways Lewis describes as predatory. The victims range from some investment houses to individual investors. Lewis says high-frequency trades can end up hurting the returns on your retirement accounts. The FBI, Wall Street regulators and New York's attorney general are investigating high-frequency trading, and whether it has created an uneven playing field.

Are We Revisiting the 1920's?

Here's an article from Think Progress that cites some evidence that income inequality is at 1920's levels.  I don't think anyone would claim those days to be worth repeating.  Thirty years of policies favoring those with the highest incomes have taken their toll.

http://thinkprogress.org/economy/2014/03/31/3420998/wealth-inequality/

The following graph is from the article.  The whole thing is worth reading.

A Meaning of "Rent" That Many Aren't Familiar With

In his post at Triple Crisis, James K Boyce quotes one of the clearest explanations of the economists'  term "rent" that I've seen:

Rent isn’t just the monthly check that tenants write to landlords. Economists use the term “rent seeking” to mean “using political and economic power to get a larger share of the national pie, rather than to grow the national pie,” in the words of Nobel laureate Joseph Stiglitz, who maintains that such dysfunctional activity has metastasized in the United States alongside deepening inequality.

When rent inspires investment in useful things like housing, it’s productive. The economic pie grows, and the people who pay rent get something in return. When rent leads to investment in unproductive activities, like lobbying to capture wealth without creating it, it’s parasitic. Those who pay get nothing in return.

The entire article is worth reading and can be found here:  http://triplecrisis.com/rent-in-a-warming-world/

Our Financial Security Depends on It

Do you know about Americans for Financial Reform?

From their web site:

Americans for Financial Reform is a nonpartisan and nonprofit coalition of more than 250 civil rights, consumer, labor, business, investor, faith-based, and civic and community groups. Formed in the wake of the 2008 crisis, we are working to lay the foundation for a strong, stable, and ethical financial system – one that serves the economy and the nation as a whole.

Checking out AFR's Issues and Quick Links topics is an easy way to learn about the many facets of financial reform.

Auto Lending
CFPB
Consumer Finance Issues
Debt Collection
Fiduciary Duty
Forced Arbitration
Swaps Pushout

Derivatives
Executive Compensation
Foreclosures & Mortgages
Investor Protection & Corporate Governance
Mortgages, Foreclosures & Housing
Payday Lending
Public Opinion
Systemic Risk
Wall Street Speculation Tax

Housing Finance Reform - Keep an Eye on This One

A new proposal for replacing Fannie Mae and Freddie Mac has emerged in the US Senate.  An essential part of any such reform should be requiring banks to have capital to cover a reasonable percentage of those loans.

Here's a recent article on the proposal:
http://www.latimes.com/business/money/la-fi-mo-fannie-mae-freddie-mac-senate-housing-finance-reform-20140311,0,2529598.story#axzz2vlQi0TJb

I will add other links as they come to my attention.

Break Up the Banks, Raise Their Capital Requirements

Just read two articles related to the new focus of this blog.

Ed Kilgore at Political Animal offers this on breaking up banks that are "too big to fail":
http://www.washingtonmonthly.com/political-animal-a/2014_03/can_anything_short_of_breaking049437.php

Kevin Drum at Mother Jones has his say about the need for higher capital requirements:
http://www.motherjones.com/kevin-drum/2014/03/europeans-unhappy-over-high-american-capital-standards